Workspace Group Plc (WKP) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Workspace Full Year Results 2019-2020 Presentation. My name is Stuart, and I will be the operator for your call this morning. I will now hand you over to Clare Marland, Head of Corporate Communications. Please go ahead.

Thank you, Stuart. Good morning, everyone, and welcome to our full year results presentation. Before I hand over to Graham to kick off the presentation, I wanted to run through the logistics of the Q&A session. We will be taking questions from those of you joining via the webcast and those who have dialed in by phone. If you would like to ask a question, you can do so at any time during the presentation, either by submitting written questions online or via the operator on the phone. Please limit your questions to 2 at a time, and we will come back to you for follow-ups if time allows. I will now hand over to Graham to start the presentation.

Thank you, Clare, and good morning, everyone, and welcome in these strange times to our Kennington Park Business Centre in South London. For those of you who don't know me, my name is Graham Clemett. And it's certainly been an interesting and challenging time in my first year as Chief Executive. Before we start, I'd just like to record my thanks to all my colleagues at Workspace for their fantastic efforts over the last year. Without which, none of the success that we'll be talking about today would have been possible. Indeed, that support has been even more important over the last couple of months where we've been working mainly remotely. It's not been easy, but I've been really delighted by the way that everyone's come together, supporting both our customers, keeping our business centers open as well as obviously keeping the business running. I'm joined today by our new CFO, Dave Benson. Dave unfortunately joined us on the 1st of April, so it has a somewhat unusual introduction to the business. More of that later. So turning to the plan for today. We'll kick off with an introduction by me. Dave will then through -- run through the financials in a little bit more detail, and then I'll finish with the view on the strategic outlook for the business. So turning first to the introduction. What I'd just quite like to recap on who we are and what we do. Workspace is a property company, but it's always stood out a little apart from the norm. We've successfully followed a flexible office space model for businesses in London for over 30 years. So what are our distinguishing features? Well, we own all our own properties at some 60 locations across London, and we generally hold those properties for a long term. We've got around 3,000 businesses in our centers, with the majority on 2- or 3-year leases with rolling 6-month break clauses. It's the quality of the space, the facilities and the service we provide that are the glue that keep those customers. With this flexibility comes a huge challenge for us in terms of managing the day-to-day activity, and this is all done in-house. And it's a platform combining our sophisticated technology and experience and skills of the 230 staff we have within Workspace that makes Workspace a success that it is today. Turning now to the financial highlights. Well, we've had another record financial year, with our trading profit after interest up 12% to GBP 81 million. That's nearly doubling from the profit we achieved in 2016. On the back of that trading profit, we've now increased the dividend by a further 10% at the final, and so the total dividend for the year is now up 10% as well. Looking at the balance sheet. Our property valuation saw a slight decline in the year overall, with our values not surprisingly taking a cautious view of the year-end valuation given the impact of COVID-19. We should hopefully have a clearer impact -- view of the impact at the half year. Looking at the operating performance. We saw high levels of customer interest throughout the year. And to put this level of interest in context, on average, we dealt with some average around 50 inquiries and 30 viewings every working day of the year. And on the back of that demand, we saw a good increase in like-for-like occupancy, up to just over 93%, while holding pricing pretty much flat through the year, with an average rent per square foot of around GBP 43 a square foot. It was a similar story with the projects that we launched, and our completed projects are generally letting up within a year. The Frames and Edinburgh House in Vauxhall, both are pretty much full. And Brickfields, which we launched in June last year, is now just under 70% let. We also had 2 buildings where we're about to launch just before the impact of COVID-19, both Mare Street and Lock Studios. Mare Street, we've highlighted here, a fantastic refurbishment just completed in Hackney, and we'll be looking to open that in due course in the next month or so. Looking at our trend in customer inquiries. Up till about March, it was a pretty standard flow through the year, with a dip around Christmas time. But actually, this year, we did see a very strong recovery in inquiries through January and February. But what is very noticeable in that trend in inquiries is obviously the drop-off significantly in April. In April, we saw around 200 inquiries in the month compared to our typical run rate of around 1,000. Pleased to say we saw an improvement in inquiries through May. And actually, in the first couple of days of June, a further increase, but still well below our normal levels of inquiries. That leads me on to talking about COVID-19. Now not surprisingly, the COVID-19 lockdown has had a devastating and immediate impact on many of our customers, and we felt it was important to actually give them support through the lockdown. And we therefore offered our business center customers an absolute 50% rent reduction, which we've now extended to the end of June, as well as the opportunity to defer rental payments. Our centers have actually remained open throughout the lockdown, both for key workers and for central access for all our other customers, although we do significantly scale back our staff and services, with most of our staff working remotely. So where are we now? Well, rent collection has been pretty good given the circumstances, and we've been busy preparing our centers now for the increasing number of customers and our staff returning to work. And on that point, on returning to work, as you'd expect, we are putting an extensive range of measures to address both our customers' and our staff's security and concerns about returning to work. It helps that we own all our buildings. And the fact that we are low-rise means that many of the challenges around restrictive lift access are much more manageable for us. We're also looking to add more cycle storage as I believe that public transport will continue to be a big challenge for many of our customers and their teams. And you'll see that we've also set up a section on our website to assist customers in planning their return to work, what they'll need to consider around their own offices alongside what we are doing in the common areas of our buildings. On that note, I'd like to hand over to Dave to take you through the financials in a little bit more detail.

Thank you, Graham, and good morning, everyone. This is my first results presentation as CFO of Workspace, having joined 9 weeks ago on the first day of our new financial year and 1 week after the start of lockdown. So it's been an interesting time to start a new job. And I'd like to take this opportunity to thank everyone who's gone out of their way to make me feel welcome and particularly the finance team who've been working very hard in difficult circumstances. This morning, I'll first cover the financial performance for last year before giving you an update on the impact of COVID-19 that we've seen on Workspace in the year-to-date. Starting with our operating performance for the year. We saw good growth in net rental income, up 10%, with a strong contribution from recently launched buildings. This translated to a 12% increase in trading profit after interest, reflecting a smaller increase in administrative costs. Net finance costs have increased 8% in line with the 40% -- GBP 40 million increase in average net debt following the purchase of the Shepherds Building in the second half of 2018. Profit before tax was GBP 72.5 million, with an GBP 8 million in underlying property valuation, compared to a GBP 61 million increase in the prior year. The small loss on sale of investment properties relates to sales costs associated with the 4 disposals in the second half of the year. These properties were valued at their disposal value in the September 2019 valuation, a premium of 21% relative to the March '19 valuation. The growth in adjusted earnings per share of 10% is slightly lower than the growth in trading profit as a result of the share placing in June 2018. And as Graham has highlighted, taking into account the strong trading performance, our robust financial position, we're proposing a final dividend of 24.49p, up 10% in the year, which is 1.2x covered by adjusted earnings per share and fully meets our REIT distribution requirements. Taking a more in-depth look at the increase in net rental income. We've seen an underlying growth of GBP 6 million once acquisitions and disposals are stripped out. This underlying growth is driven by a strong contribution from our completed projects, which have performed well, with overall occupancy now at 87%. Income from our recent acquisitions, Centro and Shepherds Building, has increased by GBP 6 million as we benefit from a full year of ownership. So turning to the cash flow. This slide shows the cash flow movements during the year and reflects our consistent approach to capital discipline. Continued strong cash flow from operations of GBP 85 million, driven by our trading profit performance, comfortably covered dividends paid of GBP 61 million. On the investment side, capital expenditure is GBP 62 million, including completion of our Brickfields and Mare Street Studios refurbishments as well as the commencement of works at Pall Mall Deposit. This capital expenditure was more than covered by GBP 65 million of proceeds from the disposal of 4 properties as well as GBP 12 million of capital receipts from development sales. Net cash inflow in the year was therefore GBP 39 million, taking net debt down to GBP 541 million. On the balance sheet. Net assets increased to just shy of GBP 2 billion, with a slight reduction in the valuation of the properties more than offset by a reduction in net debt, and EPRA NAV per share increasing slightly to GBP 10.89. Going forward, we will be reporting the new EPRA NRV measure. As you'll be aware, EPRA introduced new reporting guidance in October '19, including 3 new NAV metrics. Of these, we consider net reinstatement value, or NRV, to be the most relevant to Workspace, reflecting our intention to hold assets for the long term. So looking then at valuation. The property valuation at year-end was GBP 2.574 billion, reflecting an underlying valuation decrease of GBP 8 million. With limited transactions to reference, valuation in the current environment is undoubtedly challenging. CBRE have highlighted this uncertainty and taken an understandably cautious approach to valuation at the year-end. So on this slide, we have split out the underlying decrease between the first and second half movements. Whilst across the year as a whole, the decrease was only 0.3%. This masks an increase of 2.2% in the first half of the year and a 2.5% decrease in the second half of the year. The half yearly movements in like-for-like largely reflect yield compression in the first half of the year reversing in the second half of the year. Like-for-like ERV was up slightly in the second half as the pricing reduction seen in the first half stabilized. The half 1, half 2 picture for completed projects was similar to that for like-for-like. They're less pronounced. A slight overall increase across the year reflected the strong demand for our new properties, including The Frames and Ink Rooms. The small increase in the valuation of current refurbishments in the second half is largely driven by the completion of Mare Street. The impact on the valuation of COVID-19 is, of course, impossible to fully quantify. However, prior to the pandemic, CBRE had, if anything, been anticipating further yield compression in the second half. In fact though, in addition to the reversal of the half 1 yield compression, the year-end valuation also includes a COVID-19-related capital deduction of GBP 32 million. Turning to debt. As we've seen, net debt decreased to GBP 541 million, resulting in LTV improving to 21%, with cash and undrawn facilities of GBP 166 million. With the average cost of borrowing stable at 3.7%, we have significant headroom to all our financial covenants. We estimate we could withstand a 62% reduction in net rental income or a 65% reduction in property valuations before any debt covenants are breached. We have a good spread of maturities averaging 4.5 years with no significant debt maturity until 2022. We therefore start the year in a strong financial position. So turning to then to what we are seeing in the current financial year so far. As Graham has already touched on, following the introduction of government restrictions on movement, we offered our customers rent reductions of 50% until the end of June as well as deferrals on a case-by-case basis. Engagement has been good, with around 3/4 of our customers benefiting from discounts and around 15% of the discounted amounts deferred. Approximately 30% of our customers pay quarterly in advance with the remaining 70% paying monthly in advance mostly by direct debit. Overall, for the first quarter, we've so far collected approximately 70% of the rent due after discounts and deferrals. We continue to engage with our customers who -- from whom rent remains outstanding. We would hope to retain the majority of these customers and anticipate that further progress will be made once -- as the lockdown continues to ease and restrictions on enforcement are lifted. We've not yet observed any meaningful trends in terms of customers vacating or failing, and overall occupancy remains high. We have a good track record on debt recovery, with typically a 3-month deposit held for the majority of our customers. In terms of cost actions, we've reduced or deferred any nonessential spend. Decreased customer numbers in our centers have allowed us to make savings on cleaning, maintenance and utilities, although some of these savings have been passed back through reduced service costs. We have no staff on furlough and have not received any government aid. There's no major refurbishment schemes currently on site, with the largest being at Pall Mall Deposit where CapEx in the current year will be around GBP 5 million. Our buildings are generally well suited for social distancing and compliance with other government guidelines without significant CapEx. So finally, looking at the outlook for the rest of the year. First quarter, as we've seen, will be impacted by rent discounts of around GBP 15 million, but it remains difficult to give guidance for the rest of the year. We are, however, well placed to withstand the challenges from the impact of COVID-19. We have a diverse customer base and are not overly exposed to any 1 sector, with customers in sectors most impacted by COVID-19 accounting for less than 15% of our total rent roll. Unfortunately, despite this diversity and our best efforts to help them, not all our customers will survive. The key test will come over the next few months as lockdown continues to ease and government assistance is reduced. Whilst the risk of material bad debts is largely mitigated by the rent deposits that we hold, there is a risk that space vacated by customers failing or downsizing will put downward pressure on occupancy. Our focus, therefore, will be on retaining our existing customers as well as capturing demand from new customers. We'll also maintain capital discipline. With limited capital committed, we have significant flexibility around the timing of planned schemes. The key variables for our operating performance this year will be occupancy and pricing. As a sensitivity, a 5% change in occupancy or pricing rent per square foot will give -- have an impact of approximately GBP 7 million on total rent roll. As a benchmark, during the global financial crisis, we saw occupancy decrease by around 7% and rent per square foot by around 6%. Our experience from the global financial crisis and other economic downturns had shown that our strong balance sheet and flexible customer offer allow us to adapt quickly to capture demand and achieve good occupancy levels in any market conditions. I'll now hand back to Graham to talk more about strategic outlook.

Well, thanks, Dave. And I'd like to finish then by looking a little deeper at the opportunity that I believe lies ahead for Workspace. Looking first at the business model. Well, I see no reason to change our existing business model that stood the test of time, both good and bad, over the last 30 years. But what I'd like to do now is just look a little bit more detail on each of these component parts. So turning first to flexibility. There's a lot of talk about flexibility at the moment. And what is clear to me is that every person's view is different. For many, flexibility is about having a short lease and the ability to able to upsize, downsize quickly as a space -- as required. To meet these needs and capture customers and retain them, it's essential you have scale as we do with an extensive range of units and locations across London. But it's also around how you use your office space. Our customers typically don't pack their offices with desks. They see the common areas, the cafes, the breakout space, the meeting rooms as an integral part of their office environment. And I see this becoming an increasing demand from a broader range of customers. Again, the configuration of our business centers lends itself to meet these requirements. From our perspective, flexibility is also about responding quickly to changing customer demands. A huge positive here, as I mentioned earlier, is that we own all our own buildings. We can adapt and upgrade our buildings and our services quickly. The additional cycle storage I mentioned earlier is a good example. So in short, flexibility is going to be a requirement from increasing number of businesses, and we're ideally placed to meet that demand. Secondly, looking at our property portfolio. The scale of our portfolio and the locations that we're in are a vital part of our model, with good transport links and amenities important considerations for all our customers. The properties we acquire and indeed the locations we select are not by accident. They come from the deep knowledge of the London property market and our customers and their demand built up over many years. We're very proud of the portfolio of distinctive buildings we have. Many of them are large dominant buildings in their areas and significant contributors to local employment. And while there's gaps in our portfolio, which we'd love to fill, we remain disciplined on our acquisition return requirements. Looking then also at the pipeline of projects. Well, this has been a rich source of new and upgraded space for us for many years and continues to be. As always, full details are set out in the appendices to this presentation. And the good news, as you can see from this slide, is that we still have a significant pipeline, with over 1 million square feet of new and upgraded space to be delivered over the coming 5 years. I'd also like to talk about our brand. Our brand has been built up in terms of reputation over many years. It played a hugely important part in our success in both attracting and retaining customers. Alongside that, our reputation as a trusted partner more than ever during the current crisis have been very relevant. The brand is also reflected in everything we do, from the way that we manage and treat our customers through to the culture within Workspace itself. And on this slide, I've shown you here some details about company purpose and our company values, which is hugely important and underpin this brand proposition. And I just wanted to talk a little bit more detail about 2 of these elements. Firstly, Doing the Right Thing. Doing the Right Thing is a key element of our company purpose. It embraces a whole range of environmental, social and governance activities that we undertake. We will be publishing later this year our detailed pathway to net 0 carbon by 2050. This covers both our customers' and our own operational energy consumption and also the embodied carbon of our buildings. On this point, it's worth remembering that our focus has always been on long-term sustainability and regeneration. Many of our properties are older buildings, some are listed, and many are more than century old. And I'm delighted to say we've repurposed many of these as fantastic character office buildings. But the challenge, obviously, is that they come with a different set of environmental challenges compared to a, say, typically, around a new building. We also have a very active Doing the Right Thing committee led by our staff that focuses on engaging with local communities on employment and education initiatives as well as fundraising for selected charities. And lastly, an area of emerging focus for both our staff and indeed our customers is around health and well-being. We rolled out a program of mental health awareness training for our staff last year, which was very well received. And more initiatives are planned this year for both staff and also for our customers. On know your stuff, which again is 1 of our 4 company values. We have 230 staff, of which, nearly half have been with the company for 5 years or more. This experience is invaluable, particularly at times like the present. In terms of the breakout of our staff, you'll see about 130 of our staff are in customer-facing roles, these are the white boxes on the slide; with the remaining 100 staff in a range of skilled, supporting teams. As I mentioned earlier, it's this platform, which can't be built overnight, which brings together the expertise and experience of all these teams and delivers a flexible offer and the quality of service that our customers expect. So to conclude. We come into this crisis, as Dave highlighted earlier, in a strong position. There will be challenges to deal with over the next year, but I'm confident we've got the skills and experience to manage these. But more excitingly, looking further ahead, the demand for flexibility is here to stay, and I believe, grow. Flexibility cuts many ways, which we understand and can deliver on. And we have the right properties, the customer offer and the skilled team to capitalize on this opportunity ahead. So on that note, I'd like to thank you for your time this morning. And now I'd like to hand over for any questions that you may have.

[Operator Instructions] Your first telephone question today is from the line of Max Nimmo from Kempen.

Two for me are just around the discussions you're having with valuers at the moment and sort of the shorter income and the void. What are they assuming? So what kind of -- what is going into that GBP 32 million capital deduction? Is it an assumption on voids, or -- what's that? And then secondly, obviously, you're happy to pay the dividend now. But given the lower kind of cash collection you see coming ahead, do you think you'll be able to maintain that?

Okay. I think -- Dave, can I give you the valuers question? And then I'll pick up on the dividend.

Sure. Yes. So I guess, as I said, the valuation at the moment is challenging. And I think, certainly, CBRE have referenced that. What we've seen at the year-end is, obviously, is impacted by COVID to a degree. And so I think there's 2 parts to that. The first is in terms of the yield, which has reversed what we saw in the first half of the year. But there's also this additional specific capital deduction. And I think what that really represents in CBRE's view is what would a potential purchaser be looking for to reflect the risk around potential short-term non-collection of debts or voids. So really, it's just -- it's a way of capturing that short-term uncertainty around rent collection.

And represents around a quarter's rent.

Yes. It's roughly a quarter's rent, so I don't think there's any magic to it being a quarter's rent. But that's -- in terms of value, that's what it represents. Yes.

And Max, on your second point, on dividend as well. I mean we have a dividend policy. And to be honest, I guess the point of having a policy is you follow it. So as you say, we paid out the 10% growth in dividend this year in line with that policy. And our dividend really -- I mean my guidance at the moment is that, that will follow the trading performance of the business. So I think that's as far as I would say. I mean I think the challenge that David highlighted earlier is actually landing on where we think that trading performance for the year is going to be.

Next telephone question is from the line of Peter Papadakos from Green Street Advisors.

Graham, I've got a couple of questions. Maybe one is -- more generally, you expanded on it, and thank you also for the perspective of the global financial crisis. So given what you know today in terms of what's different about Workspace and the skill set internally about the portfolio and about the downturn, of course, that is here, how do you see that relationship between occupancy and rate playing out? What will be different? Will we -- do you feel like it will be a similar decline in both? Or do you see one versus the other? Anything you can elaborate a little bit about what could be different this time versus last would be helpful. And then the second topic is on inquiries from tenants that you -- tenants that you have received in the last 2 to 4 weeks. Are these tenants or prospective tenants that are looking to move from, let's say, traditional office space into pure types of premises? Or are they mostly still businesses that would anyway have looked at flexible offers?

Okay. I'll attempt to pick those up, and then if I struggle, I'll pass them to Dave. So on the first one, and I guess, yes, I mean the [ expansion ] of the group last sort of global financial crisis, obviously, different, much more around banking issues than around our customers. And I guess, as you mentioned earlier, I mean the portfolio is slightly different, although I don't think it's fundamentally that different. I think the difference may be more on more prime properties, probably, I think less of an impact on valuation this time around than maybe we would have seen through the global financial crisis. In terms of the way that we'll react to the challenges ahead, our focus, as always, is around maintaining high occupancy levels within our buildings. And what that means is we price to go. We're not obsessed about valuations. We will price to the market demand. So I think that balance between occupancy and rate, it will be around making sure that the pricing meets the demand in the market to maintain those high levels of occupancy. That's no different to where we were in the last financial crisis. Equally, no different to what we do day-to-day anyway. So I think it very much plays to business as usual for us. Having said that, I've been -- I think we are going to have some challenges with more vacant space because I think it will be customers downsizing. But on the positive side, we do still see inquiries coming through, and they are beginning to pick up, as I mentioned earlier. So moving to your second point, around inquiries. I mean it's too early to say have we seen an emerging demand from a new type of customer or more people that would have previously taken more traditional space. I suspect we will, but we haven't seen anything that I would like to talk about with confidence yet. So at the moment, it's pretty much our typical range of customers, mainly people coming out, as you know, from growing out of service office space, but equally, people looking for the attractions that we offer anyway from a flexible model and the sort of buildings we have. So nothing yet, but I'd like to think that by the half year, we might be happy to put a little bit more detail around if we are seeing a broader range of demand from customers.

We've just got a couple of questions coming from the webcast now, so I'll read those out. The first is from Robbie Duncan at Numis. On interest cover covenants, you note in the statement that a decline of more than 60% in net rents could be handled before the covenant is tested. We estimate rent collection of circa 40% versus growth rents. If this situation persists and the high level of discounting is maintained through the rest of the financial year, what options do you have available to deal with potential breaches?

Dave?

I'll take that one. Sure. Yes. Thanks very much for the question. Yes. I guess probably the best thing to start is, obviously, there's a high [ deal ] uncertainty. But we are still collecting rent. And as I said, I think that we will make further progress on that as well. And the rent collection actually has been ahead of the -- where we had perhaps expected it to be in some ways. But I think the more important thing is that we've obviously done extensive modeling, looking at the various different scenarios that could play out, not just for this year but for longer term as well, just to understand, and working through with our auditors as well. Even in our most severe downside scenarios, we had headroom to all our covenants. So we don't foresee that we should have a challenge with that this year. Having said that, of course, if we do come to that, then there's various avenues that can be pursued. Certainly, our lenders have all been very supportive. So as I say, I don't see any challenges with that this year.

Okay. We've got a number of questions from Kieran Lee at Berenberg. The first is on the 50% rent discount. Is there a plan to taper this over following quarters given the recovery is likely to be far less abrupt?

I'll pick that one up. I think, obviously, as we said, we gave a GBP 15 million rent reduction for the first quarter to the end of June. I think we'll review that in due course. But obviously, I think as soon as possible, we want to get back to a model where we price to the market demand. So I would certainly think that rather than talking about tapering, what we'll be doing is making sure that we price the space that we provide to the market demand. And more importantly, the pricing, I think, for many of our customers, is the ability to change their space requirement. So as we thought through the last financial crisis, I'd expect customers who continue to struggle, the more likely scenario is that we'll be looking to bring them into smaller space to downsize them. I mean that's far more effective in terms of reducing their costs. And my message to our team is all about keeping our customers, retaining them. And so we're very happy to work with our customers to rightsize them. But what we do know is that, as much as customers will struggle in some sectors for a period of time now, we know that majority of them will recover and continue to grow longer term. So we want to invest and work with them to make sure that we can support them through these more challenging times near term.

And picking up on customers returning to business centers, Kieran asks, although assets have remained open, as tenants return, are you likely to incur additional operating costs for more regular cleaning of communal areas, social distancing, et cetera? And will that impact operating margins?

Dave, do you want to...

Yes, sure. So yes is the short answer in terms of other additional costs. So there are some additional costs in respect of things, and cleaning being the most significant one. We are doing regular deep cleans repeatedly throughout the day, so there is some additional cost to that. But it's relatively small in terms of the grand scheme of things, and we have made some small cost savings in the first quarter while there's been reduced usage of the centers. So across the year as a whole, the impact should be small.

Two more questions from Kieran, which I'll do at the same time. Rent per square foot fell by 0.7%. Was this a commercial decision to drive occupancy or a function of market competition? And secondly, you mentioned inquiries fell materially in April, May. Has the inquiry conversion rate circa 11% been maintained? Or has this been deteriorated to a greater degree?

I'll pick those up. So on the first question, what was that? Remind me again, sorry.

The rent per square foot fell by 0.7%.

Yes. So I mean the rent per square that Dave mentioned earlier, I mean -- and I did talk about this at the half year is we priced to the demand. And yes, we did see some pricing reduction in the first half of the year. And actually, it rebounded in the second half. And as you saw in our statistics, our like-for-like occupancy is actually just over 93%, which is an all-time high. And in more normal circumstances, we'd actually be now looking to probably start to push pricing forward. So yes, we do price to demand. And I think we now -- as we said, we sort of saw a very strong demand and actually started to think that pricing would start to move forward again. On inquiries, the statistic that I'm looking at, at the moment, I mean lettings are relatively small compared to viewings because it's very early days. So I mean I think the more relevant statistic now is the conversion of inquiries to viewings. Now obviously, in April, when we weren't able to do any physical viewings, that's not really relevant. But we are now seeing viewings running at about 30% conversion from inquiries, and that's picking up actually day by day. So typically, we would expect 60% conversion of viewing swing from inquiries. So it is beginning to pick up from 10%, 20% last month. So those are the early signs of, I think, improvements back to what we would call much more normal conditions, but we're still some way off. So I think it's early days. We'll be updating that as we go through the year. Obviously, we've got an update at our AGM in early July. But I think more importantly, it will be at the half year that we can start to give you an idea of how quickly we've seen that recovery.

Thank you. So one more question online so far from the line of James Carswell at Peel Hunt. Could you please give an indication of the typical churn rate? Specifically, approximately what percentage of the rent roll would vacate the estate in a typical year?

I feel, Dave, I could give you this question, but it would be hard. So I'll have a go at it. I mean the churn rate is tricky because a lot of our change is internal churn, as James will know, that -- and I mentioned earlier that retention of our customers is something that we really do cherish. So a lot of the movement will be from customers moving from one space, whether it's in the same building or to an adjoining or nearby building. So I would say, overall, I think our statistic is pretty consistent is that it runs at about 30% churn a year, which about 15% is customers coming in, leaving the portfolio, and about 15% of the customers moving internally. But that's in more normal times. And I'd say, actually, we'll probably see higher retention rates, hopefully, as we go through this more sort of stress period and as we accommodate a lot more customers moving internally, looking for either increased space if they have to cope with social distancing, but I said also customers looking to downsize near term.

We've got one more question from the webcast. Regarding market demand, what commercial behavior have you seen from others in the flexible office space? How are space requests from customers on renewals versus the anticipated need -- I can't...

Sorry, just bear with us. We're just having a regular Friday fire alarm test at Kennington Park, which hopefully is now finished. All systems are working. Sorry, Clare.

I'll start again on that one. So from [ Edward Donahue ] at [ One Invest ]. So talking of market demand, what commercial behavior have you seen from others in the flexible office space? And can you give a breakdown between customers renewing versus the anticipated demand for that space?

I think on the first one, on what other flexible space operators are doing, I mean I think a lot of people compare us with other service office providers, which is not really our -- the same model as ours. But they're all doing very different things around attracting customer demand. I think the other challenge, of course, is some of our competitors is they've got a very different financial model, which obviously does cause some challenges for them, particularly through the current crisis. So I don't think I really want to comment on them, apart from the fact that I think we're very much focused on supporting our customers in the way that we think is appropriate. And I think that will pay us many, many dividends in the years to come. On the mix on renewals and the statistics you're looking for, I think, again -- really, you're looking for it post the COVID impact. I think it's too early. There isn't enough real data there for it to be meaningful for me to give you any data at the moment. Okay. Well, look, thank you, everyone, for joining us today for our results presentation. And we'd like to thank you for your time, and wish you all a safe and secure weekend.