Workspace Regulatory News (WKP)

15 November 2022

WORKSPACE GROUP PLC

HALF YEAR RESULTS

STRONG FINANCIAL PERFORMANCE DRIVEN BY RESILIENT

CUSTOMER DEMAND

Workspace Group PLC ("Workspace"), London's leading provider of sustainable, flexible work space, today announces its results for the half year to 30 September 2022.

Financial highlights: Strong increase in trading profit and dividend

Customer activity: Stable occupancy and improving pricing

Portfolio activity: McKay integration complete and active capital recycling

Sustainability: A differentiated model

Commenting on the results, Graham Clemett, Chief Executive Officer said:

"Having delivered a rapid recovery from the challenges of the Covid period, I am delighted with our continued progress. Occupancy has now stabilised, pricing is steadily increasing, new space is letting up well and we have completed the integration of the McKay business. This robust operational performance has driven the strong financial results we are reporting for the first half.

We are clearly in a period of economic uncertainty with elevated inflation. We are mindful of this in the way we actively manage our relationships with customers and business partners and the support we provide to our staff. We are also focused on tightly controlling our own costs and prudently managing our balance sheet.

Our customers are innovative and agile SMEs operating across a diverse range of sectors and industries and the way they want to use their space reflects this diversity. Their space is an integral part of their business, and they want choice and control over how they fit it out. We provide our customers with a blank canvas and over half use their space in a non-traditional way - work space, not office space. This is true flexibility and is what continues to set us apart in the expanding flexible market.

Despite the current economic challenges, we are well placed to deliver a strong trading performance for the full year. We have good momentum from the rental growth in the first half and we are seeing resilient customer demand into the second half of the year. We will continue to pursue our disposal programme where the reduction in income from disposals will be offset by a similar level of interest cost saving.

As the pioneers of flex in London, we have a long track record of success and a clear plan to realise our growth potential. By owning great buildings, upgrading them to meet our customers' needs, recycling capital into new opportunities and delivering our project pipeline, we can capture more of the significant market opportunity ahead of us and deliver sustainable long term growth."

Summary Results

 † Alternative performance measure (APM). The Group uses a number of financial measures to assess and explain its performance. Some of these which are not defined within IFRS are considered APMs. For further details see Notes to the Financial Statements.

* absolute change

** underlying change excluding capital expenditure and disposals and including McKay at acquisition value

For media and investor enquiries, please contact:

Details of results presentation

Workspace will host a results presentation for analysts and investors on Tuesday 15 November 2022 at 10:45am. The venue for the presentation is The London Stock Exchange, 10 Paternoster Square, EC4M 7LS.

The presentation can also be accessed live via webcast or conference call.

Webcast

The live webcast will be available here:

https://secure.emincote.com/client/workspace/workspace022

Conference call

In order to join via phone at 10:45am, please register at the following link and you will be provided with dial-in details and a unique access code:

https://secure.emincote.com/client/workspace/workspace022/vip_connect

Notes to Editors

About Workspace Group PLC:

Established in 1987 and listed on the London Stock Exchange since 1993. We are home to thousands of businesses, including fast growing and established brands across a wide range of sectors.

Workspace is geared towards helping businesses perform at their very best. We provide inspiring,

flexible work spaces in dynamic London locations.

Workspace (WKP) is a FTSE 250 listed Real Estate Investment Trust (REIT) and a member of the European Public Real Estate Association (EPRA).

LEI: 2138003GUZRFIN3UT430

For more information on Workspace, visit www.workspace.co.uk  

BUSINESS REVIEW

CUSTOMER ACTIVITY

We saw resilient underlying demand, although activity levels were impacted by the extreme hot weather over the summer and disruption caused by tube and rail strikes.

Good activity levels have continued into the third quarter, with 806 enquiries, 529 viewings and 96 deals in October 2022.

Alongside our new lettings, we have seen strong renewal activity in the half year, with 178 customers across the like-like-for-like portfolio renewing for a £1.0m (14%) uplift in annual rent.

RENT ROLL

Total rent roll, representing the total annualised net rental income at a given date, was up 2.4% in the six months to £134.7m at 30 September 2022.

*Adjusted for McKay portfolio acquired in May 2022

The total estimated rental value (ERV) of the portfolio, comprising the ERV of the like-for-like portfolio and those properties currently undergoing refurbishment or redevelopment (but only including properties at the design stage at their current rent roll and occupancy) was £183.3m at 30 September 2022.

Like-for-like portfolio 

The like-for-like portfolio represents 70% of the total rent roll as at 30 September 2022. It comprises 38 properties with stabilised occupancy excluding recent acquisitions, buildings impacted by significant refurbishment or redevelopment activity or contracted for sale.

The like-for-like rent roll has increased by 3.6% (£3.3m) in the six months to 30 September 2022 to £94.5m. The increase is driven by an uplift of 4.0% in rent per sq. ft. to £38.59.

If all the like-for-like properties were at 90% occupancy at the ERVs at 30 September 2022, the rent roll would be £111.7m, £17.2m higher than the actual rent roll at 30 September 2022.

Completed Projects

There are ten projects in the completed projects category, with overall rent roll increasing by 15.6% (£1.5m) in the six months to £10.8m, with rent per sq. ft. up 5.7% and occupancy up 6.7% to 76.7%.

If the buildings in this category were all at 90% occupancy at the ERVs at 30 September 2022, the rent roll would be £15.3m, an uplift of £4.5m.

Projects Underway - Refurbishments

We are currently underway on two refurbishment projects that will deliver 97,000 sq. ft. of new and upgraded space. As at 30 September 2022, rent roll was £0.5m, down £0.2m in the six months.

Assuming 90% occupancy at the ERVs at 30 September 2022, the rent roll at these two buildings once they are completed would be £4.2m, an uplift of £3.7m.

Projects Underway - Redevelopments

We are progressing with obtaining vacant possession at our Riverside property in Wandsworth, ahead of a major mixed-use redevelopment, which resulted in a £1.4m reduction in rent roll in the six months, to £1.0m.

We expect to complete on the sale of the residential component of this scheme in January 2023 and commence the construction of the new commercial buildings (comprising 153,000 sq. ft. of workshop and office space), at our cost, on a phased basis in the second half of 2023.

Projects at Design Stage

These are properties where we are planning a refurbishment or redevelopment that has not yet commenced. As at 30 September 2022 the rent roll at these properties was £3.5m.

Recent Acquisitions and Disposals

In September 2021, we completed the acquisition of Old Dairy, Shoreditch for £43.4m and in November 2021 we completed the acquisition of The Busworks, Islington for £45.0m. We are progressing with the design of extensive refurbishments at these two buildings. The rent roll across these two properties at 30 September 2022 was £3.5m, down £0.3m in the six months.

In May 2022, we completed the acquisition of the McKay portfolio. As at 30 September 2022 the rent roll at these properties was £20.8m, an increase since acquisition of £0.4m. The integration is now complete with all operational activity utilising the Workspace platform.

As at 30 September 2022 the rent roll at the seven London assets was £7.2m and occupancy 64.7%. Four of these buildings have recently been refurbished and we are making good progress in letting up the vacant and refurbished space with 46,000 sq. ft let in the first half with £1.1m of rent. We have seen increasing demand for the Workspace flexible offer at these properties. Assuming 90% occupancy at the ERVs at 30 September 2022, the rent roll at these seven buildings, would be £10.9m, an uplift of £3.7m.

As at 30 September 2022 the rent roll of the South-East office and business park portfolio, comprising thirteen buildings, was £8.5m with occupancy at 89.2%. There was 35,000 sq. ft of lettings and renewals in the first half with £0.7m of rent. Assuming 90% occupancy (or current occupancy if higher) at the ERVs at 30 September 2022 the rent roll would be £11.0m, an uplift of £2.5m.

We continue to target disposal of the non-core light industrial and logistics assets with the timing dependant on market conditions. In the meantime, we are achieving good rental pricing growth on both renewals and new lettings with 73,000 sq. ft let with rent of £1.0m since acquisition. We have one vacant industrial estate in Farnborough where we are seeing a strong level of demand. Overall occupancy across these sites at 30 September 2022 was 91% with a rent roll of £5.1m. Assuming 90% occupancy (or current occupancy if higher) at the ERVs at 30 September 2022, the rent roll at these buildings, would be £6.7m, an uplift of £1.6m.

In July 2022 we completed the sale of a medical centre in Newbury, which had rent roll of £0.2m, from the McKay portfolio for £7.25m (£1.15m ahead of the March 2022 valuation).

PROFIT PERFORMANCE

Trading profit after interest for the half year was up 33.5% (£7.3m) on the prior half year to £29.1m.

\* These relate to both cash and equity settled costs

Net rental income was up 36.8% (£15.1m) to £56.1m.

The £8.7m increase in underlying rental income to £55.9m reflects the strong increase in occupancy and improved pricing over the last year.

With energy costs hedged until October 2024 and higher occupancy levels compared to the prior period there was a decrease of £0.5m in unrecovered service charge costs in the first half of the financial year.

Higher average occupancy has also resulted in a reduction in empty rates with non-recoverable costs decreasing by £0.1m to £4.8m. Net costs of services, fees, commissions and sundry income increased by £0.4m driven by an enhanced customer events programme.

Rent collection in the first half has remained strong with 98% of rent collected to date resulting in a charge for expected credit losses of £0.2m in the six months to 30 September 2022.

Growth in net rental income was further accelerated by a £7.3m contribution from the McKay portfolio acquired in May 2022.

Underlying administrative expenses remained under tight control, increasing by £0.5m to £8.9m, which included inflationary pay rises of 3% but with higher increases in more junior roles. Administration costs also included £1.5m in respect of the McKay business, with further savings expected in the second half now that integration is complete. Share based costs increased by £0.7m to £1.0m, with lower vesting levels and assumptions in the prior year.

Net finance costs increased by 48.6% (£5.1m) in the half year reflecting the increased level of debt following the McKay acquisition and the increase in SONIA during the period. The average net debt balance over the six months was £227m higher than the first six months of the prior year, whilst the average interest cost has increased from 3.1% to 3.5%.

Profit before tax in the half year was £35.8m compared to the £3.4m in the first six months of the prior year.

The increase in the property revaluation was £8.1m compared to a decrease of £14.9m in the prior year.

The gain on sale of investment property of £1.5m relates to the disposal of the medical centre at Newbury from the McKay portfolio.

Exceptional items include one-off costs relating to the acquisition and integration of McKay, including the cost of buying-out the McKay pension scheme, and implementation of a new finance and property management system.

Adjusted underlying earnings per share, based on EPRA earnings adjusted for non-trading items and calculated on a diluted share basis, was up 27.5% to 15.3p.

INTERIM DIVIDEND

Our dividend policy is based on trading profit after interest, taking into account our investment and acquisition plans and the distribution requirements that we have as a REIT, with our aim being to ensure the total dividend per share in each financial year is covered at least 1.2 times by adjusted underlying earnings per share.

With the strong improvement in trading performance in the first half and confidence in the longer term prospects of the Company, the Board is pleased to announce that this year an interim dividend of 8.4p per share (2021: 7.0p) will be paid on 1 February 2023 to shareholders on the register at 6 January 2023. The dividend will be paid as a REIT Property Income Distribution (PID) net of withholding tax where appropriate.

PROPERTY VALUATION

At 30 September 2022, our property portfolio was independently valued by CBRE and Knight Frank at £2,863m, an underlying increase of 0.3% (£8m) in the half year. The main movements in the valuation are set out below:

A summary of the half year valuation and revaluation movement by property type is set out below:

*Includes Old Dairy and Busworks acquired in prior year

Like-for-like Properties

There was a 0.8% (£15m) underlying increase in the valuation of like-for-like properties to £1,891m. This was driven by a 7.5% increase in the ERV per sq. ft. (£132m) reflecting the pricing of recent lettings and renewals, offset by a 30bps outward shift in equivalent yield (£117m). This outward shift typically ranged from 20bps to 50bps depending upon location.

* absolute change

A 5% increase in ERV would increase the valuation of like-for-like properties by approximately £100m whilst a 50bps increase in equivalent yield would decrease the valuation by approximately £150m.

Completed Projects

There was an underlying decrease of 0.4% (£1m) in the value of the ten completed projects to £250m. The overall valuation metrics for completed projects are set out below:

Current Refurbishments and Redevelopments

There was an underlying decrease of 9.7% (£10m) in the value of our current refurbishments to £93m and a reduction of 8.6% (£9m) in the value of our current redevelopments to £96m.

The most significant movements in this category are a decrease of £5.1m at Leroy House, Islington, where we have commenced a major refurbishment and a £3.7m decrease at our light industrial property Havelock Terrace, Battersea reflecting the outward movement of industrial yields.

Recent Acquisitions

We completed the acquisition of McKay Securities PLC on 6 May 2022 for a total consideration of £267.6m, comprising £191.1m in cash and 10.5m Workspace shares, and £9.4m transaction costs, representing a 14% discount to NTA acquired (after seller's transaction costs) of £310.5m.

There was an underlying increase of 3.2% (£14m) in the valuation of the McKay portfolio, compared to the acquisition cost. This was however, a 9% (£42m) discount to the 31 March 2022 valuation of the portfolio, adjusting for disposals. A summary of the half year valuation and underlying movements for the McKay portfolio from acquisition is set out below:

The valuation metrics for the McKay portfolio are set out below:

This category also includes Old Dairy, Shoreditch and BusWorks, Islington which were acquired in 2021/22. There was a 1.1% (£1m) underlying decrease in the valuation of these two properties to £87m.

REFURBISHMENT ACTIVITY

A summary of the status of the refurbishment pipeline at 30 September 2022 is set out below:

Our adaptive re-use of existing buildings for refurbishments delivers up to 70% reduction in embodied carbon compared to new build schemes. We are on-site at Leroy House, Islington where we are delivering a 58,000 sq. ft business centre with a stabilised income of £2.1m which we expect to complete in 2024.

We are progressing detailed design for new business space at Kennington Park, Riverside and The Biscuit Factory where in total we have planning permission for 453,000 sq. ft of new space which we will deliver on a phased basis.

REDEVELOPMENT ACTIVITY

Many of our properties are in areas where there is strong demand for mixed-use redevelopment. Our model is to use our expertise, knowledge and local relationships to obtain a mixed-use planning consent and then typically to agree terms with a residential developer to undertake the redevelopment and construction at no cost and limited risk to Workspace. We receive back a combination of cash, new commercial space and overage in return for the sale of the residential scheme to the developer.

A summary of the status of the redevelopment pipeline at 30 September 2022 is set out below:

We are making good progress in obtaining vacant possession ahead of the sale of the residential component of Riverside, Wandsworth and expect to complete the sale in January 2023.

SUSTAINABILITY UPDATE

We have an inherently green property portfolio with energy intensity already 30% lower than the industry best practice standard. Further improving the energy efficiency of our buildings is key in helping us to achieve our target of being a net zero carbon business by 2030. The Workspace portfolio is currently over 30% A/B rated, and we are on track to upgrade a further 550k sq. ft. (10%) to EPC A/B by the end of the financial year. We are also targeting a reduction of both our operational energy and Scope 1 gas emissions by 5% in the year.

CASH FLOW

The Group generates strong operating cash flow in line with trading profit. A summary of cash flows in the half year are set out below:

† 2021 excludes £18m of VAT receipts relating to sale of Fitzroy included in 'other'.

There is a reconciliation of net debt in note 13(b) to the financial statements.

The overall increase of £379m in net debt reflects the acquisition of McKay in May 2022 for cash consideration of £201m (including fees) and net debt acquired of £162m.

Rent collection remains robust with 98% of rent due for the first half or the year collected as of 8 November 2022. The majority of the amounts still outstanding are covered by rent deposits or by the provision for doubtful debts.

NET ASSETS 

Net assets increased in the half year by £77m to £1,877m. EPRA net tangible assets (NTA) per share at 30 September 2022 was down 1.4% (£0.14) to £9.74:

The calculation of EPRA NTA per share is set out in note 8 of the financial statements.

TOTAL ACCOUNTING RETURN

The total accounting return for the half year was 0.1% compared to 0.8% in the half year ended September 2021. The total accounting return comprises the growth in absolute EPRA net tangible assets per share plus dividends paid in the year as a percentage of the opening EPRA net tangible assets per share. The calculation of total accounting return is set out in note 8 of the financial statements.

FINANCING

As at 30 September 2022, the Group had £13m of available cash and £250.0m of undrawn facilities:

The majority of the Group's debt comprises long-term fixed-rate committed facilities comprising a £300m green bond, £300m of private placement notes, and a £65m loan facility from Aviva.

Shorter term liquidity and flexibility is provided by floating-rate bank facilities totalling £535m which were £285m drawn at 30 September 2022. The bank facilities comprise £335m of sustainability-linked revolving credit facilities (RCFs) and a £200m acquisition facility put in place for the acquisition of McKay. £200m of RCF facilities mature in December 2024 and £135m in April 2024, with both facilities having the potential to extend by two further years. The £200m RCF also has the option to increase the facility amount by up to £100m, subject to lender consent.

All facilities, other than the Aviva loan, are provided on an unsecured basis with an average maturity of 4.1 years (31 March 2022: 4.2 years).

At 30 September 2022, the effective interest rate was 3.5% based on SONIA at 2.2%, with 71% of the net debt (£665m) at fixed rates. The average interest cost of our fixed rate borrowings was 2.9% and our floating-rate bank facilities had an average margin of 1.69% over SONIA. A 1% increase in SONIA would increase the effective interest rate by 0.3% (at current debt levels).

At 30 September 2022, loan to value (LTV) was 33% (31 March 2022: 23%) and interest cover, based on net rental income and interest paid over the last 12 month period, was 4.5 times (31 March 2022: 4.8 times), providing good headroom on all facility covenants.

FINANCIAL outlook FOR 2022/23

Over the first half we have seen stable like-for-like occupancy and continued rental growth driven by good levels of customer demand. Rental income in the second half will be underpinned by the 3.6% growth in like-for-like rent roll in the first half. While there may be an impact from the current economic environment on our customers, we are currently seeing continued levels of good demand in the second half and our pricing still remains below pre-Covid levels. Rental income growth will also be supported by the letting up of recently completed projects and the letting up of vacant space and pricing growth in the McKay portfolio.

The current high levels of inflation will continue to put pressure on both our service charge and administrative costs. In relation to service charge costs, where the majority of the cost is passed on to our customers, we have been able to limit the impact on customers by hedging our energy costs. Staff costs are the most significant driver of our administration costs and, whilst we have limited inflationary salary increases to 3% in the current year we have seen higher increases in more junior roles.

The majority of our debt is at fixed interest rates. Around 30% bears interest at a margin over SONIA, and is therefore subject to changes in market interest rates. Given recent and expected increases in interest rates, we therefore anticipate a slight increase in our average cost of borrowing to around 3.7% for the full year.

We expect capital expenditure of around £50m in the full year as we progress with planned projects, including the refurbishment of Leroy House.

We expect to complete the £55m sale of the residential element of our development at Riverside, Wandsworth in January 2023. Together with the disposal of non-core assets from the McKay portfolio and other potential disposals this should reduce our LTV to below 30%.

property statistics

1) The like-for-like category has been restated in the current financial year for the following:

· The transfer out of Riverside 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 includes the lettable area at like-for-like properties and all refurbishment and redevelopment projects, including those projects recently completed and also properties where we are in the process of obtaining vacant possession.

CONSOLIDATED INCOME STATEMENT

FOR THE Six Months ENDED 30 September 2022

1 Direct costs include impairment of receivables of £0.2m (31 March 2022: £1.5m, 30 September 2021: £0.3m). See note 2 for further information

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE six months ENDED 30 September 2022

CONSOLIDATED BALANCE SHEET

AS AT 30 September 2022

Consolidated Statement of Changes in Equity

FOR THE period ENDED 30 September 2022

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD 30 September 2022

NOTES TO THE FINANCIAL STATEMENTS

FOR THE period ENDED 30 September 2022

1. Accounting policies

Basis of preparation

The half year report has been prepared in accordance with the Disclosure and Transparency Rules and with IAS 34 'Interim Financial Reporting' as adopted for use in the UK. The half year report should be read in conjunction with the annual financial statements for the year ended 31 March 2022, which have been prepared in accordance with UK adopted international accounting standards.

The condensed financial statements in the half year report, presented in Sterling, are unaudited and do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Annual Report and Accounts for the year to 31 March 2022, were prepared and approved by the Directors on a going concern basis, in accordance with UK adopted international accounting standards ("IFRS"). The Company elected to prepare its Parent Company financial statements in accordance with FRS 101. The auditor's opinion on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement made under Section 498 of the Companies Act 2006.

There have been no changes in estimates of amounts reported in prior periods which have a material impact on the current half year period.

As with most other UK property companies and REITs, the Group presents many of its financial measures in accordance with the guidance criteria issued by the European Public Real Estate Association ('EPRA'). These measures, which provide consistency across the sector, are all derived from the IFRS figures in notes 7 and 8.

Going concern

The Board is required to assess the appropriateness of applying the going concern basis in the preparation of the financial statements. Macro-economic and political issues, including the war in Ukraine, have heightened wider concerns around the UK economy. In this context, the Directors have fully considered the business activities and principal risks of the Company. In preparing the assessment of going concern, the Board has reviewed a number of different scenarios over the 12 months period from the date of signing of these financial statements. These scenarios include a severe, but realistically possible, scenario which includes the following key assumptions:

- A reduction in occupancy, reflecting weaker customer demand for office space.

- A reduction in the pricing of new lettings, resulting in a reduction in average rent per sq. ft.

- Increased levels of counterparty risk, with bad debt significantly higher than current levels.

- Continued high levels of cost inflation.

- Further increases in SONIA rates impacting the cost of variable rate borrowings.

- Estimated rental value reduction in-line with the decline in average rent per sq. ft. and outward movement in investment yields resulting in a lower property valuation.

The appropriateness of the going concern basis is reliant on the continued availability of borrowings and compliance with loan covenants. All borrowings require compliance with LTV and Interest Cover covenants. As at the tightest test date in the scenarios modelled, the Group could withstand a reduction in net rental income of 40% compared to the September 2022 Net Rental Income (on an annualised basis and adjusted for a full year of ownership of the McKay portfolio) and a fall in the asset valuation of 45% compared to September 2022 before these covenants are breached, assuming no mitigating actions are taken.

As at 30 September 2022 the Group had a fully unsecured loan portfolio of £1,200m and significant headroom on its facilities with £13m of cash and undrawn facilities of £250m. Shorter term liquidity and flexibility is provided by floating-rate bank facilities totalling £535m which were £285m drawn at 30 September 2022. The bank facilities comprise £335m of sustainability-linked revolving credit facilities (RCFs) and a £200m acquisition facility put in place for the acquisition of McKay which matures in September 2023. £200m of RCF facilities mature in December 2024 and £135m in April 2024, with both facilities having the potential to extend by two further years. The £200m RCF also has the option to increase the facility amount by up to £100m, subject to lender consent.

For the full period of the scenario tested, the Group maintains sufficient headroom in its cash and loan facilities and loan covenants are met.

Consequently, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

This report was approved by the Board on 14 November 2022.

Change in accounting policies

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 March 2022, with the exception of the following standards, amendments and interpretations endorsed by the UK which were effective for the first time for the Group's current accounting period and had no material impact on the financial statements.

· References to Conceptual Framework in IFRSs (amended);

· IFRS 16 (amended) - Covid-19-related Rent Concessions;

· IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (amended) - Interest Rate Benchmark Reform - Phase 2.

Standards in issue but not yet effective

The following standards, amendments and interpretations were in issue at the date of approval of these financial statements but were not yet effective for the current accounting period and have not been adopted early. Based on the Group's current circumstances, the Directors do not anticipate that their adoption in future periods will have a material impact on the financial statements of the Group.

· Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract;

· IFRS Standards 2018-2020: Annual Improvements to IFRS Standards 2018-2020;

· Amendments to IAS 16: Property, Plant and Equipment-Proceeds before Intended;

· Amendments to IFRS 3: Reference to the Conceptual Framework;

· Amendments to IAS 1: Classification of liabilities as current or non-current;

· IFRS 17: Insurance Contracts;

· Amendments to IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors: Definition;

· Amendments to IAS 1: Presentation of Financial Statements and IFRS Practise Statement 2 Making Materiality Judgements;

· Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

2. Analysis of net rental income

A charge of £0.2m (31 March 2022: £1.5m, 30 September 2021: £0.3m) for expected credit losses in respect of receivables from customers is recognised in direct costs of rental income in the period.

All of the properties within the portfolio are geographically close to each other and have similar economic features and risks. Management information utilised by the Executive Committee to monitor and assess performance is reviewed as one portfolio. As a result, management have determined that the Group operates a single operating segment of providing business space for rent in and around London.

3(a). Profit/(loss) on disposal of investment properties

3(b). Other income

The Group disposed of the investment in Lovespace Ltd in the year ended 31 March 2022, resulting in a gain of £0.6m.

3(c). Other expenses

Other expenses include the exceptional one-off costs relating to the acquisition and integration of McKay Securities Limited (formerly McKay Securities PLC), including the cost of buying out the McKay Securities Limited defined benefit pension scheme (see note 18) and the implementation costs of replacing our finance and property system. These costs are outside the Group's normal trading activities.

4. Finance costs

Exceptional finance costs in the period relate to unamortised finance costs for McKay Securities Limited's previous bank loan which were written off when this was refinanced in September 2022.

5. Taxation

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 2022: £0.1m, 30 September 2021: £nil).

6. Dividends

In addition, the Directors are proposing an interim dividend in respect of the financial year ending 31 March 2023 of 8.4 pence per ordinary share which will absorb an estimated £16.1m of revenue reserves and cash. The dividend will be paid on 1 February 2023 to shareholders who are on the register of members on 6 January 2023. The dividend will be paid as a REIT Property Income Distribution (PID) net of withholding tax where appropriate.

7. Earnings per share

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.

1 Adjusted underlying earnings per share is calculated by dividing adjusted trading profit after finance costs by the diluted weighted average number of shares of 190,328,463 (31 March 2022: 181,982,165, 30 September 2021: 181,838,619).

8. Net assets per share

EPRA Net Asset Value Metrics