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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Workspace Group Plc | LSE:WKP | London | Ordinary Share | GB00B67G5X01 | ORD GBP1 |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-0.50 | -0.10% | 480.50 | 480.00 | 481.50 | 483.00 | 475.00 | 475.00 | 23,816 | 11:58:17 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Real Estate Investment Trust | 174.2M | -37.8M | -0.1970 | -24.52 | 926.87M |
TIDMWKP
RNS Number : 9029E
Workspace Group PLC
11 November 2020
11 November 2020
WORKSPACE GROUP PLC
HALF YEAR RESULTS
RESILIENT OPERATING PERFORMANCE,
REINFORCING STRENGTH OF OUR OPPORTUNITY
Workspace Group PLC ("Workspace") today announces its half year results for the period to 30 September 2020.
Despite a challenging operating environment due to Covid-19, the half year results reflect the resilience of the business, underpinned by its flexible customer-focused offering and freehold ownership model. Workspace is uniquely placed to meet the fast-changing needs of London's brightest businesses as they emerge from the pandemic.
Financial highlights: Resilience in the face of near-term impact of Covid-19
-- Trading profit after interest of GBP15.3m (2019: GBP40.1m) after GBP19.9m of rent discounts given to customers
-- Property valuation of GBP2,450m, an underlying reduction of GBP126m (4.9%) from 31 March 2020
-- Loss before tax of GBP110.4m (30 September 2019: GBP99.1m profit), reflecting a fall in the property valuation
-- In light of the current pandemic and the recent return to lockdown, the Board has decided to defer a decision on dividend payment until the full year
-- Loan to value of 23% (31 March 2020: 21%) with GBP127m of available cash and undrawn facilities
-- EPRA net tangible assets per share of GBP10.05, down 7.6% from 31 March 2020
Customer activity: Near-term challenges but positive signs of recovery under eased restrictions in Q2
-- Increase in customers vacating and downsizing due to Covid-19
-- Like-for-like occupancy declined by 7.8% to 85.5%; rent per sq. ft. reduced by 3.3% to GBP40.61; like-for-like rent roll down 11.6% to GBP98.8m
-- Strong levels of rent collection, with 95% of rents due for the first half (net of discounts and deferrals) received as at 2 November 2020
-- Significant improvement in new customer demand under eased restrictions, reaching near pre-Covid levels in September
-- Steadily increased customer utilisation of our centres in second quarter, reaching over 30% of pre-Covid levels by mid-September, prior to new Government restrictions
Portfolio activity: Further strengthening our leading London footprint
-- One disposal completed for GBP11m, in line with the 31 March 2020 valuation
-- Two new business centres providing 94,000 sq. ft. of net lettable space opened in the first half
-- Three projects expected to complete in the second half, providing a further 105,000 sq. ft. of new and upgraded space
Commenting on the results, Graham Clemett, Chief Executive Officer said:
"Like so many businesses, we have had a challenging first half as a result of the Covid-19 pandemic. Despite the difficult environment, we have delivered a resilient performance which has highlighted the strength of our offering and business model. We have sought to support our customers as much as possible during this time, offering the majority a 50% rent discount in the first quarter. We believe our freehold ownership model, our financial strength and our long-established flexible offer will be an attractive option for an increasing number of London businesses as the economy recovers. In this regard, it was encouraging to see the increase in enquiries and lettings from new customers to near pre-Covid levels in the second quarter, confirming the appeal of our offer.
There is no doubt that people's expectations of the office are changing. Although this trend has been apparent to us for several years, the pandemic has accelerated fundamental changes to the role and requirements of the office for an increasing number of businesses and their employees. As the economy recovers from Covid-19, businesses will need to be more agile and will expect the same from office space providers. By owning our properties outright, we can quickly adapt to customers' changing needs - from ensuring they are Covid-safe to making our offices ever more sustainable. This is distinct to Workspace and ideally positions us in the flight to flexibility.
Our immediate priority is to manage our way through the challenges of the second half of the year. With Government Covid-19 restrictions in place we expect to see further pressure on occupancy and pricing in the near-term, which will impact on our full year performance. However, our strong balance sheet, compelling customer offer and experienced team mean that Workspace is well positioned to navigate the challenges ahead and benefit as the economy recovers."
Summary Results
September September Change 2020 2019 Financial performance ------------ ---------- --------- Net rental income GBP36.5m GBP60.1m -39% ------------ ---------- --------- Trading profit after interest GBP15.3m GBP40.1m -62% ------------ ---------- --------- Profit/(loss) before tax GBP(110.4)m GBP99.1m -211% ------------ ---------- --------- Interim dividend per share - 11.67p - ------------ ---------- --------- September March Change 2020 2020 ------------ ---------- --------- Valuation ------------ ---------- --------- EPRA net tangible assets per share GBP10.05 GBP10.88 -7.6% ------------ ---------- --------- EPRA net reinstatement value per share GBP10.98 GBP11.92 -7.9% ------------ ---------- --------- CBRE property valuation GBP2,450m GBP2,574m -4.9%** ------------ ---------- --------- Financing ------------ ---------- --------- Loan to value 23% 21% +2%* ------------ ---------- --------- Undrawn bank facilities and cash GBP127m GBP166m -GBP39m* ------------ ---------- ---------
Alternative performance measure (APM). The Group uses a number of financial measures to assess and explain its performance. Some of these which are not defined within IFRS are considered APMs. For further details see Notes to the Financial Statements.
* absolute change
** underlying change excluding capital expenditure and disposals
For media and investor enquiries, please contact:
Workspace Group PLC Graham Clemett, Chief Executive Officer Dave Benson, Chief Financial Officer Clare Marland, Head of Corporate Communications 020 7138 3300 Finsbury James Bradley 07500 616161 Chris Ryall 07342 713748
Details of results presentation
The results presentation will be published online at 07.30am and be available at www.workspace.co.uk/investors/reportingcentre
There will be a live Q&A session with Workspace's management team for analysts and investors today at 10.00am, available to access via webcast or conference call. Questions can be submitted either online via the webcast or to the operator on the conference call.
Webcast: The live webcast will be available here:
https://secure.emincote.com/client/workspace/workspace015
Conference call: In order to join the Q&A session via phone at 10am, please register at the following link and you will be provided with dial-in details and a unique access code:
https://secure.emincote.com/client/workspace/workspace015/vip_connect
Notes to Editors
About Workspace Group PLC:
Established in 1987, and listed on the London Stock Exchange since 1993, Workspace owns and manages some 4 million sq. ft. of business space in London. We are home to thousands of businesses, including fast growing and established brands across a wide range of sectors. Workspace is geared towards helping businesses perform at their very best. We provide inspiring, flexible work spaces in dynamic London locations.
Workspace (WKP) is a FTSE 250 listed Real Estate Investment Trust (REIT) and a member of the European Public Real Estate Association (EPRA).
LEI: 2138003GUZRFIN3UT430
For more information on Workspace, visit www.workspace.co.uk
BUSINESS REVIEW
ENQUIRIES AND LETTINGS
The Covid-19 Government restrictions on public movement had a significant impact on enquiries and lettings in the first quarter but the improving trend seen in May and June continued into the second quarter, with enquiries reaching near pre-Covid levels by mid-September.
Monthly average Monthly activity ---------- ------------------ H1 H1 Sep Aug Jul Jun May Apr 2020/21 2019/20 2020 2020 2020 2020 2020 2020 ---------- -------- -------- ----- ----- ----- ----- ----- ----- Enquiries 687 1,109 935 757 914 765 480 272 Viewings 289 708 491 345 469 318 95 14 Lettings 81 127 126 114 118 91 17 20 ---------- -------- -------- ----- ----- ----- ----- ----- -----
Activity levels reduced following the new Government restrictions and advice announced in September with 785 enquiries and 122 lettings in October.
RENT ROLL
Total rent roll, representing the total annualised net rental income at a given date, was down 11.0% in the six months to GBP118.2m at 30 September 2020, with overall occupancy reducing from 87.0% to 81.1%.
Rent Roll GBPm ----------------------------------- ------ At 31 March 2020 132.8 Like-for-like portfolio (12.9) Completed projects 0.3 Projects underway and design stage (2.0) At 30 September 2020 118.2 ----------------------------------- ------
The total estimated rental value (ERV) of the portfolio, comprising the ERV of the like-for-like portfolio and those properties currently undergoing refurbishment or redevelopment (but only including properties at the design stage at their current rent roll and occupancy) was GBP161.1m at 30 September 2020.
Like-for-like Portfolio
The like-for-like portfolio represents 84% of the total rent roll as at 30 September 2020. It comprises 38 properties with stabilised occupancy, excluding buildings impacted by significant refurbishment or redevelopment activity or contracted for sale. Like-for-like trends reported for previous financial years are not restated for the property transfers made in the current financial year.
The like-for-like rent roll has decreased by 11.6% (GBP12.9m) in the six months to 30 September 2020 to GBP98.8m. The decline has come from a 7.8% reduction in occupancy from 93.3% to 85.5%, combined with a 3.3% decrease in rent per sq. ft. to GBP40.61.
If all the like-for-like properties were at 90% occupancy at the CBRE estimated rental values at 30 September 2020, the rent roll would be GBP115.8m, GBP17.0m higher than the actual cash rent roll at 30 September 2020.
Completed Projects
There are five projects in the completed projects category, with overall rent roll increasing by 11% (GBP0.3m) in the six months to GBP3.3m and occupancy at 46%. This includes Mare Street, Hackney, and Lock Studios, Bow, which both opened in June 2020 providing 94,000 sq. ft. of net lettable space.
If the buildings in this category were all at 90% occupancy at the CBRE estimated rental values at 30 September 2020, the rent roll would be GBP7.7m, an uplift of GBP4.4m.
Projects Underway - Refurbishments
We are currently underway on six refurbishment projects that will deliver 240,000 sq. ft. of new and upgraded space. We expect the two refurbishments at Wenlock Studios, Old Street, and Parkhall Business Centre, Dulwich, to complete during the second half providing 88,000 sq. ft. of upgraded space. As at 30 September 2020, rent roll was GBP6.3m, down GBP1.8m in the six months.
Assuming 90% occupancy at the CBRE estimated rental values at 30 September 2020, the rent roll at these six buildings once they are completed would be GBP11.4m, an uplift of GBP5.1m.
Projects Underway - Redevelopments
There are currently two mixed-use redevelopment projects underway providing 58,000 sq. ft. of net lettable space, with the first delivering 17,000 sq. ft. of additional space at The Light Bulb, Wandsworth, completing in the second half of the year.
Assuming 90% occupancy at the CBRE estimated rental values at 30 September 2020, the rent roll at the two new business centres would be GBP1.3m.
Projects at Design Stage
These are properties where we are planning a refurbishment or redevelopment that has not yet commenced. In a number of cases this is because we are awaiting planning consent. The rent roll at these properties at 30 September 2020 was GBP9.8m, down GBP0.4m in the six months.
PROFIT PERFORMANCE
Trading profit after interest for the half year was down 61.8% (GBP24.8m) on the prior half year to GBP15.3m.
30 Sept 30 Sept GBPm 2020 2019 --------------------------------------------- ------- ------- Net rental income 36.5 60.1 Administrative expenses - underlying (7.8) (7.4) Administrative expenses - share based costs* (1.6) (1.1) Net finance costs (11.8) (11.5) --------------------------------------------- ------- ------- Trading profit after interest 15.3 40.1 --------------------------------------------- ------- -------
* These relate to both cash and equity settled costs
Net rental income was down 39.3% (GBP23.6m) in total to GBP36.5m, as detailed below:
30 Sept 30 Sept GBPm 2020 2019 ----------------------------- ------- ------- Underlying net rental income 57.7 59.1 Rent discounts and waivers (19.9) - Expected credit losses (1.5) (0.2) Disposals 0.2 1.2 36.5 60.1 ------- -------
There was a GBP1.4m (2.4%) decrease in underlying net rental income, largely driven by the fall in occupancy and average rent per sq. ft., partially offset by savings in direct costs and the letting up of recently completed projects .
Net rental income was significantly reduced by rent waivers and discounts given to customers, predominantly in respect of Q1. Overall, we have given rent reductions to over 90% of our customers (by rent), which represents a reduction in net rent totalling GBP19.9m in the half year. Additionally, although we hold rent deposits for the majority of our customers, the extension of Government restrictions on rent collection have impeded efforts to collect rent from a number of our customers resulting in a charge for expected credit losses of GBP1.5m.
Underlying administrative expenses increased by GBP0.4m to GBP7.8m, up 5.4%. The prior year benefited from a short-term saving in executive costs following Jamie Hopkins stepping down as CEO in May 2019. Discretionary costs and headcount are being kept under tight control.
Net finance costs increased by 2.6% (GBP0.3m) in the half year. The average net debt balance over the 6 months was GBP23.9m lower than the first six months of the prior year, whilst the average interest rate has increased marginally from 3.6% to 3.8%.
Loss before tax was GBP110.4m reflecting a decrease in the property valuation of GBP125.3m since 31 March 2020 compared to an increase of GBP59.6m in the first six months of the prior year.
30 Sept 30 Sept GBPm 2020 2019 ---------------------------------------------- ------- ------- Trading profit after interest 15.3 40.1 Change in fair value of investment properties (125.3) 59.6 Loss on sale of investment properties (0.2) - Other items (0.2) (0.6) ---------------------------------------------- ------- ------- (Loss)/profit before tax (110.4) 99.1 ---------------------------------------------- ------- ------- Adjusted underlying earnings per share 8.4p 22.1p ---------------------------------------------- ------- -------
The small loss on sale of investment properties relates to sales costs associated with a disposal which completed in the half year in line with the March 2020 valuation.
Adjusted underlying earnings per share, based on EPRA earnings adjusted for non-trading items and calculated on a diluted share basis, is down 62.0% to 8.4p.
INTERIM DIVID
We remain focused on balancing the interests of shareholders and other stakeholders and the long-term sustainability of our business. The Board is mindful of the importance of income to shareholders but, in light of the current pandemic and following the Government's implementation of a second national lockdown, has decided to defer a decision on payment of a dividend until the full year.
PROPERTY VALUATION
At 30 September 2020, our property portfolio was independently valued by CBRE at GBP2,450m, an underlying decrease of 4.9% (GBP126m) in the half year. The main movements in the valuation over the half year are set out below:
GBPm ------------------------------- ----- Valuation at 31 March 2020 2,574 Revaluation (126) Capital expenditure 13 Disposals (11) ------------------------------- ----- Valuation at 30 September 2020 2,450 ------------------------------- -----
A summary of the half year valuation and revaluation movement by property type is set out below:
GBPm Valuation Uplift / deficit ------------------------- --------- ---------------- Like-for-like Properties 1,898 (93) Completed Projects 126 (6) Refurbishments 323 (25) Redevelopments 103 (2) Total 2,450 (126) ------------------------- --------- ----------------
Like-for-like Properties
There was a 4.7% (GBP93m) underlying decrease in the valuation of like-for-like properties to GBP1,898m. This is driven by a 3.1% decrease in the ERV per sq. ft. (GBP64m) reflecting price reductions we have seen on lettings and renewals completed in the first half of the year, and a small 8bps outward shift in equivalent yields (GBP29m).
30 Sept 31 March 2020 2020 Change -------------------------- -------- -------- -------- ERV per sq. ft. GBP45.21 GBP46.65 -3.1% Rent per sq. ft. GBP40.61 GBP41.98 -3.3% Equivalent Yield 5.9% 5.8% +0.1% Net Initial Yield 4.7% 5.1% -0.4% Capital Value per sq. ft. GBP667 GBP696 -4.2% -------------------------- -------- -------- --------
Completed Projects
There was an underlying decrease of 4.5% (GBP6m) in the value of the five completed projects to GBP126m. The overall valuation metrics for completed projects are set out below:
30 Sept 2020 -------------------------- -------- ERV per sq. ft. GBP37.10 Rent per sq. ft. GBP30.85 Equivalent Yield 5.7% Net Initial Yield 2.1% Capital Value per sq. ft. GBP549 -------------------------- --------
The major movements within this category were a decrease of GBP3.4m at Mare Street Studios, Hackney, which is at the early stage of letting up after being launched in June 2020, and a decrease of GBP2.5m at 160 Fleet Street with a 3% reduction in ERV reflecting the pricing of recent lettings.
Current Refurbishments and Redevelopments
There was an underlying decrease of 7.2% (GBP25m) in the value of our current refurbishments to GBP323m and a reduction of 1.9% (GBP2m) in the value of our current redevelopments to GBP103m.
The most significant movements in this category are a decrease of GBP5.6m at Fitzroy Street, Fitzrovia, where the sole occupier, as expected, has exercised their break ahead of our planned extensive refurbishment and a reduction of GBP4.2m at Biscuit Factory (J Block), Bermondsey, where the refurbishment programme has been delayed by Covid-19.
REFURBISHMENT ACTIVITY
A summary of the status of the refurbishment pipeline at 30 September 2020 is set out below:
Projects Number Capex spent Capex Upgraded to spend and new space (sq. ft.) --------------------------------- ------- ------------ ---------- --------------- Underway 6 GBP15m GBP15m 240,000 Design stage 4 - GBP85m 310,000 Design stage (without planning) 1 - GBP60m 155,000 --------------------------------- ------- ------------ ---------- ---------------
REDEVELOPMENT ACTIVITY
Many of our properties are in areas where there is strong demand for mixed-use redevelopment. Our model is to use our expertise, knowledge and local relationships to obtain a mixed-use planning consent and then agree terms with a residential developer to undertake the redevelopment and construction at no cost and limited risk to Workspace. We receive back a combination of cash, new commercial space and overage in return for the sale of the residential scheme to the developer.
A summary of the status of the redevelopment pipeline at 30 September 2020 is set out below:
No. of Residential Cash Cash/ New commercial properties units received overage space (sq. to come ft.) -------------- ------------ ------------ ---------- --------- --------------- Underway 2 277 GBP19m GBP4m 58,000 Design stage 5 1,209 - - 289,000
I n June 2020, we were granted planning consent for a significant mixed-use redevelopment project in Wandsworth. The 5.4 acre site currently comprises 145,000 sq. ft. of low quality office, leisure and light industrial space, with a rent roll of GBP2.4m. The planning consent is for a new 106,000 sq. ft. business centre and 65,000 sq. ft. of new light industrial space, as well as 402 residential apartments, including 35% affordable housing.
ACQUISITIONS AND DISPOSALS
No acquisitions were made in the first half but we continue to track opportunities across London and remain disciplined in our returns criteria.
In September 2020, we completed the sale of Bow Exchange, Bow for GBP11.0m, in line with the 31 March 2020 valuation, at a capital value of GBP298 per sq. ft.
CASH FLOW
The Group generates strong operating cash flow in line with trading profit. A summary of cash flows in the half year are set out below:
30 Sept 30 Sept GBPm 2020 2019 ---------------------------------------- ------- ------- Net cash from operations after interest 14 44 Dividends paid (42) (38) Capital expenditure (13) (33) Property disposals and cash receipts 11 11 Other - (1) Net movement (30) (17) Opening debt (net of cash) (541) (580) ---------------------------------------- ------- ------- Closing debt (net of cash) (571) (597) ---------------------------------------- ------- -------
There is a reconciliation of net debt in note 13(b) to the financial statements.
Cash collection in the first half of the year has been adversely impacted by the effect of Covid-19 on many of our customers' businesses and by the Government restrictions on rent collection measures. In addition to the GBP19.9m of rent discounts given to customers in the first half, rent deferrals were also agreed with customers on a case by case basis totalling GBP3.3m, of which GBP2.5m remains outstanding at 30 September 2020.
Rent collection remains strong with 95% of rents (after discounts and deferrals) for the first half collected by 2 November 2020.
Q1 Q2 H1 ------------------------------------------------------------------------------ ---- ---- ---- Rent collected as proportion of rent receivable after discounts and deferrals 97% 94 % 95 % Rent collected as proportion of gross rents 44 % 88 % 66 %
The majority of the amounts still outstanding are covered by rent deposits or by the provision for doubtful debts.
In the second half of the year, 86% of third quarter rent (including October monthly rents) were collected by 2 November 2020.
FINANCING
As at 30 September 2020, the Group had GBP4.3m of available cash and GBP123m of undrawn facilities:
Drawn amount Facility Maturity ----------------------- ------------ --------- --------- Private Placement Notes GBP448.5m GBP448.5m 2023-2029 Bank facilities GBP127.0m GBP250.0m 2022 ------------ --------- Total GBP575.5m GBP698.5m ------------ ---------
All facilities are provided on an unsecured basis with an average maturity of 4.1 years (31 March 2020: 4.5 years).
The average interest cost of our fixed rate private placement notes is 4.1%. Our revolver bank facilities are provided at a floating rate of 1.65% over LIBOR. At 30 September 2020, 64% of our facilities are at fixed rates, representing 78% of our borrowings on a drawn basis.
At 30 September 2020, loan to value (LTV) was 23% (31 March 2020: 21%) and interest cover (based on net rental income) was 4.5 times (31 March 2020: 5.2), providing good headroom on all facility covenants. We estimate that we could withstand a reduction in net rental income of 52% or a fall in asset valuation of 61% before any debt covenants are breached.
NET ASSETS
Net assets decreased in the six months by GBP153m to GBP1,845m. EPRA net tangible assets (NTA) per share at 30 September 2020 was down 7.6% (GBP0.83) to GBP10.05 and EPRA net reinstatement value (NRV) per share was down 7.9% (GBP0.94) to GBP10.98:
EPRA NRV EPRA NTA per share per share GBP GBP --------------------------------------- ---------- ---------- At 31 March 2020 11.92 10.88 Adjusted trading profit after interest 0.08 0.08 Property valuation deficit (0.69) (0.69) Purchasers costs (0.11) - Dividends paid (0.24) (0.24) Other 0.02 0.02 --------------------------------------- ---------- ---------- At 30 September 2020 10.98 10.05 --------------------------------------- ---------- ----------
The calculation of EPRA NTA and NRV per share measures are set out in note 8 of the financial statements.
outlook for the year to 31 March 2021
There remains significant uncertainty about the full year trading result, with our performance very sensitive to Covid-19 and associated Government restrictions. We have, however, modelled a number of scenarios that provide comfort on the continuing robustness of the business as a going concern. The key variables for our operating performance are occupancy and pricing, with a 5% change in occupancy having an impact of approximately GBP7m, and a 5% change in rent per sq. ft. having an impact of approximately GBP6m on rent roll. A 5% change in occupancy would also increase void costs by around GBP2m on an annualised basis.
Our immediate focus is on retaining existing customers, alongside capturing the demand from new customers. Performance in the second half of the year will be driven by a combination of:
-- The reduction in income from customers that vacated during the first half.
-- Existing customers downsizing and vacating in the second half of the year, sensitive to Government restrictions.
-- New customer demand, although again sensitive to any Government policy restrictions.
KEY property statistics
Half Year ended ------------------------------------------ 30 Sept 31 March 30 Sept 31 March 2020 2020 2019 2019 -------------------------------------- --------- --------- --------- --------- Workspace Group Portfolio CBRE property valuation GBP2,450m GBP2,574m GBP2,682m GBP2,604m Number of locations 58 59 64 64 Lettable floorspace (million sq. ft.) 3.9 3.9 4.0 3.9 Number of lettable units 4,147 4,009 4,969 4,796 Rent roll of occupied units GBP118.2m GBP132.8m GBP130.4m GBP127.5m Average rent per sq. ft. GBP37.15 GBP39.18 GBP38.06 GBP38.45 Overall occupancy 81.1% 87.0% 86.3% 84.8% Like-for-like number of properties 38 29 28 30 Like-for-like lettable floor space (million sq. ft.) 2.8 2.2 2.2 2.1 Like-for-like rent roll growth (11.6)% 1.2% 0.7% (0.4)% Like-for-like rent per sq. ft. growth (3.3)% 0.3% (1.0)% 1.0% Like-for-like occupancy movement (7.8)% 0.9% 1.7% (0.7)% -------------------------------------- --------- --------- --------- --------- 1) The like-for-like category has been restated in the current financial year for the following:
-- The transfer in of Goswell Road, Cannon Wharf, Ink Rooms, 60 Gray's Inn Road, The Light Box, Edinburgh House, The Frames, The Leather Market, China Works and Fuel Tank from the completed projects category
-- The transfer in of Canalot Studios from the refurbishment projects category -- The transfer in of Poplar Business Park from the redevelopment projects category -- The transfer out of Westbourne Studios to the refurbishment projects category -- The transfer out of Mallard Place to the redevelopment projects category
2) Like-for-like statistics for prior years are not restated for the changes made to the like-for-like property portfolio in the current financial year.
3) Overall rent per sq. ft. and occupancy statistics include the lettable area at like-for-like properties and all refurbishment and redevelopment projects, including those projects recently completed and also properties where we are in the process of obtaining vacant possession.
CONSOLIDATED INCOME STATEMENT
FOR THE Six MonthsED 30 September 2020
Unaudited Unaudited 6 months 6 months Audited ended ended Year ended 30 September 30 September 31 March 2020 2019 2020 Notes GBPm GBPm GBPm ---------------------------------------------- ----- -------------- ------------- ----------- Revenue 2 75.5 80.2 161.4 Direct costs 2 (39.0) (20.1) (39.4) ---------------------------------------------- ----- -------------- ------------- ----------- Net rental income 2 36.5 60.1 122.0 Administrative expenses (9.4) (8.5) (17.7) ---------------------------------------------- ----- -------------- ------------- ----------- Trading profit 27.1 51.6 104.3 Loss on disposal of investment properties 3(a) (0.2) - (0.8) Other expenses 3(b) (0.2) (0.6) (0.2) Change in fair value of investment properties 9 (125.3) 59.6 (7.5) ---------------------------------------------- ----- -------------- ------------- ----------- Operating (loss)/ profit (98.6) 110.6 95.8 Finance costs 4 (11.8) (11.5) (23.3) (Loss)/ profit before tax (110.4) 99.1 72.5 Taxation 5 - - (0.4) ---------------------------------------------- ----- -------------- ------------- ----------- (Loss)/ profit for the period after tax (110.4) 99.1 72.1 ---------------------------------------------- ----- -------------- ------------- ----------- Basic earnings per share 7 (61.1)p 54.9p 40.0p Diluted earnings per share 7 (60.8)p 54.5p 39.7p ---------------------------------------------- ----- -------------- ------------- -----------
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE six monthsED 30 September 2020
Unaudited Unaudited 6 months 6 months Audited ended ended Year ended 30 September 30 September 31 March 2020 2019 2020 GBPm GBPm GBPm ------------------------------------------ ------------- ------------- ----------- (Loss)/ profit for the period (110.4) 99.1 72.1 Other comprehensive income: Items that may be classified subsequently to profit or loss: Change in fair value of other investments - (1.6) (1.9) Cash flow hedge - transfer to income statement 3.7 (4.3) (4.2) Cash flow hedge - change in fair value (4.2) 6.4 8.3 ------------------------------------------- ------------- ------------- ----------- Total comprehensive income for the period (110.9) 99.6 74.3 ------------------------------------------- ------------- ------------- -----------
CONSOLIDATED BALANCE SHEET
AS AT 30 September 2020
Unaudited Audited Unaudited 30 September 31 March 30 September 2020 2020 2019 Notes GBPm GBPm GBPm --------------------------------- ------ ------------- --------- ------------- Non-current assets Investment properties 9 2,471.4 2,586.3 2,635.6 Intangible assets 2.2 2.0 2.0 Property, plant and equipment 4.3 4.8 3.7 Other investments 7.9 7.9 8.2 Trade and other receivables 10 - - 4.5 13(e) Derivative financial instruments & (f) 14.3 18.5 16.5 Deferred tax 0.5 0.6 - --------------------------------- ------ ------------- --------- ------------- 2,500.6 2,620.1 2,670.5 --------------------------------- ------ ------------- --------- ------------- Current assets Assets held for sale 9 - 11.0 60.5 Trade and other receivables 10 35.0 25.2 21.6 Cash and cash equivalents 11 12.4 79.2 20.5 --------------------------------- ------ ------------- --------- ------------- 47.4 115.4 102.6 --------------------------------- ------ ------------- --------- ------------- Total assets 2,548.0 2,735.5 2,773.1 --------------------------------- ------ ------------- --------- ------------- Current liabilities Trade and other payables 12 (90.3) (83.1) (87.4) Borrowings 12 - (9.0) - (90.3) (92.1) (87.4) --------------------------------- ------ ------------- --------- ------------- Non-current liabilities Borrowings 13(a) (586.9) (617.2) (623.0) Lease obligations 14 (26.3) (28.2) (20.5) --------------------------------- ------ ------------- --------- ------------- (613.2) (645.4) (643.5) --------------------------------- ------ ------------- --------- ------------- Total liabilities (703.5) (737.5) (730.9) --------------------------------- ------ ------------- --------- -------------
Net assets 1,844.5 1,998.0 2,042.2 --------------------------------- ------ ------------- --------- ------------- Shareholders' equity Share capital 17 181.1 180.7 180.7 Share premium 295.1 295.4 295.4 Investment in own shares (9.6) (9.6) (9.9) Other reserves 33.2 32.2 28.7 Retained earnings 1,344.7 1,499.3 1,547.3 --------------------------------- ------ ------------- --------- ------------- Total shareholders' equity 1,844.5 1,998.0 2,042.2 ---------
Consolidated Statement of Changes in Equity
FOR THE periodED 30 September 2020
Attributable to owners of the Parent ---------------------------------------------------- Investment Total Unaudited 6 months Share Share in own Other Retained Share-holders' to capital premium shares reserves earnings equity 30 September 2020 Notes GBPm GBPm GBPm GBPm GBPm GBPm ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 1 April 2020 180.7 295.4 (9.6) 32.2 1,499.3 1,998.0 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Profit for the period - - - - (110.4) (110.4) Other comprehensive income - - - (0.5) - (0.5) ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Total comprehensive income - - - (0.5) (110.4) (110.9) ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Transactions with owners: Share issues 17 0.4 (0.3) - - - 0.1 Own share purchase (net) - - - - - - Dividends paid 6 - - - - (44.2) (44.2) Share based payments - - - 1.5 - 1.5 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 30 September 2020 181.1 295.1 (9.6) 33.2 1,344.7 1,844.5 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Unaudited 6 months to 30 September 2019 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 1 April 2019 180.4 295.1 (9.3) 27.4 1,488.4 1,982.0 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Profit for the period - - - - 99.1 99.1 Other comprehensive income - - - 0.5 - 0.5 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Total comprehensive income - - - 0.5 99.1 99.6 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Transactions with owners: Share issues 17 0.3 0.3 - - - 0.6 Own share purchase (net) (0.6) (0.6) Dividends paid 6 - - - - (40.2) (40.2) Share based payments - - - 0.8 - 0.8 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 30 September 2019 180.7 295.4 (9.9) 28.7 1,547.3 2,042.2 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Audited 12 months to 31 March 2020 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 1 April 2019 180.4 295.1 (9.3) 27.4 1,488.4 1,982.0 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Profit for the year - - - - 72.1 72.1 Other comprehensive income - - - 2.2 - 2.2 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Total comprehensive income - - - 2.2 72.1 74.3 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Transactions with owners: Share issues 17 0.3 0.3 (0.3) - - 0.3 Own share purchase (net) - - - - - - Dividends paid 6 - - - - (61.2) (61.2) Share based payments - - - 2.6 - 2.6 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 31 March 2020 180.7 295.4 (9.6) 32.2 1,499.3 1,998.0 ------------------------ ----- -------- -------- ---------- --------- --------- ---------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD 30 September 2020 Unaudited Unaudited 6 month 6 months Audited ended ended Year ended 30 September 30 September 31 March 2020 2019 2020 Notes GBPm GBPm GBPm --------------------------------------------- ----- ------------- ------------- ----------- Cash flows from operating activities Cash generated from operations 15 25.6 55.4 108.7 Interest paid (11.8) (12.0) (24.1) Tax paid (0.7) 0.2 0.1 --------------------------------------------- ----- ------------- ------------- ----------- Net cash inflow from operating activities 13.1 43.6 84.7 --------------------------------------------- ----- ------------- ------------- ----------- Cash flows from investing activities Capital expenditure on investment properties (12.2) (32.6) (59.7) Proceeds from disposal of investment properties 11.0 10.5 75.0 Purchase of intangible assets (0.5) (0.6) (0.9) Purchase of property, plant and equipment (0.4) (0.6) (2.3) Other income (overage receipts) - 0.6 2.0 Purchase of investments (0.1) (0.1) 0.5 --------------------------------------------- ----- ------------- ------------- ----------- Net cash (outflow)/ inflow from investing activities (2.2) (22.8) 14.6 --------------------------------------------- ----- ------------- ------------- ----------- Cash flows from financing activities Proceeds from issue of ordinary share capital 0.1 0.6 0.6 Settlement and re-couponing of derivative financial instruments - (0.1) - Repayment of Private Placement Notes (9.0) - - Repayment of bank borrowings (81.0) (25.0) (90.1) Drawdown of bank borrowings 54.0 36.0 104.0 Own shares purchased - (0.6) (0.3) Dividends paid 6 (41.8) (37.9) (61.0) --------------------------------------------- ----- ------------- ------------- ----------- Net cash outflow from financing activities (77.7) (27.0) (46.8) --------------------------------------------- ----- ------------- ------------- -----------
Net (decrease)/ increase in cash and cash equivalents (66.8) (6.2) 52.5 --------------------------------------------- ----- ------------- ------------- ----------- Cash and cash equivalents at start of period 11 79.2 26.7 26.7 Cash and cash equivalents at end of period 11 12.4 20.5 79.2 --------------------------------------------- ----- ------------- ------------- -----------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE periodED 30 September 2020
1. Accounting policies
Basis of preparation
The half year report has been prepared in accordance with the Disclosure and Transparency Rules and with IAS34 'Interim Financial Reporting' as adopted by the European Union. The half year report should be read in conjunction with the annual financial statements for the year ended 31 March 2020, which have been prepared in accordance with IFRSs as adopted by the European Union.
The condensed financial statements in the half year report are unaudited and do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Annual Report and Accounts for the year to 31 March 2020, which were prepared under IFRS as adopted by the European Union have been delivered to the Registrar of Companies. The auditor's opinion on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement made under Section 498 of the Companies Act 2006.
There have been no changes in estimates of amounts reported in prior periods which have a material impact on the current half year period.
As with most other UK property companies and REITs, the Group presents many of its financial measures in accordance
with the guidance criteria issued by the European Public Real Estate Association ('EPRA'). These measures, which
provide consistency across the sector, are all derived from the IFRS figures in notes 7 and 8.
Going concern
The Board is required to assess the appropriateness of applying the going concern basis in the preparation of the financial statements. In considering this, the Directors have reviewed a financial forecast and cashflow model for the 18 month period to 31 March 2022. The model has been prepared on the basis of a severe but plausible downside scenario which includes key assumptions around the continued impact of Covid-19 alongside other principal risks.
Key assumptions in this scenario include:
- A further reduction of 12% in occupancy and 6% in pricing.
- Occupancy to stabilise at the low point of March 2021 with a limited and slow recovery thereafter.
- A further 20% reduction in NRI reflecting risk of unrecoverable rent. - An expansion in investment yields of 100bps at March 2021.
The appropriateness of the going concern basis is reliant on the continued availability of borrowings and compliance with loan covenants. Based on the financial forecast the group could withstand a reduction in net rental income of 52 percent and a fall in the asset valuation of 61 percent before covenants are breached, assuming no mitigating actions are taken. As at 30 September 2020, the company had significant headroom on its facilities and loan covenants with GBP4m of cash, undrawn facilities of GBP123m and no debt due to be refinanced until June 2022. For the full period considered, the Group maintains sufficient headroom in its cash and loan facilities and loan covenants are met.
Based on these factors, and the outcome of their review, the Directors have a reasonable expectation that the Group and the Company have adequate resources and sufficient loan facility headroom to continue as a going concern.
This report was approved by the Board on 10 November 2020.
Change in accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 March 2020, with the exception of the following standards, amendments and interpretations endorsed by the EU were effective for the first time for the Group's current accounting period and had no material impact on the financial statements.
-- References to Conceptual Framework in IFRSs (amended); -- IAS 1 and IAS 8 (amended) - Definition of Material; -- IFRS 3 (amended) - Definition of a Business; -- IFRS 16 (amended) - Covid-19-related Rent Concessions .
Derecognition of trade receivables
Discounts have been provided to the majority of our customers on receipt of payment for the net amount due for the discounted period. These retrospective discounts are considered to be a partial forgiveness of the trade receivable. In accordance with IFRS 9, the element of the trade receivable that has been forgiven has been derecognised in the balance sheet and recognised as a loss in the income statement.
Standards in issue but not yet effective
The following standards, amendments and interpretations were in issue at the date of approval of these financial statements but were not yet effective for the current accounting period and have not been adopted early. Based on the Group's current circumstances, the Dir ectors do not anticipate that their adoption in future periods will have a material impact on the financial statements of the Group.
-- IFRS 17 - Insurance Contracts; -- IAS 1 (amended) - Classification of liabilities as current or non-current;
-- IFRS 10 and IAS 28 (amended) - Sale or Contribution of Assets between an investor and its Associate or Joint Venture.
Significant judgments, key assumptions and estimates
Property portfolio valuation
The valuation provided by CBRE at 31 March 2020 included a materiality uncertainty clause as required by the Royal Institution of Chartered Surveyors (RICS) in response to the Covid-19 pandemic. This was to reflect that less certainty and consequently, a higher degree of caution should be attached to the valuation than would normally be the case. This requirement has since been relaxed and the valuation as at 30 September does not include a material uncertainty clause.
Impairment testing of trade receivables and other financial assets
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment based on the expected credit loss. Accrued income has been recognised in accordance with IFRS 16 in relation to the spreading of rental income which has been deferred in agreement with some customers and due to be repaid over the remaining period of their lease. We provide for the impairment of trade receivables and accrued income in accordance with IFRS 9 based on the expected credit loss which uses a lifetime expected loss allowance for all trade receivables based on the individual occupiers' circumstance. Due to the impact of Covid-19 on our customers we are experiencing a higher level of unpaid debts than is usual which is reflected in the increased provision for this period.
2. Analysis of net rental income
6 months ended 30 6 months ended 30 September 2020 September 2019 --------------------------- --------------------------- Direct Net rental Direct Net rental Revenue costs income Revenue costs income GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------------- ------- ------ ---------- ------- ------ ---------- Rental income 63.7 (20.7) 43.0 65.6 (1.5) 64.1 Service charges 9.9 (12.7) (2.8) 10.9 (13.2) (2.3) Empty rates and other non-recoverable costs - (3.2) (3.2) - (2.8) (2.8) Services, fees, commissions and sundry income 1.9 (2.4) (0.5) 3.7 (2.6) 1.1 -------------------------------------- ------- ------ ---------- ------- ------ ---------- 75.5 (39.0) 36.5 80.2 (20.1) 60.1 -------------------------------------- ------- ------ ---------- ------- ------ ---------- Year ended 31 March 2020 --------------------------- Direct Net rental Revenue costs income GBPm GBPm GBPm -------------------------------------- ------- ------ ---------- Rental income 132.7 (2.2) 130.5 Service charges 21.8 (25.5) (3.7) Empty rates and other non-recoverable costs - (6.3) (6.3) Services, fees, commissions and sundry income 6.9 (5.4) 1.5 -------------------------------------------- ------- ------ ---------- 161.4 (39.4) 122.0 ----------------------------------------- ------- ------ ----------
Included within direct costs for rental income and service charge in the period are amounts of GBP17.9m and GBP2.0m respectively, relating to discounts provided to customers, accounted for in accordance with IFRS9. Additionally, a charge of GBP1.5m for expected credit losses in respect of receivables from customers is recognised in direct costs of rental income in the period.
All of the properties within the portfolio are geographically close to each other and have similar economic features and risks. Management information utilised by the Executive Committee to monitor and assess performance is reviewed as one portfolio. As a result, management have determined that the Group operates a single operating segment of providing business space for rent in London.
3(a). Loss on disposal of investment properties
6 months 6 months Year ended ended ended 30 September 30 September 31 March 2020 2019 2020 GBPm GBPm GBPm -------------------------------------------- ------------- ------------- --------- Proceeds from sale of investment properties (net of sale costs) 11.0 15.0 79.5 Book value at time of sale (11.2) (15.0) (80.3) -------------------------------------------- ------------- ------------- --------- Loss on disposal (0.2) - (0.8) -------------------------------------------- ------------- ------------- ---------
3(b). Other expenses
6 months 6 months Year ended ended ended 30 September 30 September 31 March 2020 2019 2020 GBPm GBPm GBPm ----------------------------------------------- ------------- ------------- --------- Change in fair value of deferred consideration 0.2 0.6 0.2 0.2 0.6 0.2 ----------------------------------------------- ------------- ------------- ---------
The value of deferred consideration (cash and overage) from the sale of investment properties has been re-valued by CBRE Limited at 30 September 2020. The amounts receivable are included in the consolidated balance sheet under current trade and other receivables (note 10).
4. Finance costs
6 months 6 months Year ended ended ended 30 September 30 September 31 March 2020 2019 2020 GBPm GBPm GBPm ------------------------------------------------ ------------- ------------- --------- Interest payable on bank loans and overdrafts (1.6) (2.1) (4.1) Interest payable on other borrowings (9.2) (9.4) (18.6) Amortisation of issue costs of borrowings (0.4) (0.4) (0.7) Interest on lease liabilities (0.8) (0.6) (1.7) Interest capitalised on property refurbishments (note 9) 0.2 1.0 1.8 Foreign exchange (losses)/gains on financing activities (3.7) 4.3 4.2 Cash flow hedge - transfer from equity 3.7 (4.3) (4.2) ------------------------------------------------ ------------- ------------- --------- Total finance costs (11.8) (11.5) (23.3) ------------------------------------------------ ------------- ------------- ---------
5. Taxation
6 months 6 months Year ended ended ended 30 September 30 September 31 March 2020 2019 2020 GBPm GBPm GBPm ----------------------------------------------------- ------------- ------------- --------- Current tax: UK corporation tax - - 0.8 ----------------------------------------------------- ------------- ------------- --------- Deferred tax: On origination and reversal of temporary differences - - (0.4) ----------------------------------------------------- ------------- ------------- --------- Total taxation charge - - 0.4 ----------------------------------------------------- ------------- ------------- ---------
The Group is a Real Estate Investment Trust (REIT). The Group's UK property rental business (both income and capital gains) is exempt from tax. The Group's other income is subject to corporation tax. No tax charge has arisen on this other income for the half year (31 March 2020: GBP0.4m, 30 September 2019: GBPnil).
6. Dividends
6 months 6 months Year ended ended ended 30 September 30 September 31 March Payment Per 2020 2019 2020 Ordinary dividends paid date share GBPm GBPm GBPm ------------------------------ --------- ------------- ------------- ------------- --------------- For the year ended 31 March 2019: August Final dividend 2019 22.26p - 40.2 40.2 For the year ended 31 March 2020: February Interim dividend 2020 11.67p - - 21.0 August Final dividend 2020 24.49p 44.2 - - Dividends for the period 44.2 40.2 61.2 Timing difference on payment of withholding tax (2.4) (2.3) (0.2) ----------------------------------------- ------------- ------------- ------------- --------------- Dividends cash paid 41.8 37.9 61.0 ----------------------------------------- ------------- ------------- ------------- ---------------
7. Earnings per share
6 months 6 months Year ended ended ended 30 September 30 September 31 March Earnings used for calculating earnings per 2020 2019 2020 share: GBPm GBPm GBPm ---------------------------------------------- ------------- ------------- ----------------- Basic and diluted earnings (110.4) 99.1 72.1 Change in fair value of investment properties 125.3 (59.6) 7.5 Loss on disposal of investment properties 0.2 - 0.8 EPRA earnings 15.1 39.5 80.4 Adjustment for non-trading items: Other expenses (note 3(b)) 0.2 0.6 0.2 Taxation - - 0.4 ---------------------------------------------- ------------- ------------- ----------------- Adjusted trading profit after interest 15.3 40.1 81.0 ---------------------------------------------- ------------- ------------- -----------------
Earnings have been adjusted to derive an earnings per share measure as defined by the European Public Real Estate Association (EPRA) and an adjusted underlying earnings per share measure.
6 months 6 months ended 30 ended Year ended Number of shares used for calculating September 30 September 31 March earnings per share: 2020 2019 2020 --------------------------------------------- ----------- -------------- ----------- Weighted average number of shares (excluding own shares held in trust) 180,725,220 180,366,326 180,465,649 Dilution due to share option schemes 888,198 1,186,691 981,867 --------------------------------------------- ----------- -------------- ----------- Weighted average number of shares for diluted earnings per share 181,613,418 181,553,017 181,447,516 --------------------------------------------- ----------- -------------- ----------- 6 months 6 months ended ended Year ended 30 September 30 September 31 March 2020 2019 2020 ------------------------------------------ ------------- ------------- ---------- Basic earnings per share (61.1)p 54.9p 40.0p Diluted earnings per share (60.8)p 54.5p 39.7p EPRA earnings per share 8.4p 21.9p 44.5p Adjusted underlying earnings per share(1) 8.4p 22.1p 44.6p ------------------------------------------ ------------- ------------- ----------
(1) Adjusted underlying earnings per share is calculated on a diluted basis.
8. Net assets per share
Number of shares used for calculating 30 September 31 March 30 September net assets per share: 2020 2020 2019 -------------------------------------------- ------------ ----------- ------------- Shares in issue at period-end 181,106,425 180,747,868 180,729,144 Less own shares held in trust at period-end (165,034) (174,719) (174,719) -------------------------------------------- ------------ ----------- ------------- Number of shares for calculating basic net assets per share 180,941,391 180,573,149 180,554,425 Dilution due to share option schemes 1,038,337 1,232,747 1,119,431 -------------------------------------------- ------------ ----------- ------------- Number of shares for calculating diluted adjusted net assets per share 181,979,728 181,805,896 181,673,856 -------------------------------------------- ------------ ----------- ------------- 30 September 31 March 30 September 2020 2020 2019 ---------------------------- ------------ -------- ------------ Basic net assets per share GBP10.19 GBP11.07 GBP11.31 Diluted net assets per share GBP10.14 GBP10.99 GBP11.24 ---------------------------- ------------ -------- ------------
EPRA Net Asset Value Metrics
EPRA published updated best practice reporting guidance in October 2019, which included 3 new Net Asset Valuation metrics; EPRA Net Reinstatement Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV). This new set of EPRA NAVs metrics came into full effect for accounting periods starting from 1st January 2020, presented below for comparison to the EPRA NAV metric.
September 2020 March 2020 ---------------------------- ---------------------------- EPRA EPRA EPRA EPRA EPRA EPRA NRV NTA NDV NRV NTA NDV GBPm GBPm GBPm GBPm GBPm GBPm ----------------------------------------- -------- -------- -------- -------- -------- -------- IFRS Equity attributable to shareholders 1,844.5 1,844.5 1,844.5 1,998.0 1,998.0 1,998.0 Derivative financial instruments at fair value (14.3) (14.3) - (18.5) (18.5) - Intangibles per IFRS balance sheet - (2.2) - - (2.0) - Excess of fair value of debt over book value - - 31.6 - - 11.9 Purchasers costs 166.6 - - 187.8 - - ----------------------------------------- -------- -------- -------- -------- -------- -------- New EPRA measure 1996.8 1,828.0 1,876.1 2,167.3 1,977.5 2,009.9 Number of shares for calculating diluted net assets per share (millions) 182.0 182.0 182.0 181.8 181.8 181.8 New EPRA measure per share GBP10.97 GBP10.05 GBP10.31 GBP11.92 GBP10.88 GBP11.06 ----------------------------------------- -------- -------- -------- -------- -------- -------- September 2019 ---------------------------- EPRA EPRA EPRA NRV NTA NDV GBPm GBPm GBPm ----------------------------------------- -------- -------- -------- IFRS Equity attributable to shareholders 2,042.2 2,042.2 2,042.2 Derivative financial instruments at fair value (16.5) (16.5) - Intangibles per IFRS balance sheet - (2.0) - Excess of fair value of debt over book value - - 32.0 Purchasers costs 182.4 - - ----------------------------------------------- -------- -------- -------- New EPRA measure 2,208.1 2,023.7 2,074.2 Number of shares for calculating diluted net assets per share (millions) 181.7 181.7 181.7 New EPRA measure per share GBP12.15 GBP11.14 GBP11.42 ----------------------------------------------- -------- -------- --------
Reconciliation to previously reported EPRA NAV
September 2020 March 2020 ------------------------- ------------------------- EPRA EPRA EPRA EPRA EPRA EPRA NRV NTA NDV NRV NTA NDV GBPm GBPm GBPm GBPm GBPm GBPm ------------------------------------ ------- ------- ------- ------- ------- ------- Net assets at end of period (basic) 1,844.5 1,844.5 1,844.5 1,998.0 1,998.0 1,998.0 Derivative financial instruments at fair value (14.3) (14.3) (14.3) (18.5) (18.5) (18.5) EPRA NAV 1,830.2 1,830.2 1,830.2 1,979.5 1,979.5 1,979.5 Derivative financial instruments at fair value - - 14.3 - - 18.5 Exclude Intangibles per IFRS balance sheet - (2.2) - - (2.0) - Excess of fair value of debt over book value - - 31.6 - - 11.9 Purchasers costs 166.6 - - 187.8 - - ------------------------------------ ------- ------- ------- ------- ------- ------- New EPRA measure 1996.8 1,828.0 1,876.1 2,167.3 1,977.5 2,009.9 ------------------------------------ ------- ------- ------- ------- ------- ------- September 2019 ------------------------- EPRA EPRA EPRA NRV NTA NDV GBPm GBPm GBPm ------------------------------------ ------- ------- ------- Net assets at end of period (basic) 2,042.2 2,042.2 2,042.2 Derivative financial instruments at fair value (16.5) (16.5) (16.5) EPRA NAV 2,025.7 2,025.7 2,025.7 Derivative financial instruments at fair value - - 16.5 Exclude Intangibles per IFRS balance sheet - (2.0) - Excess of fair value of debt over book value - - 32.0 Purchasers costs 182.4 - - ------------------------------------------ ------- ------- ------- New EPRA measure 2.208.1 2,023.7 2,074.2 ------------------------------------------ ------- ------- -------
9. Investment Properties
30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm ---------------------------------------------- ------------ -------- ------------ Balance at 1 April 2,586.3 2,591.4 2,591.4 Capital expenditure 12.1 53.5 28.4 Remeasurement of leases (1.9) 12.4 4.7 Capitalised interest on refurbishments (note 4) 0.2 1.8 1.0 Disposals during the period - ( 65.3) - Change in fair value of investment properties (125.3) (7.5) 59.6 ---------------------------------------------- ------------ ------------ Balance at end of period 2,471.4 2,586.3 2,685.1 Less: reclassified as held for sale - - (49.5) ---------------------------------------------- ------------ -------- ------------ Total investment properties 2,471.4 2,586.3 2,635.6 ---------------------------------------------- ------------ -------- ------------
Investment properties represent a single class of property being business accommodation for rent in London.
Capitalised interest is included at a rate of capitalisation of 3.8% (March 2020: 4.0%, September 2019 4.3%). The total amount of capitalised interest included in investment properties is GBP14.3m (March 2020: GBP14.1m, September 2019 GBP13.3m).
The change in fair value of investment properties is recognised in the consolidated income statement.
The Group occupies around 14,000 square feet of space within one of its Investment Properties as its Head Office. The deemed valuation of this space equates to approximately 0.5% of the overall Investment Property valuation and as such has not been split out as specific Owner Occupied Property.
Valuation
The Group's investment properties are held at fair value and were revalued at 30 September 2020 by the external valuer, CBRE Limited, a firm of independent qualified valuers in accordance with the Royal Institution of Chartered Surveyors Valuation - Global Standards. All the properties are revalued at period end regardless of the date of acquisition. This includes a physical inspection of all properties, at least once a year. In line with IFRS 13, all investment properties are valued on the basis of their highest and best use.
The valuation provided by CBRE at 31 March 2020 included a materiality uncertainty clause as required by the Royal Institution of Chartered Surveyors (RICS) in response to the Covid-19 pandemic. This was to reflect that less certainty and consequently a higher degree of caution should be attached to the valuation than would normally be the case. This requirement has since been relaxed and the valuation as at 30 September does not include a material uncertainty clause.
The valuation of like-for-like properties (which are not subject to refurbishment or redevelopment) is based on the income capitalisation method which applies market-based yields to the Estimated Rental Values (ERVs) of each of the properties. Yields are based on current market expectations depending on the location and use of the property. ERVs are based on estimated rental potential considering current rental streams, market comparatives, occupancy and timing of rent reviews. Whilst there is market evidence for these inputs and recent transaction prices for similar properties, there is still a significant element of estimation and judgement. As a result of adjustments made to market observable data, the significant inputs are deemed unobservable under IFRS 13.
When valuing properties being refurbished by Workspace, the residual value method is used. The completed value of the refurbishment is determined as for like-for-like properties above. Capital expenditure required to complete the building is then deducted and a discount factor is applied to reflect the time period to complete construction and allowance made for construction and market risk to arrive at the residual value of the property.
The discount factor used is the property yield that is also applied to the ERV to determine the value of the completed building. Other risks such as unexpected time delays relating to planned capital expenditure are assessed on a project-by-project basis, looking at market comparable data where possible and the complexity of the proposed scheme.
Redevelopment properties are also valued using the residual value method. The completed proposed redevelopment which would be undertaken by a residential developer is valued based on the market value for similar sites and then adjusted for costs to complete, developer's profit margin and a time discount factor. Allowance is also made for planning and construction risk depending on the stage of the redevelopment. If a contract is agreed for the sale/redevelopment of the site, the property is valued based on agreed consideration.
For all methods the valuers are provided with information on tenure, letting, town planning and the repair of the buildings and sites.
The reconciliation of the valuation report total to the amount shown in the consolidated balance sheet as non-current assets, investment properties, is as follows:
30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm ---------------------------------------------- ------------ -------- ------------ Total per CBRE valuation report 2,450.3 2,574.4 2,681.9 Deferred consideration on sale of property (5.2) (5.3) (6.3) Head leases obligations 26.3 28.2 20.5 Less: reclassified as held for sale - (11.0) (60.5) ---------------------------------------------- ------------ -------- ------------ Total investment properties per balance sheet 2,471.4 2,586.3 2,635.6 ---------------------------------------------- ------------ -------- ------------
The Group's Investment properties are carried at fair value and under IFRS 13 are required to be analysed by level depending on the valuation method adopted. The different valuation methods are as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 - Use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data.
Level 3 - Use of a model with inputs that are not based on observable market data.
Property valuations are complex and involve data which is not publicly available and involves a degree of judgement. All the investment properties are classified as Level 3, due to the fact that one or more significant inputs to the valuation are not based on observable market data. If the degree of subjectivity or nature of the measurement inputs changes then there could be a transfer between Levels 2 and 3 of classification. No changes requiring a transfer have occurred during the current or previous year.
The following table summarises the valuation techniques and inputs used in the determination of the property valuation at 30 September 2020.
Key unobservable inputs:
ERVs - per sq. ft. Equivalent yields ----------------------- --------------------- Valuation Valuation Weighted Weighted Property category GBPm technique Range average Range average ------------------- --------- ---------- ------------- -------- ----------- -------- Like-for-like 1,897.9 1 GBP12 - GBP70 GBP45 4.5% - 7.4% 5.9% Completed projects 126.3 1 GBP23 - GBP52 GBP37 4.6% - 6.5% 5.7% Refurbishments 322.6 2 GBP19 - GBP70 GBP34 4.3% - 6.4% 5.3% Redevelopments 98.3 2 GBP14 - GBP35 GBP19 3.9% - 6.7% 5.3% Head leases 26.3 n/a ------------------- --------- ---------- ------------- -------- ----------- -------- Total 2,471.4 ------------------- --------- ---------- ------------- -------- ----------- --------
1 = Income capitalisation method.
2 = Residual value method.
Developer's profit is a key unobservable input for redevelopments and refurbishments at planning stage. The range is 14%-19% with a weighted average of 16%.
Costs to complete is a key unobservable input for redevelopments at planning stage with a range of GBP213-GBP274 per sq. ft. and a weighted average of GBP238 per sq. ft.
Costs to complete are not considered to be a significant unobservable input for refurbishments due to the high percentage that is already fixed.
10. Trade and other receivables
30 September 31 March 30 September 2020 2020 2019 Non-current deferred consideration GBPm GBPm GBPm --------------------------------------------- ------------ -------- ------------ Deferred consideration on sale of investment properties - - 4.5 --------------------------------------------- ------------ -------- ------------ 30 September 31 March 30 September 2020 2020 2019 Current trade and other receivables GBPm GBPm GBPm --------------------------------------------- ------------ -------- ------------ Trade receivables 14.0 10.0 7.6 Prepayments, other receivables and accrued income 15.8 9.9 12.2 Deferred consideration on sale of investment properties 5.2 5.3 1.8 --------------------------------------------- ------------ -------- ------------ 35.0 25.2 21.6 --------------------------------------------- ------------ -------- ------------
Included within trade receivables is the provision for impairment of receivables of GBP2.6m (March 2020: GBP1.1m, September 2019: GBP0.9m). In accordance with IFRS16 GBP2.5m covid-19 deferrals are being accounted for within other receivables (March 2020: GBPnil, September 2019: GBPnil).
The deferred consideration arising on the sale of investment properties relates to cash and overage. The overage has been fair valued by CBRE Limited on the basis of residual value, using appropriate discount rates, and will be revalued on a regular basis. This is a Level 3 valuation of a financial asset, as defined by IFRS 13. The change in fair value recorded in the Consolidated income statement was a loss of GBP0.2m (31 March 2020: loss of GBP0.2m, 30 September 2018: loss of GBP0.6m) (note 3(b)).
Receivables at fair value:
Included within deferred consideration (both non-current and current) on sale of investment properties is GBP5.2m (March 2020: GBP5.3m, September 2019: GBP6.3m) of overage or cash which is held at fair value through profit and loss.
Receivables at amortised cost:
The remaining receivables are held at amortised cost. There is no material difference between the above amounts and their fair values due to the short-term nature of the receivables. All the Group's trade and other receivables are denominated in Sterling.
11. Cash and cash equivalents
30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm ----------------------------------------- ------------ -------- ------------ Cash at bank and in hand 4.3 70.3 11.6 Restricted cash - tenants' deposit deeds 8.1 8.9 8.9 ----------------------------------------- ------------ -------- ------------ 12.4 79.2 20.5 ----------------------------------------- ------------ -------- ------------
Tenants' deposit deeds represent returnable cash security deposits received from tenants and are ring-fenced under the terms of the individual lease contracts.
12. Trade and other payables
30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm ------------------------------------------- ------------ -------- ------------ Trade payables 9.7 4.8 6.7 Other tax and social security payable 13.2 5.6 6.1 Corporation tax payable - 0.8 - Tenants' deposit deeds (note 14) 8.1 8.9 8.9 Tenants' deposits 23.6 25.6 24.2 Accrued expenses 24.4 26.6 29.0 Deferred income - rent and service charges 11.3 10.8 12.5 90.3 83.1 87.4 ------------------------------------------- ------------ -------- ------------
There is no material difference between the above amounts and their fair values due to the short-term nature of the payables.
13. Borrowings
(a) Balances
30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm -------------------------------------------- ------------ -------- ------------ Current Senior Floating Rate Notes 2020 (unsecured) - 9.0 - - 9.0 - -------------------------------------------- ------------ -------- ------------ 30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm --------------------------------------------- ------------ -------- ------------ Non-current Bank loans (unsecured) 126.2 153.0 149.8 5.6% Senior US Dollar Notes 2023 (unsecured) 77.5 81.0 81.1 5.53% Senior Notes 2023 (unsecured) 83.9 83.9 83.9 Senior Floating Rate Notes 2020 (unsecured) - - 9.0 3.07% Senior Notes 2025 (unsecured) 79.8 79.8 79.7 3.19% Senior Notes 2027 (unsecured) 119.7 119.7 119.7 3.6% Senior Notes 2029 (unsecured) 99.8 99.8 99.8 586.9 617.2 623.0 --------------------------------------------- ------------ -------- ------------
(b) Net Debt
30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm ----------------------------------- ------------ -------- ------------ Borrowings per (a) above 586.9 626.2 623.0 Adjust for: Cost of raising finance 1.7 1.9 2.2 Foreign exchange differences (13.1) (16.6) (16.7) ----------------------------------- ------------ -------- ------------ 575.5 611.5 608.5 Cash at bank and in hand (note 11) (4.3) (70.3) (11.6) ----------------------------------- ------------ -------- ------------ Net Debt 571.2 541.2 596.9 ----------------------------------- ------------ -------- ------------
At 30 September 2020, the Group had GBP123m (31 March 2020: GBP96m, 30 September 2019: GBP99m) of undrawn bank facilities and GBP4.3m of unrestricted cash (31 March 2020: GBP70.3m, 30 September 2019: GBP11.6m).
The Group has a loan to value covenant applicable to these borrowings of 60%, and compliance is being comfortably met. Loan to value at 30 September 2020 was 23% (March 2020: 21%, September 2019: 22%).
The Group also has an interest cover covenant of 2.0x, calculated as net rental income divided by interest payable on loans and other borrowings. At 30 September 2020 interest cover was 4.5 (31 March 2020: 5.2x, September 2019: 5.2x).
(c) Maturity
Unaudited Audited Unaudited 30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm --------------------------------------------- ------------- --------- ------------- Repayable within one year - 9.0 9.0 Repayable between one and two years 127.0 - - Repayable between two and three years 148.5 154.0 151.0 Repayable between three years and four years - 148.5 148.5 Repayable between four years and five years 80.0 - - Repayable in five years or more 220.0 300.0 300.0 --------------------------------------------- ------------- --------- ------------- 575.5 611.5 608.5 Cost of raising finance (1.7) (1.9) (2.2) Foreign exchange differences 13.1 16.6 16.7 --------------------------------------------- ------------- --------- ------------- 586.9 626.2 623.0 --------------------------------------------- ------------- --------- -------------
(d) Interest rate and repayment profile
Principal at period end Interest Interest GBPm rate payable Repayable -------------------------- --------- ------------ ----------- ------------ Current -------------------------- --------- ------------ ----------- ------------ Bank overdraft due within one year or on demand (GBP2m facility) - Base +2.25% Variable On demand -------------------------- --------- ------------ ----------- ------------ Non-current -------------------------- --------- ------------ ----------- ------------ Private Placement Notes: 5.6% Senior US Dollar Notes 64.5 5.6% Half Yearly June 2023 5.53% Senior Notes 84.0 5.53% Half Yearly June 2023 3.07% Senior Notes 80.0 3.07% Half Yearly August 2025 3.19% Senior Notes 120.0 3.19% Half Yearly August 2027 3.6% Senior Notes 100.0 3.6% Half Yearly January 2029 Revolver loan 127.0 LIBOR +1.65% Monthly June 2022 -------------------------- --------- ------------ ----------- ------------ 575.5 -------------------------- --------- ------------ ----------- ------------
(e) Derivative financial instruments
The Group has cross currency swaps to ensure the US Dollar liability streams generated from the US Dollar Notes are fully hedged into Sterling for the life of the transaction. Through entering cross currency swaps the Group has created a synthetic Sterling fixed rate liability totalling GBP64.5m.
These swaps have been designated as a cash flow hedge with changes in fair value dealt with in other comprehensive income. The Group has elected to continue applying hedge accounting as set out in IAS 39 to these swaps as permitted by IFRS 9.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The critical terms of this hedging relationship perfectly matched at origination, so for the prospective assessment of effectiveness a qualitative assessment was performed. Quantitative retrospective effectiveness tests using the hypothetical derivative method are performed at each period end to determine the continuing effectiveness of the relationship. Sources of hedge ineffectiveness include credit risk or changes made to the critical terms of the hedged item or the hedging instrument.
The effects of the cash flow US Dollar swap hedging relationship is as follows:
30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm ------------------------------------------- ------------ --------- ------------ Carrying amount of derivative 14.3 18.5 16.5 Change in fair value of designated hedging instrument (4.2) 8.3 6.4 Change in fair value of designated hedged (4 .2 item 3.7 ) (4.3) Notional amount GBPm 64.5 64.5 64.5 Notional amount ($m) 100 100 100 Rate payable (%) 5.66% 5.66% 5.66% Maturity June 2023 June 2023 June 2023 Hedge ratio 1:1 1:1 1:1 ------------------------------------------- ------------ --------- ------------
(f) Financial instruments and fair values
Unaudited Unaudited 30 September Unaudited Audited Audited 30 September Unaudited 2020 30 September 31 March 31 March 2019 30 September Book Value 2020 2020 2020 Book 2019 GBPm Fair Value Book Value Fair Value Value Fair Value GBPm GBPm GBPm GBPm GBPm -------------------------------- ------------- ------------- ----------- ----------- ------------- ------------- Financial liabilities held at amortised cost Bank loans 126.2 127.0 153.0 154.0 149.8 151.0 Private Placement Notes 460.8 491.6 473.2 484.1 473.2 504.0 Lease obligations 26.3 26.3 28.2 28.2 20.5 20.5 -------------------------------- ------------- ------------- ----------- ----------- ------------- ------------- 613.3 644.9 654.4 666.3 643.5 675.5 -------------------------------- ------------- ------------- ----------- ----------- ------------- ------------- Financial assets at fair value through other comprehensive income Derivative financial instruments: Cash flow hedge - derivatives used for hedging (14.3) (14.3) (18.5) (18.5) (16.5) (16.5) Other Investments (7.9) (7.9) (7.9) (7.9) (8.2) (8.2) -------------------------------- ------------- ------------- ----------- ----------- ------------- ------------- (22.2) (22.2) (26.4) (26.4) (24.7) (27.7) -------------------------------- ------------- ------------- ----------- ----------- ------------- ------------- Financial assets at fair value through profit or loss Deferred consideration (overage) 5.2 5.2 5.3 5.3 1.8 1.8 5.2 5.2 5.3 5.3 1.8 1.8 -------------------------------- ------------- ------------- ----------- ----------- ------------- -------------
In accordance with IFRS 13 disclosure is required for financial instruments that are carried or disclosed in the financial statements at fair value. The fair values of all the Group's financial derivatives, bank loans and Private Placement Notes have been determined by reference to market prices and discounted expected cash flows at prevailing interest rates and are Level 2 valuations. There have been no transfers between levels in the year. The different levels of valuation hierarchy as defined by IFRS 13 are set out below in note 10.
The total change in fair value of derivative financial instruments recorded in other comprehensive income was a GBP0.5m loss (March 2020: gain of GBP2.2m, September 2019: gain of GBP0.5m).
14. Lease obligation
Lease liabilities in respect of leased investment property are recognised in accordance with IFRS 16.
Unaudited Audited Unaudited 30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm --------------------------------------------- ------------- --------- ------------- Leases repayable in two years or more 26.3 28.2 20.5 Minimum lease payments under leases fall due as follows: Within one year 1.6 1.8 1.3 Between two and five years 6.6 7.0 5.0 Beyond five years 149.2 157.2 117.0 157.4 166.0 123.3 Future finance charges on leases (131.1) (137.8) (102.8) --------------------------------------------- ------------- --------- ------------- Present value of lease liabilities 26.3 28.2 20.5 --------------------------------------------- ------------- --------- -------------
Following the adoption of IFRS16 lease obligations, which were previously included in borrowings, have been shown separately on the face of the balance sheet.
15. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from operations:
6 months 6 months ended ended Year ended 30 September 30 September 31 March 2020 2019 2020 GBPm GBPm GBPm -------------------------------------------- ------------- ------------- ---------- (Loss)/ profit before tax (110.4) 99.1 72.5 Depreciation 0.9 0.3 0.9 Amortisation of intangibles 0.3 0.2 0.5 Profit on disposal of investment properties 0.2 - 0.8 Other expenses 0.2 0.6 0.2 Net gain/(loss) from change in fair value of investment property 125.3 (59.6) 7.5 Equity settled share based payments 1.5 0.8 2.6 Finance expense 11.8 11.5 23.0 Changes in working capital: Increase in trade and other receivables (9.8) (9.4) (9.5) Increase in trade and other payables 5.6 11.9 10.2 -------------------------------------------- ------------- ------------- ---------- Cash generated from operations 25.6 55.4 108.7 -------------------------------------------- ------------- ------------- ----------
For the purposes of the cash flow statement, cash and cash equivalents comprise the following:
30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm ----------------------------------------- ------------ -------- ------------ Cash at bank and in hand 4.3 70.3 11.6 Restricted cash - tenants' deposit deeds 8.1 8.9 8.9 ----------------------------------------- ------------ -------- ------------ 12.4 79.2 20.5 ----------------------------------------- ------------ -------- ------------
16. Capital commitments
At the period end the estimated amounts of contractual commitments for future capital expenditure not provided for were:
Unaudited Audited Unaudited 30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm -------------------------------------------- ------------- --------- ------------- Construction or refurbishment of investment properties 4.2 4.3 12.3 -------------------------------------------- ------------- --------- -------------
17. Share Capital
Unaudited Audited Unaudited 30 September 31 March 30 September 2020 2020 2019 GBPm GBPm GBPm ------------------------------------------- ------------- --------- ------------- Issued: fully paid ordinary shares of GBP1 each 181.1 180.7 180.7 ------------------------------------------- ------------- --------- ------------- Unaudited Audited Unaudited 30 September 31 March 30 September Movements in share capital were 2020 2020 2019 as follows: GBPm GBPm GBPm -------------------------------- ------------- ----------- ------------- Number of shares at 1 April 180,747,868 180,385,498 180,385,498 Issue of shares 358,557 362,370 343,646 -------------------------------- ------------- ----------- ------------- Number of shares at period end 181,106,425 180,747,868 180,729,144 -------------------------------- ------------- ----------- -------------
The Group has issued 0.4m of shares to satisfy the exercise of employee share option schemes.
Responsibility statement of the directors in respect of the half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
The Directors of Workspace Group PLC are listed in the Workspace Group PLC Annual Report and Accounts for 31 March 2020. A list of current Directors is maintained on the Workspace Group website: www.workspace.co.uk .
Approved by the Board on 10 November 2020 and signed on its behalf by
D Benson
Director
INDEPENT REVIEW REPORT TO WORKSPACE GROUP PLC
Conclusion
We have been engaged by the Group to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Group in accordance with the terms of our engagement to assist the Group in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Group those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group for our review work, for this report, or for the conclusions we have reached.
Richard Kelly
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
10 November 2020
Principal Risks and uncertainties
The Board assesses and monitors the key risks of the business. The key risks that could affect the Group's medium-term performance and the factors which mitigate these risks, have not materially changed from those set out in the Group's Annual Report and Accounts 2019 and have been assessed in line with the requirements of the 2019 UK Corporate Governance Code. They are reproduced below. The Board is satisfied that we continue to operate within our risk profile.
The Covid-19 pandemic has had a significant impact on Workspace and its customers. A Covid-19 working group was set up to identify specific risks in relation to the pandemic and implement an action plan to address these risks. Key areas of consideration included employees, customers, regulation, properties, financing and a back-to-business plan following the easing of restrictions.
Risk area Mitigating activities Brexit * Modelling and stress testing our business plans and The UK is now in a transition viability throughout the year, including loan period following its exit from covenants and borrowing levels the EU on 31 January 2020. Workspace operates solely in * Reviewing and monitoring loan covenants and borrowing London with no international levels activities. The main risks to the Group are the impact on the UK economy and Workspace * Regular communication with customers and stakeholders customers. to gather information on potential Brexit impacts * Review of any key contracts which may be impacted by Brexit * Consideration of the potential impact on employees and communication with staff as and when applicable * Liaising with our advisors on any potential changes to regulation which may arise ------------------------------------------------------------- Customer demand * We use a wide range of marketing strategies to reach Demand for our flexible office our customers, with around 70% of customer leads space declining as a result coming from our lettings website. Advertising, of social, economic or competitive word-of-mouth, social media and aggregators also factors, which impacts on: contribute customer leads. Our range of 59 buildings * Fall in occupancy levels at our properties providing over 3.9m sq. ft. of lettable space enables us to offer different office experiences at various price points to match customer requirements. Weekly * Falling rent roll enquiries, viewings and lettings are closely tracked to identify changes in expected customer trends. Based on trends in demand, we are able to vary our * Reduction in property valuation pricing and occupancy levels to match requirements * Our asset management and in-house lettings teams know Covid-19 risk and response and understand our customers through ongoing business relationships, often over several years. Changes in The Government guidelines for customer behaviour are quickly noted and followed up. businesses to work from home Where the customer requires an expansion or in response to the Covid-19 contraction of their office space, we are usually pandemic had an immediate impact able to offer alternative space very quickly due to on customer demand. This could our flexible lease terms. be further exacerbated if the economy falls into recession and business are reluctant to * Our business plans are stress tested to assess the take up new office space. sensitivity of our forecasts to reduced levels of demand, and contingency measures can be implemented. In response to the lockdown, Although a loss of customers is a risk, customer Workspace offered a 50% discount turnover on its own can be beneficial in allowing to its customers for the three office space to be refurbished and rent reversion months to the end of June 2020. captured. ------------------------------------------------------------- Valuation * Market-related valuation risk is largely dependent on Value of our properties decreasing external factors. We maintain a conservative LTV as a result of external market ratio which can withstand a severe decline in or internal management factors, property values without covenant breaches impacting on: * Financing covenants linked to loan to value ratio * We monitor changes in sentiment in the London real estate market, yields and pricing to track possible * Impact on share price changes in valuation. CBRE, the leading full-service real estate services and investment organisation in the world, provides twice yearly valuations of all our properties. Covid-19 risk and response A prolonged recession following * Alternative use opportunities, including mixed-use the lockdown could result in developments, are actively pursued across the a negative impact on both ERVs portfolio. and yields. We have managed our balance sheet so that we are in a strong financial position with significant headroom on our loan to value covenant. ------------------------------------------------------------- Competition * We closely monitor competitors locally and across the New entrants to our market space region more generally by comparing pricing, customer decrease customer demand for offering and location. Competitor trends and our properties resulting in performance are regularly reviewed and discussed at reduced rent roll growth. the corporate strategy level. Alongside the review of competition, we also liaise closely with our Covid-19 risk and response customers to gain insightful feedback on our business space, facilities and overall product. This helps us Competitors may respond to the to create new initiatives to respond to customer crisis faster and provide solutions behaviours and keep ahead of competition. that deal with Covid-19 in offices more effectively. * Our asset management and lettings teams maintain We continue to monitor competitor close relationships with customers which provides us activity and speak to our customers with real-time information about customer about requirements. requirements, allowing us to modify or improve our customer offer according to market developments. ------------------------------------------------------------- Refurbishments and development * We maintain a pipeline of potential refurbishments Cost inflation or timing delays and developments that we bring to market at the
or inability to proceed with appropriate time when customer feedback indicates planned pipeline of schemes. increasing demand for flexible office space. All projects are fully assessed before work is commenced Failure to deliver expected and full costings developed. Building work is managed returns on developments, cost to strict financial targets and assessed on an over runs and delayed delivery ongoing basis during the project. The Investment of key projects all have a potential Committee is responsible for approving all projects effect on property returns and prior to commencement and monitors progress on valuation. Not completing projects refurbishments and redevelopments against project on time and on budget can have timings and budgets. After project completion, the a negative effect on our reputation. Investment Committee reviews the result and notes any key points for future projects. Covid-19 risk and response Extended Government restrictions on movement could impact the delivery of planned projects, impacting financial returns. Two properties due to launch around the time of the Government announcement to restrict movement were put on hold and launched at a later date once restrictions were relaxed. ------------------------------------------------------------- Acquisitions and business development * We undertake regular monitoring of asset performance Inappropriate strategies on and positioning of our portfolio with periodic acquisitions, disposals and detailed portfolio reviews new business initiatives, including timing, incorrect valuations and longer than anticipated * For each new acquisition we undertake thorough due letting up process could lead diligence and detailed appraisals prior to purchase to financial underperformance. Acquisitions and disposals are * We monitor acquisition performance against target essential components of our returns capital recycling strategy which drives long-term growth and net rental income. Failure to * Property disposals are subject to detailed review and execute that strategy successfully Board approval impacts our ability to recycle capital into properties that meet changing customer demand and ultimately affect growth in net rental income. Covid-19 risk and response Transactional activity was limited during these uncertain times. We continue to manage our finances prudently to maintain our robust liquidity profile. We remain alert to market opportunities that satisfy our financial and strategic requirements. ------------------------------------------------------------- London * We have been active in the London property market for Our property portfolio is solely over 30 years with a proven base of knowledge and London-based. Adverse changes experience through various property cycles. We have in the political, economic and regular meeting with influencers and decision-makers environmental context could in the London economy to keep us abreast of economic translate into reduced demand and political trends that could affect our portfolio. for our properties. Single incidents such as a terrorist attack or, as has occurred this year, the * We manage our portfolio conservatively and keenly Government restriction on movement monitor political and economic risks that could due to the Covid-19 pandemic affect the London market. Our development strategy can affect lettings, customer tends to be incremental with fewer large scale demand and pricing. developments to impact our cost base. Over the longer term, we believe that the London market is one of the Covid-19 risk and response most resilient given its global exposure. Our strong balance sheet and market-leading position ensures Business could reconsider their that we are well-placed to benefit from both positive office requirements following and negative the pandemic with a preference for locations outside of Central London requiring less reliance on public transport. Workspace has a portfolio of properties spread across London including outside of transport zone 1. We are monitoring enquiries closely to understand any changes in requirements. ------------------------------------------------------------- Business Interruption * We have robust business continuity plans and Major events outside the Company's procedures in place to manage short-term shutdowns of control could prevent us from our centres due to terrorism or other incidents. A carrying out our normal daily crisis management plan and cascade of customer business for an undefined period communications details a series of actions designed of time. to disseminate crucial information and ensure the safety of our employees, customers and suppliers Our centres are there to support during a crisis situation. IT controls maintain the our customers and their daily security of customer and corporate data and are business activities. Loss of regularly tested and updated. access, Wi-Fi or other amenities could affect our customers and our own operations. This could * These measures were extensively tested during the result in loss of rental income, Covid-19 pandemic in the first and second quarters of impact on valuation and reputational 2020. This was an unprecedented situation that far damage. exceeded contingency plans for short-term shutdowns. Nonetheless, our systems worked well in allowing Covid-19 risk and response customers to access their premises in accordance with Government guidelines, data was kept secure and our The Covid-19 pandemic is the asset management teams worked tirelessly to maintain most serious business interruption contact event that we have encountered. Our business continuity planning and investment in IT structure meant that we were well prepared to adapt quickly to remote working. Once restrictions were eased, a mobilisation plan was developed to assist employees and customers in returning to work in the office. ------------------------------------------------------------- Regulatory * The Company Secretary, supported by the Head of Legal Failure to meet regulatory requirements and Assistant Company Secretary, prepares a detailed and/or lack of knowledge about briefing for the Board on a regular basis covering changing regulation in property all regulatory issues. The Company's Health and development, finance or health Safety Manager meets regularly with the Chief and safety. Executive Officer to keep abreast of health and safety provisions which are also reported to the Regulatory infringements can Board. lead to fines, tax penalties, health and safety sanctions or more stringent regulatory controls which can also affect our corporate reputation, development activity and customer demand. Covid-19 risk and response We have kept up-to-date with Government announcements and published guidelines regarding hygiene, health and safety and social distancing.
------------------------------------------------------------- Resourcing * We have a robust recruitment process to attract new An inability to recruit and joiners and established interview and evaluation retain talented employees in processes with a view to ensuring a good fit with the key areas could lead to: required skill set and our valued corporate culture. * Inability to implement strategic goals Various incentive schemes align employee objectives with the strategic objectives of the Group to motivate employees to work in the best interests of * Adverse impact on brand and reputation the Group and its stakeholders. This is supported by a robust appraisal and review process for all employees. * A high employee turnover resulting in a loss of knowledge base * Our HR and Support Services teams run a detailed training and development programme designed to ensure employees are supported and encouraged to progress Covid-19 risk and response with learning and study opportunities. The HR function was this year strengthened by the newly Employees will be more aware created appointment of a Head of People who will of their safety when travelling coordinate all activities to attract and retain to work and in the office. talented employees. Workspace implemented a plan to allow employees to return * We have a strong internal culture based on our to work in a clean and safe Company values which encourage independent thought environment that allows for and initiative which is articulated in our four key social distancing. Measures values: include staggered hours and a limit on the number of staff allowed in the certain areas - Know your stuff. of the office at one time. - Find a way. - Show we care. - Be a little bit crazy. ------------------------------------------------------------- Cyber security * Cyber security risk is managed using a mitigation Malicious threats to information framework comprising network security, IT security systems could lead to: policies and third party risk assessments. Controls are regularly reviewed and updated and include * Loss of critical data technology such as next generation firewalls, multi layered access control through to people solutions such as user awareness training and mock-phishing * Financial loss due to fraud emails. * Reputational damage amongst customers * Assurance of the frameworks performance is gained through an independent maturity assessment, penetration testing and network vulnerability testing, all performed annually. Covid-19 risk and response At a time when there is increased reliance on technology as employees work remotely, there is a higher risk of cyber attacks from criminals taking advantage of business focussing on other events. We already have robust processes surrounding cyber security which have been reviewed to consider the impact of the pandemic and to put in place additional safeguards to cover remote working. ------------------------------------------------------------- Financing * We regularly review funding requirements for business Reduced availability of financing plans and ensure we have a wide range of options to options could result in: fund our forthcoming plans. We also prepare a five-year business plan which is reviewed and updated * Inability to fund business plans annually * Restricted ability to invest in new opportunities * We have a broad range of funding relationships in place and regularly review our refinancing strategy * Increased interest costs. * We maintain a specific interest rate profile via use of fixed rates and swaps on our loan facilities so * Negative reputational impact amongst lenders and in that our interest payment profile is stable the investment community * Loan covenants are monitored and reported to the Board on a monthly basis and we undertake detailed Covid-19 risk and response cashflow monitoring and forecasting. The pandemic has impacted our customers and their ability to pay which could impact our financial performance and lead to a breach in covenants. There has been an extensive review of our forecast models, considering various downside scenarios, as reported in our Basis of Preparation note. -------------------------------------------------------------
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