Workspace Regulatory News (WKP)

4 June 2014

WORKSPACE GROUP PLC

FINAL RESULTS

WORKSPACE GROUP PLC

DRIVING VALUE

Workspace Group PLC ("Workspace"), London's leading provider of space to new and growing companies, announces its results for the year ended 31 March 2014.

HIGHLIGHTS

Financial Performance

· Profit before tax up 230% to £252.5m (2013: £76.4m)

· Adjusted trading profit after interest up 14.5% to £20.5m (2013: £17.9m)

· EPRA net asset value per share up 43% to £4.96 (March 2013: £3.48)

· Adjusted underlying earnings per share up 14% to 13.9p (2013: 12.2p)

· Total dividend per share up 10% to 10.63p per share (2013: 9.67p), final dividend of 7.09p (2031: 6.45p)

Operating Performance

· Like-for-like rent roll up 8.5% in year to £47.4m (March 2013: £43.7m). Total rent roll up 10.6% to £58.3m (March 2013: £52.7m)

· Like-for-like rent per sq.ft. up 8.5% to £15.28 (March 2013: £14.08)

· Like-for-like occupancy stable at 90.0% (March 2013: 89.8%)

Property Valuation

· Underlying property valuation up 27% (£228m) in year to £1,078m, with 14% (£132m) increase in second half

· Total property return of 34.7% compared to 13.4% for IPD UK Property Index

· Like-for-like initial yield of 6.4% (March 2013: 7.3%)

· Like-for-like estimated rental values up 12.3% to £16.13 per sq.ft (March 2013: £14.36)

· Includes £73m uplift in value from residential-led redevelopment schemes

Asset Management Activity

· Seven refurbishments completed over the last 18 months at a cost of £27m

· Eight further refurbishment projects underway at a total estimated cost of £74m

· Four residential planning consents obtained in the year for 1,417 residential units

· Sale of five residential redevelopments agreed in the year for £84m in cash, 112,000 sq.ft of new business space plus overage

· Three properties acquired for £33m in strategic London locations

· Sale of four non-core properties for £12m

Financing

· Refinancing completed during year providing a diversified funding base with all debt unsecured and an average maturity of 6.8 years (March 2013: 2.9 years)

· Average cost of debt 5.3% (2013: 5.0%)

· Loan-to-value ratio reduced to 31% (March 2013: 40%)

· Undrawn facilities of £72m (March 2013: £55m)

Glebe Proceeds Share

· Liability of £11m recognised (March 2013: £nil), equivalent to 7p per share, for properties we have sold or plan to sell for residential redevelopment

· EPRA NAV per share would reduce by 25p to £4.71 (March 2013: 22p to £3.26) if all the remaining properties in Glebe portfolio were sold. No provision made as no intention to sell these properties, with disposals at the sole option of Workspace.

Commenting, Jamie Hopkins, Chief Executive of Workspace said:

 "This has been another very successful year of performance and results for Workspace. We have stuck to our strategy of supplying London's new and growing companies with high quality properties that are in the right locations and that offer the services and facilities that suit their needs.

London is changing fast. New areas are emerging and establishing, occupiers are generally more fleet of foot and modern communication channels have revolutionised the way businesses operate. Workspace is embracing this change via its refurbishment and redevelopment activity as well as making selective property acquisitions in strategic locations across the capital.

Combining our knowledge of London and our customers' needs leaves us ideally placed to continue to grow our business and I look forward to the future with confidence."

- Ends -

Date: 4 June 2014

For further information contact

Workspace Group PLC Tel: 020 7138 3300

Jamie Hopkins, Chief Executive Officer

Graham Clemett, Chief Financial Officer

Web: www.workspace.co.uk

There will be a results presentation to analysts and investors hosted by the Workspace Executive Team at 0900 on Wednesday 4 June 2014. The venue for the presentation is the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.  There is also a webcast and conference call facility in conjunction with the presentation.

Webcast

Please register for the webcast here.

Conference Call

Dial in: 020 3159 9716

Pin: 326162 #

Chairman's STATEMENT

Workspace has had another year of successful growth, delivering a strong operational and financial performance through our established strategy of driving rent, occupancy and asset value across our London portfolio. Not only are we benefiting from our focused refurbishment and redevelopment programme but we have continued to strengthen the direct relationships we have with our customers by becoming an essential partner, thus helping their businesses to grow faster.

Revenues and profits grew strongly during the year. Group net rental income was £50.3m, an underlying increase of 9.6%, trading profit after interest was £20.5m, an increase of 14.5%, and EPRA NAV per share was £4.96, an increase of 43% on 2013.

We are proposing a final dividend of 7.09p per share (a total of 10.63p for the year) to be paid on 1 August 2014, an increase of 10% on last year. Workspace's proven long-term value generation is reflected in this progressive dividend stream.

During the year we successfully completed a refinancing which gives us far greater operational flexibility to execute our capital expenditure programme to redevelop and refurbish existing assets and create buildings that complement our strategy. We also made selective acquisitions where we see the opportunity to create added value by applying our operating model, accelerated our mixed-use planning applications and successfully disposed of a number of non-core properties.

We continue to be mindful of the role we play in the communities in which our properties are based. Our buildings are our biggest environmental impact and we are committed to making the most of opportunities to reduce energy use, benefiting the environment and reducing energy costs. Our 2014 Corporate Social Responsibility report outlines the progress we have made against our 2013 targets and sets new targets for the future.

In a similar vein, we always try to ensure that when refurbishing an existing property or progressing a redevelopment we do so in a way that helps to act as a catalyst in either boosting or regenerating the economy of the local area. Our aim is always a positive legacy.

Jamie and the executive team work hard to grow the business for our customers, investors and employees and they have been ably supported by our strong and diversified Board. Bernard Cragg retires from the Board in July and we thank him for his guidance and contribution to our growth over the last 11 years.

Of course none of the growth or initiatives we have reported would be possible without the dedication and expertise of all our employees and I would like to thank them for another year of success.

We continue to execute a very consistent strategy in support of clear objectives and this year's results show the benefit of that approach.

CHIEF EXECUTIVE OFFICER'S STATEMENT

In many ways the story of the last twelve months is straightforward. We have stuck to our strategy of supporting London's new and growing companies by providing them with high-quality properties that are in the right locations and that offer the services and facilities that suit their needs. We have ensured that we refurbish and redevelop our portfolio to create a modern working environment in order to retain and attract customers and to drive rents. By doing that consistently and well we have grown our business, yet again reporting an increase in our core rent roll of 8.5% together with a 27% uplift to the capital value of our portfolio taking its value to over £1bn. A very successful year.

But ours is a property story with a difference.

Of course, at the core are our buildings. Spread across the capital, many of them well-known landmarks, we make sure that they provide our customers with the quality, flexible space they need and we do this in ways that minimise environmental impact. However, the management of our buildings doesn't end there because we also put in place the technology and communication channels on which our customers' day-to-day business and future growth depends. It is this twin approach that sets us apart. Not only that, but we are able to manage and evolve our properties in this way because we deal directly with our customers - there are no intermediaries - so we can tailor our space, management and services using this direct dialogue and knowledge. Our brand is very important to us.

Over the last few years, we have grown our relationships and relevance with customers quickly and one thing that has taught us is that their needs are constantly evolving. We know that because we have a constant dialogue with them: our on-site teams talk to them daily, we regularly survey them on their needs and opinions and of course we have regular online communication with them. These fast-growing businesses are thoughtful and nimble and always alive to the possibilities of new technology and increasingly-sophisticated processes. We intend to be there supporting them as they evolve, ensuring our buildings are providing exactly the right environment for their success.

Nowhere is that more visible than in our Club Workspace environments. Customers contact us directly to join and take advantage of our co-working spaces and the feedback our local teams receive as we begin each new relationship helps to tailor our services and inform our thinking about future improvements to buildings. Having attracted these customers many stay with us as they grow, moving into dedicated space often in the same building. By the end of this year we will have eleven of these co-working centres across our estate, housed in space we have that is generally less easy to rent out - a win win for us.

Our refurbishment and redevelopment pipeline remains strong with great results achieved throughout the year. For example, our Pill Box property in east London underwent a full refurbishment and internal redesign, creating modern and vibrant space as well as adding a café, gym and bike store - things we know our customers value. Further, a major redevelopment of ScreenWorks in Islington will see us open a brand new office building, creating an exciting destination for our customer base in the heart of a thriving business community.

On top of all of this we are actively looking to acquire more of the right kind of properties and grow our business. Opportunities where we can leverage and apply our marketing and asset management skills to drive rents and values. Within the last six months we have successfully purchased three properties in strategic locations across the Capital and we continue to search out more.

London is changing fast and I believe this pattern will continue. Infrastructure investment such as Crossrail and the Northern Line extension will further enhance this change. New areas are emerging and establishing across London, breaking down the traditional 'core' territories . Occupiers are generally more fleet of foot, demand more flexibility and less commitment and will locate their businesses where they want to be not where they think they should be. Modern communication channels have revolutionised the way businesses operate with a significant amount now conducted online. Workspace embraces this change and I believe we are well positioned to benefit from this development across the Capital.

Combining our knowledge of London and of every customer, with the right buildings in the right locations, and managing all of these elements directly with our own people and the latest technology is the Workspace blueprint for future growth.

OCCUPANCY AND RENT ROLL

Like-for-like portfolio

The like-for-like property portfolio, which excludes properties impacted by refurbishment or redevelopment, has seen good growth over the year reflecting the strength of demand from both existing and new customers for space at our properties.

Like-for-like occupancy is stable at around 90% with a good growth in rental pricing from both renewals and new lettings. Rent per sq. ft. is up 8.5% since March 2013 to £15.28. This increase in pricing has delivered a similar strong growth in like-for-like rent roll of 8.5% (£3.7m) to £47.4m over the year.

The majority of the rent roll in the like-for-like portfolio comes from our office properties where demand has been particularly strong with rent roll growing by 10% to £37.7m (with rent per sq. ft. up 9.6%) compared to 3% growth in rent at our industrials (rent per sq. ft. up 3.9%).

In the next phase of our refurbishment and redevelopment activity in the current financial year, six properties with rent roll of £7.6m will be transferred out of the like-for-like category. This comprises five planned refurbishments at Hatton Square Business Centre, Barley Mow Centre, Enterprise House, Linton House and Bounds Green Industrial Estate and one mixed-use redevelopment at Poplar Business Park. Prior year like-for-like comparatives will be restated in due course.

Completed Projects

We have completed seven refurbishments over the last 18 months at a total cost of £27m providing some 120,000 sq. ft. of upgraded space and 90,000 sq. ft. of new space. This has delivered a £2.6m uplift in rent roll in the year to £5.9m at March 2014 as detailed below:

The most recent project completed was the 50,000 sq.ft refurbishment of the Pill Box, E2. This was an 18 month project which completed in February 2014 at a total cost of £8.7m. Letting progress to date at the Pill Box has been well ahead of our expectations in terms of both demand and pricing. Occupancy has reached 32% by the end of April 2014 at an average rent per sq. ft. of £26 compared to our initial expectation of £22.

Assuming all these completed schemes were at 90% occupancy (although some are already higher) the rent roll at current estimated rents would be £7.2m, a further uplift of £1.3m on the rent roll at March 2014.

Total Portfolio

Overall occupancy was 85.8% at March 2014 (March 2013: 87.0%). Total rent roll has increased over the year by £5.6m (10.6%) to £58.3m (March 2013: £52.7m) as detailed below:

Rent roll growth from the like-for-like portfolio and completed projects of £6.3m in total was offset by a loss of rent of £0.7m from refurbishment and redevelopment projects. The majority of the rent reduction was at The Biscuit Factory (part) and The Faircharm where we are running down occupancy to achieve vacant possession ahead of redevelopment. The acquisition of Verulam House ("60 Grays Inn Road") in November 2013 has added £1.1m to the rent roll; offset by a similar loss of rent of £1.1m from four non-core disposals completed in the year.

Total contracted rent roll, which includes stepped rents and rent free periods, was £1.9m more than the cash rent roll at £60.2m. Of this uplift in rent 63% (£1.2m) is expected to convert to cash rent roll over the next year.

ENQUIRIES AND LETTINGS

Our enquiries are an important indicator of the health of demand in London from new and growing companies looking for business space. Enquiry levels over the year have been consistently high at around 1,000 per month (excluding the seasonal dip in December) reflecting the robust strength of customer demand.

Lettings are running at an average of 85 per month (2013: 84 per month). Lettings in the final quarter of the year increased to an average of 103 per month, which included 37 deals at the Pill Box following its opening in February 2014. Continued high levels of enquiries and lettings are being seen in the first quarter of the current financial year.

PROFIT PERFORMANCE

Adjusted Trading Profit after Interest for the year is £20.5m, up 14.5% compared to the prior year. This excludes the exceptional finance costs of £1.9m associated with the refinancing of debt facilities completed in July 2013.

Underlying net rental income, excluding disposals was up £4.4m (9.6%) for the year at £50.0m. This reflects income growth of £3.3m (9%) at like-for-like properties and growth of £1.6m from completed refurbishments. This growth is partly offset by a reduction of £0.8m in income from properties undergoing refurbishment and redevelopment. The acquisition of 60 Gray's Inn Road in November 2013 has contributed £0.3m to underlying net rental income in the year.

The reduction in net rental income from disposals of £1.2m relates to four non-core property disposals made during the current year and the five disposals made in the prior year.

Joint venture (JV) income represents our 20.1% share of net rental income from the properties in the BlackRock Workspace JV. The portfolio comprised of 14 properties with a rent roll of £6.4m at March 2014.

Underlying administrative expenses have increased by £0.7m (8%) in the year due an increase in head office headcount by six to support the growth of the business and salary increases averaging 3%.

Share related incentive costs have increased by £0.7m (39%) due to higher than expected vesting levels as a result of the strong share price performance.

Net finance costs, excluding exceptional costs, have reduced by £0.8m year on year. The average level of debt (excluding cash) over the year was £332m (2013: £338m) and average interest cost excluding amortisation costs was 5.3% (2013: 5.0%). The running cost of debt at April 2014 was 5.1%.

Profit before tax has increased by 230% (£176.1m) in the year to £252.5m.

The exceptional finance costs of £1.9m relate to the write off of unamortised costs on bank facilities that have now been refinanced.

The change in fair value of investment properties of £221.9m reflects the movement in the total CBRE valuation in the year of £228.4m, but excludes the movement in overage of £4.2m (reported within other income), the movement in cash received on part disposals of £1.5m and the revaluation gain from the disposal of Pensbury of £0.8m in the second half of the year (both of which are reported within profit /(loss) on disposal of investment properties).

Other items include a £4.2m increase in the valuation of expected overage at our redevelopments, a £2.2m increase in the fair value of our derivative financial instruments, profit on sale of investment properties of £1.6m and our share of the increase in valuation and property disposal proceeds relating to the BlackRock Workspace JV of £4.0m.

Adjusted underlying earnings per share, based on the Adjusted Trading Profit after Interest is up 14% to 13.9p (2013:12.2p). EPRA earnings per share of 7.9p is a reduction of 34% from the prior year. This is due to the inclusion in the EPRA defined EPS calculation of the Glebe proceeds share liability of £11m and the increase in expected overage on redevelopments of £4.2m.

DIVIDEND

The Board has proposed a final dividend of 7.09 pence per share, (2013: 6.45 pence) which will be paid on 1 August 2014 to shareholders on the register at 11 July 2014. This dividend will be paid as a normal dividend (non-PID). The total dividend for the year is 10.63 pence, a 10% increase on the prior year (2013: 9.67p) which is covered 1.3 times by underlying earnings per share.

PROPERTY VALUATION

At 31 March 2014 the wholly owned portfolio was independently valued by CBRE at £1,078m, an underlying increase of 27% (£228m) in the year, with an increase of 14% (£132m) in the second half of the year. The main movements in the valuation and metrics over the year are set out below:

Set out below is a summary of the valuation by property type.

*excludes Poplar Business Park which has been transferred to the redevelopment category.

The £130m (23%) increase in value of the like-for-like properties came from an uplift in rental pricing (representing around 40% of the uplift) and a tightening in valuation yields (representing around 60% of the uplift). Looking at these in turn:

· We have achieved strong growth in rent roll and pricing levels, particularly at our office properties, with rent per sq. ft. up 8.5% to £15.25 and estimated rental value (ERV) per sq. ft. up 12.3% to £16.13.

· Net initial yield has tightened from 7.3% to 6.4% in the year (with the equivalent yield moving from 8.1% to 7.2%) reflecting the strength of demand and the investment we have made in upgrading the quality of our properties (£9m capital expenditure in the year). The capital value per sq. ft. of the like-for-like portfolio is £205 (March 2013: £164).

The most significant uplifts in value of like-for-like properties are detailed below, with the top eight properties representing 55% of the total uplift:

The uplift in the value of our redevelopment properties of £73m reflects the good progress we have made in securing residential planning consents; and the strength of demand from residential developers for the consented schemes. £51m (70%) of the uplift in the year is from schemes that have been contracted for sale to residential developers, these properties representing £149m (72%) of the total redevelopment valuation. The most notable uplifts in value are set out below:

Refurbishment properties saw an underlying uplift in value of £25m with capital expenditure of £20m incurred in the year. We are benefiting from the substantial investment we are making in repositioning and expanding the amount of space at these properties in locations where there is increasingly strong demand. This demand has been reflected in higher expected rents and tighter valuation yields. Of the total valuation of refurbishments £101m (66%) relates to the value of the seven completed schemes. A summary of the most significant uplifts is set out below:

ACQUISITIONS

In November 2013 we acquired 60 Gray's Inn Road, WC1 for £18.1m at a net initial yield of 4.3% off an average rent of £26 per sq. ft. This prominent office building offers 42,000 sq. ft. of net lettable space and complements our existing cluster of buildings in the Holborn/Clerkenwell area.

In April 2014 we acquired 12-13 Greville St, EC1N for £2.3m. This building is adjacent to our existing property at 14 Greville St and we are now progressing with a planning application for a new business centre on the combined site which will benefit greatly from the opening of the new Crossrail station at Farringdon.

In May 2014 we completed on the purchase of Vestry Street Studios, N1 for £12.6m at a net initial yield of 4.1% off an average rent of £23 per sq. ft. This Shoreditch warehouse of 23,000 sq. ft. complements our cluster of buildings in the Old Street/Shoreditch area.

DISPOSALS

During the year we realised £12.4m from the disposal of four non-core properties at a profit of £1.6m compared to book value at 31 March 2013, at a net initial yield of 7.6%. The non-core properties represent generally good quality but small properties, primarily industrial estates, where the opportunity for Workspace to add premium operational or brand value is limited. The total value of non-core properties at March 2014 was £53m (March 2013: £56m).

REFURBISHMENT ACTIVITY

We have invested £20m of capital expenditure on our refurbishment programme over the year; Four projects have been completed at Exmouth House, Pill Box, and the first phases at Leyton Industrial Village and Westminster Business Square. The level of capital expenditure is expected to increase in 2014/15 as we progress with the next phase of our pipeline, as detailed below:

The total estimated cost for current projects is £74m, of which £13m had been incurred to the end of March 2014. A total of 200,000 sq. ft. of new space and 173,000 sq. ft. of upgraded space will be delivered from these projects. Once these schemes are completed and have reached 90% occupancy the rent roll would be £14.8m at current estimated rents, an uplift of £6.7m on the rent roll at March 2014.

REDEVELOPMENT ACTIVITY

Many of our properties are in areas across London where there is strong demand for mixed use redevelopment. These schemes generally require demolition of an existing building to deliver new residential and commercial space. Our model is to use our expertise and knowledge to obtain a mixed use planning consent at one of our properties and then agree terms with a residential developer to undertake the redevelopment and construction at no cost or risk to Workspace. We receive back a combination of cash, new commercial space and overage in return for the sale of the residential component to the developer.

It has been a busy and successful year, highlights include:

· Obtaining four mixed use planning consents at The Biscuit Factory (May 2013), The Faircharm Phase 1 (May 2013), Poplar Business Park (September 2013), and The Filaments Phase 2 (April 2014) for a total of 1,417 residential units.

· Agreeing the sale of five redevelopment schemes at Bow Enterprise Park Phase 1 (April 2013), The Biscuit Factory - part (October 2013), Lombard House car park (December 2013) Bow Enterprise Park Phase 2 (April 2014) and The Faircharm Phase 1 (May 2014) for a total of £84m in cash and the return 112,000sq. ft. of new business space (plus overage).

An overall summary of the redevelopment programme is set out below. It excludes a number of properties where we are in active discussions with the relevant local authorities for potential mixed use redevelopment but do not yet have planning consent.

In total we will receive £95m of cash from the redevelopment schemes that we have contracted for sale. The timing of cash receipts is in many cases dependent on when we obtain vacant possession or is paid on a staged basis. £17m was received during the last year, £42m is expected to be received in the current financial year and the balance over the following two financial years.

We will also receive 286,000 sq. ft. of new space on the contracted for sale schemes where we would expect to achieve rent roll of £5.4m, assuming 90% occupancy and current estimated rents. We expect to receive 114,000 sq. ft. of this space in the current financial year and the balance during 2015 to 2016. Current rent roll at these properties at March 2014 prior to redevelopment is £1.8m which will fall to £nil during redevelopment.

In a number of the sales we have overage clauses that entitle Workspace to additional payments if private residential sales exceed certain pre-agreed price levels. As at March 2014 the expected cash proceeds from overage was valued by CBRE at £5.8m.

CASH FLOW

The Group generates strong operating cash flow in line with trading profit. We continue to see good levels of cash collection with bad debts remaining low at £0.3m (March 2013: £0.3m).

A summary of the movements in cash flow is set out below:

FINANCING

During the year we successfully completed the refinancing of all our debt facilities to ensure diversity and flexibility of funding arrangements. The refinancing has achieved the following:

· A diversification of our sources of funding, moving away from a reliance on the bank debt market which now only represents some 20% of our drawn debt facilities.

· All facilities are now provided on an unsecured basis, giving us significant flexibility in effectively managing the property portfolio and allowing us to react quickly to asset management opportunities.

· An extended maturity profile, the weighted average maturity is just under seven years.

· Stability of our interest rate cost over the medium term, some 75% of our facilities are hedged for four years reducing to 35% at nine years.

At 31 March 2014 the Group had £410m of committed facilities with an average period to maturity of 6.8 years and the earliest maturity in June 2018. Details are set out below:

The Private Placement notes comprise $100m dollar (£64.5m) ten year notes, £84m of sterling ten year notes and £9m of seven year sterling floating rate notes. The US dollar notes have been fully hedged against sterling for ten years. The overall interest rate on the £148.5m ten year fixed rate notes is 5.6%. The UK Fund has provided a ten year floating rate facility which amortises by 50% (£22.5m) at the end of year nine. A seven year Retail Bond (listed on ORB) was issued in October 2012 and carries a coupon of 6.0%. The five year bank facilities are provided by three UK clearing banks (RBS, HSBC and Santander) at a floating rate over LIBOR. The bank term facilities of £50m and UK Fund Facility of £45m are hedged at a rate of 1.9% for five years to June 2018.

At 31 March 2014 overall loan to value was 31% giving us good headroom on all of bank, placement notes and bond covenants.

NET ASSETS

Net assets increased in the year from £500m to £726m with the main contributor being the £228m increase in the value of our investment portfolio. EPRA net asset value per share at 31 March 2014 was £4.96 (2013: £3.48), an increase of 43% in the year. The main movements in net asset value per share are set out below:

GLEBE PROCEEDS SHARE

Workspace entered into a proceeds sharing arrangement as part of acquiring full control of the former Glebe joint venture (JV) in December 2009. The proceeds share provides for the former lenders to the Glebe JV to share in net proceeds from disposals of properties within the JV once Workspace has received back its priority return which at March 2014 stands at £92m. For net cash proceeds up to £170m the former lenders share is 50%, from £170m to £200m it is 30% and nil thereafter. The maximum payable under this agreement is therefore £48m. All disposals are at the option of Workspace.

The valuation of the Glebe portfolio has increased by £53m over the year to £217m at 31 March 2014. The majority of the increase has come from the uplift in valuation of The Biscuit Factory, SE16 where we obtained a residential planning consent in May 2013 on the northern part of the site.

The portfolio comprises a mix of properties, some have residential redevelopment potential which we will sell and others, primarily business centres, which we have no current intentions to sell. The valuation at 31 March 2014 of the properties that have consent for residential redevelopment or where planning for redevelopment is well advanced and where we consider it probable that they will be sold for cash in due course is £107m. Total estimated proceeds, including the cash already received from residential disposals of £14m, are £121m (March 2013: £83m).

The significant increase in estimated proceeds from disposals gives rise to a potential payment under the proceeds share arrangement. Net proceeds after deducting allowable sales costs are now estimated at £114m (March 2013: £79m). The excess of net proceeds over the priority return to Workspace of £92m is shared between Workspace and the former lenders to the JV in accordance with the proceeds share agreement. We have accordingly recognised a liability of £11m (March 2013: £ nil) representing 50% of the surplus in excess of £92m.

If we were to sell all the properties in the Glebe portfolio, including the business centre assets that we have no current intention to sell, the payment under the proceeds share agreement would reach the maximum payable under the agreement of £48m (March 2013: £32m) compared to the amount we have recognised of £11m. The increase of £37m would reduce the EPRA NAV per share reported at March 2014 by 25p to £4.71 (March 2013: 22p to £3.26).

BLACKROCK WORKSPACE PROPERTY TRUST (BLACKROCK JV)

We have a 20.1% interest in the BlackRock JV for which we also act as property manager receiving management and performance fees. It has continued to perform well during the year with rent roll growth of £0.3m (5%) (excluding disposals) to £6.4m in the year and occupancy at 87.7%. The property valuation has increased by 17% (excluding capital expenditure and disposals) to £104.0m at 31 March 2014.

During the year Cam Road, Stratford was sold in April 2013 for £7.6m at an uplift of £0.6m on the March 2013 valuation and in October 2013 the JV sold Rudolf Place, SW8 for £4.9m, £1.6m higher than the March 2013 valuation. We also gained planning consent for a mixed use development at Toplin House, SW9 for an eleven unit residential development and a 3,000 sq. ft. roof extension to the main building.

In May 2014 Windmill Place, UB2 was sold for £2.5m, an uplift of £0.7m to March 2014 valuation.

KEY PROPERTY STATISTICS

† Excludes storage space

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH

CONSOLIDATED BALANCE SHEET

AS AT 31 MARCH

Consolidated Statement of Changes in Equity

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH

Notes to the Financial Statements

Basis of preparation

The financial information in this report has been prepared under International Financing Reporting Standards (IFRS) as adopted by the European Union but is abridged and does not constitute the Group's full Financial Statements for the years ended 31 March 2014 and 31 March 2013.

Full Financial Statements for the year ended 31 March 2013 were prepared under IFRS, received an unqualified auditors' report, did not draw attention to any matters by way of emphasis, did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies.

The accounting policies are consistent with those contained in the Group's last annual report and accounts for the year ended 31 March 2013, with exception of the following:

IFRS 13 'Fair Value Measurement'- This standard provides a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The guidance includes enhanced disclosure requirements which are similar to those in IFRS 7, 'Financial Instruments: Disclosures', but apply to all assets and liabilities measured at fair value, not just financial ones. These disclosures are included in the financial statements.

Amendment: IAS 1- This amendment changes the disclosure of items presented in other comprehensive income (OCI) in the statement of comprehensive income. IAS 1 will still permit profit or loss and OCI to be presented in either a single statement or in two consecutive statements. The amendment requires entities to separate items presented in OCI into two groups, based on whether or not they may be recycled to profit or loss in the future. This has no significant impact to the Group.

The other standards or guidance had no material impact on the Group's financial statements or resulted in changes to presentation and disclosure only.

GLEBE PROCEEDS SHARE AGREEMENT

There has also been a change in Accounting Policy for the Glebe Proceeds Share Agreement. Previously, the Group considered the proceeds share agreement as a contingent liability, with a provision under IAS 37 only being recognised if the obligation under the agreement was triggered or it was otherwise considered probable that an outflow of economic benefits would be required. The Group now accounts for the agreement as an equity instrument in accordance with IAS 32 representing a non-controlling interest (NCI).

The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.

Where the Group enters into a contract that meets the definition of equity under IAS 32 and also represents an interest in a subsidiary's equity net assets that is not attributable to the parent, such a contract is accounted for as non-controlling interest. A non-controlling interest is recognised for the Glebe proceeds share agreement (see note 19). Profit or loss and comprehensive income and loss are attributed to non-controlling interest in line with the terms of the relevant contract. In measuring the amount attributable to the non-controlling interest, the Group takes into account the likelihood that a property will be sold and that a payment may be made. For the proceeds share agreement, amounts are attributed to the non-controlling interest when the Group has a legal or constructive obligation to sell the relevant properties. At this point, the non-controlling interest has a demonstrable interest in their portion of the fair value gains to be realised in relation to these properties. Amounts payable under the agreement are recognised as liabilities when a contractual obligation is established, with the corresponding entry being against the balance of non-controlling interest (that is, through equity).

The Group has analysed key features of the proceeds share agreement in the context of relevant accounting pronouncements, weighing the importance of each feature in faithfully representing the overall commercial effect and economic substance. The Group believes that the treatment under this new accounting policy best reflects the commercial objectives and economic substance of the contractual arrangement.

Further details can be found in note 19.

Financial Statements for the year ended 31 March 2014 were approved by the Board of Directors on 3 June 2014 and will be presented to the members at the forthcoming Annual General Meeting. The auditors' report on these Financial Statements is unqualified, does not draw attention to any matters by way of emphasis, and does not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

1. ANALYSIS OF NET RENTAL INCOME AND SEGMENTAL INFORMATION

All of the properties within the portfolio are geographically close to each other and have similar economic features and risks and all information provided to the Executive Committee is aggregated and reviewed in total as one portfolio. As a result management have determined that the Group operates a single operating segment providing business accommodation for rent in London.

2. OPERATING PROFIT

The following items have been charged in arriving at operating profit:

1.Charged to direct costs and administrative expenses.

3(a). PROFIT/(LOSS) ON DISPOSAL OF INVESTMENT PROPERTIES

£2.9m (2013: £6.2m) of the proceeds for the year were in the form of deferred consideration, of which £2.9m is outstanding at 31 March 2014 (31 March 2013: £2.9m) and is included in the Consolidated Balance Sheet under non-current and current trade and other receivables.

3(b). OTHER INCOME

The value of deferred consideration from the sale of investment properties has been re-valued by CBRE Limited at 31 March 2014. The receivable is included in the Consolidated Balance Sheet under non-current trade and other receivables (see note 13).

4. FINANCE INCOME AND COSTS

5. EMPLOYEES AND DIRECTORS

6. TAXATION

The tax on the Group's profit for the period differs from the standard applicable corporation tax rate in the UK - 23% (2013: 24%). The differences are explained below:

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. The Group estimates that as the majority of its future profits will be exempt from tax, it will have a very low tax charge.

The Group currently has £5.3m (2013: £4.2m) of tax losses carried forward calculated at a corporation tax rate of 21% (2013: 23%) which is the rate substantively enacted at the Balance Sheet date. These have not been recognised as an asset as they are unlikely to be utilised in the foreseeable future. A further reduction in the main rate of corporation tax to 20% by 1 April 2015 has been enacted. If the 20% rate had been applied to tax losses at the Balance Sheet date it would have reduced losses by £0.3m.

7. DIVIDENDS

In addition the Directors are proposing a final dividend in respect of the financial year ended 31 March 2014 of 7.09p per ordinary share which will absorb an estimated £10.3m of revenue reserves and cash. If approved by the shareholders at the AGM, it will be paid on 1 August 2014 to shareholders who are on the register of members on 11 July 2014. The dividend will be paid as a normal distribution (non-PiD).

8. EARNINGS PER SHARE

Earnings have been adjusted and calculated on a diluted basis to derive an earnings per share measure as defined by the European Public Real Estate Association (EPRA) and an underlying earnings measure with additional company adjustments for non-recurring items. The adjustments are for other income of £4.2m, exceptional finance costs of £1.9m, tax of £0.1m and profit attributable to non-controlling interests of £11.0m.

9. NET ASSETS PER SHARE

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

10. INVESTMENT PROPERTIES

Investment properties represent a single class of property being business accommodation for rent in London.

Capitalised interest is included at a rate of capitalisation of 5.1% (2013: 5.0%). The total amount of capitalised interest included in investment properties is £5.0m (2013: £4.2m).

The change in fair value of investment properties is recognised in the income statement.

Investment property includes buildings under finance leases of which the carrying amount is £3.5m (2013: £3.5m). Investment property finance lease commitment details are shown in note 16(g).

VALUATION

The Group's investment properties are held at fair value and were revalued at 31 March 2014 by the external valuer, CBRE Limited, a firm of independent qualified valuers in accordance with the Royal Institution of Chartered Surveyors Valuation - Professional Standards 2014. This includes a physical inspection of all properties, at least once a year. In line with IFRS 13 all investment properties are valued on the basis of their highest and best use. For like-for-like properties their current use equates to the highest and best use. For properties undergoing refurbishment or redevelopment these are currently being used for business accommodation in their current state. However the valuation is based on the potential refurbishment and redevelopment as this represents the highest and best use.

The Executive management team and the Board both conduct a detailed review of each property valuation to ensure appropriate assumptions have been applied. Meetings are held with the valuers to review and challenge the valuations, ensuring they have considered all relevant information, and rigorous reviews are performed to ensure valuations are sensible.

The valuation of like-for-like properties (which are not subject to refurbishment or redevelopment) is based on the income capitalisation method which applies market-based yields to the estimated rental values (ERVs) of each of the properties. Yields are based on current market expectations depending on the location and use of the property. ERVs are based on estimated rental potential considering current rental streams, market comparatives, occupancy and timing of rent reviews. Whilst there is market evidence for these inputs and recent transaction prices for similar properties, there is still a significant element of estimation and judgement. As a result of adjustments made to market observable data, the significant inputs are deemed unobservable under IFRS 13.

When valuing properties being refurbished by Workspace, the residual value method is used. The completed value of the refurbishment is determined as for like-for-like properties above. Capital expenditure required to complete the building is then deducted and a discount factor is applied to reflect the time period to complete construction and allowance made for construction and market risk to arrive at the residual value of the property.

The discount factor used is the property yield that is also applied to the estimated rental value to determine the value of the completed building. Other risks such as unexpected time delays relating to planned capital expenditure are assessed on a project by project basis, looking at market comparable data where possible and the complexity of the proposed scheme.

Redevelopment properties are also valued using the residual value method. The completed proposed redevelopment which would be undertaken by a residential developer is valued based on the market value for similar sites and then adjusted for costs to complete, developer's profit margin and a time discount factor. Allowance is also made for planning and construction risk depending on the stage of the redevelopment. If a contract is agreed for the sale/redevelopment of the site, the property is valued based on agreed consideration.

For all methods the valuers are provided with information on tenure, letting, town planning and the repair of the buildings and sites.

An increase/decrease to ERVs (Estimated rental values) will increase/decrease valuations respectively, while an increase/decrease to yields will decrease/increase valuations respectively. There are interrelationships between these inputs as they are partially determined by market conditions.

An increase/decrease in costs to complete and the discount factor will decrease/increase valuations respectively.

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:

The Group's Investment properties are carried at fair value and under IFRS 13 are required to be analysed by level depending on the valuation method adopted. The different valuation methods are as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2 - Use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data.

Level 3 - Use of a model with inputs that are not based on observable market data.

As noted in the Significant Judgements, Key Assumptions and Estimates section, property valuations are complex and involve data which is not publicly available and involves a degree of judgement. All our investment properties are classified as Level 3 due to the fact that one or more significant inputs to the valuation are not based on observable market data. If the degree of subjectivity or nature of the measurement inputs changes then there could be a transfer between Levels 2 and 3 of classification. No changes requiring a transfer have occurred during the year.

The following table summarises the valuation techniques and inputs used in the determination of the property valuation:

Key unobservable inputs:-