Workspace has delivered a strong set of trading results for the past year, although obviously this has been overshadowed by the dramatic impact of the Covid-19 pandemic.
Results and Dividend
Starting with our operating performance for the year, we saw good growth in net rental income, up 10%, with a particularly strong contribution from recently launched buildings. This income uplift has delivered a 12% increase in trading profit after interest to £81m, a tremendous performance given the continuing backdrop of Brexit uncertainty. We did see an upturn in business confidence and enquiries after the General Election in December but by March 2020 this had been negated by the onset of the Covid-19 lockdown.
There was a slight fall of 0.3% over the year in our underlying property valuation, with our valuers taking a naturally cautious view of property values at the year end in the light of Covid-19. During the year, we continued with some judicious pruning of our property portfolio, selling four of our smaller buildings for a total of £65m, 21% above their March 2019 valuation. Overall, there was a small increase in our EPRA net asset value of 0.3% to £10.89.
There has been much debate on dividend distributions at this difficult time and this has been discussed extensively by the Board. Driving operating performance to deliver income growth is a key focus for the Company, and we have a proud and consistent record of dividend distribution. Taking into account our prudent funding position, with significant headroom on our facilities and covenants, which has meant that we have not needed to take any Government financial support, we are proposing a final dividend of 24.49p per share. This meets our distribution requirement as a Real Estate Investment Trust and also reflects the Board’s confidence in the long-term prospects of the Company. Together with our interim dividend, this represents a total dividend in the year of 36.16p per share, an increase of 10% on the prior year.
The immediate impact of the lockdown announced on 23 March 2020 was that the majority of our customers moved to work from home in line with Government guidance. Our business centres remained open with a number of key worker customers still in occupation and other customers visiting on an essential needs basis.
Given the impact that the lockdown was having on our customers and their cashflows we took the immediate decision to offer the opportunity to defer rental payments for up to three months. We have also given the majority of our business centre customers an absolute rent reduction of 50% for the three months to the end of June 2020. We believed it was only fair to offer this rent reduction to our customers irrespective of their size.
Since the Government announced the gradual relaxation of lockdown measures in England, we have taken action to ensure that our business centres are safe for the increasing number of customers returning to work. These extensive measures, in line with Government guidelines, include signage to promote social distancing, screens, hand sanitiser dispensers, one-way systems, restrictions on use of communal areas and increased daily cleaning of the common areas in our business centres. We are also supplying additional information and resources to our customers on our website.
We are fortunate that our buildings are low-rise so the severe lift restrictions that need to be put in place have limited impact. We are also looking at the opportunity to increase the amount of cycle storage at centres, where possible.
I am pleased to say that our rent collection rates have been robust. The majority of rent is collected monthly in advance and taking account of the agreed rent discounts and deferrals we have received c.70% of the net rent due for the first quarter.
We are maintaining a tight focus on operating costs, minimising all non-essential spend but ensuring we don’t compromise on health and safety issues. Likewise, we are controlling our capital expenditure commitments to ensure we can maintain prudent liquidity and headroom levels. We currently have no major capital projects underway or due to start over the next six months.
Despite the current challenging economic conditions, our ESG priorities and targets remain hugely relevant, with our focus on the long-term employment-led regeneration of London. Our priorities cover multiple aspects of day-to-day business activity, including:
- Setting and delivering on science-based targets to achieve net zero carbon emissions by 2050;
- Creating environmentally friendly, sustainable and energy efficient buildings;
- Treating all our stakeholders with respect, from customers through to our staff and suppliers, and ensuring an open and regular two-way dialogue;
- A focus on the health and wellbeing of our employees through regular engagement, mental health training and an annual staff survey; and
- An active Doing The Right Thing Committee run by our staff supporting local initiatives across a wide range of schools, community groups and charities.
A huge strength of Workspace is the depth of operational experience across the Company. The knowledge gained by our people from working through previous downturns and recessions is more relevant than ever. This has been supplemented by two recent external
Executive appointments, Dave Benson joining as CFO and Will Abbott in the new role of Chief Customer Officer. They bring broader commercial and marketing expertise that will be hugely important as we navigate through the challenges ahead.
Workspace has a vibrant and inclusive culture and this has been particularly evident throughout the lockdown period. I’d like to thank all our employees for their incredible efforts during this time. Despite working remotely, I have been impressed by how we have come together to keep the business running effectively and to maintain regular engagement with our customers. Our purpose, to give businesses the freedom to grow, and a clear set of corporate values have underpinned the actions we have taken to support our customers at this difficult time.
As previously announced, our Chairman, Danny Kitchen, will be stepping down from his role after nine years. Danny has made a huge contribution to the business, providing wise counsel and challenge to both the Board and Executive Committee. I am delighted that Stephen Hubbard, one of our current Non-Executive Directors with extensive property experience, has agreed to take over as Chairman following the AGM in July.
Chris Pieroni, Operations Director, will be retiring at the end of June. Chris has been an integral part of the success and growth of Workspace over the last 12 years. We will miss him both as a colleague and friend and wish him all the very best for his retirement.
We have always been very clear about the attractions offered by our flexible model. For many years we were seen as a successful but alternative property play. In more recent years, our model has become increasingly mainstream as customer demand for flexibility has grown, with many new and existing competitors now in the market. These competitors have varying financial and operating models and I remain confident that we continue to have an industry-leading proposition.
The key elements of our model are:
- A flexible space and lease offering;
- Scaleable marketing and operating platform;
- A customer-centric culture;
- Well-located, distinctive buildings;
- High quality fit-out and services; and
- Freehold property ownership.
Our strength and success have come as a result of bringing all these elements together into a compelling offer for customers.
It is not possible at this time to give a near-term view for trading performance. We will undoubtedly see subdued operational performance and a reduction in rental income in the current year.
For many of our existing customers there is a difficult period ahead as they look to rebuild their businesses. Some will want to downsize, some will decide to continue working remotely, some may fail while others will recover quickly. Workspace is well positioned to provide them with the support they will need and I believe the majority will see the value
of retaining their Workspace office. Equally I believe our flexible offer will continue to attract new customers. This includes businesses reflecting on their property requirements following their experience operating remotely through the lockdown period.
I have been delighted with the success of our recently opened buildings and we have an extensive pipeline of refurbishment and redevelopment activity to deliver over the coming years. We will shortly be opening two buildings in Hackney and Bow that were completed just as the lockdown was announced. We are also continuing to track acquisition opportunities across London.
Despite the near-term uncertainty, I am confident that Workspace has a huge opportunity for growth in the medium and long term. The commercial property market is being redefined around fast-changing customer requirements, with lease and space flexibility becoming increasingly important. These are factors which play directly into the compelling offer we can provide.
Chief Executive Officer
4 June 2020