Workspace Group Plc (WKP) Earnings Call Transcript & Summary

Okay. I think we're settled. Great to see so many of you here today. And well, good morning, everyone, and welcome to our Half Year Results Presentation, those of you here in person and those joining us remotely. As you can see, I'm joined today by both Dave Benson, our CFO, but also Leo Shapland, our Head of Portfolio Management. And for those of you who haven't met Leo before, Leo is responsible for both our asset management and our development activity across the group. So turning to the agenda for today, we'll start off with an overview from myself. I'll then hand over to Dave, who will take you through the financial results in more detail, including the outlook for the year. And then Leo will pick up on operational performance. And what Leo will give you is hopefully a little bit more of a deep dive into the operational activity across the group, both on our like-for-like portfolio, our projects and also our sustainability credentials. I'll then finish with some thoughts around our outlook longer term. So in terms of performance, well, as you know, last year, is very much for us a focus around recovering from the impacts of COVID. I'm delighted that by March of the last financial year, we got back to our stabilized occupancy levels, our target of around 90%. And our performance in the first half of this year really very much builds on that solid base. And on the back of continuing good customer demand, what we've been able to do is drive our like-for-like rent per square foot up 4% in the first half of the year. And that, together with actually the successful letting up of new and vacant space, both in our core portfolio and also with the McKay assets that we acquired has meant we've been able to deliver a strong growth in trading profit in the first half of the year, 33% increase year-on-year. And on the back of that, we're increasing our interim dividend by 20%. Now from a valuation perspective, a slightly different story, a stable outlook -- a stable performance in the first 6 months. Actually I'm very pleased with that. We did see an outward shift in yields in our like-for-like portfolio. But actually that was more than offset by the growth in ERVs that we saw in the first half of the year. In terms of acquisitions, I'd like to say that also we've completed the operational integration of our McKay acquisition ahead of schedule. But we still have a job of work to do to complete the sale of the noncore assets from that portfolio. But nevertheless, we're in a sound financial position with LTV stable at 33%. Before I hand over to Dave, I just want to run through sort of 3 key characteristics of our customers, hugely important for us as a business. First of all, the resilience of our customers over time. And what I've got on this slide here is the details of our inquiries, like-for-like occupancy and the increases and decreases in rent per square foot over the last 15 years. And what I think, first of all, I'd really like to highlight is that consistency of demand from customers for our flexible offer over that 15-year period. Even through the depths of the global financial crisis in 2008 and '09 and through to COVID in 2020, 2021, we've seen consistent levels of demand for our product. And what does that mean? Well, that does mean that actually, with our dynamic pricing, we can address falls in occupancy quickly, and we can flex our pricing. So as you'll see, in 2009, as occupancy fell, we flexed pricing. In COVID, the challenges of recovering occupancy through the impact of COVID in [ 2020 ] we flexed pricing. Equally, outside those periods, we can then actually push pricing quite strongly on the back of that strong demand, as you can see with the predominance of green bars across that chart. And what I would lastly highlight is actually in the recent years, we've been able to push -- well, sorry, last year, we've been able to push pricing upwards again 4% in the first half of this year. We'll see that we're actually still only on the way back and recovering pricing from pre-COVID levels. We're currently around 5% below pre-COVID levels of pricing. Secondly, I just want to talk about the customers' use of space in our portfolio. It's a hugely important part of our business model is that we provide our customers with a blank canvas to fit out. We provide all our units with the essential services, but we allow our customers to fit out their space as they want. They want that control to build their own individuality around their space. And what you'll see in these photos, these are just 6 pictures, looking through the keyhole at the units across our portfolio. You've got here an advertising agency, a clothing business, a marketing agency, a video production business, a plant-based food lab and a radio and podcast broadcaster. These are just 6 samples of what you would see if you look through the key hole across our 4,000 customers in the portfolio. And what you'll see there is a space that's really very much an integral part of their business. And indeed when you reckon it about across the portfolio, around half of the space is used in a, what I would describe as, a nontraditional way. It's very much workspace as opposed to office space. And when you look at the resilience of our customers in terms of customers staying with us and equally it's the utilization of that space, customers coming into work every day. We have high levels in both counts, and that's because of this nature of the way that our customers use their space. It's an integral part of their model. And that's what really sets us apart, I'd say, in that flexed market from others at play in that market and sometimes the frustrations that we have when people confuse us with the serviced office players. This is a very distinctive separate type of model. And then lastly, I just wanted to touch on the geographical spread of our customers. And this is something that we've shown before, the research that we've done around the spread of SMEs across London, just wanted to re-highlight it. The research we did shows that around 25% of the SME community is in the more central London areas, the very much broader spread of the SME community across London. And if anything, we're seeing that broaden post-COVID with reduced appetite for commuters to longer commute. Equally, the new transport links, the final opening of Crossrail. Equally, the Northern Line extension, they're opening up new areas of London such as in Battersea. Increasingly also, we're seeing alternative transport methods being used, particularly cycling. All of these, we see broadening the opportunity for us across London. And indeed we also see that extending out to the well-connected commuter towns with good transport links into the capital. So just to recap before I hand over to Dave. We've had a really good strong trading performance in the first half. We're seeing that momentum carrying on to the second half of the year. So I think we're very well set for a very strong trading performance for the full year. And on that note, I'd like to hand over to Dave.

Thanks, Graham. Good morning, everyone. So as Graham said, I'll first run you through the financial performance for the half year and then touch on the outlook for the remainder of the financial year. Starting with operating performance. Net rental income was GBP 56.1 million, up 37%, reflecting the strong increase in occupancy and pricing that we've seen over the last year, combined with the benefit of acquisitions. Admin expenses also reflected the impacts of acquisitions, increasing 31%. However, underlying admin expenses remained under tight control with a 6% increase driven by higher staff costs. Admin costs from acquisitions were GBP 1.5 million in the first half, and we remain on track to deliver the planned synergies. Net finance costs were up 49%, reflecting the increase in the level of debt following the McKay acquisition and the increase in SONIA during the period. Trading profit after interest was therefore up 33% to GBP 29.1 million. We saw an underlying increase of GBP 8.1 million in the property valuation. And this, together with a GBP 1.5 million gain on disposals and one-off costs of GBP 2.9 million, resulted in a profit before tax of GBP 35.8 million and adjusted EPS up 28% to GBP 0.153. In view of the strong performance in the first half, we'll be paying an interim dividend of GBP 0.084, up 20% on the prior year. Slide 10 looks at the movement in net rental income in a bit more detail. Over the last year, we've seen occupancy increasing back to pre-COVID levels and pricing recovering, and this resulted in an 18% increase in underlying rental income. As expected, as occupancies increased, we've seen a reduction in unrecovered service charge and other non-recoverable costs. With our centers full again, our customer events program is back in full flow, and this has contributed to a GBP 0.4 million increase in other sundry costs. Cash collection remains strong, and the charge for expected credit losses fell again in the period. And finally, the acquisition of McKay in May contributed GBP 7.3 million of rental income in the first half, in line with expectations. As I mentioned, our unrecovered service charge costs have reduced in the period. We work hard to control our costs, and this benefits both us and our customers. Our people are by far our greatest operational cost, accounting for around 1/4 of service charge costs and around 3/4 of admin costs. We've generally limited pay rises in the current year to 3%, although we have targeted higher increases in more junior roles. People costs are also the main driver of other significant service charge costs such as cleaning, security and maintenance. And our commitment to paying the London living wage extends not only to our own employees, but also to those of our service partners. After people costs, the next most significant operational cost is utilities, which accounts for around 20% of service charge costs. Electricity is by far the largest component of this, and we fully hedged our costs in September 2021 until October 2024. And this extends to the McKay portfolio. Leo will talk about some of our capital projects in more detail later, but we continue to perform rigorous viability assessments before deploying any capital and continue to fix the majority of costs before commencement. So on the balance sheet, the property valuation at 30th September increased GBP 461 million to GBP 2.9 billion, reflecting the acquisition of the McKay portfolio. Debt increased similarly with total net assets up 4%, driven by the profit for the period and the net impacts of shares issued and dividends paid. Overall, EPRA NTA per share was down 1% to GBP 9.74, reflecting the impact of dilution from the shares issued. On an underlying basis, adjusting for capital expenditure and including the McKay assets acquisition cost, there was a small underlying increase of GBP 8 million in the property valuation. Looking at the like-for-like portfolio, which accounts for around 2% -- sorry, 2/3 of the overall value, the small underlying increase was driven by a 7.5% uplift in ERV per square foot to GBP 45.41, and that was offset by a 30 basis point movement in yields with equivalent yield moving out from 5.6% to 5.9%. Capital value per square foot was up 2% to GBP 692. In completed projects, we saw a similar dynamic with ERV and yield movements offsetting and valuation flat. But in the refurbishment and redevelopment categories, we saw an overall decrease. Much of this was driven by a more significant average yield movement across light industrial sites such as Havelock Terrace, Riverside and Rainbow Industrial Estate. We also saw decreases at Chocolate Factory and Leroy House as the valuations transitioned from investment to development, reflecting the commencement of work on site. Turning to McKay portfolio. Overall, we've seen a valuation uplift of GBP 14 million since acquisition, which reflects the discount we paid compared to the March valuation. The uplift was driven by London and South East offices, which have held their value since March, with yields moving out slightly to 6.2% and 7.9%, respectively, largely offset by rent improvements. South East Industrials, however, saw a valuation decrease compared to both March and acquisition. This was fundamentally driven by a far more significant output yield movement over 100 basis points since March with average yield now at [ 95% ]. As we've seen with the exception of light industrial properties, the impact of yield movements in the Workspace portfolio has been largely offset by ERV improvement. Yield movements have been driven by economic and political events. And whilst there have been signs of increasing stability in recent weeks, volatility remains. ERV movements on the other hand, have been driven by the pricing that we're achieving on recent deals. And Leo -- sorry, and Leo will talk about later. Pricing momentum remains strong. So on this slide -- and it is this slide, we show our NTA per share would change for a range of movements in ERV and yield on the like-for-like portfolio. As an example, a further 50 basis point outward yield movement would be largely offset by a 5% increase in ERV with NTA in that scenario, the share falling down just 3% to GBP 9.42. So on to net debt and cash flow. The said cash conversion remained strong with 98% of rent for the first half collected to date. This has generated operating cash flow of GBP 30 million, which has more than covered dividend payments of GBP 26 million. We spent GBP 363 million on acquisitions, which comprised GBP 201 million of cash consideration fees and GBP 162 million of net debt acquired. We also continue to invest in our planned pipeline of refurbishment activity with CapEx of GBP 25 million in the first half of the year. Overall, therefore, net debt increased to GBP 937 million at the end of September. The majority of the group's debt comprises long-term fixed rate borrowings, which totaled GBP 665 million at the end of September. Shorter-term liquidity is provided by GBP 535 million of bank facilities, which were GBP 285 million drawn at the end of September. Those facilities together with GBP 13 million of cash gave us a total of GBP 263 million of cash and available facilities. Our average cost of debt was 3.5%, current debt level is a 1% increase in SONIA with increases by around 0.3%, which based on current market expectations for SONIA would mean a full year average cost of debt of around 3.7%. We have significant headroom to our financial covenants with LTV at 33% and interest cover of 4.5x. And our planned asset disposals will further reduce both leverage and our exposure to floating debt. Looking at our debt facilities in a bit more detail. As I said, the majority of the group's debt is long-term fixed rate borrowings. It is made up of GBP 300 million green bond, which matures in 2028, GBP 300 million of private placement notes maturing between 2025 and 2029 and a GBP 65 million loan facility from Aviva, which matures in 2030. We've completed the necessary amendments to both the Aviva and the McKay bank facilities in September. The bank facility reduced to GBP 135 million, and the terms have been aligned with Workspace's existing RCF. There were no changes to the maturity, quantum or interest rate of the Aviva loan. So our bank facility is now comprised GBP 335 million of sustainability-linked revolving credit facilities and a shorter term GBP 200 million facility put in place for the acquisition of McKay. GBP 135 million of the revolving credit facilities mature in April 2024 and GBP 200 million in December '24. Both of these facilities have the potential to extend by up to 2 further years and the GBP 200 million RCF also has the option to increase by up to GBP 100 million subject to lender consent. And finally, look at the outlook for the rest of this financial year. Whilst there remains uncertainty in the economic outlook, based on the customer demand that we're currently seeing, we anticipate stable occupancy and continued pricing growth in our like-for-like portfolio, augmented by a further contribution from letting up of recent projects and acquisitions. Such pricing growth should drive not only rental income, but also ERV, helping to mitigate yield pressure on valuations. The current high levels of inflation will continue to put pressure on costs. However, we're well positioned with energy costs fully hedged and other costs tightly controlled. Capital expenditure this year will be around GBP 50 million as we continue with our project pipeline, although this will be more than offset by planned residential scheme disposals at Riverside and Chocolate Factory as well as disposals of non-core McKay assets. We have a robust balance sheet and all commitments can be funded from existing facilities. So overall, we remain in a strong position with positive momentum, although we will, of course, respond to any changes as needed, resulting from economic conditions. I'd now hand back to Leo to talk you through our operational performance in more detail.

Okay. Thank you, Dave. Good morning. Over the coming slides and the coming section, we'd like to highlight some of the progress we've made over the year-to-date, some of the momentum and signs we're seeing since the end of the half year going into the second half of the year and evidence some of the key trends and key messages that we've seen from the portfolio with a number of case studies. The key message we'd like to leave you with today is we've had a really positive first half of the year, and we see good momentum going into the second half of the year, evidenced across a number of lead indicators from the portfolio. Fundamentally we're seeing resilient customer demand for our locations, our offer and our flexible leasing model, driving good letting volumes, occupancy figures, pricing uplifts and resilient valuation. Going forward, we have the ability to grow that income and improve our portfolio through 2 key avenues of organic growth and our active asset management and refurbishment initiatives. As Dave said, we're cautious given the macroeconomic conditions, but ultimately, we remain confident in our portfolio and the ability for us to drive performance. In terms of inquiries and viewings, down slightly year-on-year, distorted by a few events over the summer around extreme hot weather, numerous strikes to tube and rail. But more significantly, we've seen lettings value increase year-on-year, reflecting strong conversion and our improved pricing. And in relation to that, looking at the right-hand side of the slide, you can see that as Graham mentioned, we've seen a rebound in occupancy since COVID. And as a result, we are able to enhance pricing across the portfolio and has subsequently seen our fourth consecutive quarter of growth. Turning down to the like-for-like portfolio, we've seen occupancy remain solid over the half year just shy of 90%. As a result of that, we've seen both rent per square foot and overall rent roll up by about 4% over the half year. Much of that has come from new activity coming into the portfolio, but a good portion of that has come from renewal activity within the portfolio itself. And this is one of the avenues of that organic growth that we're talking about. We engage with around 190 customers over the half year. And our knowledge of our customers, our relationship with our customers, our investment in our building and our customer service, and overall, that fundamental demand saw over 90% of our customers stay with us over the half year, resulting in an average uplift of around 14%. So a few case studies to evidence those key trends to some of the things that we're seeing and some of the ways that we operate the portfolio. So Metal Box in the Southbank. The Southbank is one of the clusters where we've probably seen one of the quickest and most robust bounce back in demand since the -- since COVID. We've capitalized upon that with an upgrade program to the atrium, reception, café, arrival experiences as well as refurbishment -- rolling refurbishment program to customer units and improvements to the ESG of the asset. We completed the project and improved the EPC to B across the asset, reducing energy consumption and improving our efficiency within the building. And the customer demand and feedback for this asset and what we've done for it as part representative of the broader cluster and our broader portfolio has been really strong. Occupancy stayed over 90% throughout the half year, and we were able to enhance pricing by up to 35% on those improved units. All of this drove an improvement to valuation of around 8%. Despite a 20 basis point outward yield movement to 5.9%, we saw ERV increases across the center of around 15% more than offset that. The Salisbury another key asset for us in the heart of the city by Crossrail. Again, a rolling upgrade program to improve units, common parts and our customer facility, our customer journey in essence. Really strong customer feedback for this, and we've improved rents by up to 20% on that as well as improving ESG and the look and feel of the asset. Valuation for this asset was down over the half year to 7%, driven by the outward yield movement we saw across the portfolio, but also the commencement of our longer-range CapEx program. And that CapEx program is part of the reason why we remain so positive on this asset. We've got that upgrade and rolling upgrade program on the units as they come back to us. They're often quite dated, and we get to improve both appearance and ESG and pricing as a result of that. But we commenced over the half year, we commenced the next phase of investment into the asset, improving the reception, customer lounge and arrival experience for the entire building as well as improving our meeting room offering and adding 150-person conference center to the building, which we think will not just be a boost to the building itself, but the wider portfolio and the offering to our customers. Gray's Inn Road, also in Central London. This is where we tend to offer our customers larger units, but with the benefit of the Workspace flexible leasing model and flexible use. Again, rolling up growth to units, customer amenities to improve both the look and feel, the aesthetics and the ESG, again, improving occupancy up 11% to over 90% by half year-end and with positive momentum since then. We've improved quoting rents on those upgraded units by up to 15%. And yet again, that interconnection of ESG and rental tone and financial outcomes are visible as we're on track to hit an EPC B and future-proof asset by the end of the year. The valuation story for Gray's Inn is representative of the story that Dave and Graham has shared for the portfolio as a whole. Outward yield shift mitigated by ERV increases, thanks to our investment and the strong customer demand we see. And lastly, from the like-for-like portfolio, the Light Box in West London, where, again, an upgrade of units as they come back to us targeted capital investment into common parts and the arrival experience, creating that community and buzz for the center. This has been a really strong half year with occupancy over 95% throughout the 6 months. Rent roll has improved as a result of that by up to -- by up 11% and pricing on upgraded units up by -- to 35% over the half year. Again, a very positive EPC and ESG story here. Energy consumption significantly improved and EPCs A and Bs hit across the board, resulting in a valuation increase of 8.5% over the half year. Turning to our completed projects. While occupancy was robust and solid over the like-for-like portfolio at 90%, we saw really strong upward momentum from our completed projects category. Occupancy increased by almost 7% to 77% over the half year, again, showing that depth of customer demand for high-quality, sustainable space in our locations. As that occupancy improved, we saw that pricing dynamic and that pricing tension evolve, we were able to improve pricing and our rent roll. Rent roll was up by over 15% and pricing per square foot was up almost 6% to just over GBP 25. It's worth pointing out that we see and our customers see our portfolio has an affordable offering in strong locations. But here, in terms of that organic growth opportunity and our prospects going forward, the opportunity is particularly acute at just over GBP 25, that's highly affordable and represents a number of in-place legacy leases from either of the early stages of those projects lease-up or the COVID period. So a good opportunity for us going forward. In terms of our recent acquisitions, first in McKay, since completing the acquisition in May, we've evidenced a really strong and swift integration of the portfolio into our platform. We've completed over 150,000 square foot of letting in that period since May, driving over GBP 3 million worth of rent. The majority of that activity has been in the London portfolio where the opportunity was bigger. We've completed nearly 50,000 square foot of letting. Occupancy is at around 2/3 with positive momentum since the end of the half year in terms of under offers pipeline activity and agreement for leases. But there is another organic opportunity for us to drive income within the portfolio on that remaining vacant space. In the South East offices and business park, a little bit less to play for. Occupancy was static at around 90%. However, we did complete 35,000 square foot of leasing activity, driving around GBP 0.7 million of additional income from that portion of the portfolio. In the Industrials, similar story to that shared by a number of our peers. We're seeing strong demand on rental growth with over 70,000 square foot of letting activity over the year, generating GBP 1 million worth of income. So strong performance from the McKay side of the portfolio. Plans have been progressed well over the half year at Busworks near Kings Cross following on from our acquisition of this characterful former bus depot about a year ago. We're on track to commence refurbishment in line with business plan in the second half of next year. It's something that we're excited about. And lastly, the Old Dairy in Shoreditch, we've taken this asset to almost 90% let and have commenced feasibility studies for the broader refurbishment of this asset. This will form a great complement to our existing shortage cluster. Our like-for-like asset, The Frame sits just across the street and has been a consistent outperformer over the half year, currently sits at 98% occupancy. So a few more case studies just to bring it to light and evidence of those key trends. Parkhall in Dulwich, one of our larger mixed-use business centers. We've continued that rolling refurbishment program, again, to the customer experience, reception area, common areas and the units as we get them back through the natural churn in our portfolio. We also completed the refurbishment of 7,000 square foot refurbishment of the top floor of one of the wings. That since completion in October has had really positive customer feedback. 50% of the space was under offer at completion, and we're seeing rents of up to 30% above the rest of the center, which is performing well. At Fleet Street, again, a continuation of that targeted investment program, focusing on the customer facilities and the reception. Here, we see an occupancy increase over the half year to over 80%, and we're touching 90% as it stands today, again, evidencing that momentum since the end of the half year. We've achieved the EPC B future-proofing the asset and are seeing rents of up to 30% greater than the rest of the center where we've refurbished unoccupied units. Portsoken House, this is one of the McKay assets that we acquired back in May, around 50,000 square feet that sits between the Salisbury that we touched upon earlier and our Aldgate, Whitechapel cluster. So a great complement to our existing offering, the characterful building. At the point of acquisition, the asset was 45% leased with 5 floors vacant. Again, hopefully, this evidence is the speed and efficiency of the integration into our platform. We've since completed the refurbishment of 3 of those floors achieving EPC B and doing so, removing gas from the building entirely, future proofing asset, reducing consumption. 2 further floor refurbishments are underway, including one to be subdivided into smaller units, which we think will complement the existing offer in both the cluster and the building for our customers. We've let 2 of the floors since acquisition, generating over GBP 0.5 million worth of additional rent, including 1 full floor acquisition, which came through the Workspace website and channels. And lastly, at Mare Street, an asset which we think really embodies the Workspace model. It's a low-carbon, highly sustainable adaptive reuse and extension of an existing building in a highly sought-after location in Hackney. And that location and that offer really appeals to our customer base. And in this center is where we really see what Graham was talking about earlier, that breadth of occupier use, customers who create and make in this space rather than the typical just traditional office space. Mare Street has had a really successful 6 months. We've increased occupancy to 85% over the half year. And as a result, we've seen real pricing tension emerge in the center with rents of up to 40% higher than the beginning of the half year. Since the end of the half year, the asset now sits at 94% and that pricing tension continues significantly. So looking forward to our refurbishment and pipeline. Over the half year, we started on site at Leroy House, delivering around 60,000 square foot of highly sustainable space in 2024 in our Islington cluster, which we know well and have a high degree of confidence in. We've got an exciting pipeline of up to 1.4 million square feet in locations we feel good about and know well already. As Dave said, we're continually evaluating our projects in terms of commencement, costs and returns to make sure that we're optimizing returns, and we're starting at the best point possible. But one of the things that's advantageous to Workspace is that we have the discretion on when to do that without impacting performance. All of these sites are income producing their existing centers for Workspace, and we have the ability in the period leading up to the commencement of the development to not only generate that income but drive improved income and enhanced income going forward. So over the medium term, in addition to Leroy House, we see the ability to commence up to 200,000 square feet of strong viability projects over the coming 12 months. We project that will add around GBP 11 million worth of additional income into the portfolio, whether that's at Biscuit Factory, where we're adding not just new space, but customer amenity, end of journey facilities, meeting rooms, bike storage for the broader estate as a whole and our other ownership in the Bermondsey location. Or whether it's at Riverside, new build on part of the site following successful sale to a residential developer of the other half of the site earlier in the year. Or a Chocolate Factory Phase II, we could commence on that following the successful completion and lease-up Phase 1 of that refurbishment previously or Busworks, as we talked about earlier, an exciting project near King's Cross. So one of the opportunities for us in the short term that we see is really attractive from the portfolio is some of the things that we've talked about and hopefully came across on a number of the case studies, this rolling refurbishment program, in particular, of older dated units. Our customers tend to stay with us on average for over 5 years, in some cases, many years longer than that. They often hand us back through the natural turn of the portfolio dated space that we can enhance both from an aesthetic perspective and from an ESG perspective and significantly improve performance. As I hope we've evidenced, we see significant rental growth opportunities from this. And when we do so, we also see a significant improvement in ESG, the 2 for us are often and invariably intertwined. And it's not just in the units, we see the opportunity to do that in the customer facilities, whether it's the breakout space, terraces, amenities, unit improvement or subdivision as well. If we're seeing from the customers in our demand then actually there's a strong demand for smaller units, we'll implement that and that can often drive improved results out of that or as an extension of our meeting room offer a positive facility for our customers. So again, just to evidence some of that in a bit more detail in terms of the interconnection of ESG and financial outcomes. When we invest into our buildings or our units, we invariably see a significant improvement in ESG, whether that's on our larger spend such as VOX, where we invested GBP 8 million into LED lighting, double glazing, heat pumps, the infrastructure and technology for smart metering. We saw EPC improve to be, but more than doubled rents and double valuation as a result. We've seen significant improvement in both rents and EPC at somewhere like Screenworks where we've retrofitted the entire building, similar thing heat pumps, air conditioning, LED lights, energy metering, things that improve the experience in the aesthetics both for our customers and see significant financial returns. Here, we achieved EPC A and saw a rental uplift of nearly 20% on our upgraded units with demand still strong. And lastly, at Parkhall, as we've touched upon, where we achieved an EPC B and rents of up to 30% above the rest of the center. So we get that recognition for our sustainability and our commitment to sustainability externally across a number of credentials. Over the half year, we've got a 5-star rating from GRESB for our development platform and are focused on a highly sustainable product, something that we're really proud of, in fact, being ranked best in peer group for the same. In terms of EPCs and regulation around that, the portfolio is already 30% future-proof A and B. We made the ambitious commitment over the year to upgrade a further 10% to EPC A or B this year, over 500,000 square feet, and we're well on track to do so. We're going to address the remainder of our portfolio and our poorer performance from both energy efficiency and EPC through the majority of our refurbishment works and pipeline. We also set ourselves a target of reducing operational intensity and gas consumption Scope 1 emissions by 5% of our existing very low base. That, as Graham said, has been a challenge because we've increased occupancy and the way our customers utilize the building that come into our centers. But we've seen significant progress on removing gas from the portfolio and significantly ahead of that 5% target. Thanks to that targeted investment in infrastructure and our vertical integration. Our teams monitor this and see this consumption on a granular daily basis and are laser-focused on improving it. So we do get that recognition externally, but we think we have a few things pertaining to sustainability that really make us stand apart. And when you see the increasing connection sustainability and financial outcomes, not just for us but in the broader market, that's something we feel really positive about as a differentiator. Firstly, we own and operate an inherently green portfolio. Our portfolio is already 30% lower in terms of the industry best practice benchmark in terms of energy efficiency and energy consumption. And again, that vertical integration, that investment in the infrastructure and the monitoring means we're laser focused on the highest consuming assets from the top right of that first graph. And aiming to bring this down over the coming period and stay ahead of the pack. Secondly, our low-carbon business model, our focus on adaptive reuse of existing buildings creates a much lower carbon footprint with 70 -- up to 70% lower embodied carbon on our adaptive reuse projects like Leroy House than a new build office. Where we are extending or building new build, we're laser-focused on low-carbon concrete and steel and offering our customers a durable material-like finish, which is good for them and their customer experience is good for a financial perspective but also very good from a carbon footprint. And lastly, as Graham said, the spread of demand of SMEs is across London. It isn't just centered on traditional centers of employment, such as the city, the West End or Canary Wharf. It's -- we followed our customers into often up-and-coming areas, whether it's Lewisham, Poplar, Stratford, our own head office in Kennington Park, Wood Green. We see this demand spread across London. As a result of that, these are areas that are often regeneration areas that don't typically benefit from employment-based economics. And as a result, we're bringing that tax revenue, local spend, employment growth and business growth across London, something that benefits our stakeholders, the local community and the local authorities where we operate. So to wrap up, we've had a really positive first half of the year and have seen good positive momentum into the second half of the year. Again, evidence across a number of lead indicators around letting volume, occupancy and pricing. Fundamentally, we see no letup in the resilient customer demand we've seen over the half year has continued into the second half of the year and continues for our high-quality sustainable space, our locations and our powerful combination of flexible leasing and flexible use. Going forward, we see an attractive opportunity within the portfolio, both in terms of organic growth, but our more active hands-on asset management and refurbishment schemes. With that, I'll pass to Graham.

Okay. Well, thank you, Leo. And hopefully, you found that deep dive into the operational activity across the portfolio useful. Just like to wrap up with some thoughts around the outlook for Workspace. I guess, firstly, in terms of the opportunity, I think there are sort of 4 elements to the opportunity that Workspace has. Firstly, it's the actual customers that we've got. We've got this diverse, vibrant SME community spread across London. We are the market leaders in providing space to that community. There's still plenty to go for. We reckon there's about 4% market share we hold today. Alongside that, of course, you've got to have the right offer for them. We think we've got the right offer. We know we've got the right offer. We've got a flexible, sustainable offer that actually very much meets their needs. And as I highlighted earlier, a blank canvas work space rather than just traditional office space. But alongside that, you've got to have the right buildings and we own those buildings, and they've got to be in the right locations. And of course, as Leo has highlighted, there's plenty of opportunity with those buildings to upgrade and reposition them for the changing needs of our customer base. But all of this crucially has to be supported by what we have across Workspace, a highly experienced, highly skilled team supporting the business. And alongside that, a proven and scalable operating platform. It's really combining all those 4 together is the power of the opportunity that we've got at Workspace. And in terms, what does that mean from a financial perspective? Well, this is a chart you've seen many times before but I think it's always used reminding everyone the opportunity ahead of us. Near term, there's plenty of reversion to go for. And what do I mean by reversion? Well, moving all our customers up to current pricing levels, equally also letting up all of the vacant space from the new projects we're delivering equally the opportunity within the McKay portfolio. If we can do that, near term, we can deliver around GBP 33 million uplift in rent roll. That equates to around a 24% uplift from the rent roll at the end of September, a very significant opportunity near term. And there's more to come beyond that. We've got further pricing opportunity. As we've highlighted, there's real momentum within the business to push the pricing further. Equally, we've got the opportunity for the further pipeline of project activity we've got in the outer years. Then, of course, we've got the net opportunity from acquisitions, netting off again, obviously some of the disposals we're planning to do. All of this is built on that scalable operating platform. And that's a really important point. So that every pound of rental income that we can generate pretty much falls to the bottom line. So for every pound of income growth, we get GBP 1 of profit growth. So you get this geared growth in trading profit. So looking at our priorities. Well, there's plenty to keep us busy. We've got, of course, focused on giving our customers a great level of service. We've got to balance that against meeting their changing needs and trying to capture pricing growth. And that is a delicate balancing act, particularly in this current economic challenges that all of our customers are facing. So we need to tread carefully, but we do see real opportunity there. Of course at the same time, as Dave highlighted, we've got to keep our own costs under control. But equally, I want to make sure that we continue to invest in our brand, the profile and the reach of our brand across London, crucially important for capturing that demand across London. And we also got to make sure that we maintain the credibility around delivering on our sustainability commitments that Leo has highlighted. It's really important to us as a business. That also linked, as Leo has also highlighted to actually some of the plans we have around the refurbishment, the upgrades of our space across the portfolio, which gives us also a really exciting income opportunity. We're also going to be continuing to look out for acquisitions. But near term, we need to complete the planned disposal program that we've highlighted earlier in the year because underlying all that is we do need to maintain, as you'd expect, a prudent balance sheet. So overall, what I'd like to highlight, I think, is the real momentum that we've got for this year, as I mentioned earlier, I think we're in a very good place to give a good trading performance for the current year. But over and above that, I do think we've really got an exciting opportunity for growth into the future. The longer-term opportunity for this business is really exciting based on that opportunity that I highlighted earlier around this vibrant customer space population that we've got across London. Okay. So on that point, I'd like to thank you for your time this morning. And what we'll do now is open up for any questions. We'll start from here. And if I could ask you, for the sake of the people joining us remotely, if you could grab a microphone and also introduce yourselves before asking the question. So John, do you want to kick off?

John Cahill from Stifel. You've obviously had a extremely successful period operationally. And one of the things, I think, that's been a real success story for Workspace has been your rolling refurbishment program. You've always been very good to give us really detailed cost estimation figures over the years, which always check out after the event. But now we're seeing build cost inflation coming through. Are you able to say whether you've managed to lock in any of those estimated costs? Or how should we think about those going forward? Is this sort of upside risk in terms of what that -- the actual outturn might be?

Yes. Leo, would you like to comment on that?

Yes, absolutely. So you're right, there's been cost inflation across the board, including on our unit refurbs and the rolling refurbishment program. We retain around 80% of our customers each year, so we do have a portion of the portfolio which churns and not all of that requires a unit upgrade. We obviously highlighted some of the units which present most -- a striking difference between a dated former unit and a refurbished unit. But an asset like The Frames, where we'll get a natural organic churn within the portfolio, we've maintained that asset at maybe 100% occupancy without a significant investment. So often, we're investing. This is one of the things that we try to bring out with that low carbon footprint point when we are making the investments, we're creating material like durable finishes, which will persist after a customer leaves. But obviously we are faced with increasing costs and we have a stable of suppliers, which we work very closely with and sort of constantly moving them around the portfolio. We've looked at centralized procurement. It's not really an efficient means for us. But through that procurement process with those key contractors, we can drive much more pricing tension on the cost. And lastly, I would say that we do have in terms of an attractive risk-adjusted return on investment. We do have quite a lot of headroom in those unit refurbs. We see really attractive pricing uplift delivered in a very short time line. So there is some cost inflation on the input, but we're seeing positive demand, positive pricing output as well with good short-term returns.

And obviously, on the larger, longer-term projects, we are building into fixed rate -- fixed contracts, albeit they're have increased in cost significantly.

The majority of the committed CapEx that is related to Leroy House and that's -- you know, we fully, that contract on a fixed price.

Miranda Cockburn from Panmure. Just a couple of questions on the McKay portfolio in the Industrials. Obviously, the valuation has come down to about GBP 140 million. You obviously want to sell it, get rid of it quickly, reduce your debt, et cetera. Do you feel comfortable that you should be able to get rid of that at about GBP 140 million. And then the second question, just in terms of the occupancy, you highlighted to around about 91%, I think, occupied. Can you just remind us what is vacant in that portfolio and whether or not that's closed to being leased up.

It is on the Industrials. Yes.

Yes.

So on the first question, I think I'll be hostage to fortune than pay. Yes. I mean, I think, obviously, the valuation is GBP 140 million. There is a view that yields may go up further. It's obviously at the moment, not probably the ideal time to be selling. There's a lot more in the market than there's buyers. So I think a lot of people are bottom-fishing at the moment. I'd like to think that it may stabilize as we go into the new year. We have an ambition to sell that portfolio in time. I think we'll do it on a measured basis. We're not a distressed seller. As we've highlighted, it's more about reducing gearing. I mean the net income savings offset the interest cost. So the income actually covers pretty much interest cost at the moment. So yes, I mean, I think the answer is we will sell that portfolio. I'd like to think we get somewhere around the sensible pricing that it's -- I think is at the moment. But we will see.

Would you sell it piecemeal or would you prefer…

We would look at both options. And to be honest, I think there's probably more appetite given where buyers are at the moment to buy it -- to sell at piecemeal rather than in one portfolio, but if someone likes to give me an offer on the portfolio as a whole, then I'll consider it. And in terms of the vacancy, there's actually one of the buildings, which was vacated by a tenant in Farnborough, that's the one building that's creating the vacancy within that portfolio. And actually, we've got very strong interest actually for that one vacant industrial estate.

Neil Green, JPMorgan. Just 2 quick questions, please. The first one is you talked about letting flexibly during the last few years. Just wondering, is there any kind of leased events or periods over the next 12 to 18 months where there's potential significant reversion opportunity in some of these leases that you signed during the depths of the pandemic? And the second question is just around the CapEx you think you might need on that GBP 11 million of income from Leroy House and the refurbishes, please?

Okay. I'll pick up the first one. Just if you can pick up on the CapEx spend for the refurbishments. Yes, I mean I think timing is everything, and I guess COVID was pretty much 2 years ago now. So there's quite a lot of reversion on our simple 2-year leases, which is why you're seeing there's quite strong uplift on renewals that we've been doing in the first 6 months of this year. Outside that, I mean, there's just a rolling 2 months. So we expect pretty much about 1/3 of our portfolio -- sorry, it's about 1/3 because they are longer leased as well. About 1/3 come up for potentially review of pricing every year. So that's usually the cycle, sometimes accelerated because actually, we find with quite a lot of our customers that they're moving before the end of their lease period and that's moving usually to expand rather than to contract as we've always highlighted in our portfolio. So I would say that actually, for us, as always, the near-term opportunity to move everyone up to current pricing is strong. Equally, to move that pricing forward is also strong because price discovery comes through pretty much every day in our portfolio. When you're doing 100, 150 lettings every month, there's a huge opportunity to actually move that pricing forward. On CapEx spend?

Yes, so CapEx, I mean the major one that we got on site at the moment obviously is Leroy House, and so the total cost of that's about GBP 25 million, cost complete just over GBP 20 million on that at the moment. And I'd say that's what's making up the majority, significant cost that we got there. And then the other one, Chocolate Factory, which is the other one that we've shown on the pipeline is -- and that's again about GBP 20 million.

I mean I would expect at the moment -- I mean, the beauty of our project portfolio, as we've highlighted, is they're relatively small discrete projects. We can hold them back if we need to. And I think as we did through the global financial crisis and through COVID, we will sort of hold back, push forward as we see the economy sort of hopefully move forward. I would expect, at the moment, CapEx, GBP 50 million, probably a similar level next year. But we may well, by the end of March to June next year, hopefully be in a more positive mood.

Hemant Kotak from [indiscernible]. You've done a very good job of highlighting the resilience of your portfolio, and it has been very resilient over the years, even in downturns and various environment. But when I look at the sensitivities that you're showing on Slide 15, and I look at where the NAV or NTA can go to and then I look at your share price, your share price doesn't even feature on this because it's off the thing. So it's obviously clearly a lot of value. And I'm just trying to understand what is the market missing? We're clearly about to enter into a recessional, if we're not already in one. So how bad can it be? What's it missing, please?

That's a good question. I think one continual frustration we've had, and I'll say that from being here for a long period of time now is the concerns that we have through every sort of downturn around the resilience of the SME customer base. And I have to say if ever there was approving of the resilience of our customer base, I think COVID was probably going to be the ultimate one, but I think there's still a question marks. We hopefully have proven over many cycles now, the resilience of that customer base. It is -- the space they occupy with us is their lifeblood, there is no alternative. You can't run a photographic business from home or you can't do the sorts of businesses are in our properties is really the DNA of their business is really interlinked with the space they've got. So that resilience, I think, is something that people forget about. And I say they are obviously -- they are the lifeblood of U.K. plc, the smaller business community. I think sometimes there's an unbalanced focus on larger corporates when smaller SMEs are really the driving force of the U.K. economy. That would be the main concern I think a lot of people factor in. I think there's also probably I think a concern about our shorter leases as well as linked to that population. So there's a much more fragility around a longer -- a shorter lease. Although again, I'd say, actually, most leasing done these days has a much shorter period or break periods in it anyway. So I think it's probably not something that actually is that relevant. And I guess outside that is probably a concern that actually our property portfolio is not a Central London property portfolio. It's a much broader spread. We've got different quality of assets in different locations across London and in the South East. I think that's an asset because actually we can actually target varying levels of pricing across our portfolio for different types of SMEs. So I think all of those things don't help to sell the story because they're different to what the story is sold for other traditional property companies. And in some ways, and I'm saying this and sort of saying with an advantage as well is we don't have a comparable peer. We are very much a benchmark of one in terms of what we do in our model. And that is true in terms of the competition across London. We have a very fragmented competition in terms of customers that compete with us. We're very much a local play generally when we're launching a building in a location across London.

And just 2 quick questions, maybe one each for Leo and Dave on the financing side first. The bank debt that you have, if you were to refinance that maybe to medium-term debt, what would be the all-in cost for that? And for Leo, I like the presentation on Slide 37, I think it was about the EPC. Just a quick question around that. Is there any rule of thumb as we're looking at it, we're not close to it like you are. So is there a rule of thumb to what it would cost typically to move it from a C to a B or a D to a C? And what are the typical types of things that you're doing from -- moving it from one bank to the other band, please?

I'll go first, if you don't mind, I'll give you a bit of think time. Yes, I mean, in terms of our overall debt, and I think we're in a good place at the moment. Obviously the first thing was agreeing the amendments to the facilities that we need to off the back of the card transaction. So that's now done. I mean, we haven't got any sort of immediate maturities. The nearest one is the acquisition facility, where actually we've got sufficient facilities to cover that and or the committed expenditure actually. So there's no sort of immediate need for refinancing in the short term. I think in terms of -- if we were to go and issue debt now, I mean, I don't think we are at the moment, obviously. The markets have been hugely volatile in price and both in terms of gilts, yields have both moved out very significantly over the last 6 months. I think we talked a little bit about the market around property sales, but I think also in terms of the debt capital markets, things seem to be starting to feel a bit more stable. So I think we'll see where pricing moves over the next few months. And so there's no immediate need. And I think -- but as the market stabilizes, we both -- in terms of our existing debt, we got both public and private debt. We've got a range of options open to us when we do go to market.

So the green bond, we did at…

But the green bond was at 2.3%. I mean, I don't think we'll be itching at 2.3%. I'd love to, but I don't think that'll be happening anytime soon. The private placements are more sort of 3% to 3.5%, if you look at where we've issued historically. I mean prior to that, we probably had a private placement that's about 5.5% then. And if you look over a long-term history, that sort of 4% to 5% range is probably more typical of where BBB debt will have been on a historic basis. But that's not a guide as to where market is going to go. They're just looking backwards.

To answer your questions on EPC, we had a Sustainability Capital Markets Day earlier in the summer, so the presentation might be quite helpful in that regard. But ultimately, setting out an estimate of around GBP 40 million to GBP 55 million for the portfolio as a whole. Clearly, we've incurred some of that this year and some of it we'll address with our refurbishment pipeline. The kind of things that we're doing are driving at 2 things. Firstly, the EPC side of things, and this is why we differentiated in the presentation because we think that there's an EPC and regulatory lens to sustainability, which doesn't always pick up the operational use of the building. It's more of a theoretical starting point. But in order to get to that EPC point, key things that we could and are doing are installing LED lights rather than halogens, removing gas-fired wet radiators and putting in VRF refrigerant, air conditioning of the heat pump, highly efficient system. It's also an investment when it comes to the operational performance, which is less about the EPC and much more about the energy use intensity and it's one of the things that we think sets us aside, investing in that kind of smart monitoring system. So the team that we have both on site and within our central resource is analyzing this data on a daily, monthly, it can be hourly basis for our tenants, our customers, our base build and our common parts. So both from an operational perspective and an EPC perspective, you sort of reckon them together. But one of the things that -- and lastly, on your question, I think it's quite hard to split out what is an investment in kind of the financial outcome and what's investment in ESG. And that's one of the things that we think is really advantageous for us and we really benefit from is that when we're undertaking these, they sort of go hand in glove.

I guess one comment I would make is that it's quite encouraging the fact that you've got some of these older buildings and you're able to achieve EPC rating, I know they're theoretical but they are -- the ones that you highlighted at least they are in the Bs and Cs. So these are very good and it's encouraging that you're able to do that with other buildings as well.

Kieran Lee at Berenberg. Just a very quick one on sort of flexibility and quality that buzzwords across sort of the home office sector for what the tenants are after. If we look at your portfolio and what's happening with the demand viewings down a clip and how some of your peers are expanding into flexible workspace. How are you funding your market share? Are you looking to grow that? Are you growing it? Are you facing more competition from traditional landlords moving into this space? And then sort of as a follow-up is, how defendable do you think the flexible premium is for office space on a long-term view? Is it going to become an expectation not a price premium point?

Right. I guess on the first point is really going back to what I said earlier, is that in some words -- some ways, the word flexibility and the players in that market is almost -- it's like there's a confusion now because flexibility is such a generic term, and it covers so many different types of offer. But actually what most of them, I think you're describing in terms of offer is very much more what I mentioned earlier, which is a fitted out furnished offer, which is typical of the service office players. And while -- I mean, I suppose there are opportunities in our portfolio to provide fitted out space, but it's limited. Generally, as I said earlier, is what our customers want is blank canvas for them to actually fit out and create their own identity. And often, it's not for traditional office use. So on that market, actually, most of those other players, the quoted names that you're referring to, don't play in that market. That's both in terms of customer and also in the locations because when I'm talking about the locations, I'm talking about that broader London opportunity. So whether it's in Hackney, Deptford, Wood Green, even on the South Bank, if you come towards where we're based in Kennington, there are no other real players in the flex base there. And the reason is, because actually, there's no market for that serviced offering. It's very much more concentrated in the more central London locations. And yes, we do have some buildings there, but actually, our offer stands alongside those. And what we find actually, a good example would be our building in Shoreditch, The Frames is that we work next door, and actually, they're a great source of customers for us. Because actually as customers grow and they want to create their own identity, they come into our building. So actually, we love having been surrounded by some of these other players because actually, they are the source of customers for us as they grow and mature. So -- and I'm hesitating to say it because it does sound very arrogant that we don't have any direct competition. They are really a very distinct type, different cover product. Your second question around pricing, I always sort of hesitate to this because I don't really think we priced the market. We don't really look to get a premium over anyone else in comparison. I mean, we price to where we see demand in the market. We know that actually every day, we'll do lettings. If we've got the wrong price, we won't be doing any lettings. So ours is much more driven by the day-to-day market that's out in any location, whether it's on bank side, whether it's in South, West, East London. So our market in terms of premium is, I've never perceived as having a premium. I just know that actually, if I'm doing lots of lettings, and occupancy rising, great. If occupancy gets too high, that probably means that I can push pricing up. And that is -- it is really a dynamic pricing model as to what we operate, and we're very much mark-to-market pretty much month-to-month, week to week.

I'm James Carswell from Peel Hunt. And just a quick on kind of cash flow allocation. And you obviously got disposal plans. You talked this morning about the development pipeline or refurbishment pipeline and the tax returns. I think in Slide 42 there it's got some future acquisition opportunities in terms of that bridge back in terms of the rents. I guess, just wondering, at what point would you consider a capital return to shareholders rather than those acquisition? I appreciate the smaller decisions we made today and you've got to…

Yes. I mean I think in terms of capital recycling at the moment, our focus is very much on proceeding with our disposal program. I think in terms of where the share price is, whether we'd look to return cash rather than buy, I think that's always going to be a consideration. And as much as I did say, we are obviously looking out at acquisitions at the moment. I think we think long and hard at the moment, given where the share price is, as you say. I would want to preserve cash, actually move my gearing down on the balance sheet at the moment. So I think that's probably a question for when we've got our balance sheet in a better sort of place in terms of LTV. Because now as we said, medium-term, we want to get LTV down below 30%. That would always be our medium-term aim.

Okay. If there's no more questions -- I've got one more question. Chris?

[ Chris Spearing from Liberum ]. So just a couple of questions around McKay and just a couple of the numbers, please, Graham. Just looking at Slide 14, there's a GBP 14 million valuation uplift and GBP 1 million gain on sales versus the purchase price. So forgive me, I haven't got my calculator, I think that's sort of GBP 0.06, GBP 0.07 a share. And then on the previous -- sort of earlier slide, Slide 12, there's a GBP 0.19 impact on NTA for shares issued. Is the right way to kind of think about the impact so far to sort of look at the gain on the revaluation of the assets less the impact of issuing those shares. So it's sort of a net dilution of about GBP 0.12, GBP 0.13?

Yes. Certainly the right way to think about it. In terms of the net dilution, you're probably in broadly the right ballpark, I think, yes.

Obviously, what you have got there is actually uplift in income generation from actually the cutting of the cost base in McKay that hopefully will flow through into the second half of the year. So have we finished here, then just turning over to the conference call. Is there any questions on the conference call?

[Operator Instructions] The first question comes from Paul May from Barclays.

Just a couple from me that actually should be quite quick on what proportion you've spent is actually traditional office space [indiscernible] obviously, other space usage, and there is still quite a bit that is traditional offices, just wonder what proportion that is.

Right. I mean I knew I would get called out with this question. Yes, what I would say is that we've done a sort of a fairly high-level review. And I'd say about half of the portfolio has customers that don't use their space as offices, i.e., desks and chairs, so when I -- I would say, about 50%. The other 50% have office and chairs. But actually, if you look at the pictures of the advertising, the marketing companies that we've got, they -- without being rude about more traditional companies, I mean they use their space in a much more creative way. So it may be half the space has got desk and chairs. They'll have a lounge area, they will maybe have a breakout space with pinball machines and storing their bikes. So a very much more creative ways of using their space. Usually, it is something that they really wanted to create a destination for their staff to come to. So in answering your question, Paul, about 50% would be traditional office use, but it won't be traditional office, as you would see in, say, the city where row upon rows upon desks.

Great. Just also on the -- just going around the buying back that you mentioned, have you considered buying back your bonds or tendering those being that maturity is coming about 8.4%, which seems obviously quite excessive given, as you mentioned, you should be able to reissue debt at lower levels than that. But just wondered if you had thought about buying back those bonds obviously at the current discounted prices that was a good use of capital.

I mean, I would just echo exactly what Graham said in terms of the share buyback really. I mean our focus very much at the moment is on reducing leverage, getting it back down to low 30%. We will continue to look at refinancing options as markets move and probably say nothing is off the table. But our focus really at the moment is on that disposal program and reducing leverage.

And then just on that and then turning to that, obviously, the asset value resilience in the first half given the rental growth that you were able to push through. I think Graham sort of mentioned values coming down and expecting values to fall further from here. Is that your expectation, particularly given the economic outlook? Or do you believe that the Workspace portfolio will be more resilient than the wider market?

I mean, again, I'm more confident about talking on the operational performance. I think valuations, obviously, there's lots of other dynamics there. But certainly, I would still see there's plenty of room for us to be pushing our ERV numbers forward, both on the existing like-for-like and also as we let out and improve the pricing on our new space that we're launching into the market, whether that offsets yield movement in the near term, I wouldn't want to commit on that, but I would hope it mitigates a fair chunk of any risk around that yield movement, but time will tell. I mean I think the good news from my perspective is operationally, we're in a very good position. In terms of headroom, in terms of if valuations do move out, you have plenty of headroom, as Dave highlighted around banking covenants and everything else. But yes, I would like to think that actually our valuation should be relatively stable because of the opportunity we've got to push pricing. But I mean, I might regret saying that in 6 months' time.

If only we all had a crystal ball. Sorry, just on the last one, the -- your tenants then, obviously you had mentioned the sort of economic decline, you're quite exposed to that in the past or you have been. How does energy pricing work? Just remind me, within your assets, is that included in the rental levels…

Yes, I mean…

Or it's going to cash paid out in total?

No, I mean, for -- about 85% of our customers take advantage of the Workspace energy offer, whether we charge it either separate, but actually increasingly, we're using it inclusively within the billings. So it's one bill that they pay. For all of those customers that take the Workspace energy, they benefit from pretty much a flat energy cost from 2021 when Dave put the hedging in place through to 2024. So they are going to benefit from no real increase in energy costs over the coming 2 years.

At this time, we have no further questions on the phone line. If I may hand over to Graham Clemett for questions on the webcast. Thank you.

Okay. Webcast, Duncan, would you like to give a question?

We have a couple of questions coming from the webcast. The first is from [ Robert Platt ] from NFU. I just wondered on October leasing being lower, more like the quieter summer months, whether -- wondered whether you put that down to short-term political uncertainty or indication of customer demand waning? Would be good to hear what you're hearing from prospective tenants.

Leo?

Sure. I think there's undeniably some uncertainty in there. There's been a bit of wait and see, particularly after the mini budget. But ultimately, I don't think it's that different from the story we've had over the half year, whereby we've had slightly lower inquiries and viewing volumes but we've had a much higher value of conversion rate. So that's something that we're seeing going into the second half of the year. We're still seeing high value of conversion, good letting activity, good pricing movement. It's just coming off a higher numerator -- a lower numerator in terms of the viewings and inquiries. And I think that's partly economic. It's partly down to our marketing campaign and better brand awareness, and it's better -- partly down to a better awareness of the offer that Workspace has for potential customers.

And there's nothing as we've highlighted today that would suggest anything other than a continuing strong level of demand across our portfolio.

One more question from Stephen Ackerman from Castellain. What is your weighted average unexpired lease term?

[ Randall ] asked me that last time, and I still don't know it. I mean, the reality is it's really not a number we ever look at. So I think -- but we have to apologize and come back with it. I mean we will get someone to calculate it, but you'd like to guess, Dave?

Well, I won't guess. What I will say -- I mean, I could guess but I won't. But what I will say, I mean -- and we put a slide, I think, in the year in presentation, which says that by value, about half of our leases are normal 2-year lease, which got 6 months rolling break in it and about half are longer term, more traditional 3 or 5 year leases. So there is very much a mix in there. And it really depends on whether you count it from a 6-month rolling break, whether you can it for 2 years, and whether you count it from -- so you can count it in lots of different ways. It will undoubtedly be less than a more traditional office landlord. But I guess the key point really isn't about what [ vault ] it is about, how sticky our customers are. And the majority of our customers stay with us over 5 years. We have a really strong retention rate, and that's from all the things we talked about in terms of investing in the portfolio, the fact that it is their home that they invest in their units, they want to be there. And the fact they don't have to leave because they can flex the size by space. They can increase the size of their space if they need to at short-notice and they can move within the portfolio. We've got 5000 -- sorry, 5 million square feet in London. They've got plenty of opportunity to do that. So the stickiness is far more important than the vault.

Yes. But having said that, we will come back and provide the detail.

No further questions from the web.

Okay. Well, I guess, for a number of you, it's been quite a long morning. But thank you for your time this morning, and both here and for those joining you remotely and hopefully see you soon. Thank you.

This presentation has now ended.