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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 12.50 | 2.59% | 495.00 | 492.00 | 495.50 | 495.50 | 482.50 | 482.50 | 167,716 | 16:35:08 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 174.2M | -37.8M | -0.1970 | -25.15 | 950.85M |
From Apr 2019 to Apr 2024
TIDMWKP
RNS Number : 2578H
Workspace Group PLC
14 November 2018
HALF YEAR RESULTS
14 November 2018
WORKSPACE GROUP PLC
INTERIM RESULTS
WORKSPACE GROUP PLC
STRONG PERFORMANCE DRIVEN BY CUSTOMER DEMAND
20% INCREASE IN INTERIM DIVID
Workspace Group PLC ("Workspace") is pleased to announce results for the six months ended 30 September 2018. The comments in this announcement refer to the period from 1 April 2018 to 30 September 2018 ("the period") unless otherwise stated.
Financial highlights
-- Strong growth in net rental income, up 17% year on year to GBP54.1m, resulting in 20% growth in adjusted trading profit after interest to GBP35.4m
-- Reported profit before tax of GBP101.6m (September 2017: GBP123.7m), with growth in trading profit offset by a lower increase in property valuation and reduced disposal profits
-- Underlying increase of 2.6% (GBP62m) in the property valuation (September 2017: GBP72m) -- EPRA net asset value per share up 3.7% to GBP10.75 -- 9.96% equity placing completed in June 2018, raising gross proceeds of GBP179m
-- Loan to value of 18% at 30 September 2018 increasing to 22% on a proforma basis following the acquisition of The Shepherds Building, Shepherd's Bush, in October 2018
-- A 20% increase in the interim dividend to 10.61p reflecting the strong financial performance and positive outlook
-- Workspace assigned a BBB (stable) rating by S&P
Operating performance in the period
-- Total rent roll up 1.9% to GBP115.0m (31 March 2018: GBP112.9m) -- Like-for-like rent roll up 2.7% to GBP76.8m (31 March 2018: GBP74.8m)
-- Like-for-like rent per sq. ft. up 2.8% to GBP38.88 and occupancy stable at 91.8% at 30 September 2018
-- Good level of customer demand with enquiries averaging 1,020 per month (2017/18: 1,016 per month) and lettings averaging 92 per month (2017/18: 93 per month)
Strategic progress and business update in the period
-- Two acquisitions completed for GBP89m, with a further GBP125m acquisition in October 2018 -- Three small office buildings sold for GBP52m, 23% above the book value at 31 March 2018
-- One mixed-use redevelopment exchanged for sale for GBP15m in cash and the return of a new 39,000 sq. ft. business centre
-- Three refurbishments completed and two new buildings received back from our redevelopment projects
-- Expect to complete a further five projects in the second half of the year
Commenting on the results, Jamie Hopkins, Chief Executive Officer said:
"We have been extremely active across our portfolio during the first half of the year and I am encouraged by the good like-for-like performance, alongside delivery of our project pipeline and the acquisition and integration of some exciting new properties.
"The new and upgraded business centres that we have launched over the last six months are already letting up well and, with a healthy pipeline of further refurbishment and redevelopment projects underway, we are confident that our product is meeting the ongoing customer demand for high quality space.
"Despite the uncertain political and economic environment, we believe that we have the right strategy - owning and actively managing our assets alongside building direct relationships with customers - and a strong balance sheet to take advantage of opportunities and deliver value for shareholders. The 20% increase in the interim dividend we've announced today is a reflection of the strong growth in trading profit and our outlook for the future."
Summary results
Hot Features
Premium
September September Change
2018 2017
Financial performance
---------- ---------- -------
Net rental income GBP54.1m GBP46.1m +17%
---------- ---------- -------
Profit before tax GBP101.6m GBP123.7m -18%
---------- ---------- -------
Adjusted trading profit after interest(1) GBP35.4m GBP29.4m +20%
---------- ---------- -------
Interim dividend per share 10.61p 8.84p +20%
---------- ---------- -------
September March Change
2018 2018
Property valuation
---------- ---------- ---------
CBRE property valuation(2) GBP2,435m GBP2,280m +2.6%**
---------- ---------- ---------
Like-for-like capital value per
sq. ft. GBP592 GBP573 +3.3%
---------- ---------- ---------
Like-for-like initial yield 5.3% 5.4% -0.1%*
---------- ---------- ---------
Like-for-like equivalent yield 6.3% 6.5% -0.2%*
---------- ---------- ---------
EPRA net asset value per share(1) GBP10.75 GBP10.37 +3.7%
---------- ---------- ---------
Financing
---------- ---------- ---------
Loan to value 18% 23% -5%*
---------- ---------- ---------
Undrawn bank facilities and cash GBP158m GBP148m +GBP10m*
---------- ---------- ---------
* absolute change
** underlying change which excludes capital expenditure, acquisitions and disposals
(1) Adjusted performance measures are used by Workspace to assess and explain its performance but are not defined under IFRS.
- Adjusted trading profit after interest is net rental income and joint venture trading, less administrative expenses and net finance costs and excluding exceptional finance costs.
- EPRA net asset value represents net assets after excluding mark to market adjustments of effective cash flow hedges (financial derivatives) and deferred tax relating to revaluation movements, capital allowances and derivatives.
(2) Refer to note 9 of the financial statements for the reconciliation of the CBRE property valuation to Investment Properties as per the balance sheet.
Definitions of other performance measures included in the results are consistent with those in the glossary contained in the Annual Report and Accounts for the year ended 31 March 2018.
For media and investor enquiries, please contact:
Workspace Group PLC Clare Marland, Head of Corporate Communications 020 7138 3300 Edelman John Kiely Rob Yates 020 3047 2546
Notes to Editors
About Workspace Group PLC:
Workspace is focused on helping businesses perform at their very best. The Workspace Advantage is our unique customer offer and is open to all - we provide inspiring, flexible work spaces with super-fast technology in dynamic London locations. Established in 1987, and listed on the London Stock Exchange since 1993, Workspace owns and manages 3.8 million sq. ft. of business space across 64 London properties which it lets directly to customers. We are home to thousands of businesses including some of the fastest growing and established brands across a wide range of sectors.
The way businesses work is changing. That's why we continually invest in providing the technology infrastructure that enables our customers to think and move fast, and alongside their working environment, is tailored to each individual business.
Workspace (WKP) is a FTSE 250 listed Real Estate Investment Trust (REIT) and a member of the European Public Real Estate Association (EPRA).
LEI: 2138003GUZRFIN3UT430
For more information on Workspace, visit www.workspace.co.uk.
Details of results presentation
There will be a results presentation to analysts and investors hosted by the Workspace Executive Team on Wednesday 14 November 2018 at 8.15am. The venue for the presentation is Bank of America Merrill Lynch, 2 King Edward Street, London, EC1A 1HQ. There is also a webcast and conference call facility in conjunction with the presentation.
Webcast: The live webcast will be available here https://secure.emincote.com/client/workspace/workspace010
Conference call details:
Dial in: +44 20 3059 5868
BUSINESS REVIEW
ENQUIRIES AND LETTINGS
We have seen good demand for our space with enquiries averaging 1,020 per month (FY 2017/18: 1,016), and lettings averaging 92 per month (FY 2017/18: 93). These levels of enquiries and lettings have continued into the second half of the financial year with 1,055 enquiries and 108 lettings in October 2018.
Quarter Ended
----------------------------------------
Average number 30 Sept 30 Jun 31 Mar 31 Dec 30 Sept
per month 2018 2018 2018 2017 2017
--------------- ------- ------ ------ ------ -------
Enquiries 1,019 1,021 1,111 858 1,039
Lettings 97 88 92 86 97
--------------- ------- ------ ------ ------ -------
RENT ROLL
Total rent roll, representing the annualised net rental income at a given date, was up 1.9% (GBP2.1m) in the six months to September 2018 to GBP115.0m:
Rent Roll GBPm ----------------------------------------- ----- At 31 March 2018 112.9 Like-for-like Portfolio 2.0 Completed Projects 2.5 Refurbishment and Redevelopment Projects (1.2) Recent Acquisitions 1.6 Disposals (2.2) Other (0.6) At 30 September 2018 115.0 ----------------------------------------- -----
The total estimated rental value (ERV) of the portfolio, comprising the ERV of the like-for-like portfolio, completed projects, properties acquired and those currently undergoing refurbishment or redevelopment (but only including properties at the design stage at their current rent roll and occupancy) is GBP168.1m. Assuming a 90% occupancy level at these properties, this equates to a rent roll of GBP152.3m, GBP37.3m higher than the current rent roll.
Like-for-like Portfolio
The like-for-like portfolio represents 67% of the total rent roll as at 30 September 2018. It comprises properties with stabilised occupancy and excludes buildings impacted by significant refurbishment or redevelopment activity. Like-for-like trends reported for previous financial years are not restated for the property transfers made in the current financial year.
The like-for-like rent roll has increased by 2.7% (GBP2.0m) in the six months to GBP76.8m. Like-for-like rent per sq. ft. is up 2.8% in the six months to GBP38.88 whilst like-for-like occupancy is stable at 91.8%.
Six months Ended
--------------------------------
30 Sept 31 Mar 30 Sept 31 Mar
Like-for-like properties 2018 2018 2017 2017
------------------------- ------- ------ ------- ------
Rent roll growth 2.7% 4.3% 4.1% 6.2%
Occupancy movement (0.2)% (0.7)% 1.5% (0.3%)
Rent per sq. ft. growth 2.8% 4.8% 2.7% 6.7%
------------------------- ------- ------ ------- ------
If all the like-for-like properties were at 90% occupancy at the CBRE estimated rental values at 30 September 2018, the rent roll would be GBP85.0m, GBP8.2m higher than the actual cash rent roll at 30 September 2018.
Completed Projects
During the first half of the year we completed five projects delivering 256,000 sq. ft. of new and upgraded space as detailed below:
Building Project Opened Latest Occupancy* China Works, Vauxhall Upgrade June 2018 83% Fuel Tank, Deptford New building June 2018 52% Cocoa Studios, Bermondsey New building June 2018 60% The Frames, Shoreditch New building September 2018 27% Edinburgh House, Vauxhall New building September 2018 13%
* As at 9 November 2018
Lettings have been strong at each of these buildings to date with overall pricing in line with expectations.
There are now a total of ten projects in the completed projects category with rent roll increasing by GBP2.5m in the period to GBP16.5m, and overall occupancy at 30 September 2018 at 66%.
If the ten buildings were all at 90% occupancy at the CBRE estimated rental values at 30 September 2018, the rent roll would be GBP25.4m, GBP8.9m higher than the 30 September 2018 cash rent roll.
Projects Underway - Refurbishments
We are currently underway on ten refurbishment projects that will deliver 464,000 sq. ft. of new and upgraded space. As at 30 September 2018, rent roll was GBP4.8m, down GBP0.5m in the six months. We expect to complete five of these refurbishments in the second half of the year delivering 203,000 sq. ft. of new and upgraded space.
The short-term reduction in rent roll at these refurbishments will be replaced in due course by a significant uplift in rent as they complete and the new and upgraded space is let. Assuming 90% occupancy at the CBRE estimated rental values at 30 September 2018, the rent roll at these ten buildings once they are completed and successfully let would be GBP18.5m, an uplift of GBP13.7m.
Projects Underway - Redevelopments
There are currently five mixed-use redevelopment projects underway or contracted for sale. The existing buildings are vacated upon sale and Workspace receives a consideration comprising cash, and at three of these properties, new business centres (built at no cost to Workspace) providing 96,000 sq. ft. of net lettable space.
Assuming 90% occupancy at the CBRE estimated rental values at 30 September 2018, the rent roll at the three new business centres we will receive back would be GBP2.1m, an uplift of GBP1.9m.
Projects at Design Stage
There are a number of properties at the design stage where we are planning a refurbishment or redevelopment that has not yet commenced. This is due to a combination of receiving the necessary planning consents and obtaining vacant possession. The rent roll at these properties at 30 September 2018 was GBP10.3m, down GBP0.6m in the half year.
Recent Acquisitions
The acquisition of Centro 1 & 2 in April 2018 was the second stage of the purchase of the Centro Buildings in Camden. These buildings will be progressively reconfigured as a Workspace business centre location.
Long Lane, a building adjacent to our Leather Market business centre, was acquired in shell condition in August 2018. We expect to complete the fit-out in early 2019.
At 30 September 2018
---------------------------------
Lettable Rent
Acquired Area Roll Occupancy
----------------- ------------ -------- ---------
February / April 214,000 sq.
Centro Buildings 2018 ft. GBP6.5m 87.6%
August 2018 29,000 sq. -
Long Lane ft. -
If the two properties in this category were at 90% occupancy at the CBRE estimated rental values at 30 September 2018, the rent roll would be GBP11.0m, an uplift of GBP4.5m.
Disposals
We completed the sale of a portfolio of three small office buildings in September 2018 for GBP51.9m resulting in a reduction of GBP2.2m in rent roll.
PROFIT PERFORMANCE
Adjusted trading profit after interest for the half year is GBP35.4m, up 20% compared to the prior half year.
30 Sept 30 Sept
GBPm 2018 2017
---------------------------------------- ------- -------
Net rental income 54.1 46.1
Administrative expenses - underlying (7.3) (6.9)
Administrative expenses - share related (1.1) (1.1)
Net finance costs (10.3) (8.7)
---------------------------------------- ------- -------
Adjusted trading profit after interest 35.4 29.4
---------------------------------------- ------- -------
Net rental income increased by 17% (GBP8.0m) year on year to GBP54.1m as detailed below:
30 Sept 30 Sept
GBPm 2018 2017
------------------------- ------- -------
Like-for-like properties 31.6 29.0
Completed projects 7.0 5.3
Projects underway 2.6 3.3
Projects at design stage 2.0 2.0
Acquisitions (see note) 10.1 4.6
Disposals 0.8 1.9
------------------------- ------- -------
Total net rental income 54.1 46.1
------------------------- ------- -------
Note: For rent roll reporting two acquisitions (Fitzroy Street and Alexandra House, 30 September 2018 net rental income: GBP2.8m) have been transferred into the projects at design stage and one acquisition (Salisbury House, 30 September 2018 net rental income: GBP4.3m) has been transferred into the like-for-like category but have been included within the acquisition category for prior year comparison in the table above.
Total administration costs are up 5% year on year to GBP8.4m, with underlying costs (excluding share based costs) up 6% (GBP0.4m) to GBP7.3m. The underlying cost increase of GBP0.4m is due to an increase of four in average headcount year on year, alongside inflationary cost increases.
Net finance costs increased by 18% (GBP1.6m) year on year. The average net debt balance over the period was GBP105m higher than in the first six months of the prior year, whilst the average interest rate has reduced from 4.3% to 3.8%. This interest rate includes the commitment fee on the undrawn revolver facility. The marginal cost of the undrawn revolver facility is 1.5% over LIBOR.
Profit before tax for the period has reduced by GBP22.1m year on year to GBP101.6m as detailed below:
30 Sept 30 Sept
GBPm 2018 2017
---------------------------------------------- ------- -------
Adjusted trading profit after interest 35.4 29.4
Change in fair value of investment properties 60.6 71.2
Profit on sale of investment properties 8.5 22.9
Exceptional finance costs (3.1) -
Other items 0.2 0.2
---------------------------------------------- ------- -------
Profit before tax 101.6 123.7
---------------------------------------------- ------- -------
Adjusted underlying earnings per share 20.2p 17.9p
---------------------------------------------- ------- -------
-- The change in fair value of investment properties of GBP60.6m reflects the underlying increase in the CBRE valuation in the period of GBP62m, reduced by acquisition costs of GBP1m, and the change in fair value of overage which is reclassified in the financial statements as deferred consideration.
-- The profit on sale of investment properties of GBP8.5m relates to the portfolio sale in September 2018.
-- The exceptional finance cost of GBP3.1m relates to the cost of the early redemption in September 2018 of our 6% fixed rate retail bonds.
-- Adjusted underlying earnings per share, which we consider is the most appropriate metric on which to base our dividend policy, is up 13.0% to 20.2p. This is lower than the growth of 20% in adjusted trading profit after interest due to the 6% increase in average number of shares year on year following the share placing in June 2018.
DIVID
Our dividend policy is based on the growth in annual adjusted trading profit after interest, taking into account our investment and acquisition plans and the distribution requirements that we have as a REIT. To satisfy the REIT distribution requirement, our intention is to grow the dividend on a covered trading profit basis with a minimum dividend cover of 1.2 times adjusted underlying earnings per share (previously 1.3 times cover).
An interim dividend of 10.61p (2017: 8.84p) will be paid on 6 February 2019 to shareholders on the register at 11 January 2019. The 20% increase in the interim dividend reflects the strong financial performance and Board's confidence in the outlook for the Company. The dividend will be paid as a Property Income Distribution.
PROPERTY VALUATION
At 30 September 2018, the wholly owned portfolio was independently valued by CBRE at GBP2,435m, an underlying increase of 2.6% (GBP62m) in the six months. The main movements in the valuation over the six months are set out below:
GBPm
------------------------------- -----
Valuation at 31 March 2018 2,280
Revaluation uplift 62
Capital expenditure 52
Acquisitions 89
Acquisition costs (1)
Disposals (43)
Capital receipts (4)
------------------------------- -----
Valuation at 30 September 2018 2,435
------------------------------- -----
A summary of the half year valuation and uplift by property type is set out below:
GBPm Valuation Uplift ------------------------- --------- ------ Like-for-like Properties 1,274 35 Completed Projects 420 18 Refurbishments 378 4 Redevelopments 158 (2) Acquisitions 205 7 Total 2,435 62 ------------------------- --------- ------
Like-for-like Properties
There was a 2.8% (GBP35m) increase in the valuation of like-for-like properties to GBP1,274m, comprising an increase in ERV per sq. ft. of 0.3% equating to an uplift in value of some GBP4m and a 0.2% reduction in equivalent yield equating to an increase in value of some GBP31m.
30 Sept 31 March
2018 2018 Change
-------------------------- -------- -------- --------
ERV per sq. ft. GBP43.91 GBP43.78 +0.3%
Rent per sq. ft. GBP38.88 GBP37.82 +2.8%
Equivalent Yield 6.3% 6.5% (0.2%)
Net Initial Yield 5.3% 5.4% (0.1%)
Capital Value per sq. ft. GBP592 GBP573 +3.3%
-------------------------- -------- -------- --------
Note: Like-for-like comparatives at 31 March 2018 have been restated for changes in this portfolio in the six months to 30 September 2018, as defined in the Property Statistics table.
Completed Projects
The uplift of 4.5% (GBP18m) in value of the ten completed projects to GBP420m reflects the successful lettings progress made at the properties opened in the period. The most significant uplifts in the six months being GBP14m at The Frames, Shoreditch and GBP3m at China Works, Vauxhall. The overall valuation metrics for completed projects are set out below:
30 Sept
2018
-------------------------- --------
ERV per sq. ft. GBP48.07
Rent per sq. ft. GBP42.76
Equivalent Yield 5.8%
Net Initial Yield 3.5%
Capital Value per sq. ft. GBP716
-------------------------- --------
Current Refurbishments
We have seen an uplift of GBP4m in the value of current refurbishments to GBP378m with a GBP3m uplift at Vox Studios, Vauxhall, where the refurbished West Block is due to open shortly.
Current Redevelopments
There is a reduction of GBP2m in the value of current redevelopment projects to GBP158m. This includes a GBP3m reduction in the value of the mixed-use redevelopment at Poplar Business Park due to a longer than expected timescale to achieve vacant possession for the second and third phases.
Acquisitions
There was an uplift of GBP7m in the value of recent acquisitions to GBP205m with a GBP5m uplift in value of the offices acquired on Long Lane, near London Bridge.
-- In April 2018, we acquired the remaining two Centro buildings (Centro 1 & 2) in Camden for GBP77m. They provide 85,000 sq. ft. of net lettable space and were acquired at a capital value of GBP901 per sq. ft. and a net initial yield of 4.9%.
-- In August 2018, we completed the acquisition of the commercial component of a mixed-use redevelopment scheme on Long Lane, adjacent to our Leather Market business centre, for GBP11.5m which we had contracted to purchase in July 2016. This will provide 29,000 sq. ft. of net lettable space.
-- In October 2018, we acquired The Shepherds Building, Shepherd's Bush, for GBP125m. It provides 150,000 sq. ft. of net lettable space and was acquired at a capital value of GBP835 per sq. ft. and a net initial yield of 4.8%.
Disposals
We completed the sale of a portfolio of three small office properties in September 2018, for GBP52m at a 23% premium to the book value at 31 March 2018.
REFURBISHMENT ACTIVITY
We continue to make good progress on our pipeline of refurbishment projects. In June 2018, we completed the refurbishment of China Works, Vauxhall, a historic building, now upgraded with state-of-the-art facilities and customer amenities. In September 2018 we opened two new business centres, The Frames in Shoreditch and Edinburgh House in Vauxhall.
A summary of the status of the refurbishment pipeline at 30 September 2018 is set out below:
Upgraded
Capex spent Capex and new space
Projects Number to spend (sq. ft.)
--------------------------------- --------- -------------- ----------- ---------------
Underway 10 GBP55m GBP48m 464,000
Design stage 5 - GBP50m 159,000
Design stage (without planning) 3 - GBP81m 303,000
--------------------------------- --------- -------------- ----------- ---------------
-- Of the ten refurbishment projects underway, we are currently on site at nine with completion expected at five during the second half of the financial year.
-- In April 2018, we received planning permission for a major refurbishment at Shaftesbury Centre, Ladbroke Grove. The existing 13,000 sq. ft. building will be replaced by a new business centre providing 41,000 sq. ft. of lettable space at an estimated cost of GBP15m.
-- In June 2018, we received planning permission for a new five-storey building, providing 23,000 sq. ft. of net lettable space at Greville Street, Farringdon, close to the new Crossrail station.
-- In June 2018, we received planning consent for 27,000 sq. ft. of additional commercial space at The Biscuit Factory, Bermondsey.
-- In November 2018, we received planning consent for a major refurbishment and extension at Leroy House, Islington delivering 61,000 sq. ft. of net lettable space at an estimated cost of GBP15m.
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.
-- In June 2018, we received back two new buildings from our redevelopment activity. Cocoa
Studios at The Biscuit Factory, Bermondsey, and The Fuel Tank, Deptford.
-- In July 2018, we exchanged contracts for the redevelopment of Marshgate, adjacent to the
Olympic Park in Stratford. The redevelopment, comprising 200 residential units, has been exchanged for sale for GBP15m in cash and the return of a new 39,000 sq. ft. business centre.
A summary of the status of the redevelopment pipeline at 30 September 2018 is set out below:
No. of Residential Cash Cash/ New commercial
properties units received overage space (sq.
to come ft.)
----------------------- ------------ ------------ ---------- --------- ---------------
Underway 5 687 GBP43m GBP24m 96,000
Design stage 3 666 - - 103,000
Design stage (without
planning) 2 463 - - 169,000
----------------------- ------------ ------------ ---------- --------- ---------------
-- The sale of the residential schemes at the five redevelopment schemes underway is expected to deliver GBP67m in cash (of which GBP43m has already been received) and three new commercial buildings.
-- There are three schemes at the design stage with mixed-use planning consents which are not yet contracted for sale and discussions with the planners for the re-designation of land use at the two schemes at the design stage without planning are also progressing well.
CASH FLOW
The Group generates strong operating cash flows in line with trading profit, with good levels of cash collection. Bad debts remain low in the period at GBP0.2m (September 2017: GBP0.1m). A summary of the movements in cash flow are set out below:
30 Sept 30 Sept
GBPm 2018 2017
---------------------------------------- ------- -------
Net cash from operations after interest 24 33
Dividends paid (32) (22)
Capital expenditure (49) (35)
Purchase of investment properties (100) (256)
Property disposals 52 80
Capital receipts 4 23
Exceptional finance costs (3) -
Proceeds from share issue 176 -
Other (5) (3)
Net movement 67 (180)
Opening Net Debt (net of cash) (517) (242)
---------------------------------------- ------- -------
Closing Net Debt (net of cash) (450) (422)
---------------------------------------- ------- -------
There is a reconciliation of net debt in note 13(b) to the financial statements.
FINANCING
The Group had GBP58m of cash and GBP507.5m of drawn debt at 30 September 2018 with GBP607.5m of committed facilities as detailed below:
Drawn Amount Facility Maturity
----------------------- ------------ --------- ---------
Private Placement Notes GBP357.5m GBP357.5m 2020-2027
Bank facilities GBP150.0m GBP250.0m 2022
------------ ---------
Total GBP507.5m GBP607.5m
------------ ---------
-- All facilities are provided on an unsecured basis with an average maturity of 5.4 years (31 March 2018: 5.5 years).
-- In September 2018, we exercised the option to redeem GBP57.5m of 6% fixed rate retail bonds, ahead of maturity in October 2019. The aggregate redemption price of the bonds was GBP60m, excluding accrued interest, a premium of GBP2.9m over the aggregate issue price of the bonds.
-- The average interest cost of our fixed rate private placement notes is 4.2%. Our revolver bank facilities are currently provided at a floating rate of 1.65% over LIBOR.
-- At 30 September 2018, 57% of our facilities are at fixed rates, representing 69% of our borrowings on a drawn basis.
-- In June 2018, we successfully completed the placing of new ordinary shares representing approximately 9.96 per cent of our issued ordinary share capital prior to the placing. A total of approximately 16.3m new ordinary shares of 100 pence each were placed at a price of GBP11.00 per placing share, a 6% premium to the March 2018 EPRA NAV, raising gross proceeds of GBP179m.
-- At 30 September 2018, loan to value was 18% (31 March 2018: 23%) and interest cover (based on net rental income) was 5.3 times (31 March 2018: 5.1 times), providing good headroom on all facility covenants.
-- Workspace has been assigned a BBB (stable) rating by S&P.
The loan to value increased to 22% on a proforma basis following the acquisition of The Shepherds Building, Shepherd's Bush in October 2018. Alongside the acquisition, an additional GBP100m 364-day revolver bank facility was put in place (on the same terms as the existing bank revolver facility), which when combined with existing facilities provides GBP125m of facility headroom on a proforma basis. We intend to replace this short-term facility with longer-term funding in due course.
NET ASSETS
Net assets increased in the six months by GBP246m to GBP1,959m. EPRA net asset value per share at 30 September 2018 was up 3.7% to GBP10.75 (31 March 2018: GBP10.37). The calculation of EPRA net asset value per share is set out in note 8 of the financial statements.
EPRA Net Asset Value per share GBP ---------------------------------------- ------ At 31 March 2018 10.37 Property valuation surplus 0.33 Adjusted trading profit after interest 0.20 Dividends paid in period (0.18) Share placement 0.05 Profit on sale of investment properties 0.05 Exceptional finance costs (0.02) Other (0.05) ---------------------------------------- ------ At 30 September 2018 10.75 ---------------------------------------- ------
property statistics
Half Year ended
------------------------------------------
30 Sept 31 March 30 Sept 31 March
2018 2018 2017 2017
-------------------------------------- --------- --------- --------- ---------
Workspace Group Portfolio
Property valuation GBP2,435m GBP2,280m GBP2,139m GBP1,844m
Number of properties 64 66 68 68
Lettable floorspace (million sq.
ft.) 3.8 3.7 3.6 3.6
Number of lettable units 4,777 4,539 4,544 4,306
Rent roll of occupied units GBP115.0m GBP112.9m GBP104.8m GBP89.5m
Overall rent per sq. ft. (see note
3) GBP36.66 GBP36.05 GBP33.80 GBP28.41
Overall occupancy (see note 3) 82.4% 85.5% 85.2% 87.0%
Like-for-like metrics (see notes
1 & 2)
Like-for-like number of properties 31 33 34 35
Like-for-like lettable floor space
(million sq. ft.) 2.2 2.0 2.1 2.3
Like-for-like rent roll growth 2.7% 4.3% 4.1% 6.2%
Like-for-like rent per sq. ft. growth 2.8% 4.8% 2.7% 6.7%
Like-for-like occupancy movement (0.2)% (0.7)% 1.5% (0.3%)
-------------------------------------- --------- --------- --------- ---------
Notes:
1) The like-for-like category has been restated in the current financial year for the following: -- The transfer in of Grand Union Studios, Ladbroke Grove from completed projects -- The transfer in of Salisbury House, Moorgate, from the acquisitions category -- The disposal of Belgravia Studios, N19, The Ivories, N1 and Spectrum House, NW5 -- The transfer in of Bow Enterprise Park (Phase 1) from the redevelopment projects category -- The transfer out of Wenlock Studios, Old Street, to the refurbishment projects category -- The transfer out of Parma House, Wood Green, 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 2018
Unaudited Unaudited
6 months 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
Notes GBPm GBPm GBPm
---------------------------------------------- ----- -------------- ------------- -----------
Revenue 2 71.9 61.5 128.9
Direct costs 2 (17.8) (15.4) (33.3)
---------------------------------------------- ----- -------------- ------------- -----------
Net rental income 2 54.1 46.1 95.6
Administrative expenses (8.4) (8.0) (16.1)
---------------------------------------------- ----- -------------- ------------- -----------
Trading profit 45.7 38.1 79.5 Profit on disposal of investment properties 3(a) 8.5 22.9 26.6 Other income 3(b) 0.2 0.2 0.6 Change in fair value of investment properties 9 60.6 71.2 82.5 ---------------------------------------------- ----- -------------- ------------- ----------- Operating profit 115.0 132.4 189.2 Finance costs 4 (10.3) (8.7) (18.8) Exceptional finance costs 4 (3.1) - - Profit before tax 101.6 123.7 170.4 Taxation 5 - - 1.0 ---------------------------------------------- ----- -------------- ------------- ----------- Profit for the period after tax 101.6 123.7 171.4 ---------------------------------------------- ----- -------------- ------------- ----------- Basic earnings per share 7 58.4p 75.7p 104.8p Diluted earnings per share 7 58.0p 75.1p 104.0p ---------------------------------------------- ----- -------------- ------------- -----------
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE six monthsED 30 september 2018
Unaudited Unaudited
6 months 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
GBPm GBPm GBPm
------------------------------------------ ------------- ------------- -----------
Profit for the period 101.6 123.7 171.4
Other comprehensive income:
Items that may be classified subsequently
to profit or loss:
Cash flow hedge- transfer to income
statement 5.7 (4.0) 8.5
Cash flow hedge - change in fair value (5.5) 4.6 (9.5)
------------------------------------------- ------------- ------------- -----------
Total comprehensive income for the period 101.8 124.3 170.4
------------------------------------------- ------------- ------------- -----------
CONSOLIDATED BALANCE SHEET
AS AT 30 september 2018
Unaudited Audited Unaudited
30 September 31 March 30 September
2018 2018 2017
Notes GBPm GBPm GBPm
--------------------------------- ------ ------------- --------- -------------
Non-current assets
Investment properties 9 2,430.2 2,288.7 2,125.9
Intangible assets 1.4 1.4 0.8
Property, plant and equipment 3.5 2.9 3.0
Investment in joint ventures - 0.1 0.3
Other investments 3.2 3.2 3.1
Trade and other receivables 10 - - 3.4
13(e)
Derivative financial instruments & (f) 8.2 2.5 8.2
--------------------------------- ------ ------------- --------- -------------
2,446.5 2,298.8 2,144.7
--------------------------------- ------ ------------- --------- -------------
Current assets
Assets held for sale 9 15.0 - 25.6
Trade and other receivables 10 37.9 22.4 17.9
Cash and cash equivalents 11 66.3 18.0 21.7
--------------------------------- ------ ------------- --------- -------------
119.2 40.4 65.2
--------------------------------- ------ ------------- --------- -------------
Total assets 2,565.7 2,339.2 2,209.9
--------------------------------- ------ ------------- --------- -------------
Current liabilities
Trade and other payables 12 (73.8) (75.5) (65.9)
Deferred tax - - (0.9)
--------------------------------- ------ ------------- --------- -------------
(73.8) (75.5) (66.8)
--------------------------------- ------ ------------- --------- -------------
Non-current liabilities
Borrowings 13(a) (533.4) (550.8) (463.2)
--------------------------------- ------ ------------- --------- -------------
(533.4) (550.8) (463.2)
--------------------------------- ------ ------------- --------- -------------
Total liabilities (607.2) (626.3) (530.0)
--------------------------------- ------ ------------- --------- -------------
Net assets 1,958.5 1,712.9 1,679.9
--------------------------------- ------ ------------- --------- -------------
Shareholders' equity
Share capital 180.4 163.8 163.8
Share premium 295.0 135.3 135.3
Investment in own shares (9.3) (9.3) (9.8)
Other reserves 20.5 19.4 20.0
Retained earnings 1,471.9 1,403.7 1,370.6
--------------------------------- ------ ------------- --------- -------------
Total shareholders' equity 1,958.5 1,712.9 1,679.9
---------
EPRA net asset value per share 8 GBP10.75 GBP10.37 GBP10.14
--------------------------------- ------ ------------- --------- -------------
Consolidated Statement of Changes in Equity
FOR THE periodED 30 september 2018
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 2018 Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 1 April
2018 163.8 135.3 (9.3) 19.4 1,403.7 1,712.9
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Profit for the period - - - - 101.6 101.6
Other comprehensive
income - - - 0.2 - 0.2
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive
income - - - 0.2 101.6 101.8
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Transactions with
owners:
Share issues 16 16.6 159.7 - - - 176.3
Dividends paid 6 - - - - (33.4) (33.4)
Share based payments - - - 0.9 - 0.9
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 30 September
2018 180.4 295.0 (9.3) 20.5 1,471.9 1,958.5
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Unaudited 6 months
to
30 September 2017
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Balance at 1 April
2017 163.2 135.4 (8.9) 18.7 1,270.1 1,578.5
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Profit for the period - - - - 123.7 123.7
Other comprehensive
income - - - 0.6 - 0.6
------------------------ ----- -------- -------- ---------- --------- --------- ---------------
Total comprehensive
income - - - 0.6 123.7 124.3
------------------------ ----- -------- -------- ---------- --------- --------- --------------- Transactions with owners: Share issues 16 0.6 (0.1) (0.9) - - (0.4) Dividends paid 6 - - - - (23.2) (23.2) Share based payments - - - 0.7 - 0.7 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 30 September 2017 163.8 135.3 (9.8) 20.0 1,370.6 1,679.9 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Audited 12 months to 31 March 2018 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 1 April 2017 163.2 135.4 (8.9) 18.7 1,270.1 1,578.5 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Profit for the year - - - - 171.4 171.4 Other comprehensive income - - - (1.0) - (1.0) ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Total comprehensive income - - - (1.0) 171.4 170.4 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Transactions with owners: Share issues 16 0.6 (0.1) - - - 0.5 Own share purchase (net) - - 0.4 - - 0.4 Dividends paid 6 - - - - (37.8) (37.8) Share based payments - - - 1.7 - 1.7 ------------------------ ----- -------- -------- ---------- --------- --------- --------------- Balance at 31 March 2018 163.8 135.3 (9.3) 19.4 1,403.7 1,712.9 ------------------------ ----- -------- -------- ---------- --------- --------- ---------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD 30 SEPTEMBER 2018
Unaudited Unaudited
6 month 6 months Audited
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
Notes GBPm GBPm GBPm
--------------------------------------------- ----- ------------- ------------- -----------
Cash flows from operating activities
Cash generated from operations 14 37.1 41.2 93.2
Interest paid (12.8) (8.2) (18.8)
Tax paid - - (0.2)
--------------------------------------------- ----- ------------- ------------- -----------
Net cash inflow from operating activities 24.3 33.0 74.2
Cash flows from investing activities
Purchase of investment properties (99.5) (256.0) (370.4)
Capital expenditure on investment properties (48.5) (34.6) (73.8)
Proceeds from disposal of investment
properties 51.5 93.3 128.1
Purchase of intangible assets (0.2) (0.1) (1.1)
Purchase of property, plant and equipment (1.2) (0.7) (1.0)
Other income (overage receipts) 3.7 9.4 8.7
Purchase of investments - - (0.1)
Income distributions from joint ventures - - 0.2
--------------------------------------------- ----- ------------- ------------- -----------
Net cash outflow from investing activities (94.2) (188.7) (309.4)
Cash flows from financing activities
Proceeds from issue of ordinary share
capital 176.3 0.4 0.5
Settlement and re-couponing of derivative
financial instruments (0.1) - (0.1)
Own share purchase - (0.9) (0.4)
Finance costs for new/amended borrowing
facilities (0.1) (1.7) (1.9)
Exceptional finance costs (2.9) - -
Repayment of bank borrowings (233.5) (5.0) (294.0)
Proceeds from bank borrowings 210.0 200.0 580.0
Dividends paid 6 (31.5) (21.9) (37.4)
--------------------------------------------- ----- ------------- ------------- -----------
Net cash inflow from financing activities 118.2 170.9 246.7
--------------------------------------------- ----- ------------- ------------- -----------
Net increase in cash and cash equivalents 48.3 15.2 11.5
--------------------------------------------- ----- ------------- ------------- -----------
Cash and cash equivalents at start of
period 11 18.0 6.5 6.5
Cash and cash equivalents at end of
period 11 66.3 21.7 18.0
--------------------------------------------- ----- ------------- ------------- -----------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE periodED 30 september 2018
1. The half year report has been prepared in accordance with the Disclosure and Transparency Rules and with IAS34 'Interim Financial Reporting' as adopted by the European Union. The half year report should be read in conjunction with the annual financial statements for the year ended 31 March 2018, 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 2018, which were prepared under IFRS as adopted by the European Union have been delivered to the Registrar of Companies. The auditor's opinion on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement made under Section 498 of the Companies Act 2006.
The Group's financial performance does not suffer materially from seasonal fluctuations. There have been no changes in estimates of amounts reported in prior periods which have a material impact on the current half year period.
The directors are satisfied that the Group has adequate resources, and sufficient headroom on its bank facilities to cover current liabilities, in order to continue in operational existence for a period of at least twelve months from the date of signing this report and for this reason the half year report is prepared on a going concern basis.
This report was approved by the Board on 13 November 2018.
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 March 2018, with the exception of the following:
IFRS 9 Financial Instruments (effective 1 January 2018)
This standard applies to classification and measurement of financial assets and liabilities, impairment provisioning and hedge accounting. The Group's assessment of IFRS 9 found that the main area of potential impact is impairment provisioning on trade receivables due to the requirements to use the expected credit loss model. The Group concludes that this has no material impact on its financial statements and no restatement of comparative financial information was necessary.
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
This standard relates to the recognition of revenue and establishing principles to report information about the nature, amount, timing and uncertainty of revenue. This standard has a potential impact on service charge income and investment property disposals but excludes rent receivable from leases which is out of scope of the standard. The Group concludes the adoption of the standard has no material impact on the financial statements and no restatement of comparative financial information was necessary.
Standards in issue but not effective
IFRS 16 Leases (effective 1 January 2019)
This standard does not substantially affect the accounting for rental income earned by the Group from leases with customers. The main impact of the standard is the removal of the distinction between operating and finance leases for lessees, which will result in almost all leases being recognised on the balance sheet. As the Group does not hold any material operating leases as a lessee, the impact of the standard is not expected to be material to the financial statements but will have some changes to the carrying amount of finance leases relating to the Group's long leasehold investment properties.
2. Analysis of net rental income
6 months ended 30 6 months ended 30
September 2018 September 2017
--------------------------- ---------------------------
Direct Net rental Direct Net rental
Revenue costs income Revenue costs income
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- ------ ---------- ------- ------ ----------
Rental income 59.5 (1.7) 57.8 50.3 (1.4) 48.9
Service charges 9.5 (11.4) (1.9) 8.6 (9.8) (1.2)
Empty rates and other non recoverable
costs - (2.4) (2.4) - (2.6) (2.6)
Services, fees, commissions and
sundry income 2.9 (2.3) 0.6 2.6 (1.6) 1.0
-------------------------------------- ------- ------ ---------- ------- ------ ----------
71.9 (17.8) 54.1 61.5 (15.4) 46.1
-------------------------------------- ------- ------ ---------- ------- ------ ----------
Year ended 31 March
2018
---------------------------
Direct Net rental
Revenue costs income
GBPm GBPm GBPm
-------------------------------------- ------- ------ ----------
Rental income 106.1 (3.4) 102.7
Service charges 17.7 (21.8) (4.1)
Empty rates and other non recoverable
costs - (5.0) (5.0)
Services, fees, commissions and
sundry income 5.1 (3.1) 2.0
-------------------------------------------- ------- ------ ----------
128.9 (33.3) 95.6
----------------------------------------- ------- ------ ----------
All of the properties within the portfolio are geographically close to each other and have similar economic features and risks. Management information utilised by the Executive Committee to monitor and assess performance is reviewed as one portfolio. As a result, management have determined that the Group operates a single operating segment of providing business space for rent in London.
3(a). Profit on disposal of investment properties
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2018 2017 2018
GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- ---------
Proceeds from sale of investment properties
(net of sale costs) 51.0 93.8 128.1
Book value at time of sale (42.5) (70.9) (101.5)
-------------------------------------------- ------------- ------------- ---------
Profit on disposal 8.5 22.9 26.6
-------------------------------------------- ------------- ------------- ---------
During the six months a portfolio of three properties, Belgravia Studios, Spectrum House and the Ivories was sold for a combined sales price of GBP51.9m, before sale costs of GBP0.9m.
3(b). Other income and expenses
Other income
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2018 2017 2018
GBPm GBPm GBPm
----------------------------------------------- ------------- ------------- ---------
Change in fair value of deferred consideration 0.2 0.2 0.4
Income from investments - - 0.2
0.2 0.2 0.6
----------------------------------------------- ------------- ------------- ---------
The value of deferred consideration (cash and overage) from the sale of investment properties has been re-valued by CBRE Limited at 30 September 2018. The amounts receivable are included in the Consolidated balance sheet under non-current and current trade and other receivables (note 10).
4. Finance costs
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2018 2017 2018
GBPm GBPm GBPm
------------------------------------------------ ------------- ------------- ---------
Interest payable on bank loans and overdrafts (1.8) (1.7) (2.8)
Interest payable on other borrowings (9.1) (6.8) (16.0)
Amortisation of issue costs of borrowings (0.5) (0.4) (0.7)
Interest payable on finance leases (0.4) (0.4) (0.9)
Interest capitalised on property refurbishments
(note 9) 1.5 0.6 1.6
Foreign exchange gains/(losses) on financing
activities (5.7) 4.0 (8.5)
Cash flow hedge - transfer from equity 5.7 (4.0) 8.5
------------------------------------------------ ------------- ------------- ---------
Finance costs (10.3) (8.7) (18.8)
------------------------------------------------ ------------- ------------- ---------
Exceptional finance costs (3.1) - -
Total finance costs (13.4) (8.7) (18.8)
------------------------------------------------ ------------- ------------- ---------
Exceptional finance costs of GBP3.1m were incurred upon repayment of the GBP57.5m 6% Retail Bond in September 2018. The costs included a GBP2.9m premium on redemption and GBP0.2m of unamortised finance costs and legal fees relating to this debt.
5. Taxation
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2018 2017 2018
GBPm GBPm GBPm
----------------------------------------------------- ------------- ------------- ---------
Current tax:
UK corporation tax - - -
Adjustments to tax in respect of previous
periods - - (0.1)
----------------------------------------------------- ------------- ------------- ---------
- - (0.1)
Deferred tax:
On origination and reversal of temporary differences - - (0.9)
----------------------------------------------------- ------------- ------------- ---------
- - (0.9)
----------------------------------------------------- ------------- ------------- ---------
Total taxation charge - - (1.0)
----------------------------------------------------- ------------- ------------- ---------
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 2018: GBP1.0m credit, 30 September 2017: GBPnil).
6. Dividends
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
Payment Per 2018 2017 2018
Ordinary dividends paid date share GBPm GBPm GBPm
----------------------------- --------- ------------- ------------- ------------- --------------
For the year ended 31 March
2017:
August
Final dividend 2017 14.27p - 23.3 23.3
For the year ended 31 March
2018
February
Interim Dividend 2018 8.84p - - 14.5
August
Final Dividend 2018 18.55p 33.4 - -
Dividends for the period 33.4 23.3 37.8
Timing difference on payment
of withholding tax (1.9) (1.4) (0.4)
---------------------------------------- ------------- ------------- ------------- --------------
Dividends cash paid 31.5 21.9 37.4
---------------------------------------- ------------- ------------- ------------- --------------
In addition the Directors are proposing an interim dividend in respect of the financial year ending 31 March 2019 of 10.61 pence per ordinary share which will absorb an estimated GBP19.1m of revenue reserves and cash. The dividend will be paid on 6 February 2019 to shareholders who are on the register of members on 11 January 2019. The dividend will be paid as a REIT Property Income Distribution (PID) net of withholding tax where appropriate.
7. Earnings per share
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
Earnings used for calculating earnings per 2018 2017 2018
share: GBPm GBPm GBPm
---------------------------------------------- ------------- ------------- -----------------
Basic and diluted earnings 101.6 123.7 171.4
Change in fair value of investment properties (60.6) (71.2) (82.5)
Exceptional finance cost 3.1 - -
Profit on disposal of investment properties (8.5) (22.9) (26.6)
EPRA earnings 35.6 29.6 62.3
---------------------------------------------- ------------- ------------- -----------------
Adjustment for non-trading items:
Other income (note 3(b)) (0.2) (0.2) (0.6)
Taxation - - (1.0)
---------------------------------------------- ------------- ------------- -----------------
Adjusted trading profit after interest 35.4 29.4 60.7
---------------------------------------------- ------------- ------------- -----------------
Earnings have been adjusted to derive an earnings per share measure as defined by the European Public Real Estate Association (EPRA) and an adjusted underlying earnings per share measure.
6 months 6 months
ended 30 ended Year ended
Number of shares used for calculating September 30 September 31 March
earnings per share: 2018 2017 2018
--------------------------------------------- ----------- -------------- -----------
Weighted average number of shares (excluding
own shares held in trust) 174,038,975 163,351,276 163,495,793
Dilution due to share option schemes 1,182,233 1,233,148 1,293,620
--------------------------------------------- ----------- -------------- -----------
Weighted average number of shares for
diluted earnings per share 175,221,208 164,584,424 164,789,413
--------------------------------------------- ----------- -------------- -----------
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
------------------------------------------ ------------- ------------- ----------
Basic earnings per share 58.4p 75.7p 104.8p
Diluted earnings per share 58.0p 75.1p 104.0p
EPRA earnings per share 20.5p 18.0p 37.8p
Adjusted underlying earnings per share(1) 20.2p 17.9p 36.8p
------------------------------------------ ------------- ------------- ----------
(1) Adjusted underlying earnings per share is calculated on a diluted basis.
8. Net assets per share
30 September 31 March 30 September
Net assets used for calculating net assets 2018 2018 2017
per share: GBPm GBPm GBPm
------------------------------------------- ------------ -------- ------------
Net assets at end of period (basic) 1,958.5 1,712.9 1,679.9
Derivative financial instruments at fair
value (8.2) (2.5) (8.2)
------------------------------------------- ------------ -------- ------------
EPRA net assets 1,950.3 1,710.4 1,671.7
------------------------------------------- ------------ -------- ------------
Number of shares used for calculating 30 September 31 March 30 September
net assets per share: 2018 2018 2017
-------------------------------------------- ------------ ----------- -------------
Shares in issue at period-end 180,374,393 163,806,591 163,800,867
Less own shares held in trust at period-end (146,005) (163,874) (163,874)
-------------------------------------------- ------------ ----------- -------------
Number of shares for calculating basic
net assets per share 180,228,388 163,642,717 163,636,993
Dilution due to share option schemes 1,278,470 1,262,717 1,145,053
-------------------------------------------- ------------ ----------- -------------
Number of shares for calculating diluted
adjusted net assets per share 181,506,858 164,905,434 164,782,046
-------------------------------------------- ------------ ----------- -------------
30 September 31 March 30 September
2018 2018 2017
-------------------------- ------------ -------- ------------
EPRA net assets per share GBP10.75 GBP10.37 GBP10.14
Basic net assets per share GBP10.87 GBP10.47 GBP10.27
-------------------------- ------------ -------- ------------
Net assets have been adjusted and calculated on a diluted basis to derive a net asset per share measure as defined by EPRA.
9. Investment Properties
30 September 31 March 30 September
2018 2018 2017
GBPm GBPm GBPm
---------------------------------------------- ------------ -------- ------------
Balance at 1 April 2,288.7 1,839.0 1,839.0
Purchase of investment properties 89.2 382.4 268.0
Capital expenditure 50.5 75.6 34.5
Acquisition of head lease - 9.1 9.1
Capitalised interest on refurbishments (note
4) 1.5 1.6 0.6
Disposals during the period (42.5) (101.5) (70.9)
Change in fair value of investment properties 60.6 82.5 71.2
---------------------------------------------- ------------ ------------
Balance at end of period 2,448.0 2,288.7 2,151.5
Less: reclassified as deferred consideration (2.8) - -
Less: reclassified as held for sale (15.0) - (25.6)
---------------------------------------------- ------------ -------- ------------
Total investment properties 2,430.2 2,288.7 2,125.9
---------------------------------------------- ------------ -------- ------------
Investment properties represent a single class of property being business accommodation for rent in London.
During the period the Group acquired two properties, Centro buildings 1&2, and Long Lane, which is adjacent to The Leather Market for a combined GBP89.2m, including acquisition costs.
Capitalised interest is included at a rate of capitalisation of 4.4% (March 2018: 4.4%, September 2017 4.4%). The total amount of capitalised interest included in investment properties is GBP11.1m (March 2018: GBP9.6m, September 2017 GBP8.8m).
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 2018 by the external valuer, CBRE Limited, a firm of independent qualified valuers in accordance with the Royal Institution of Chartered Surveyors Valuation - Professional Standards 2014. All the properties are revalued at period end regardless of the date of acquisition. This includes a physical inspection of all properties, at least once a year. In line with IFRS 13, all investment properties are valued on the basis of their highest and best use. For like-for-like properties their current use equates to the highest and best use. For properties undergoing refurbishment or redevelopment, most of these are currently being used for business accommodation in their current state. However, the valuation is based on the current valuation at the balance sheet date including the impact of the potential refurbishment and redevelopment as this represents the highest and best use.
The Executive Committee and the Board both conduct a detailed review of the property valuation to ensure appropriate assumptions have been applied. Meetings are held with the valuers to review and challenge the valuations, ensuring they have considered all relevant information, and rigorous reviews are performed to ensure valuations are sensible.
The valuation of like-for-like properties (which are not subject to refurbishment or redevelopment) is based on the income capitalisation method which applies market-based yields to the Estimated Rental Values (ERVs) of each of the properties. Yields are based on current market expectations depending on the location and use of the property. ERVs are based on estimated rental potential considering current rental streams, market comparatives, occupancy and timing of rent reviews. Whilst there is market evidence for these inputs and recent transaction prices for similar properties, there is still a significant element of estimation and judgement. As a result of adjustments made to market observable data, the significant inputs are deemed unobservable under IFRS 13.
When valuing properties being refurbished by Workspace, the residual value method is used. The completed value of the refurbishment is determined as for like-for-like properties above. Capital expenditure required to complete the building is then deducted and a discount factor is applied to reflect the time period to complete construction and allowance made for construction and market risk to arrive at the residual value of the property.
The discount factor used is the property yield that is also applied to the Estimated Rental Value to determine the value of the completed building. Other risks such as unexpected time delays relating to planned capital expenditure are assessed on a project-by-project basis, looking at market comparable data where possible and the complexity of the proposed scheme.
Redevelopment properties are also valued using the residual value method. The completed proposed redevelopment which would be undertaken by a residential developer is valued based on the market value for similar sites and then adjusted for costs to complete, developer's profit margin and a time discount factor. Allowance is also made for planning and construction risk depending on the stage of the redevelopment. If a contract is agreed for the sale/redevelopment of the site, the property is valued based on agreed consideration.
For all methods the valuers are provided with information on tenure, letting, town planning and the repair of the buildings and sites.
The reconciliation of the valuation report total to the amount shown in the Consolidated balance sheet as non-current assets, investment properties, is as follows:
30 September 31 March 30 September
2018 2018 2017
GBPm GBPm GBPm
---------------------------------------------- ------------ -------- ------------
Total per CBRE valuation report 2,435.3 2,279.6 2,138.9
Deferred consideration on sale of property (6.3) (7.0) (3.4)
Head leases treated as finance leases under
IAS 17 16.2 16.1 16.1
Less reclassified as held for sale (15.0) - (25.6)
---------------------------------------------- ------------ -------- ------------
Total investment properties per balance sheet 2,430.2 2,288.7 2,125.9
---------------------------------------------- ------------ -------- ------------
The Group's Investment properties are carried at fair value and under IFRS 13 are required to be analysed by level depending on the valuation method adopted. The different valuation methods are as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 - Use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data.
Level 3 - Use of a model with inputs that are not based on observable market data.
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 2018.
Key unobservable inputs:
ERVs - per sq. ft. Equivalent yields
----------------------- ---------------------
Valuation Valuation Weighted Weighted
Property category GBPm technique Range average Range average
------------------- --------- ---------- ------------- -------- ----------- --------
Like-for-like 1,273.9 1 GBP13 - GBP80 GBP43 4.4% - 7.5% 6.3%
Completed projects 420.2 1 GBP22 - GBP64 GBP48 5.0% - 7.0% 5.8%
Refurbishments 378.7 2 GBP20 - GBP77 GBP45 4.3% - 6.8% 5.3%
Redevelopments 136.0 2 GBP13 - GBP33 GBP20 5.1% - 6.8% 5.5%
Other 205.2 1 GBP44 - GBP51 GBP51 5.3% - 5.4% 5.4%
Head leases 16.2 n/a
------------------- --------- ---------- ------------- -------- ----------- --------
Total 2,430.2
------------------- --------- ---------- ------------- -------- ----------- --------
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 13%-20% with a weighted average of 18%.
Costs to complete is a key unobservable input for redevelopments at planning stage with a range of GBP199-GBP266 per sq. ft. and a weighted average of GBP233 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
2018 2018 2017
Non-current deferred consideration GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Deferred consideration on sale of investment
properties - - 3.4
- - 3.4
--------------------------------------------- ------------ -------- ------------
30 September 31 March 30 September
2018 2018 2017
Current trade and other receivables GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Trade receivables 8.4 3.2 4.3
Prepayments, other receivables and accrued
income 23.2 12.2 13.6
Deferred consideration on sale of investment
properties 6.3 7.0 -
--------------------------------------------- ------------ -------- ------------
37.9 22.4 17.9
--------------------------------------------- ------------ -------- ------------
Included within prepayments, other receivables and accrued income is a deposit of GBP12.5m paid for the acquisition of Shepherds Building in October 2018.
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 profit of GBP0.2m (31 March 2018: profit of GBP0.4m, 30 September 2017: loss of GBP0.5m) (note 3(b)).
Receivables at fair value:
Included within deferred consideration (both non-current and current) on sale of investment properties is GBP0.9m (March 2018: GBP0.9m, September 2017: GBP0.9m) of overage or cash which is held at fair value through profit and loss.
Receivables at amortised cost:
The remaining receivables are held at amortised cost. There is no material difference between the above amounts and their fair values due to the short-term nature of the receivables. All the Group's trade and other receivables are denominated in Sterling.
11. Cash and cash equivalents
30 September 31 March 30 September
2018 2018 2017
GBPm GBPm GBPm
----------------------------------------- ------------ -------- ------------
Cash at bank and in hand 57.8 13.9 17.7
Restricted cash - tenants' deposit deeds 8.5 4.1 4.0
----------------------------------------- ------------ -------- ------------
66.3 18.0 21.7
----------------------------------------- ------------ -------- ------------
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
2018 2018 2017
GBPm GBPm GBPm
------------------------------------------- ------------ -------- ------------
Trade payables 6.1 6.0 5.8
Other tax and social security payable 2.7 4.4 4.8
Tenants' deposit deeds (note 14) 8.5 4.1 4.0
Tenants' deposits 19.7 24.0 18.6
Accrued expenses 27.4 28.5 25.5
Deferred income - rent and service charges 9.4 8.5 7.2
------------------------------------------- ------------ -------- ------------
73.8 75.5 65.9
------------------------------------------- ------------ -------- ------------
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
2018 2018 2017
GBPm GBPm GBPm
--------------------------------------------- ------------ -------- ------------
Non-current
Bank loans (unsecured) 148.2 113.9 22.5
6% Retail Bond (unsecured) - 57.2 57.2
5.6% Senior US Dollar Notes 2023 (unsecured) 76.9 71.5 75.4
5.53% Senior Notes 2023 (unsecured) 83.8 83.8 83.8
Senior Floating Rate Notes 2020 (unsecured) 9.0 9.0 9.0
3.07% Senior Notes (unsecured) 79.7 79.7 79.6
3.19% Senior Notes (unsecured) 119.6 119.6 119.6
Finance lease obligations 16.2 16.1 16.1
--------------------------------------------- ------------ -------- ------------
533.4 550.8 463.2
--------------------------------------------- ------------ -------- ------------
The Group repaid its 6% GBP57.5m Retail Bond in September 2018.
(b) Net Debt
30 September 31 March 30 September
2018 2018 2017
GBPm GBPm GBPm
----------------------------------- ------------ -------- ------------
Borrowings per (a) above 533.4 550.8 463.2
Adjust for:
Finance leases (16.2) (16.1) (16.1)
Cost of raising finance 2.8 3.4 3.9
Foreign exchange differences (12.5) (7.1) (11.0)
----------------------------------- ------------ -------- ------------
507.5 531.0 440.0
Cash at bank and in hand (note 11) (57.8) (13.9) (17.7)
----------------------------------- ------------ -------- ------------
Net Debt 449.7 517.1 422.3
----------------------------------- ------------ -------- ------------
At 30 September 2018, the Group had GBP100m (31 March 2018: GBP134m) of undrawn bank facilities and GBP57.8m of unrestricted cash (31 March 2018: GBP13.9m). In October 2018 the Group agreed an additional GBP100m 364 day revolver bank facility.
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 2018 was 18% (March 2018: 23%, September 2017: 20%).
The Group also has an interest cover covenant of 2.0x, calculated as net rental income divided by finance costs. At 30 September 2018 interest cover was 5.3x (31 March 2018: 5.1x, September 2017: 5.3x).
(c) Maturity
Unaudited Audited Unaudited
30 September 31 March 30 September
2018 2018 2017
GBPm GBPm GBPm
--------------------------------------------- ------------- --------- -------------
Repayable between one and two years 9.0 - -
Repayable between two and three years - 57.5 57.5
Repayable between three years and four years 150.0 9.0 9.0
Repayable between four years and five years 148.5 116.0 25.0
Repayable in five years or more 200.0 348.5 348.5
--------------------------------------------- ------------- --------- -------------
507.5 531.0 440.0
Cost of raising finance (2.8) (3.4) (3.9)
Foreign exchange differences 12.5 7.1 11.0
--------------------------------------------- ------------- --------- -------------
517.2 534.7 447.1
Finance leases
Repayable in five years or more 16.2 16.1 16.1
--------------------------------------------- ------------- --------- -------------
533.4 550.8 463.2
--------------------------------------------- ------------- --------- -------------
(d) Interest rate and repayment profile
Principal
at
period
end Interest Interest
GBPm rate payable Repayable
-------------------------- --------- ------------ ----------- -----------
Current
-------------------------- --------- ------------ ----------- -----------
Bank overdraft due within
one year or on demand
(GBP2m facility) - Base +2.25% Variable On demand
-------------------------- --------- ------------ ----------- -----------
Non-current
-------------------------- --------- ------------ ----------- -----------
Private Placement Notes:
-------------------------- --------- ------------ ----------- -----------
5.6% Senior US Dollar
Notes 64.5 5.6% Half Yearly June 2023
-------------------------- --------- ------------ ----------- -----------
5.53% Senior Notes 84.0 5.53% Half Yearly June 2023
-------------------------- --------- ------------ ----------- -----------
Senior Floating Rate
Notes 9.0 LIBOR +3.5% Half Yearly June 2020
-------------------------- --------- ------------ ----------- -----------
3.07% Senior Notes 80.0 3.07% Half Yearly August 2025
-------------------------- --------- ------------ ----------- -----------
3.19% Senior Notes 120.0 3.19% Half Yearly August 2027
-------------------------- --------- ------------ ----------- -----------
Revolver loan 150.0 LIBOR +1.65% Monthly June 2022
-------------------------- --------- ------------ ----------- -----------
507.5
-------------------------- --------- ------------ ----------- -----------
(e) Derivative financial instruments
The following derivative financial instruments are held:
Rate payable
Amount (%) Term/expiry
-------------------------------- -------------- ------------ -----------
Cash flow hedge - cross currency
swap $100m/GBP64.5m 5.66% June 2023
-------------------------------- -------------- ------------ -----------
The Group has cross currency swaps to ensure the US Dollar liability streams generated from the US Dollar Notes are fully hedged into Sterling for the life of the transaction. Through entering into cross currency swaps the Group has created a synthetic Sterling fixed rate liability totalling GBP64.5m. These swaps have been designated as a cash flow hedge with changes in fair value dealt with in other comprehensive income.
(f) Financial instruments and fair values
Unaudited Unaudited
30 September Audited 30 September
2018 31 March 2017
Book Value 2018 Book
GBPm Fair Value Book Value Fair Value Value Fair Value
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
Financial liabilities held
at amortised cost
Bank loans 148.2 150.0 113.9 116.0 22.5 25.0
6% Retail Bond - - 57.2 60.2 57.2 61.3
Private Placement Notes 369.0 387.0 363.6 379.4 367.4 388.5
Finance lease obligations 16.2 16.2 16.1 16.1 16.1 16.1
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
533.4 553.2 550.8 571.7 463.2 490.9
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
Financial (assets)/liabilities
at fair value
through other comprehensive
income
Derivative financial instruments:
Cash flow hedge - derivatives
used for hedging (8.2) (8.2) (2.5) (2.5) (8.2) (8.2)
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
(8.2) (8.2) (2.5) (2.5) (8.2) (8.2)
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
Financial assets at fair
value through profit or
loss
Deferred consideration
(overage) 0.9 0.9 0.9 0.9 0.9 0.9
Other Investments 3.2 3.2 3.2 3.2 3.1 3.1
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
4.1 4.1 4.1 4.1 4.0 4.0
---------------------------------- ------------- ---------- ----------- ---------- ------------- ----------
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 GBP0.2m gain (March 2018: loss of GBP1.0m, September 2017: gain of GBP0.6m).
14. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from operations:
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
GBPm GBPm GBPm
-------------------------------------------------- ------------- ------------- ----------
Profit before tax 101.6 123.7 170.4
Depreciation 0.6 0.6 1.1
Amortisation of intangibles 0.2 0.1 0.3
Profit on disposal of investment properties (8.5) (22.9) (26.6)
Other income (0.2) (0.2) (0.6)
Net gain from change in fair value of investment
property (60.6) (71.2) (82.5)
Equity settled share based payments 0.9 0.7 1.7
Finance expense 10.3 8.7 18.8
Exceptional finance cost 3.1 - -
Changes in working capital:
Increase in trade and other receivables (6.6) (8.0) (7.9)
(Decrease) / increase in trade and other payables (3.7) 9.7 18.5
-------------------------------------------------- ------------- ------------- ----------
Cash generated from operations 37.1 41.2 93.2
-------------------------------------------------- ------------- ------------- ----------
For the purposes of the cash flow statement, cash and cash equivalents comprise the following:
30 September 31 March 30 September
2018 2018 2017
GBPm GBPm GBPm
----------------------------------------- ------------ -------- ------------
Cash at bank and in hand 57.8 13.9 17.7
Restricted cash - tenants' deposit deeds 8.5 4.1 4.0
----------------------------------------- ------------ -------- ------------
66.3 18.0 21.7
----------------------------------------- ------------ -------- ------------
15. Capital commitments
At the period end the estimated amounts of contractual commitments for future capital expenditure not provided for were:
Unaudited Audited Unaudited
30 September 31 March 30 September
2018 2018 2017
GBPm GBPm GBPm
-------------------------------------------- ------------- --------- -------------
Construction or refurbishment of investment
properties 41.2 49.7 55.4
-------------------------------------------- ------------- --------- -------------
Purchase of investment properties 120.0 - -
-------------------------------------------- ------------- --------- -------------
The Group had exchanged contracts in September 2018 for the purchase of Shepherds Building, Shepherd's Bush for GBP125.3m and transaction costs of GBP7.2m. A deposit of GBP12.5m was paid in September 2018 and the balance paid on completion in October 2018.
16. Share Capital
Unaudited Audited Unaudited
30 September 31 March 30 September
2018 2018 2017
GBPm GBPm GBPm
------------------------------------------- ------------- --------- -------------
Issued: Fully paid ordinary shares of GBP1
each 180.4 163.8 163.8
------------------------------------------- ------------- --------- -------------
Unaudited Audited Unaudited
30 September 31 March 30 September
Movements in share capital were 2018 2018 2017
as follows: GBPm GBPm GBPm
-------------------------------- ------------- ----------- -------------
Number of shares at 1 April 163,806,591 163,199,045 163,199,045
Issue of shares 16,567,802 607,546 601,822
-------------------------------- ------------- ----------- ------------- Number of shares at period end 180,374,393 163,806,591 163,800,867 -------------------------------- ------------- ----------- -------------
In June 2018 the Group raised net proceeds of GBP176.3m via the issue of 16.3m equity shares.
The Group also issued 0.3m of shares to satisfy the exercise of share options.
17. Post balance sheet events
In October 2018, the Group completed on the acquisition of Shepherd's Building for GBP125.3m. The Group also agreed a new GBP100m 364-day bank facility.
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 2018. A list of current Directors is maintained on the Workspace Group website: www.workspace.co.uk.
Approved by the Board on 13 November 2018 and signed on its behalf by
J Hopkins
G Clemett
Directors
INDEPENT REVIEW REPORT TO WORKSPACE GROUP PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 which comprises the Consolidated Income Statement, Consolidated Statement of other Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
Richard Kelly
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
13 November 2018
Principal Risks and uncertainties
The Board continuously 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 2018 and have been assessed in line with the requirements of the 2014 UK Corporate Governance Code. They are reproduced below. The Board is satisfied that we continue to operate within our risk profile.
Risk Description Mitigating activities
area
Financing
* Inability to fund business plans * We regularly review funding requirements for business
Reduced plans and ensure we have a wide range of options to
availability fund our forthcoming plans. We also prepare a
of financing * Restricted ability to invest in new opportunities five-year business plan which is reviewed and updated
options annually.
resulting in
inability * Increased interest costs.
to meet * We have a broad range of funding relationships in
business plans place and regularly review our refinancing strategy
or satisfy * Negative reputational impact amongst lenders and in
liabilities. the investment community
* We maintain a specific interest rate profile via use
of fixed rates and swaps on our loan facilities so
that our interest payment profile is stable
----------------------------------------------------------- -------------------------------------------------------------
Valuation
* Covenants (Loan to Value) * Market-related valuation risk is largely dependent on
Value of our external factors which we cannot influence. However,
properties we continue to do the following to ensure we are
declining as a * Impact on share price aware of any market changes, and are generating the
result maximum value from our portfolio:
of external
market
or internal * Monitor the investment market mood
management
factors
* Monitor market yields and pricing of property
transactions across the London market
* Alternative use opportunities pursued across the
portfolio and continue to drive progress made in
achieving planning consent for mixed-use development
schemes
----------------------------------------------------------- -------------------------------------------------------------
Customer
* Fall in occupancy levels at our properties * Every week the Executive Committee meet with Senior
Demand for our Management to monitor occupancy levels, pricing,
accommodation demand levels and reasons for customers vacating.
declining as a * Falling rent roll and property valuation This ensures we react quickly to changes in any of
result these indicators
of social,
economic
or competitive * Our extensive marketing programme ensures that we are
factors. in control of our own customer leads and pipeline of
deals. We also utilise social media, backed up by a
busy events programme which has further helped us to
engage with customers. This differentiates us as we
provide not only space but also an opportunity to
network with other businesses based in our portfolio
* We stress test our business plans to assess the
sensitivity we could tolerate if demand from our
customers reduced
----------------------------------------------------------- -------------------------------------------------------------
Development
* Failure to deliver expected returns on developments * For every potential development scheme we work hard
Impact on to gain a thorough understanding of the planning
underlying environment and ensure we seek counsel from
income and * Cost over runs appropriate advisers
capital
performance.
* Delayed delivery of key projects * We undertake a detailed development analysis and
appraisal prior to commencing a development scheme.
Appraisals are presented for Investment Committee
* Poor reputation amongst contractors and customers if approval and sign-off is required for every project
projects are delayed.
* The Investment Committee reviews progress on
refurbishments and redevelopments every fortnight,
against project timings and cost budgets both during
and after the completion of a project
----------------------------------------------------------- -------------------------------------------------------------
London
* Impact on demand for space if London adversely * Having been based within the London market for a
Changes in the affected by a major incident number of years, we know our markets and areas well
political,
infrastructure
and * Changes in the political and economic environment * We regularly monitor the London economy and
environmental commission research reports. We also hold regular
dynamics meetings with the GLA and the councils in the London
of London lead boroughs in which we operate to ensure that we are
to reduced aware of any changes coming through ahead of time
demand from
our customers.
* On the back of the EU Referendum, it is important
that we remain vigilant to any potential issues or
impacts that we foresee. We have yet to see any
specific impact on our business, but we continue to
monitor our key performance indicators each month so
that we could quickly react to any trends identified.
----------------------------------------------------------- -------------------------------------------------------------
Investment
* Poor timing of disposals * We undertake regular monitoring of asset performance
Under and positioning of our portfolio with periodic
performance detailed portfolio reviews
due * Poor timing of acquisitions
to
inappropriate * For each new acquisition we undertake thorough due
strategy * Failure to achieve expected returns diligence and detailed appraisals prior to purchase
on
acquisitions
and * Negative reputational impact amongst investors and * We monitor acquisition performance against target
disposals. sell-side analysts. returns.
* Property disposals are subject to detailed review and
Board approval
----------------------------------------------------------- -------------------------------------------------------------
Regulatory
* Fines or penalties for failure to adhere to * REIT conditions are monitored and tested on a regular
Failure to regulations basis and reported to the Board. We work closely with
meet HMRC and our tax advisers to ensure we are aware of
regulatory emerging issues and keeping up to date with changes
requirements * Failure to identify and respond to the introduction
leading of new requirements
to fines or * Close working relationship maintained with
tax penalties, appropriate authorities and all relevant issues
or the * Health and Safety breaches openly disclosed
introduction
of new
requirements * Negative impact on reputation amongst investors and * The Risk Committee provides regular updates to the
that inhibit partners/suppliers. Board on emerging risks and issues
activity.
* The Company Secretary issues a detailed briefing to
the Board regularly
* The Group's Health and Safety Manager meets regularly
with the CEO to keep abreast of any actual or
potential Issues
----------------------------------------------------------- -------------------------------------------------------------
Business
Interruption * Loss of critical data * We have robust Business Continuity Plans and
procedures in place which are regularly tested and
Major events updated
mean that * Loss of access for customers to work at our business
Workspace is centres
unable * IT controls and safeguards are in place across all
to carry out our systems, including a specific standalone data
its business * Potential loss of income centre back-up facility
for a
sustained
period. * Potential negative impact on reputation amongst
customers.
----------------------------------------------------------- -------------------------------------------------------------
Brand and
reputation * Damage to brand and perception by customers and * To ensure we understand our customers and their
stakeholders ever-evolving requirements we undertake twice-yearly
Failure to customer surveys and have a system of real-time
meet customer feedback in place. We developed a customer engagement
and external * Adverse publicity impacting on demand from new plan to ensure we are interacting with our customers
stakeholder customers in a variety of ways, including the use of social
expectations. media
Joint
ventures or * Worse reputation amongst all stakeholders as a
other ventures result. * We maintain regular communication with all
with third stakeholders and key shareholders. We hold investor
parties presentations, roadshows and an annual Capital
do not deliver Markets Day
the
expected
return.
----------------------------------------------------------- -------------------------------------------------------------
Resourcing
* Reduced ability to action strategy successfully * We have a robust recruitment process in place to
Failure to ensure that there is an appropriate level of
progress interviewing and scrutiny of new joiners
with strategy * Insufficient resource to manage increased demands as
due to the Company grows
inability to * We have various incentives to align staff objectives
recruit with those of the Group to help ensure staff are
and retain working in the best interests of the Group and its
correct stakeholders. This is supported by a robust appraisal
staff. and review process for staff
* Our HR team run a detailed training and development
programme to ensure staff are supported and
encouraged to progress their learning and study
opportunities
----------------------------------------------------------- -------------------------------------------------------------
Cyber security
* Loss of critical data * Monitoring information on security threats and
Loss of data targets
or income
due to cyber * Financial loss due to fraud
security * Monitoring guidance and best practice issued by
attack on our Government and advisors
business * Reputational damage amongst customers
and on that of
our * Review of IT systems and infrastructure in place to
customers. * Potential loss of income ensure these are as robust as possible
----------------------------------------------------------- -------------------------------------------------------------
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR LLFETLTLVLIT
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