Final Results

RNS Number : 5028T

Workspace Group PLC

08 June 2009

 



PRELIMINARY RESULTS FOR THE YEAR ENDED 

31 MARCH 2009

Workspace Group PLC ('Workspace') announces its preliminary results for the year ended 31 March 2009. Workspace provides 5.0 million sq. ft of flexible business accommodation to over 4,000 small and medium size enterprises ('SMEs') in London.

TRADING
	Revenue up 4.3% from £67m to £70m.
	Continuing demand for space from small and medium sized businesses (SMEs) with enquiries running at 876 per month and lettings at 86 per month.
	Occupancy 80.3% overall (2008: 85.8%) and 83.4% on a Like-for-Like basis (2008: 89.6%).
	Total cash rent roll £50.8m down 3.3% (£1.8m) in the year
	Average rent per square foot up 6.4% to £12.64.
VALUATION
	Property valuation £662m, down 33% in the year.
	Underlying existing use income yield on Like-for-Like property portfolio 8.5% and equivalent yield 10.1%.
	Capital value £132 per sq.ft. against replacement cost of £150 per sq.ft.
	EPRA net asset value 27p per share (1).
FINANCIAL
	Trading profit up £1.4m to £38.4m despite £1.6m increase in empty rates charge.
	Improved cashflow with capital expenditure minimised and overheads and headcount cut. No bad debt issues.
	Rights Issue raising £87m (gross) completed in March 2009.
	Debt facilities renegotiated with good headroom on revised covenants and no near-term refinancing risk.
	£27m of property disposals completed since November 2008 and contracts exchanged for a further £10m.
	Restructuring of Glebe joint venture under discussion.
	Total loss before tax of £360.4m after revaluation deficits and exceptional costs (2008: £37.0m).
	Final dividend of 0.50p per share proposed
OUTLOOK
	Increasing transactional evidence and levels of buyer interest to support recent property valuation
	Stabilisation in sentiment from SMEs across London.
	Group leaner, focused on cash generation and well positioned to exploit opportunities.
(1)	Net asset per share calculated in accordance with the European Public Real Estate Association (EPRA) definition.

Commenting on the results, Harry Platt, Chief Executive, said:

'The scale and pace of the downturn in commercial property values in the last six months has been unprecedented. In line with the market our property values have fallen. 

'However, against this and in the face of the most severe economic recession in living memory, we have taken decisive action and our trading results have been solid. Enquiries and conversions have held up, and our cash rent roll is little changed despite a modest fall in occupancy. Overhead costs have been reduced and we have focused on cash. Further due to the hard work and dedication of our staff we have reported a robust set of full year numbers.

' In much the same way, our customers, small and medium sized enterprises have been working harder than ever. Their resilience in harsh economic times never fails to impress. Small businesses are the backbone of the London economy and Workspace assists by offering them affordable, flexible space in which to work.'

' We are committed to driving this business forward. The fundamentals are encouraging. Enquiries are running at high levels and our conversion rate remains good. We have focused on cash preservation and we have made selective disposals during the course of the year to reduce gearing. Our Rights Issue in March raised the Group a total of £87m and this together with the renegotiation and extension of our banking facilities has ensured our resilience.

' In Workspace, shareholders have a very good business. We have navigated previous recessions and we will certainly navigate the current one. Indeed, we believe our flexible leasing approach will prove particularly attractive as London starts to recover. We are confident in our outlook for the future.' 

-ends-

Date: 8 June 2009

For further information:

Workspace Group PLC	City Profile
Harry Platt, Chief Executive	Jonathan Gillen
Graham Clemett, Finance Director	William Attwell
020-7247-7614	020-7448-3244
e-mail: [e-mail]
email: [e-mail]
web: www.workspacegroup.co.uk

There will be an audio presentation of the results with Harry Platt, Chief Executive, Graham Clemett, Finance Director, Angus Boag, Development Director and Chris Pieroni, Operations Director at www.workspacegroup.co.uk/investors (under Presentations) from 09.30 today.

Chairman's Statement

This has been a year of extreme events that has required the Board to take quick, decisive action and make tough decisions:

• We were the first property company to launch a Rights Issue in response to the rapid decline in property values.  

• We renegotiated the covenants on our debt facilities and extended the terms of our debt to remove any near-term refinancing risk. 

• We focused on cash generation, cut costs, including headcount at all levels, scaled back on capital expenditure and accelerated our disposal programme.

As Autumn 2008 progressed, a tightening of credit conditions meant that a deepening economic downturn became inevitable. This was compounded by an abrupt reduction in debt availability and falls in commercial property values at a pace and of a scale unprecedented in modern times. The property valuation at the year end of £662m reflects this and is some 33% below a year ago. It is this which drives the loss for the year of £360m and a year end net asset value per share of 27p. This fall in commercial property values, and concern about the continuing availability of debt and the covenants attached to it dramatically affected the Company's share price.

Having regard to the general banking environment and our level of debt, in March 2009 we raised £87m (gross) through a Rights Issue and amended the terms of our debt facilities.  The Company can now withstand further significant falls in valuation and we believe the Company is well placed to exit the current recession in good shape.  

I have commented previously about our experience in past downturns, and the fundamental resilience of the overall SME sector being less dependent on bank debt than larger businesses. These results confirm that our occupational markets have remained robust.  Enquiries and conversions, the 'engine room' of our business, have continued at historically high levels. Although, as you would expect in these more difficult times the level of customer churn has also increased. Arrears and bad debts continue to run at very low levels. Occupancy has reduced, but our rental income is little changed over the year. 

The economic environment remains challenging but there is also a sense in these results that the market is stabilising. Perceptions have improved on this even in the last  two to three months. As the Chief Executive reports, we continue to let space to new and small businesses in London and are making property disposals at our March valuation. Further falls in valuation may occur but, on these figures, our valuation is now well below the replacement value of the buildings alone for a portfolio with a sustainable income stream in the heart of London.  In an environment of low interest rates with a search for income yield this represents good value. In terms of future disposals we are being highly selective about what we put to the market. We do not want to sell future value just to achieve short-term reductions in debt levels.

This has been a challenging year for everyone and I need to thank all of our staff for their efforts.  Thanks to them the Company is coming through the present difficult period in a sound position. At this point I would also like to recognise and thank for his contribution to the growth of the Company, Patrick Marples, who has recently resigned from the Board.  He leaves with our best wishes. 

With cash rental income proving resilient and following reductions made in overheads and capital expenditure we are proposing to maintain our dividend at £7.8m for the full year (a final dividend of 0.50p per share). Over the past 15 years the dividend had increased at a compound rate of some 10% a year. In due course, we aim to re-establish a progressive dividend policy.

Looking to the future, London is a world class city and entrepreneurs are a vital part of it. We operate in a marketplace that we know and where we are the market leader. We have a business model which delivers a strong level of cash income. While small businesses generally are having a tough time at present, they are resilient and resourceful and offer us an attractive market. Our focus upon providing a high quality product on flexible terms is highly relevant in these times. Indeed, as we move forward, I expect it will become even more important for the new businesses of tomorrow. 

The early 1990s recession was one of the factors which created the springboard for our subsequent growth and whilst the next recovery will be different, I am confident about our future and look forward to reporting back to you on our progress in a year's time.

Tony Hales

Chairman

Chief Executive's Review 

In the current economic environment it becomes more important than ever to focus on our customers - to provide good value, excellent service and manage the churn that is a characteristic of the small and medium sized enterprise (SME) sector. These are at the heart of our business model and the results show that our operational performance has held up well. Our cash rent roll is little changed over the year whilst the reduction in our occupancy is less than many commentators anticipated.  This performance has been achieved through the skills and sheer hard work of our people in marketing, selling, customer care and asset management.

The fall in Q1 2009 GDP was the largest since the 1930s; further, the scale and pace of the downturn in commercial property values, driven by yield re-pricing, has been unprecedented in modern times. We had reduced our gearing by making major disposals in 2006 and reducing the level of acquisitions through to 2008. However, along with many others, we had not anticipated the scale of the 'perfect storm' of a credit crunch, the associated economic collapse and the huge uncertainty and dramatic fall in the value of commercial property that took place in late 2008.

Our priorities have been clear: to maintain the income stream and reduce costs while tackling the balance sheet.  

1.	Keeping Close to Customers

Our revenues have increased: £70m in 2008/9 compared with £67m in the previous year. There have been over 1,000 lettings to new and existing customers in the year with a consistent run rate of some 20 lettings a week. We have worked closely with our existing customers in what is a very challenging environment for everyone. Our broad range and clusters of properties in London assist in this, allowing customers to up-size or down-size as their business needs change. Our affordable, flexible lease has proved to be particularly relevant. The SME sector is dynamic and active and reflecting this Workspace is always busy responding to enquiries and keeping in contact with existing customers. We are close to our market. This means we monitor demand continually and adjust prices to both attract new customers and to retain existing ones.

2.	Focus on Cash and Costs:

Staff costs through 2008/9 and going forward into 2009/10 have been reduced. Regrettably, as part of this, we have made 11 redundancies in our head office staffing and since the year end our Property Director, Patrick Marples has resigned.   Furthermore, we have cut capital expenditure for our property portfolio to a much lower level - now running at below £5m p.a. However in cutting costs we have not compromised on estate standards, our marketing/letting activity, or our ability to extract value from our estates. 

3.	Balance Sheet

Banking facilities have been renegotiated and terms extended to November 2012.  £87m (gross) was raised from shareholders in a Rights Issue in March 2009. In addition, since November 2008, we have completed or contracted on £37m disposals, some 10 separate deals at an overall income yield of 6%.

Since our peak valuation in June 2007, values in our portfolio have fallen by some 40% to March 2009. The measures we have taken allow the Company to withstand a further 25% fall in our overall property values before banking covenants (loan to value) are potentially breached. This gives us resilience against further falls in valuations, especially when the market is now expecting a peak to trough fall of the order of 50% or so. We do expect further valuation declines in forthcoming months but even so our current valuation, supported by disposals, is looking increasingly good value.

4.	Glebe Joint Venture

Taking the opportunity to de-gear the core business we sold 11 properties for £146m, at an exit yield of 4.9%, into the Glebe joint venture in June 2006. This is a highly leveraged vehicle with non-recourse debt facilities provided by HBOS. We hope to have concluded negotiations on the future of the joint venture shortly, ensuring that our management, brand and any future equity contributions are appropriately rewarded.  

As the Chairman has noted in his statement, our results reflect the current environment. We are, of course, primarily affected by the substantial fall in property values. Our properties were valued at £662m in March 2009, a fall of some 33% during the year broadly in line with the decline in the IPD index.  Net asset value per share, following this fall in valuation and the Rights Issue, is now 27p. Disposals achieved or under contract since November 2008 are in line with these values.  Even in these difficult times this is evidence that there is a market for smaller lot-sizes in London, which have immediate income and/or redevelopment potential, where there are occupiers or adjacent landowners willing to buy, investors seeking cash income, or specialist operators seeking representation.  

Whilst there remains downward pressure on values the rate of decline has slowed. We are also beginning to approach fundamental values for a portfolio that now has:

-	a resilient current income stream off low average rents (£12.64 per sq.ft)
-	is of low density with many opportunities for intensification and change of use
-	has a replacement capital value of £150 per sq. ft, compared to a valuation of £132 per sq. ft
-	and stands on some 140 acres of land, 80% of which is within 6 miles of the centre of London

In terms of any further disposals we will continue to review the portfolio and seek opportunities where value can be created especially in the intensification/change of use of part of our estates. However, we will seek not to forgo future value just to reduce debt levels. Rather, we are looking to the opportunities that this environment now presents to use our brand and intensive management skills.

Workspace remains a property based business - an operating company providing flexible and affordable space to new and small businesses in London.  We work closely with our customers. Our market research shows our tenants regard us as a good landlord and this hard earned reputation for customer care brings loyalty and attracts new business through recommendation. Our brand recognition continues to grow and in this environment our commitment to high standards of corporate responsibility becomes even more important.  We also work with properties that demand intensive management, with the attention to detail that this requires. In summary, our customers and our properties demand a hands-on direct approach.

As an operating company these results show that despite the severity of the current downturn, to date our trading performance has held up remarkably well. Overall occupancy at March 2009 was 80% compared to 86% a year earlier, whilst Like-for-Like occupancy reduced from 90% to 83%. We have found during the year that our average size of lettings has reduced and that larger units have also been taking longer to let. It is these features that impact on our figures. Certain estates also have lower occupancy pending their sale or redevelopment. 

The cash rent roll at March 2009 was £50.8m with contracted rents mostly due within the next year some £2.2m in excess of this at £53.0m. This contracted rent roll has changed little over the year. In achieving this, we have not focused on unrealistic rental values and are flexible in concluding deals to secure lettings. Nor do we give rent free periods up-front. Our practice is to take a deposit and rent, with negotiations around the lock-in period and stepped rentals. In this climate our flexible, affordable product is particularly relevant to those customers who are just establishing themselves as they move from home, to those who are seeking to downsize and reduce costs from elsewhere in London, and to those customers who wish to contract or expand within our stock.  

Workspace is weathering the storm and now we look to our future again. We have an operational business model which is proving itself resilient even in this severe downturn. Indeed, we believe that over time, our flexible leasing approach will prove even more attractive to customers as institutional type leases prove too onerous and capital intensive for new businesses. The model is scalable and we need to expand the foot- print for our business and reach more potential tenants. This will be achieved by working with partners, leveraging our brand and, at the right time, acquisitions. As the slowdown unwinds, I also have no doubt that the market for properties with alternative use potential will also see a recovery. Our income-earning land bank has unrealised potential as London's growth and intensification continues. We will use this opportunity, selling properties, reinvesting in the core business and creating value.

The next period for Workspace will continue to be demanding but, we are confident that our brand and model will deliver value to shareholders.

Harry Platt

Chief Executive

Business Review

Key Performance Indicators

We have seen a good level of demand for space from SMEs through the year with the level of activity maintained in the first two months of the current financial year.

Average number per month	2 Months to May 2009	3 Months to March 2009	Full Year	Prior  Year
Enquiries	910	952	876	785
Lettings	116	97	86	84

Although the level of new lettings has been high, the level of customer churn also increased during the year as the economic outlook deteriorated. In this environment a key focus for us has been to retain customers where possible by enabling them to upsize and downsize while still staying within the portfolio. This has successfully reduced the rate of decline in occupancy that we might otherwise have seen over the last six months.

Occupancy	No of Properties	March  2009	March  2008
Like-for-Like properties	95	83.4%	89.6%
Refurbished properties	6	69.5%	68.7%
Held for redevelopment/sale	5	53.5%	66.5%
Total	106	80.3%	85.8%

Like-for-Like occupancy at our business centres/offices and industrial estates have fallen by similar levels of around 6% over the year. At March 2009 the occupancy at our 56 business centres/offices was 84.7% and for the 39 industrial estates it was 82.1%.

Refurbished properties being let up includes two new properties which were opened in the year, The Wenlock Business Centre (opened in October 2008) and Q West (opened in October 2008).  Excluding these two properties the occupancy at our other recently completed refurbishment schemes at Greville Street, Lombard House, Kennington and E1 has improved to 74%. 

Total cash rent roll at the end of March 2009 was £50.8m down 3.3% in the year, with the fall in occupancy levels moderated by an increase in the average rent per square foot that is up by 6.4% to £12.64 in the year. 

Rent Roll	Total £m	Full Year Growth
Like-for-Like properties	45.0	-3.5%
Refurbished properties	5.2	+15.6%
Held for redevelopment/sale	0.6	-55.5%
Total	50.8	-3.3%
Average rent per sq. ft	£12.64	+6.4%

The increase in rent per square foot reflects a change in the mix of lettings with stronger demand for smaller higher priced units but larger-sized (generally lower priced) units being slower to relet when falling vacant.

The contracted rent roll at the end of March 2009, which includes an increased number of deals where the rents are contracted to increase in the second year of the lease, is £2.2m higher than the cash rent roll at £53.0m (2008: £53.9m).

Financial Results 

Overall the Group has delivered a resilient trading performance in the face of very challenging market conditions, particularly during the second half of the year as the UK moved into recession.

The decline in property valuations, which accelerated rapidly in the second half of the year, required us to announce a Rights Issue to raise additional equity from our shareholders to avoid potential breach of some of our valuation-related covenants. We also amended the covenants associated with our debt facilities to provide additional headroom and extend all our facilities out to November 2012 to remove any near-term refinancing concerns.

Income Statement

£m	2009	2008	Growth
Revenue	69.8	66.9	+4.3%
Trading Profit (before empty rates)	40.2	37.2	+8.1%
Empty rates	(1.8)	(0.2)
Net interest cost	(28.4)	(28.1)	+1.1%
Trading Profit after interest	10.0	8.9	+12.3%
Property valuation deficit	(325.3)	(47.5)
Interest-rate swap valuation	(26.1)	-
Joint venture losses	(23.9)	(2.8)
Refinancing costs	(5.9)	-
Other items and profit on property disposals	10.8	4.4
Net loss for the year before tax	(360.4)	(37.0)

Despite an increase of £1.6m in our empty rates charge our trading profit after interest is up 12.3% (£1.1m) in the year; excluding empty rates the increase in trading profits would be 29.7%. The main components of the £1.1m increase in trading profits are set out below:

	£m
2008 Trading Profit after interest	8.9
Revenue growth in year	2.9
Increase in empty rates	(1.6)
Increase in other direct costs	(1.0)
Reduction in overheads	1.1
Increase in interest costs	(0.3)
2009 Trading Profit after interest	10.0

Revenue growth of £2.9m (4.3%) came from the full year impact of the strong increases in rents that had been achieved during 2007/08. In the current year the focus has moved away from growing rents to maintaining high levels of occupancy. As a result  we have seen a flattening of revenue growth in the second half of the year.

The change to the empty rates legislation has had a significant impact on our trading profit with the cost increasing to £1.8m in the year. We will receive some benefit in 2009/10 from the empty rates relief for smaller-sized units announced in the recent Budget but this cost continues to be a significant additional, unwelcome burden for the Group at a time when we are already facing very challenging trading conditions.

The increase in other direct costs of £1m (5.1%) was primarily the impact of inflationary increases on our service charge costs, most notably energy and refuse costs.

The reduction in overheads reflects reduced bonus levels together with the impact of our cost reduction programme on discretionary costs. Growth in salary costs in the year from the increases in headcount in 2007/08 were offset by the redundancies made in October 2008. We will see the full year effect of these savings in 2009/10.  A more detailed analysis of our overheads is set out below:

	2009	2008
Salary costs (including redundancy costs)	5.7	6.1
Cash settled share based costs	(0.6)	(0.8)
Equity settled share based costs	0.6	0.7
Other costs	3.3	4.1
Total	9.0	10.1

Interest Cost and Hedging

The average interest cost on our debt during the year was 6.5% compared to 6.7% in the prior year.  The Group's borrowings are hedged by £250m of interest rate swaps fixed out to October and November 2012 at an average rate of 5.3%. The remaining interest exposure is currently hedged by way of caps and collars which mature in July 2009 and October 2010. The overall interest cost in the year was adversely impacted by the high LIBOR rates we saw in the first six months, but then benefited in the second half of the year as rates fell markedly. 

Looking forward, while the margins on our renegotiated bank facilities have increased significantly this has been largely offset by the fall in LIBOR. We aim to keep the total cost of debt at or below 7.0% and may look to take advantage of the lower rates currently available to reduce the cost associated with our existing hedges.

At 31 March 2009 the significant differential between current LIBOR rates and the interest rates at which we put our hedging in place gave rise to a mark-to-market revaluation deficit of £26.1m, which has been charged to the income statement.

Valuation

The valuation of our property portfolio has fallen by 33% (deficit of £326m) during the last year which is broadly in line with the wider commercial property sector. The most notable quarterly decline in the valuation was in the quarter to December 2008, when the value of our portfolio dropped by some 15%. The rate of decline has slowed in the fourth quarter to 10%.  A summary of the movements through the year is set out below:

			£m
Portfolio valuation at 31 March 2008			993
Property acquisitions			4
Property disposals			(12)
Other expenditure on properties			8
Property valuation deficit
	- quarter to June 2008	(46)
	- quarter to September 2008	(80)
	- quarter to December 2008	(130)
	- quarter to March 2009	(70)
			(326)
Valuation deficit on disposals			(5)
Portfolio valuation at 31 March 2009			662

The reversionary income and yields associated with the overall property portfolio of 106 estates are set out below:

	March 2009	March  2008
Estimated rental value (ERV)	£70.5m	£76.1m
Equivalent yield (at 90% occupancy)	9.6%	6.9%
Existing use income yield (Like-for-Like)	8.5%	5.9%
Income yield (total)	7.7%	5.3%

In this environment where the focus has been on maintaining occupancy and good cashflow rather than trying to achieve unrealistic pricing levels there has inevitably been some loss of reversion, with a 7.5% decline in ERV in the year. 

The equivalent and income yields quoted above are internally calculated based on reported ERV and rent roll respectively. The total net initial yield on our portfolio as calculated by CBRE is 7.4% and the equivalent yield is 9.6%.  A more detailed analysis of the yields at March 2009 for our property portfolio is set out below:

	No of properties		Value £m		Rent Roll £m	Income Yield	Equivalent Yield
Like-for-Like Properties
Existing use value	95		531		45.0	8.5%	10.1%
Added value (13 properties)			28
Other Properties
Refurbished	6		78		5.2	6.7%	9.7%
Held for redevelopment/sale	5		25		0.6	2.5%	7.8%
Total	106		662		50.8	7.7%	9.6%

The core existing use valuation of £531m includes a broad range of properties spread across London. A split of this valuation by geography and estate type is set out below:

	Business Centres/Offices				Industrial Estates
	No of Properties	Value £m	Income Yield		No of Properties	Value £m`	Income  Yield
Central	18	184	8.4%		-	-	-
North	9	46	9.3%		4	21	8.8%
South	8	29	8.5%		11	30	8.7%
East	3	15	10.2%		10	66	7.4%
West	17	91	8.4%		12	38	8.4%
Other	1	2	14.1%		2	9	9.8%
Total	56	367	8.6%		39	164	8.2%

The Like-for-Like properties have an average lot size of £5.5m (44,000 sq. ft), an immediate cash income yield of 8.5% and a capital value of £127 per sq. ft.

The added value of £28m attached to the Like-for-Like properties reflects 13 sites where we are well progressed on exploiting alternative use potential. Over time we would expect that around half of the total property portfolio has the potential to generate additional value. The most significant of the schemes where our valuers have attached redevelopment value are:

Poplar, E14:  Currently a 75,000 sq. ft office and light industrial site. Agreement has been reached with the Local Authority to submit a mixed use planning application for a 375,000 sq. ft workspace, residential and hotel scheme.

Canalot Studios, W10:  We have exchanged on the disposal of an old single storey extension to the business centre for redevelopment for a student housing scheme subject to planning consent. 

Aberdeen Centre, N5: An existing 65,000 sq. ft office and studio site. Planning consent has been granted for 74 residential units and 65,000 sq. ft of new workspace. The site is currently being operated to maintain income until commencement of development/partial sale.

Westminster, SE11:  An existing 1950s 63,000 sq. business centre. Planning consent has been granted for 60,000 sq. ft new office space on vacant land.  The scheme is currently being marketed for pre-let or sale.

Leyton Industrial Estate, E10: Planning consent has been granted for a 65,000 sq. ft industrial scheme on an open storage area of the site. 

Since November 2008 we have exchanged on ten disposals for a total of £37.2m. Of these disposals eight were the sale of entire properties and two are sales of part of our sites for alternative use, namely Canalot Studios (student housing) and Bounds Green (self-storage). Seven of the property disposals had completed by the end of May for £26.9m, with one (£1.5m) due to complete in June 2009. The two alternative use sales (£8.8m) are subject to planning permission which we would expect to receive in the next three months. All of the disposals are at or ahead of the March 2009 property valuation. A summary of the disposals and associated yields are set out below:

	No of  Properties	Value £m	Income  Yield
Property sales	8	28.4	7.7%
Alternative use schemes	2	8.8	1.8%

Refurbished properties currently being let up comprises Greville Street (opened June 2007), Lombard House (opened June 2007), Kennington Canterbury Court (opened January  2008), E1 (opened July 2008), Q West (opened October 2008) and The Wenlock Business Centre (opened October 2008). We are making good progress with letting these schemes up and at our targeted occupancy level of 90% these sites would generate an additional £1.5m of rent roll (based on current rental values) which would give an income yield of 8.8%.

Properties on hold for redevelopment includes two properties where planned redevelopment looked attractive when market conditions were better but which have been put on hold in the current environment.  These are at Hayes, Middlesex which is located close to the Heathrow terminal of the Crossrail link and at Greenheath where the redevelopment of the main building will be progressed alongside the proposed sale of part of the site for social housing. We also have a site at Lewisham with planning permission for residential and retail development where occupancy has been reduced ahead of its planned sale. For these sites the current income yields do not reflect their market value.

Glebe Joint Venture

We have written down the value of our interest in the joint venture in Workspace Group's balance sheet to nil (2008: £15.7m). Workspace Group also provided for a tax indemnity on formation of the joint venture, which represented the capital gains tax associated with the valuation at which the properties were sold to the joint venture. This provision has reduced alongside the decline in the property valuation and now stands at £5.1m (2008: £19.5m).

The joint venture with Glebe was established to promote the intensification and change of use at 18 estates across London. The majority of the properties were sold by Workspace Group into the joint venture company in June 2006 taking advantage of attractive values at a high point in the market (income yield of 4.9%) to de-gear.

Mixed use planning consents have already been achieved at Wandsworth Business Village and Grand Union, Kensington. A 576,000 sq. ft mixed use planning application at Bow E3 was submitted in December 2008. At Rainbow Industrial Estate, Raynes Park SW20 we are well progressed with a planning application for a waste to energy plant.

Alongside progressing the mixed use opportunities, the focus is on maintaining existing rental income at each property. Excluding the Wandsworth site which was vacated in January 2008 ahead of its planned redevelopment, occupancy is 73.5%. At Wandsworth, we are now re-letting two of the buildings on the site with the timing of its redevelopment now deferred. 

The joint venture has seen a valuation decline of £49.5m (28%) in the year with valuation now at £129.6m. This includes added value of £27m from the progress made on the various mixed use planning schemes.

The debt funding for the joint venture is provided by HBOS (a 30% shareholder in Glebe).  At March 2009 the drawn debt was £134m and the loan to value covenants have been breached.  We are currently in discussion with Glebe and HBOS to agree revised terms for the debt funding of the joint venture and appropriate returns for any additional equity investment.  This is a non-recourse facility apart from an interest shortfall guarantee under which the joint venture partners have a maximum liability of £6m, of which £1.6m has been contributed to date.  The remainder has been fully provided for in the financial statements.  

Rights Issue & Refinancing Costs

In January 2009 the Group announced a Rights Issue that was successfully completed in March 2009. A total of 871.8m new ordinary shares were issued raising £87.2m. Alongside this capital raising the covenants associated with the Group's lending facilities were amended and the term of the GE facility that matured in August 2010 was extended out to November 2012.  

A breakdown of the costs is set out below:

	£m
Payments to financial advisers and brokers	4.9
Payments to lenders	4.9
Legal costs	1.0
Un-amortised finance costs written-off	0.7
Other costs	0.6
	12.1

£6.2m of these costs related to the Rights Issue are required to be charged directly to the share premium account. The remaining costs are shown as exceptional items in the Income Statement.

The exceptional payments to our lenders potentially gives rise to a penalty tax charge of £1.2m as the total finance costs in the year (if these exceptional costs are included) would result in the REIT minimum interest cover ratio of 1.25 being breached. We are discussing the appropriate tax treatment of the bank amendment costs with HM Revenue and Customs but have fully provided for this potential tax charge in these accounts. 

Cashflow

£m	2009	2008
Operating cashflow	40.6	41.6
Interest paid	(29.0)	(30.1)
Net cash from operations	11.6	11.5
Dividends to shareholders	(7.8)	(7.3)
Rights Issue proceeds (net of fees and facility amendment costs)	80.2	-
Capital expenditure	(9.2)	(18.7)
Property acquisitions	(4.2)	(31.3)
Property disposals	11.4	10.4
Corporation tax	4.9	(19.3)
Other	(3.3)	(5.5)
Other Cashflow Movements	(0.4)	(64.4)
Decrease/(increase) in net borrowings	83.6	(60.2)

The Group generates strong operational cashflows in line with its trading profits, with a very low level of bad debts at £0.2m in current year (2008: £0.1m). This reflects a number of factors:

	No significant exposure to any one customer with an average rent of some £13,000 p.a. and 80% paying less than £20,000 p.a.
	Customers are generally required to provide a deposit and three months rent in advance.
	Problem customers can be identified quickly with 70% of customers billed monthly and 70% of customers paying by direct debit.

There has been no discernible deterioration in the payment profile over the last six months, with no increase in bailiff cases or repossessions and over 95% of debts collected within 30 days of due date.

We have reduced capital expenditure to £9.2m as various major refurbishments have been completed.  We have no major new projects planned and are only committing to capital expenditure that is essential and would expect to see a further reduction in capital expenditure in 2009/10.

During the year we acquired the first phase of Q West, Brentford for £4.2m (including costs). Contracts for this purchase were exchanged in June 2007 with the second phase of this acquisition for a further 28,000 sq. ft due to complete for £3.9m in September 2009. 

The total of 'other cashflow movements' has improved significantly from a £64.4m cash outflow in 2008 (which included the REIT entry charge of £18.8m) to a £0.4m outflow in 2009. We would expect this to improve further in 2009/10 from the reduced level of capital expenditure and completed/planned disposals we are making.

Balance Sheet & Financing

£m	2009	2008
Investment properties	664	994
Investment in JV	-	16
Net borrowings	(355)	(438)
Interest-rate swaps	(26)	(3)
Other net liabilities	(31)	(32)
Net assets	252	537
EPRA diluted adjusted NAV	27p	233p

The NAV for 2008 has been restated by reference to the share price on the day immediately prior to the shares going ex-rights. In the case of our Rights Issue the depressed level of the share price at this time means that the adjustment factor was low.

The Group has two key banking relationships, with Royal Bank of Scotland (RBS) and GE Real Estate (GE). The RBS relationship is longstanding, dating back to the flotation of the Group in 1993. The relationship with GE arose from the sale by Bradford & Bingley of its commercial and property book which completed in July 2008.

The rapid and accelerating decline in property values during the year required us to make amendments to the valuation related covenants attached to our RBS and GE facilities to avoid potential breach. We also negotiated with GE an extension to their facility from August 2010 to November 2012 (the same term as the RBS facility) to remove any near term refinancing concerns. 

Details of our revised facilities and margins are set out below:

	Facility  Amount £m	Drawn at March 2009 £m	Term	Margin over LIBOR
RBS
Term/revolving facilities	150	136	November 2012	2.75%
Short-term facility	20	-	June 2009	2.75%
Overdraft/(Deposit)	4	(1)	On demand	1.75%
GE
Term facility	220	220	November 2012	2.0%
Total	394	355

The short-term facility of £20m with RBS, which is undrawn, expires on 24 June 2009 at which point the Group's available facilities reduce to £374m. 

The extension of the GE facility to November 2012 is at the Group's option and is subject to the payment of extension fees in August 2010 (1.7% of amount extended) and December 2011 (2.25% of amount extended). The margin on the GE facility increases to 3.0% at August 2010 at the first extension and to 4.0% in January 2012.

On a pro-forma basis, excluding other cashflow movements, the drawn debt will reduce from £355m at March 2009 to £330m from the contracted disposals completed or due to complete during the remainder of the year.   The majority of the disposal proceeds will be applied to reduce the drawn amount on the RBS revolver facility, increasing the available headroom on our facilities.

The revised covenants on the bank facilities are set out below:

	Interest Cover			Loan to Value
	On secured Asset pool	Group Level		On secured asset pool
RBS	1.25	1.50		75%
GE	1.30	1.50		75%

Each of the RBS and GE facilities is secured on a discrete pool of assets. Covenant tests are on both the discrete pools and at a Group level (which includes £54m of uncharged assets). Interest cover is calculated by reference to gross rental income. This excludes a number of items, including service income and service costs and empty rates.

Covenants are tested on a quarterly basis and results of our covenant tests at March 2009 and the indicative headroom based on March exit income run rates is as follows:

	At 31 March 2009	Indicative Headroom to Breach
Interest Cover Covenant
RBS asset pool	1.8	Income to fall by 32%
GE asset pool	1.8	Income to fall by 27%
Group asset pool	1.9	Income to fall by 20%
Loan to Value
RBS asset pool	56%	Valuation to fall by 26%
GE asset pool	63%	Valuation to fall by 16%

We have good interest cover on our facilities. A 20% fall in the income equates to a drop in the rent roll of some £10m. This headroom could be increased further by unlocking some of our existing fixed rate interest hedges. 

The tightest Loan to Value (LTV) covenant is on the GE facility. There are additional uncharged assets of £54m that could be used to increase this headroom. If an additional £40m of assets were  charged to GE this would increase the headroom to breach from 16% to 25%.

Dividend

A final dividend of 0.50p per share is proposed. Combined with the interim dividend this takes the total dividend for the year to £7.8m, the same level as last year. Based on the number of shares in issue post-rights his would represent a total dividend for the year of £0.75p per share.

The final dividend will be paid to shareholders in August 2009, of which the full amount will be paid as a Property Income Distribution (PID) (see note 7 to the financial statements for further dividend details). 

Key Statistics

	Quarter ending  31 March 2009	Quarter ending  31 December 2008	Quarter  Ending 30 September 2008	Quarter ending  30 June 2008	Quarter ending  31 March 2008
Workspace Group directly owned portfolio
Number of estates	106	107	107	107	106
Lettable floorspace (million sq ft) ^^	5.0	5.1	5.1	5.2	5.2
Number of lettable units	4,546	4,688	4,628	4,642	4,611
ERV	£70.5m	£76.6m	£77.5m	£77.3m	£76.1m
Reversionary Yield*	10.6%	10.3%	8.9%	8.1%	7.7%
Net annual rent roll of occupied units	£50.8m	£52.5m	£53.1m	£52.2m	£52.6m
Average annual rent per sq ft	£12.64	£12.58	£12.43	£12.03	£11.88
Overall occupancy	80.3%	81.3%	84.1%	84.1%	85.8%
Like-for-Like lettable floor space (million sq ft)	4.2	4.2	4.2	4.2	4.3
Like-for-Like net annual rent roll	£45.0m	£46.1m	£46.9m	£46.m	£46.7m
Like-for-Like average annual rent per sq ft	£12.84	£12.86	£12.79	£12.45	£12.19
Like-for-Like occupancy	83.4%	85.2%	87.6%	87.6%	89.6%
Workspace Glebe joint venture portfolio
Number of estates	18	18	18	18	18
Lettable floorspace (million sq ft) ^^	1.2	1.2	1.2	1.2	1.2
Number of lettable units	860	869	868	867	866
ERV	£11.1m	£11.4m	£11.4m	£11.3m	£11.2m
Reversionary Yield*	8.5%	8.0%	7.3%	7.0%	6.6%
Net annual rent roll of occupied units	£7.0m	£6.9m	£7.1m	£7.4m	£7.2m
Average annual rent per sq ft	£8.61	£8.54	£8.10	£8.03	£7.80
Overall occupancy	70.7%	69.4%	75.7%	80.0%	79.8%
Financial Performance (£m)
Net rental income	11.0	12.2	12.1	12.1	12.1
Trading profit	8.7	10.1	10.1	9.5	8.9
Revaluation (reduction)/surplus	(64.4)	(129.7)	(85.1)	(46.1)	(8.9)
(Loss)/profit before taxation	(74.0)	(157.9)	(83.5)	(45.0)	(4.0)
Property valuation	662	740	871	954	993
Net assets	252	245	403	497	537
EPRA NAV per share (p)	27	118	174	214	233
Net rental income interest cover (cumulative)	1.67x	1.69x	1.70x	1.70x	1.68x
Trading interest cover (cumulative)	1.35x	1.38x	1.38x	1.34x	1.32x
Gearing (%) on adjusted net assets	129%	164%	112%	92%	82%
Loan to value (%)	54%	60%	51%	47%	44%
Available borrowing facilities (£m)	38	57	54	53	61

^^Excludes storage space

* Based on ERV divided by valuation

The Like-for-Like portfolio is defined as properties that have been held throughout a 12 month period and have not been subject to a refurbishment programme in the last 24 months. 

Consolidated Income Statement 

For the year ended 31 March  

		2009	2009	2009	2008
	Notes	£m	Exceptional items* £m	Total £m	Total £m
Revenue	2	69.8	-	69.8	66.9
Direct costs	2	(22.4)	-	(22.4)	(19.8)
Net rental income	2	47.4	-	47.4	47.1
Administrative expenses	4	(9.0)	-	(9.0)	(10.1)
Trading profit		38.4	-	38.4	37.0
Change in fair value of investment property	10	(325.3)	-	(325.3)	(47.5)
Other income	3a	1.0	-	1.0	2.2
Profit on disposal of investment properties	3b	9.8	-	9.8	2.2
Operating loss	4	(276.1)	-	(276.1)	(6.1)
Finance income	5	0.4	-	0.4	0.1
Finance costs	5	(28.8)	(5.9)	(34.7)	(28.2)
Change in fair value of derivative financial instruments	5	(26.1)	-	(26.1)	-
Share in joint venture post tax losses	20	(23.9)	-	(23.9)	(2.8)
Loss before tax		(354.5)	(5.9)	(360.4)	(37.0)
Taxation	6	-	-	-	2.3
Loss for the period after tax and attributable to equity shareholders		(354.5)	(5.9)	(360.4)	(34.7)
Basic earnings per share (pence)**	8	(132.4)p	(2.2)p	(134.6)p	(15.2)p
Diluted earnings per share (pence)**	8	(132.4)p	(2.2)p	(134.6)p	(15.2)p

**Comparative figures have been restated to reflect the bonus element of the Rights Issue as described in note 8 

*Exceptional items relate to the costs associated with amendments to existing borrowing facilities. 

Consolidated Statement of Recognised Income and Expense (SORIE)

For the year ended 31 March 

		2009 £m	2008 £m
Loss for the financial year		(360.4)	(34.7)
Change in fair value of derivative financial instruments (note 17)		1.1	(2.9)
Total recognised income and expense for the year		(359.3)	(37.6)

Consolidated Balance Sheet

As at 31 March 

	Notes	2009 £m	2008 £m
Non-current assets
Investment properties	10	664.1	994.3
Intangible assets		0.3	0.3
Property, plant and equipment		3.1	3.2
Investment in joint venture	20	-	15.7
		667.5	1,013.5
Current assets
Trade and other receivables		9.1	12.5
Current tax asset		-	4.0
Cash and cash equivalents	11	3.7	2.5
		12.8	19.0
Current liabilities
Short term borrowings and overdraft	12	-	(63.4)
Derivative financial instruments	12	(26.2)	(3.1)
Trade and other payables		(32.3)	(31.5)
Current tax liabilities		(0.9)	-
		(59.4)	(98.0)
Net current liabilities		(46.6)	(79.0)
Non-current liabilities
Borrowings	12	(359.4)	(378.0)
Deferred tax liabilities	16	(0.1)	(0.2)
Provisions	16	(9.5)	(19.5)
		(369.0)	(397.7)
Net assets		251.9	536.8
Shareholders' equity
Ordinary shares	18	104.6	17.4
Share premium	18	24.6	30.8
Investment in own shares	19	(5.7)	(4.5)
Other reserves	17	2.6	(0.9)
Retained earnings	18	125.8	494.0
Total shareholders' equity	18	251.9	536.8
EPRA net asset value per share†	9	27p	233p

†Comparative figure has been restated to reflect the bonus element of the Rights Issue as described in note 9.

Consolidated Cash Flow Statement 

For the year ended 31 March 

	Notes	2009 £m	2008 £m
Cash flows from operating activities
Cash generated from operations	13	40.6	41.6
Interest received		0.4	0.1
Interest paid		(29.4)	(30.2)
Tax refunded/(paid)	14	4.9	(18.9)
Net cash inflow/(outflow) from operating activities		16.5	(7.4)
Cash flows from investing activities
Purchase of investment properties		(4.2)	(31.3)
Capital expenditure on investment properties		(9.2)	(18.7)
Net proceeds from disposal of investment properties		11.4	10.4
Tax paid on disposal of investment properties	14	-	(0.4)
Purchase of intangible assets		(0.1)	(0.2)
Purchase of property, plant and equipment		(0.4)	(0.5)
Investment in and loan to joint venture		(3.8)	-
Movement in short-term funding balances with joint venture		2.4	(4.0)
Net cash outflow from investing activities		(3.9)	(44.7)
Cash flows from financing activities
Proceeds from issue of ordinary share capital less fees*		83.6	0.1
Finance costs to amend existing borrowing facilities		(3.4)	-
Net proceeds from issue of bank borrowings		-	57.6
Net repayment of bank borrowings		(78.8)	-
ESOT shares net purchase		(1.2)	(0.8)
Finance lease principal payments		(0.2)	(0.1)
Dividends paid to shareholders	7	(7.8)	(7.3)
Net cash (outflow)/inflow from financing activities		(7.8)	49.5
Net increase/(decrease) in cash and cash equivalents		4.8	(2.6)
Cash and cash equivalents at start of year	13	(1.1)	1.5
Cash and cash equivalents at end of year	13	3.7	(1.1)

* £87.2m gross proceeds less £3.6m cash outlay to date on fees. 

Notes to the Financial Statements

For the year ended 31 March 

1.	Basis of preparation
The financial information in this report is abridged and does not constitute the Group's full Financial Statements for the years ended 31 March 2009 and 31 March 2008, and has been prepared under International Financial Reporting Standards (IFRS) Full Financial Statements for the year ended 31 March 2008, were prepared under IFRS, received an unqualified auditors' report and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985, have been filed with the Registrar of Companies. which Financial Statements for the year ended 31 March 2009 will be presented to the Members at the forthcoming Annual General Meeting; the auditors' report on these Financial Statements is unqualified.
2.	Analysis of net rental income

	2009			2008
	Revenue £m	Direct Costs £m	Net rental income £m	Revenue £m	Direct Costs £m	Net rental income £m
Rental income	54.2	(0.2)	54.0	51.4	(0.5)	50.9
Service charges and other recoveries	13.3	(19.1)	(5.8)	13.5	(18.0)	(4.5)
Empty rates	-	(1.8)	(1.8)	-	(0.2)	(0.2)
Services, fees, commissions and  sundry income	2.3	(1.3)	1.0	2.0	(1.1)	0.9
	69.8	(22.4)	47.4	66.9	(19.8)	47.1

The Group operates a single business segment providing business accommodation for rent in London, which is continuing.

3(a) Other income

	2009 £m	2008 £m
Non-refundable option fees and deposits for potential sale of property	1.0	2.2
	1.0	2.2

3(b) Profit on disposal of investment properties

	2009 £m	2008  £m
Gross proceeds from sale of investment properties	13.0	11.0
Book value at time of sale plus sale costs	(17.6)	(10.2)
	(4.6)	0.8
Movement in provision for joint venture tax indemnity (see note 16b)	14.4	1.4
Profit on disposal	9.8	2.2

4  Operating Loss

The following items have been charged in arriving at operating loss: This analysis has been prepared by nature of expense.	2009 £m	2008 £m
Direct costs:
Depreciation of property, plant and equipment - owned assets (1)	0.2	0.3
Depreciation of investment properties - finance leases	0.2	-
Staff costs	3.1	2.7
Repairs and maintenance expenditure on investment property	3.2	3.0
Trade receivables impairment	0.2	0.1
Administrative expenses:
Amortisation of intangibles	0.1	0.1
Depreciation of property, plant and equipment - owned assets	0.3	0.3
Staff costs	5.7	6.1
Other operating lease rentals payable:
- motor vehicles	0.1	0.1
Audit fees payable to the Company's auditors (2)	0.2	0.2

(1)

Depreciation in direct costs relates to that of fixtures and fittings installed within investment properties.

(2)

Audit fees payable to the Company's auditors include £37,000 (2008: £28,500) of other services supplied pursuant to legislation, in respect of the half year review of the consolidated Group accounts and the statutory audits of the subsidiaries in the Group. Amounts payable to the Company's auditors for other non-audit services totalled £396,000 - mainly in relation to the Rights Issue (2008 - £62,000).

Total administrative expenses can be analysed as:-

	2009 £m	2008 £m
Staff costs (as above)	5.7	6.1
Cash settled share based costs	(0.6)	(0.8)
Equity settled share based costs	0.6	0.7
Other	3.3	4.1
	9.0	10.1

Number of people (including executive directors) employed at the year end:	2009 Number	2008 Number
Executive directors	3	3
Head office staff	69	78
Estates staff - directly owned properties     - joint venture properties	99 12	102 11
	183	194

The average number of persons employed during the year was 187 (2008: 185).  Excluding joint venture staff, the average number of persons employed during the year was 175 (2008: 177).

5.  Finance income and costs
	2009 £m	2008 £m
Interest income on bank deposits	-	0.1
Interest income on corporation tax refunds	0.4	-
Finance income	0.4	0.1
Interest payable on bank loans and overdrafts	(28.0)	(27.9)
Amortisation of issue costs of bank loans	(0.7)	(0.5)
Interest payable on finance leases	(0.2)	(0.1)
Interest payable on 11.125% First Mortgage Debenture Stock 2007	-	(0.3)
Interest payable on 11.625% First Mortgage Debenture Stock 2007	-	(0.2)
Interest capitalised on property refurbishments	0.1	0.8
	(28.8)	(28.2)
Exceptional finance costs*	(5.9)	-
Finance costs	(34.7)	(28.2)
Change in fair value of financial instruments through the income statement	(26.1)	-
Net finance costs	(60.4)	(28.1)
* The exceptional finance costs incurred in 2009 relate to the costs associated with amendments to existing borrowing facilities.

6. Taxation

Analysis of charge in period:	2009 £m	2008 £m
Current tax	0.1	(2.3)
Deferred tax	(0.1)	-
Total taxation charge/(credit)	-	(2.3)
The charge/(credit) in the period is analysed as follows:	2009 £m	2008 £m
Current tax:
UK corporation tax	(0.1)	-
REIT penalty tax charge*	1.2	-
Adjustments to tax in respect of previous periods	(1.1)	(2.3)
Total taxation charge/(credit)	-	(2.3)

     * The REIT penalty charge arises from non compliance this year with the REIT requirement for the profit:financing cost ratio as set out in the legislation to be greater or equal to 1.25.

The tax on the Group's loss for the period differs from the standard applicable corporation tax rate in the UK (28%). The differences are explained below:

	2009 £m	2008 £m
Loss on ordinary activities before taxation	(360.4)	(37.0)
Add share of post tax losses in joint venture	23.9	2.8
	(336.5)	(34.2)
Tax at standard rate of corporation tax in the UK of 28% (2008: 30%)	(94.2)	(10.3)
Effects of:
REIT exempt income	(1.6)	(4.5)
REIT penalty tax charge	1.2	-
Changes in fair value not subject to tax as a REIT	98.4	14.3
Share scheme adjustments	0.1	(0.3)
Provision for tax indemnity	(4.0)	(0.3)
Adjustments to tax in respect of previous periods	(1.1)	(2.3)
Losses carried forward	1.2	1.1
Total taxation per income statement	-	(2.3)

The Group is a Real Estate Investment Trust (REIT). The Group's UK property rental business (both income and capital gains) is exempt from tax. The Glebe joint venture does not form part of the REIT. The Group's 'residual' business (subject to tax) is small and consists mainly of ancillary services and commissions.

The Group currently has £3.5m (2008: £2.4m) of tax losses carried forward which have not been recognised as an asset as they are unlikely to be utilised in the foreseeable future.

7. Dividends 

Ordinary dividends paid

	Payment Date	Per share	2009 £m	2008 £m
For the year ended 31 March 2007
Final dividend	August 2007	2.76p	-	4.7
For the year ended 31 March 2008
Interim dividend	February 2008	1.52p	-	2.6
Final dividend	August 2008	3.04p	5.2	-
For the year ended 31 March 2009
Interim dividend	February 2009	1.52p	2.6	-
Dividends paid			7.8	7.3

Dividends per share have not been adjusted to reflect the bonus factor inherent in the Rights Issue.  

In addition the directors are proposing a final dividend in respect of the financial year ended 31 March 2009 of 0.5p per Ordinary Share which will absorb an estimated £5.2m of shareholders' funds. If approved by the shareholders at the AGM, it will be paid on 6 August 2009 to shareholders who are on the register of members on 3 July 2009. It is intended that the full amount of this dividend will be paid as a PID, net of withholding tax where appropriate.

8.   Earnings per share

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

(Loss)/earnings used for calculation of earnings per share	2009 £m	2008 £m
Loss used for basic and diluted earnings	(360.4)	(34.7)
Change in fair value of investment property	325.3	47.5
Profit on disposal of investment properties	(9.8)	(2.2)
Movement in fair value of derivative financial instruments	26.1	-
Group's share of EPRA adjustments of joint venture	22.7	2.5
EPRA adjusted earnings	3.9	13.1
Add back exceptional items	5.9	-
Adjusted underlying earnings	9.8	13.1

Weighted average number of shares used for calculation of earnings per share	2009 Number	2008 Number restated
Weighted average number of shares (excluding shares held in the ESOT)	267,733,813	228,085,976
Dilution due to Share Option Schemes	2,173,993	3,084,712
Shares for diluted earnings per share	269,907,806	231,170,688

The number of shares have been adjusted for both years in accordance with IAS 33  'Earnings Per Share' to reflect the Rights Issue which the Group undertook on 13 March 2009.

The weighted average number of shares has been calculated to increase the number of shares in issue after the Rights Issue and the bonus element for periods prior to the Rights Issue closing date. The factor used was 1.3308.

In accordance with IAS 33 'Earnings Per Share' no calculation of dilution is made where it would have an anti-dilutive effect of increasing the loss per share.

In pence:	2009	2008  restated
Basic earnings per share	(134.6)p	(15.2)p
Diluted earnings per share	(134.6)p	(15.2)p
EPRA earnings per share	1.4p	5.7p
Underlying earnings per share	3.6p	5.7p

The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in November 2006, which gives guidelines for performance measures.  The adjustments to earnings made above are in accordance with this guidance.

Underlying earnings consists of the EPRA earnings measure, with additional company adjustments.

9.	Net assets per share

Net assets used for calculation of net assets per share
	2009 £m	2008 £m
Net assets at end of year (basic)	251.9	536.8
Derivative financial instruments at fair value	26.2	3.3
Deferred tax on fair value change of investment properties	-	(0.2)
Deferred tax on derivative financial instruments	-	(0.1)
EPRA net assets	278.1	539.8

Number of shares used for calculating net assets per share	2009 Number	2008 Number restated
Shares in issue at year-end	1,046,116,842	174,313,887
Bonus share element of Rights Issue	-	57,652,453
Less ESOT shares	(3,635,119)	(2,941,069)
Number of shares for calculating basic net assets per share	1,042,481,723	229,025,271
Dilution due to Share Option Schemes	1,618,267	2,875,879
Number of shares for calculating diluted adjusted net assets per share	1,044,099,990	231,901,150

Net assets have been adjusted and calculated on a diluted basis to derive a net asset measure as defined by the European Public Real Estate Association (EPRA).

10. Investment properties

	2009 £m	2008 £m
Balance at 1 April	994.3	1,001.6
Property acquisitions	4.6	31.5
Capital expenditure	8.0	18.1
Capitalised interest on refurbishments	0.1	0.8
Disposals during the year	(17.4)	(10.2)
Depreciation on finance leases	(0.2)	-
Net loss from change in fair value of investment property	(325.3)	(47.5)
Balance at 31 March	664.1	994.3

Capitalised interest is included at a rate of capitalisation of 6.5% (2008: 6.7%). The total amount of capitalised interest included in investment properties is £2.9m  (2008: £2.8m).

Investment property includes buildings under finance leases of which the carrying amount is    £3.9m (2008: £4.1m). Investment property finance lease commitment details are show in note 12(f).

The Group has determined that all tenant leases are operating leases within the meaning of IAS17. The majority of the Group's tenant leases are granted with a rolling three month tenant break clause. The future minimum rental receipts under non-cancellable operating leases granted to tenants are as follows:

	2009 £m	2008 £m
Within one year	11.9	12.4
Between two and five years	7.3	4.3
Beyond five years	3.9	1.8
	23.1	18.5

Valuation

The Group's investment properties were revalued at 31 March 2009 by CB Richard Ellis, Chartered Surveyors, a firm of independent qualified valuers. The valuations were undertaken in accordance with the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards on the basis of market value. Market value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and willing seller in an arm's length transaction after proper marketing wherein the parties had both acted knowledgably, prudently and without compulsion. 

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:

2009 £m 2008 £m Total per CB Richard Ellis valuation report  662.2 993.2 Owner occupied property (1.8) (2.7) Head leases treated as finance leases under IAS 17 3.9 4.1 Short leases valued as head leases (0.2) (0.3) Total Investment Properties per balance sheet 664.1 994.3

11. Cash and cash equivalents

	2009 £m	2008 £m
Cash at bank and in hand	1.3	-
Restricted cash - tenants' deposit deeds	2.4	2.5
	3.7	2.5

Tenants' deposit deeds represent returnable cash security deposits received from tenants and are ring-fenced under the terms of the individual lease contracts.

Bank overdrafts are included within cash and cash equivalents for the purpose of the cash flow statement (see note 13).

12  Borrowings
a) Balances	2009	2008
	£m	£m
Current
Bank loans and overdrafts due within one year or on demand (secured)	-	63.4
	-	63.4
Non -current
Bank loans (secured)	355.5	373.9
Finance lease obligations (part secured)	3.9	4.1
	359.4	378.0
	359.4	441.4
The secured loans and overdraft facility are secured on properties with balance sheet values totalling £608.4m (2008: £841.3m).

b) Maturity	2009 £m	2008 £m
Secured (excluding finance leases)
Repayable in less than one year	-	63.4
Repayable between one year and two years	-	-
Repayable between two years and three years	-	225.0
Repayable between three years and four years	356.0	-
Repayable between four years and five years	-	150.0
	356.0	438.4
Less cost of raising finance	(0.5)	(1.1)
	355.5	437.3
Finance leases (part secured)
Repayable in five years or more	3.9	4.1
	359.4	441.4

c) Interest rate and repayment profile

	Principal	Interest	Interest payable	Repayable
	£m	rate
Current
Bank loan and overdrafts due within one year or on demand	nil	Variable	Variable	On demand
Non-current
Loan - GE Real Estate Finance	220.0	LIBOR +2.0%	Quarterly	November 2012*
Loan - RBS	136.0	LIBOR + 2.75%	Variable	November 2012

*The GE Real Estate Finance facility is extendable to November 2012 at the Group's option upon payment of an extension fee in August 2010 and December 2011.

d) Derivative financial instruments

The following interest rate derivatives are held:

	Amount hedged £m	Rate payable (or range for caps and collars) %	Rate Receivable %	Expiry
Interest rate collar	75.0	4.05-6.95%	-	July 2009
Interest rate collar (increasing amount)	50.4	2.99-7.00%	-	October 2010
Interest rate cap	90.0	8.00%	-	July 2010
Interest rate swap	100.0	5.43%	3 month LIBOR	October 2012
Interest rate swap	100.0	5.12%	1 month LIBOR	October 2012
Interest rate swap	50.0	5.40%	3 month LIBOR	November 2012

The above instruments are treated as financial instruments at fair value with changes in value dealt with in the income statement during each reporting period. 

e) Fair values of financial instruments

	2009	2009	2008	2008
	Book Value	Fair Value	Book Value	Fair Value
	£m	£m	£m	£m
Financial liabilities not at fair value through profit or loss
Bank overdraft	-	-	3.6	3.6
Bank loans	355.5	355.5	433.7	433.7
Finance lease obligations	3.9	3.9	4.1	4.1
	359.4	359.4	441.4	441.4
Financial liabilities at fair value through profit or loss
Derivative financial instruments:
Liabilities	26.2	26.2	0.2	0.2
Assets	-	-	-	-
	26.2	26.2	0.2	0.2
Financial liabilities at fair value through equity
Cashflow hedge*	-	-	2.9	2.9

*A cashflow hedge was entered into on 19 November 2007 and deemed to meet all relevant criteria for hedge accounting under IAS 39. On 1 October 2008 it was restructured and ceased to meet the criteria, the cumulative change in fair value previously recognised directly in equity to that date of £1.8m has been recycled to the Income Statement. 

The total change in fair value of derivative financial instruments recorded in the income statement was £26.1m (2008: £nil) for changes of fair value of derivative financial instruments.

The fair value of the interest rate collars and hedges has been determined by reference to market prices and discounted expected cash flows at prevailing interest rates. The total fair value calculated equates to 2.5p per share (31 March 2008: 0.1p as adjusted for effects of Rights Issue).  

f) Finance leases

Finance lease liabilities are in respect of leased investment property.

Minimum lease payments under finance leases fall due as follows:	2009 £m	2008 £m
Within one year	0.4	0.4
Between two and five years	1.0	1.3
Beyond five years	23.2	23.4
	24.6	25.1
Future finance charges on finance leases	(20.7)	(21.0)
Present value of finance lease liabilities	3.9	4.1

13. Notes to cash flow statement

Reconciliation of loss for the period to cash generated from operations:

	2009 £m	2008 £m
Loss for the period	(360.4)	(34.7)
Tax	-	(2.3)
Depreciation	0.7	0.6
Amortisation of intangibles	0.1	0.1
Profit on disposal of investment properties	(9.8)	(2.2)
Net loss from change in fair value of investment property	325.3	47.5
Equity settled share based payments	0.6	0.4
Change in fair value of financial instruments	26.1	-
Interest income	(0.4)	(0.1)
Interest expense	34.7	28.2
Share in joint venture post tax loss	23.9	2.8
Changes in working capital:
Decrease/(Increase) in trade and other receivables	2.4	(0.5)
(Decrease)/Increase in trade and other payables	(2.6)	1.8
Cash generated from operations	40.6	41.6

For the purposes of the cash flow statement, the cash and cash equivalents comprise the following:

	2009 £m	2008 £m
Cash at bank and in hand	1.3	-
Restricted cash - tenants deposit deeds	2.4	2.5
Bank overdrafts	-	(3.6)
	3.7	(1.1)

14. Tax paid 

	2009 £m	2008 £m
Tax refunded/(paid) on operating activities*	4.9	(18.9)
Tax paid on investing activities	-	(0.4)
Total tax refunded/(paid)	4.9	(19.3)

*2008 included REIT conversion charge of £18.8m

15. Analysis of net debt

	At 1 April 2008 £m	Cash Flow £m	Non-cash Items £m	At 31 March 2009 £m
Cash at bank and in hand	-	1.3	-	1.3
Restricted cash - tenants' deposit deeds	2.5	(0.1)	-	2.4
Bank overdrafts	(3.6)	3.6	-	-
	(1.1)	4.8	-	3.7
Bank loans	(434.8)	78.8	-	(356.0)
Less cost of raising finance	1.1	0.3	(0.9)	0.5
Finance lease obligations	(4.1)	0.2	-	(3.9)
	(437.8)	79.3	(0.9)	(359.4)
Total	(438.9)	84.1	(0.9)	(355.7)

16(a).    Deferred tax liabilities

		2009 £m	2008 £m
Balance at 1 April		0.2	0.2
Deferred tax credit		(0.1)	-
Balance at 31 March		0.1	0.2

If the Group's directly owned investment properties were sold for their revalued amount there would be no potential liability to corporation tax following the Group's conversion to a REIT.  

16(b). Provisions 

	At 1 April 2008 £m	Charge/(credit) to income statement £m	At 31 March 2009 £m
Provision for tax indemnity (1)	19.5	(14.4)	5.1
Provision for interest shortfall in joint venture (2)	-	4.4	4.4
	19.5	(10.0)	9.5

(1) Provision for tax indemnity

On the formation of the joint venture with Glebe (which was created by a merger and so triggered no tax liabilities) the Group gave an indemnity that should a tax liability arise in the future on the disposal of any of the properties that have been transferred, then the Group would pay to the joint venture a proportion of the liability based on the pre-merger gain. An appropriate provision under current tax law has been made for this liability. The reduction in the year reflects a recalculation based on lower property values at 31 March 2009. The maximum liability should property values increase is currently estimated to be £20.7m.

(2) Provision for interest shortfall in joint venture

The Group and its joint venture partner have guaranteed (jointly and severally) interest shortfalls on the joint venture bank loan, up to a maximum amount. At the balance sheet date the maximum liability under the guarantee was £4.4m.

17.        Other reserves

		Hedging reserve £m	Equity settled share based payments £m	Total £m
Balance at 1 April 2008		-	1.3	1.3
Fair value movement on derivatives		(2.9)	-	(2.9)
Value of employee services		-	0.7	0.7
Balance at 31 March 2008		(2.9)	2.0	(0.9)
Fair value movement on derivatives		1.1	-	1.1
Charge to income statement*		1.8	-	1.8
Value of employee services		-	0.6	0.6
Balance at 31 March 2009		-	2.6	2.6

*During the year the cash flow hedge ceased to be fully effective. The balance on the hedge reserve at that time was recycled through income statement.

18.	Statement of changes in Shareholders' equity

	Share capital	Share  Premium	Investment in own shares	Other reserves	Retained  earnings	Total  equity
	£m	£m	£m	£m	£m	£m
Balance at 1 April 2007	17.4	30.7	(2.8)	1.3	536.0	582.6
Share issues	-	0.1	-	-	-	0.1
ESOT shares net purchase	-	-	(1.7)	-	-	(1.7)
Dividends paid	-	-	-	-	(7.3)	(7.3)
Fair value movement on derivatives	-	-	-	(2.9)	-	(2.9)
Value of employee services	-	-	-	0.7	-	0.7
Loss for the year	-	-	-	-	(34.7)	(34.7)
Balance at 31 March 2008	17.4	30.8	(4.5)	(0.9)	494.0	536.8
Share issues	87.2	(6.2)	-	-	-	81.0
ESOT shares net purchase	-	-	(1.2)	-	-	(1.2)
Dividends paid	-	-	-	-	(7.8)	(7.8)
Fair value movement on derivatives	-	-	-	1.1	-	1.1
Hedge reserve recycled to income statement	-	-	-	1.8	-	1.8
Value of employee services	-	-	-	0.6	-	0.6
Loss for the year	-	-	-	-	(360.4)	(360.4)
Balance at 31 March 2009	104.6	24.6	(5.7)	2.6	125.8	251.9

19.	Investment in own shares

The Company has established an Employee Share Ownership Trust (ESOT) to purchase shares in the market for distribution at a later date in accordance with the terms of the 1993 and 2000 Executive Share Option Schemes, Co Investment Plan and Long Term Equity Incentive Plan. The shares are held by an independent trustee and the rights to dividends on the shares have been waived except where the shares are beneficially owned by participants.  During the year the Trust purchased 697,168 shares for a cash consideration of £1.2m. At 31 March 2009, the number of shares held by the Trust totalled 3,635,119 (2008: 2,937,951). At 31 March 2009 the market value of these shares was £0.4m (2008: £8.1m) compared to a nominal value of £0.4m (2008: £0.3m).

	2009 £m	2008 £m
Balance at 1 April	4.5	2.8
Acquisition of ordinary shares	1.2	2.1
Transfer of shares to employees on exercise of share options	-	(0.4)
Balance at 31 March	5.7	4.5

20. Joint Venture

Workspace Group PLC holds 50% of the ordinary share capital of Workspace Glebe Limited. Its interest in this joint venture has been equity accounted for in the Group's consolidated financial statements.  As the joint venture has net liabilities it is carried at nil value in the balance sheet given there is no commitment to fund the deficit. Any change in value is included in the consolidated income statement during the year. 

Investment in joint venture	2009 £m	2008 £m
Share of joint venture at start of year	15.7	18.5
Share of joint venture loss after tax for the year	(19.5)	(2.8)
Net loan movements with joint venture	3.8	-
Share of joint venture at end of year	-	15.7
Comprising:
Unlisted shares at cost	1.0	1.0
Group's share of post acquisition retained loss after tax	(20.6)	(1.1)
Unrealised profit on sale of properties to joint venture	(2.7)	(2.7)
Loan to joint venture	22.3	18.5
Share of joint venture at end of year	-	15.7

The Group's share of amounts of each of current assets, long term assets, current liabilities and long term liabilities, income and expenses are shown below:

Assets and liabilities:	2009 £m	2008 £m
Investment properties	62.1	81.9
Current assets	1.2	1.3
Total assets	63.3	83.2
Current liabilities	(7.2)	(2.7)
Non-current liabilities	(67.2)	(64.8)
Total liabilities	(74.4)	(67.5)
Adjustment due to net liabilities	11.1	-
Group share of joint venture net assets	-	15.7

Income and expenses:	Year ended  31 March 2009 £m	Year ended  31 March 2008 £m
Revenue	4.6	5.0
Direct costs	(1.4)	(1.3)
Net rental income	3.2	3.7
Administrative expenses	(0.1)	(0.1)
Change in fair value of investment property	(24.8)	(2.0)
Finance costs - interest payable	(4.1)	(3.9)
Change in fair value of derivative financial instruments	(4.5)	(1.5)
Loss before tax	(30.3)	(3.8)
Taxation	(0.3)	1.0
Loss after tax	(30.6)	(2.8)
Adjustment due to net liabilities	11.1	-
Provision for interest shortfall in joint venture (note 16b)	(4.4)	-
Share of joint venture loss after tax	(23.9)	(2.8)

The Group's share of capital commitments of the Workspace Glebe joint venture were £0.2m (2008: £2.2m) for commitments under contract and £nil (2008: £5.9m) authorised by Directors but not contracted.

Related party transactions:

Transactions between the Group and its joint venture are set out below. These are related party transactions as defined in IAS24.

	2009 £m	2008 £m
Transactions year ended 31 March :
Recharges to joint venture	0.6	0.6
Recharges from joint venture	(0.1)	(0.1)
Balances with joint venture at 31 March:
Amounts receivable from joint venture	0.9	3.3
Loan to joint venture	22.3	18.5

Workspace Group manages the funding of the joint venture, collecting rents and settling expenses. Amounts receivable and payable represent short-term funding balances between the Group's and the Joint Venture's bank accounts. 

21.	Capital commitments

At the year end the estimated amounts of contractual commitments for future capital expenditure not provided for were:

	2009	2008
	£m	£m
Under contract:
Purchases, construction or re-development of investment property	4.2	13.3
Repairs, maintenance or enhancement of investment property	0.7	0.2
	4.9	13.5
Authorised by directors but not contracted :
Property, plant and equipment	0.1	0.1
Intangible assets	-	0.1
Purchases, construction or re-development of investment property	2.4	12.9
Repairs, maintenance or enhancement of investment property	2.4	5.1
	4.9	18.2
	9.8	31.7

Responsibility Statement

The 2009 Annual Report, which will be issued at the end of June 2009, contains a responsibility statement in compliance with DTR 4.1.12.  This states that on 8 June 2009 the date of approval of the Annual Report, the Directors confirm that to the best of their knowledge: 

-	The Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
-	The Business Review contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, with a description of the principal risks and uncertainties that the Group faces included in a separate section

The Directors of Workspace Group PLC are listed in the Group's 2009 Annual Report.  A list of current Directors is maintained on the Group's website: www.workspacegroup.co.uk. 

 

END

 

 

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