Workspace and Glebe aim to refinance joint venture

WORKSPACE GROUP IN TALKS to refinance its 1.2m sq ft development joint venture with David Philips’ Glebe.

The London business space provider admitted on Monday in its annual results that the joint venture’s £134m drawn debt from Bank of Scotland Corporate was more than the value of £129.6m value of its properties as at 31 March. This means that the loan-to-value covenants of 85% on total facilities and 82.5% for the core property facility have been breached.

Workspace is in talks with Glebe and Bank of Scotland Corporate, which is part of Lloyds Banking Group, about agreeing revised terms for the debt funding ‘and appropriate returns for any additional equity invested’. It said the facility was non-recourse ‘apart from an interest shortfall guarantee under which the joint venture partners have a maximum liability of £6m, or which £1.6m has been contributed to date’.

It has written down the value of its 50% interest in the joint venture to nil. The joint venture was set up three years ago to promote the intensification and change of use at 18 estates in London. Workspace and Glebe, which was set up in 2004 by former Chelsfield director David Philips and is 30% owned by HBOS, put in £20m of equity.

In the year to 31 March, the joint venture’s properties fell in value by 28%, or £49.5m, to £129.6m. This included added value of £127m from the progress made on winning planning consents.

Workspace’s total 5m sq ft portfolio fared even worse during the year, falling 33% in value to £662m. The main reason for the plunge was a rise in the portfolio’s net initial yield from 5.3% to 8.5%.

The equivalent yield jumped from 6.9% to 10.1%. The portfolio now has a capital value of £132/sq ft, compared with its replacement cost of £150/sq ft.

The valuation drop, together with the effect of a deeply discounted rights issue in January, caused the net asset value to fall 91% from 311p to 27p a share. The £87m raised from the sale of 871.8m new shares in January netted Workspace £75m. It had to pay £4.9m in costs to financial advisers and brokers, £4.9m in fees to lenders to waive and remove certain covenants, and £1m to lawyers.

Operationally, however, Workspace has been performing solidly. The trading profit in the year was up £1.4m to £38.4m, despite a £1.6m increase in the empty rates charge. The occupancy level on a like-for-like basis was 83.4%, albeit lower thatn the 89.6% a year earlier.

Demand for space from small and medium-sized business has held up- Workspace is receiving 876 enquiries a month and carrying out 86 lettings.

‘We’re doing more than 20 lettings a week, ‘said Workspace chief executive Harry Platt. ‘There is more day-to-day activity than in the boom times. It’s about managing “churn”. Very few tenants have gone bust. Our £200,000 of bad debts is minimal."

Property Week, June 2009.