Major Risks

Principal business risks

Risk management is an integral part of our activities and day to day running of the business. Risks are assessed, discussed and taken into account when deciding upon future strategy, approving transactions and monitoring performance. The process of identifying risks, assessing their impact and monitoring their likelihood is considered at two levels:

1. Strategic Risks: These are identified, assessed and managed by the Main Board and Audit Committee.

2. Operational Risks: These are identified, assessed and managed by Executive Committee Directors. 

This segregation ensures that risks related to our strategy and major decisions are considered at Main Board level and that our level of risk appetite remains appropriate. Day to day operational risks are more closely reviewed and managed by the Executive team and senior management, with linkage between the two managed as appropriate.

Risk registers are maintained by the Main Board for strategic risks and by the Executive Committee for operational risks. The absolute levels of risk, the net levels of risk taking into account mitigating controls and the appropriate level of risk appetite are reviewed regularly. High rated risks identified in the registers are regularly reviewed by the Board, Audit and Executive Committees.

Details of our principal strategic risks and the mitigating activities in place to reduce these risks are set out below. There have been no significant changes to the risk profile over the last year and the Board are satisfied that we continue to operate within our risk appetite.

Risk category Mitigating activities
Finance Risk
 
Detail

Reduced availability and cost of bank financing resulting in inability to meet business plans or satisfy liabilities.

Change from 2011/12

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Funding requirements for business plans are reviewed regularly and options for alternative sources of funding monitored. 

Range of banking relationships maintained, refinancing strategy reviewed regularly.

Interest rate hedging policy in place to minimise exposure to short-term
rate fluctuations.

Valuation Risk
 
Detail

Value of our properties declining as a result of macroeconomic environment, external market, or internal management factors.

Change from 2011/12

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Investment market mood monitoring.

Market yields and pricing of property transactions monitored closely across the London market.

Alternative use opportunities pursued across the portfolio and planning consent progressed.

Sufficient headroom on Loan to Value banking covenants is maintained and reviewed.

Occupancy Risk
 
Detail

Demand by businesses for our accommodation declining as a result of social, economic or competitive factors.

Change from 2011/12

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Weekly monitoring of occupancy levels, pricing and reasons for customers vacating at each property and exit interviews conducted.

On-site staff maintain regular contact with customers and local monitoring of competitors offering space.

Extensive marketing using the ‘Workspace’ brand.

Flexibility offered on deals by dedicated in-house marketing and letting teams.

London
 
Detail

Changes in the political, infrastructure and environmental dynamics of London lead to reduced demand for space from businesses.

Change from 2011/12

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Regular monitoring of the London economy, research reports and the commissioning of research.

Regular meetings with the GLA and London Boroughs.

 

Development Risk
 
Detail

Impact to underlying income and capital performance due to: 

  • Adverse planning rulings.
  • Construction cost and timing overrun.
  • Lack of demand for developments.
Change from 2011/12

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Understanding of planning environment and use of appropriate advisers.

Detailed development analysis and appraisal undertaken, sensitivity and risk scenarios considered. 

Board level discussion and approval prior to project commitment.

Contract structuring to reduce/eliminate build risk.

Construction project teams meet regularly, discuss issues and resolve or escalate as appropriate.

Management of development phasing to match demand. Deferral to retain properties for existing rental use.

Investment Risk
 
Detail

Underperformance due to inappropriate strategy of:

  • Timing of disposal decisions.
  • Acquisitions timing.
  • Non achievement of expected 
Change from 2011/12

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Regular monitoring of asset performance and positioning of portfolio.

Acquisition due diligence appraisal and business plans analysis.

Regular monitoring of acquisition performance against target returns.

Transactional Risk
 
Detail

Joint ventures or other ventures with third parties do not deliver the expected return.

Change from 2011/12

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Review and monitoring of potential joint ventures before agreed. 

Requirements for business plans are reviewed regularly. 

Regular review of performance of joint ventures throughout term.

Regulatory Risk
 
Detail

Failure to meet regulatory requirements leading to fines or penalties or the introduction of new requirements that inhibit activity.

Change from 2011/12

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REIT conditions monitored and tested on a regular basis and reported to the Board.

Close working relationship maintained with appropriate authorities and all relevant issues openly disclosed.

Advisers engaged to support best practice operation.

Business Interruption Risk
 
Detail

Major external events result in Workspace being unable to carry out its business for a sustained period.

Change from 2011/12

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Monitor security threat/target information.

Business Continuity plans and procedures in place and regularly tested.

Reputational Risk
 
Detail

Failure to meet customer and external stakeholder expectations.

Change from 2011/12

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Customer survey undertaken and results acted upon.

Training and mystery shopper initiatives undertaken.

Regular communication with stakeholders.