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The shares trade on a 44% discount to NAV, equating to a c.25% discount to the underlying property portfolio and a share-price-implied equivalent yield of 9.0%. We maintain our Buy rating and 500p target price.
Workspace Group PLC
We think this trading statement won’t spend much time in focus, with CEO change and activist shareholders dominating the outlook for the shares. However, the underlying market remains challenging, occupancy was improved slightly to 81.2% but at the expense of rent psf charged down 1.4% for a 0.1% decline in rent roll. Enquiries were down in 3Q and vs the January 2025 update the new year started slower yoy at 405 enquiries (531) and 290 viewings (337). Occupancy this time last year was 86.1% as a reminder to the longer term direction of travel. Its too early for the FAS strategy to bear fruit, but the underlying market looks to remain tough especially if you compare it to BLND’s letting statement and GPOR’s building momentum in their Fully Managed offer. With 31.2p of MTSE reflecting a 7.6% yield with negative growth at -2.7% for a <5% TR we think there are easier trades elsewhere. {!Attachments(>> Click here to continue reading)} Summary financials & valuation (£m) Calendar year Valuation (CY) 24A 25E 26E 27E P/E (x) 12.0 12.9 13.0 12.7 Div Yield (%) 6.7 6.9 6.9 6.9 EV/Sales (x) 10.9 11.0 10.9 10.6 EV/EBITDA (x) 16.0 16.4 16.2 15.7 EV/EBIT (x) 16.0 16.4 16.2 15.7 FCFe Yield (%) 9.1 5.0 3.7 3.9 Financial year (March year end) Financials (FY) 25A 26E 27E 28E Sales 143 142 151 160 EBITDA 96.7 95.1 101.4 107.8 EBIT 96.7 95.1 101.4 107.8 EBIT Margin (%) 67.7 66.9 67.2 67.4 Net Interest (29.9) (34.9) (39.6) (44.2) PBT 66.8 60.1 61.8 63.6 FD EPS (p) 34.5 31.0 31.9 32.8 DPS (p) 28.4 28.4 28.4 28.4 NAV per share (p) 774.0 707.4 704.8 709.5 Net Debt/(Cash)* 728.7 782.2 833.0 881.4 Net Debt/(Cash)** 728.7 782.2 833.0 881.4 Net Debt/EBITDA (x) 7.5 8.2 8.2 8.2 Net Debt/Mkt Cap (x) 0.9 1.0 1.1 1.1 LTV (%) 30.8 34.2 35.7 36.9 Source: Panmure Liberum, Bloomberg All numbers are on a post IFRS 16 basis unless stated. * Including leases. ** Excluding leases
Workspace trades on one of the widest NAV discounts in the sector. However, realising the portfolio is likely to take time, the NAV is far from guaranteed, and we see significant upside in the underlying business. We maintain our 500p target price and Buy recommendation.
We highlight several issues with the proposal for a managed wind-down of Workspace. A London office REIT is not a fund which has highly fungible assets with frequent price discovery. Office assets even in the same city are highly differentiated and valuer’s estimations are …unreliable. The proposal is erroneously treating Workspace’s NAV like a fund’s NAV. Secondly the valuation is cracking, valuers are slow to move and the 1H26 move showed a 4% reduction, accelerating from 0.8% 1H25. With leverage this lowered the NTA 6.8%. Thirdly, this fall is driven by occupancy and rent, with a sharp yield of 5.5% still on the books. This looks at risk and we expect values to fall further. Workspace needs time to repair its operational performance and income. Thirdly, the time frame proposed to dispose assets within 12 months is out of touch with liquidity and transaction length in real estate. Fourthly, the proposal misunderstands the operational platform needed and portfolio value in running a business like Workspace. Screening for discount to NTA and expecting to capture the estimated asset value in a post WFH London office market with demand collapsed into core prime markets is not a credible strategy and we expect sharp dismissal from both Workspace and other investors. {!Attachments(>> Click here to continue reading)} Summary financials & valuation (£m) Calendar year Valuation (CY) 24A 25E 26E 27E P/E (x) 11.7 12.6 12.7 12.4 Div Yield (%) 6.8 7.0 7.0 7.0 EV/Sales (x) 10.8 10.9 10.7 10.4 EV/EBITDA (x) 15.8 16.2 16.0 15.5 EV/EBIT (x) 15.8 16.2 16.0 15.5 FCFe Yield (%) 9.3 5.2 3.8 4.0 Financial year (March year end) Financials (FY) 25A 26E 27E 28E Sales 143 142 151 160 EBITDA 96.7 95.1 101.4 107.8 EBIT 96.7 95.1 101.4 107.8 EBIT Margin (%) 67.7 66.9 67.2 67.4 Net Interest (29.9) (34.9) (39.6) (44.2) PBT 66.8 60.1 61.8 63.6 FD EPS (p) 34.5 31.0 31.9 32.8 DPS (p) 28.4 28.4 28.4 28.4 NAV per share (p) 774.0 707.4 704.8 709.5 Net Debt/(Cash)* 728.7 782.2 833.0 881.4 Net Debt/(Cash)** 728.7 782.2 833.0 881.4 Net Debt/EBITDA (x) 7.5 8.2 8.2 8.2 Net Debt/Mkt Cap (x) 0.9 1.0 1.1 1.1 LTV (%) 30.8 34.2 35.7 36.9 Source: Panmure Liberum, Bloomberg All numbers are on a post IFRS 16 basis unless stated. * Including leases. ** Excluding leases
After a 3% like for like valuation decline in 1H26, which reduced NTA by 5.6% vs FY25, we update our NTA periodic forecasts incorporating a slowing rate of valuation decline in 2H26. As we wrote elsewhere, valuers supplied a particularly tepid effort for September period end reporting, with an average change to valuation of 0.1% in our view demonstrating that there is very little visibility on underlying transaction pricing across broad parts of UK real estate. While values could be bailed out by interest rates and resurging investment interest post the Budget, we see risk of further write downs in 2H26. Companies that generated ERV growth generally fared better and although we remain positive on WKP’s management plan to turn around the portfolio performance, it will take time. We also downgrade our TP from 500p to 450p and remain HOLD, 450p. Erratum: With corrected Target price of 450p
After a 3% like for like valuation decline in 1H26, which reduced NTA by 5.6% vs FY25, we update our NTA periodic forecasts incorporating a slowing rate of valuation decline in 2H26. As we wrote elsewhere, valuers supplied a particularly tepid effort for September period end reporting, with an average change to valuation of 0.1% in our view demonstrating that there is very little visibility on underlying transaction pricing across broad parts of UK real estate. While values could be bailed out by interest rates and resurging investment interest post the Budget, we see risk of further write downs in 2H26. Companies that generated ERV growth generally fared better and although we remain positive on WKP’s management plan to turn around the portfolio performance, it will take time. We also downgrade our TP from 500p to 450p and remain HOLD, 450p.
Workspace trades on a near 50% discount to NAV, which equates to a c.30% discount on the underlying property portfolio and an implied equivalent yield of 9.6%. We maintain our Buy rating and 500p TP.
The shares trade on a 43% discount to NAV, which implies a 27% decline in property values and an equivalent yield above 9%. We reiterate our 500p target price and Buy recommendation.
1H26 results were in line with expectations and we believe consensus at NRI and recurring profit at £58.7m (-3%) and £30.6m (-6.4%) respectively, vs Panmure Liberum FY26e of £119.5m and £60.1m. NTA looks weak however, down 6.8% after valuation decline of 4% on lower occupancy and rents and follows up our interpretation of Landsec results last week that office values are coming under pressure, and our view reiterated Monday here that yields need to move out to allow for cash flow funding of capex liabilities. It is early days, with just five months passing since the Strategy Day in summer. WKP are still in the Fix phase of their three pronged strategy, in a tough environment. As we’ve said before on WKP, it will take time. HOLD, TP 500p.
We see earnings growth at WKP as challenged by 1) an obsolete customer acquisition model, 2) while this is being addressed occupancy will likely remain flat 3) without filling space pricing tension will result in flat rent rate growth, all leading to a stall in revenue for the coming few years. While this is being addressed, interest costs increase as debt matures, eating a higher share of EBIT and weighing on equity earnings. Today’s announcement with QUBE simultaneously addresses challenges, in a clear sign of CEO Lawrence Hutching’s willingness to innovate to accelerate the turnaround of the business. While just one deal, we very much like the direction that it signals and consider it a definitive positive catalyst for our view on Workspace. Hold, 500p TP.
Overall, no big surprises – Occupancy is down as expected and the average rate has been held steady. The shares trade on a 49% discount to spot NAV and offer a 7.1% yield. Results for 1H are to be published on 19 November.
Overall, today’s statement contains no surprises, and we make no changes to our forecasts. The positive leasing data for June also offers encouragement for the near term. We maintain our 500p TP, Buy.
Welcome to REdiscover – a podcast series that will pose questions to UK real estate’s movers and shakers.
The shares trade on a 47% discount to NAV and 14x our trough earnings forecast. We maintain our 500p target price and Buy recommendation.
We revised our forecasts last week and do not expect to make any material changes. The shares trade on a near 50% discount to NAV with the discount to gross assets at 30% and the share price implied net initial yield at 8.0%.
The shares trade at a near-50% discount to NAV, c.30% discount to underlying property values, and on a 17.7x multiple of what we expect to be trough FY26E earnings. We reduce our TP from 600p to 500p and reiterate our Buy rating.
James and Matt look forward to a well-deserved bank holiday weekend following a busy week of results, M&A, profit warnings, and trading updates. To listen to the podcast, please click on the image below.
The shares trade on c.14x where we expect consensus to move to, whilst the discount to September 2024 NAV stands at 42%. We are reviewing our Buy recommendation and 600p target price.
There’s a lot to unpack in a very short announcement from WKP, not least of all is what’s going on in the London office market. 2026 consensus Trading Profit of £66-72m (PanLib £69m, MTSE £72.8m) needs to come down by c£7m according to the release, as 4Q leasing figures were decent, but not enough to 1) offset weakness in 2Q & 3Q and 2) make up for subsequent large unit vacations. As much was said at the Trading Update issued April 17, but this release puts a figure out there. 2025 will be in line with cons (PanLib £67.5m vs £66m FY24).
Our forecasts assume stable occupancy in 2026E and we may need to revise this to take into account further vacates. The shares trades on a 47% discount to spot NAV with a share price implied equivalent yield of 10%.
The shares trade on a 44% discount to NAV, equating to a 28% discount to the underlying property valuation. The share price implied equivalent yield stands at almost 10%, and the shares yield 6.7% for 2026E. We reiterate out 600p and Buy recommendation.
Workspace reports a challenging 3Q under difficult macro economic conditions, which in our view is in the share price, having derated 32% since the highs of 2024 and now trade on 11.6x our 37.7p sustainable earnings which indicates modest growth of 2.5% and a total return of 11.2%, which we view as attractive. The economic question will not be answered by this release, and although trading has picked up this year, its too early to tell. We feel though that shares have captured much of the risk, and although the gives little fuel for a bounce, the value floor looks in place.
Although we reduce our TP to 600p, we increase our rating to Buy due to the large NAV discount, healthy dividend yield, and a trough in valuations.
Workspace trades on a 30% discount to our new 2025E NAV, which equates to a share price implied property yield of >8.5%. The shares also offer a growing dividend yield of 5.1%. We retain our 640p TP and Add rating.
Workspace trades on a 32% discount to NAV and offers a 5.4% yield. We hold the new CEO, Lawrence Hutchings, in high regard. Assuming the 2Q rent roll decline is temporary, the shares appear to us to offer good value. We maintain our 640p TP and Add rating.
Our increased target price of 640p equates to a 20% NAV discount and offers c.8% upside to the current share price. The outlook from here looks good, but we downgrade our rating to Add on valuation grounds.
WKP’s FY’24 results show EPRA NTA decreased by 13.7% y/y to 800p (Liberum: 814p) as LfL property values fell -8.1% (Liberum: -7.7%), driven by 78bps of outward yield shift. ERVs increased 3.4% y/y, which has slowed significantly (FY23 ERV growth was +13.6%). However, WKP has benefitted from strong LfL rental growth with the rent roll increasing +9.6% y/y to £111.2m resulting in adjusted eps increased +7.5% to 34.1p (Liberum: 34.1p). Occupancies have declined -1% y/y to 88.1%. LTVs are stable at 35% and the average cost of debt of 3.8% is broadly in line with our estimates. Debt costs reduced in H2 owing to a reduction in floating rate debt following an additional £48m in disposals (H1’24: 92.8m). WKP trades at a 31% discount to NTA and offers a 5% dividend yield, vs. Office peers at a 34% discount offering a 4.3% dividend yield.
Workspace’s shares trade on a 32% discount to our 2024E EPRA NTA per share and offer a 5.4% 2025E dividend yield. Lawrence’s appointment is likely to be well received by the market.
WKP’s Q4 Business Update painted a relatively healthy picture for the year with 343 new lettings delivering £8.7m of annualised rental value as part of wider >1,200 completed lettings totalling £31.3m of rents. In the quarter LFL rent roll was up +1.9% (same for LFL rent/sqft) continuing the tre
Following a strategic review, three merger proposals and share price volatility, API’s shareholders have rejected the merger with Custodian. API trades on a 34% discount to NAV and will now likely be wound down.
WKP’s 3Q24 trading update was accompanied by the news that after 16 years with the business CEO Graham Clemett has announced his intention to retire during 2024. The Board will now start the formal process to look for a successor. As for 3Q24 results themselves, they remained broadly in line with t
WKP’s H1’24 results disappointingly showed that ERV growth has slowed to 0.8%, which had been the offsetting factor against outward yield shift (FY23 ERV growth was +13.6%). With office values falling further in October, we believe the investment case needs to be justified by portfolio reversion. However, we see more reversion in the peers, both in like-for-like portfolios and when adding uplifts from refurbishments and schemes. Offices continue to face headwinds and we see WeWork’s chapter 11 as potentially having a mixed outcome for the sector, noting more geographical overlap with Derwent than Workspace. We retain our Hold rating.
Our downgraded NAV forecast assumes a stable 2H valuation and equates to a 29% discount. The share price implied yield stands at 8.3% on an equivalent basis and WKP offers a fully covered and growing yield of 4.6%.
Following the other London office exposed names last week, WKP's results saw a similar level of pain with values down -5.6% LFL as equivalent yields in the flexible workspace market were not spared moving out +45bps to 6.7% while ERV/sqft only increased +0.8% (vs +13.6% in FY23) despite the LFL ren
With Big Yellow successfully raising £107m net of new capital this week, and meetings with European clients pointing to tangible interest in London offices, perhaps the death of the quoted real estate sector has indeed been greatly exaggerated. Operationally, many businesses are still seeing robust demand and pricing power, as endorsed this week by Workspace and Sirius Real Estate, among others. To listen to this week’s episode of the REcap, please click the image below
WKP BYG SRE
WKP released a healthy trading update which saw momentum in monthly activity picking back up from 1Q24 with average monthly lettings increasing back up to 108 as enquiries pick up. This helped feed into stronger rental growth with LFL rent roll up +3.0% in the quarter +6.3% for the half to £108.9m
Having already given a 4Q trading update we already knew that operationally WKP's business remained solid into year-end with occupancy still at 89.1% and the LFL rent roll up 7.1% YoY. Therefore, most focus was on the valuations and post period end trading. Looking forward the business is seeing go
An impressive and resilient result from Workspace leads to modest NAV upgrades. The shares trade on a 50% discount to NAV and are implying an equivalent yield of over 9% - Workspace remains a key Buy in our view.
With its Q4 trading update already having provided an overview of operations (flat occupancy and like for like rent psf up 9.4%), the focus today is on the valuation with an NTA of 927p, down 6.2% over the year, beating our expectation of 858p. Outward yield movement of 55bps was largely offset by the increase in ERV of 13.6%. Its completed projects rose in value but not surprisingly the refurbishments and developments were down. With the company now having sold a large part of the McKay non-core assets (£82m sold and £34m remaining) we think investors can focus more now on the underlying operations and in this regard management sees good demand and expects further pricing growth. It also expects leasing up of completed projects and the letting up of refurbished and vacant space in the McKay office portfolio to support rental income growth. It notes inflation will impact both service charge and administrative costs but the reduction in debt post the McKay non-core sale will be earnings accretive. The shares have performed better than last year up 8% versus the sector which is flat. However, they continue to trade at a wide 48% discount to the reported NAV, offering an attractive dividend yield of 5.3%. Given the continued positive operational outlook we retain our Buy rating.
Overall, we see this as an encouraging statement with no signs of a slowdown. That said, we reduce our EPS and DPS forecasts to account for higher financing costs. The shares trade on a 48% discount to our spot NAV estimate.
WKP delivered a relatively assuring 4Q23 trading update highlighting LFL rent/sqft up +2.7% in the quarter and up +9.4% YTD, while LFL occupancy remains relatively stable at 89.1% (Dec-22 89.2%) demonstrating the tenant base is more robust than the market expects. This fed into LFL rent roll up +1.
Another steady quarter for Workspace with occupancy broadly stable (89.2% vs 89.6% in Q2) and importantly like-for-like rent psf up 2.5% over the quarter. Management states that it has had a strong start to Q4 with a good conversion of enquiries to lettings. Progress is being made with its various projects but no news on the disposal of the McKay industrial assets which is a pity, the comment being that it remains in active discussions. The shares have had a good start to the year up 11% ahead of the wider UK REIT sector up 8%. However, they still trade at a significant discount to NTA (45%) and with operations showing no sign of weakness, we believe this remains good value and reiterate our Buy rating.
WKP’s 3Q trading update painted an overall relatively resilient picture with LFL occupancy holding up well at 89.2% (vs. 89.6% at Sept 22) while the LFL rent roll increased +2.2% (up +5.9% since Mar-22). Enquiries and viewings were down vs. last year however the conversion rates into lettings were
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WKP CLI CARD CMCX GPE STEM POLN
Research Reel - Housebuilders Surveyor, Workspace, CLS Holdings, Card Factory, SMID Market Highlights
Having already delivered a Q2 business update the focus of WKP's 1H23 results were on future operational performance and valuations. Enquiries, viewings and lettings have continued at good levels in October, albeit slower than September. Valuations however, were surprisingly written up at the half
Values have been more resilient than we had expected (underlying portfolio +0.3%) with the NTA of 974p showing just a 1.4% decline over the 6 months. In particular, the McKay industrial portfolio is still valued off a low NIY of 3.7% (4.8% equivalent). Occupancy is stable at 89.6% (on a like for like basis) and rents are still rising (+4%) with good activity levels continuing into Q3 and progress being made with the McKay London portfolio. Workspace is currently underway on two refurbishment projects and progressing with its Riverside redevelopment project at Wandsworth. The shares are down 40% year-to-date underperforming the wider real estate sector down 31%. At 482p they are currently trading on a wide 51% discount to the reported NAV which looks attractive given the relative stability of values and the positive operational performance. We retain our Buy rating.
Workspace’s H1’23 results are trending in line with our run-rate forecasts as EPRA NTA/sh fell 1.4% to 974p in the year reflecting a 0.3% increase in property values. The falling EPRA NTA/sh figure reflects the dilutive impact of the McKay acquisition. A 7.5% increase in ERV more than offset 30bps outward yield shift in the portfolio. LfL rent roll is up 3.6% in the half driven by strong demand for projects driving occupancy +7.5% to 76.7% (LFL occupancy is stable at 89.6%). Enquiries and lettings have continued on a stable trajectory post covid. The shares have declined -40.3% ytd and now stand at a 49% discount to Sep’22 NTA, compared to a wider discount to London office REIT peers at 38%. The outlook statement mentions that the economic backdrop has not yet impacted customer demand. We retain our Hold recommendation.
WKP delivered a reassuring 2Q23 business update with lfl rent/sf up +1.3% (2H23: +4.0%) with lfl occupancy remaining stable at c.90% leading to the lfl rent roll increasing by +3.6% (£3.3m) in 1H23 to £94.5m. Behind this there has been a noticeable pickup in enquiries, viewings and lettings in Sept
Workspace’s Q2 trading update suggests a slowdown, with the like-for-like rent roll up 0.8% in the quarter versus 2.9% in Q1 but a still positive performance with occupancy stable (89.6%) and like-for-like rent up 1.3%. Enquiry levels averaged 780 per month translating into 317 lettings and there was good demand for recently completed projects (occupancy up 2.7% in the quarter). The company’s average effective interest rate is 3.5% at present (with 71% of the net debt at fixed rates) although management highlights a 1% increase in SONIA would increase the average effective interest rate by 0.3%. Whilst the operational integration of McKay has been substantially completed, not surprisingly the planned disposal of the McKay non-core assets is being delayed. The shares have been the worst performing stock under our coverage year to date down 57%, the 64% discount to NAV implying a c.45% fall in values. This is overdone in our view but reflects worries about short term income and the ease with which tenants can exit space in the event of a downturn as well as concerns about the quantum of the valuation writedown required for the McKay industrial portfolio.
1Q23 Trading Update: Rental growth coming through
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FY22 results: Working its way back
Prelims: Bouncing back, but a long way to go Workspace’s prelims were broadly in line with our recently upgraded forecasts. The recovery in NAV and occupancy in 2H has been quicker than we originally anticipated, and with EPS still 40% below pre-Covid levels, Workspace has much to go for. But with fierce competition from a range of flexible office operators and increasing macro headwinds, we still expect the recovery to take some time. The shares trade on a 30% discount to NAV, and whilst the 3.5% dividend yield is significantly higher than other London office REITs, we remain at Hold. James.Carswell@peelhunt.com, Matthew.Saperia@peelhunt.com, Sebastian.Isola@peelhunt.com
Workspace’s FY results are in line with our forecasts as EPRA NTA grew 5.3% in the year reflecting a 3.0% increase in property values. LfL rent is up 8.7% in the year driven by a 7.8% increase in occupancy to 89.6%. Whilst enquiries and lettings have recovered, utilisation rates remain relatively low at around 69% of pre-Covid levels which may limit near term rental growth. The shares have re-rated post the McKay deal announcement and now stand at a 27% discount to Mar’22 NTA, in line with London office REIT peers. We continue to see better value elsewhere in the sector.
Results in line with our expectations showing a 5.3% uplift in NTA to 988p and 21% increase in the dividend to 21.5p. The company has already reported its Q4 data which shows good progress being made in rebuilding the occupancy (up to 89.6% like-for-like from 86.6% at Dec) with enquiry levels back toward pre-Covid levels and importantly a strong level of conversion and the emergence of rental growth over the past two quarters (2.5% in H2). Now that the McKay transaction is complete, Workspace provides a proforma income statement and balance sheet which shows stability in the EPS but an increase in the NTA to 993p (as a result of the acquisition being secured at a discount to NTA) and we would expect a further uplift upon disposal of the industrial assets (at premiums to the purchase price). The shares are down 10% year-to-date having recovered from their recent low but at 722p are still trading on a wide 27% discount to NTA. Whilst management is upfront about current economic challenges and the impact of inflation on its cost base, we believe it is well placed to benefit from the increasing demand for flexibility in the office market and note that its pricing still remains below Covid levels giving the potential for pricing improvements as occupancy rises. We retain our Buy rating.
4Q22 Trading update: Recovery coming through
Workspace’s trading update reports a strong final quarter to end March with increased customer activity (957 average enquiries per month and 127 lettings) resulting in like-for like occupancy up 3% over the quarter to 89.6% (getting close to the pre-COVID average of c.91%) and like-for-like rent psf up 1.3% to £36.39psf. No new news on the McKay offer, with meetings of McKay shareholders due on 27th April (and we await to hear whether Slate will make a competing offer and if so, whether Workspace would consider increasing its offer). As highlighted in our previous note, the shares reacted badly to the McKay transaction and as a result are down 15% year-to-date (versus its London peers down c.5%) although have regained 4% over the past month. At 684p they are trading on a wide 31% discount to NAV which looks attractive given the positive momentum in the flexible office market and we retain our Buy rating.
The share price performance post Workspace’s announcement of its recommended offer for McKay Securities has been quite dramatic (-14% versus the wider UK REIT sector +3% over the same period) although it has recovered a little in recent days. As we highlighted in our initial thoughts on the day, the transaction is unlikely to give shareholders any headaches per se, the issue being that the rationale hasn’t been clearly explained and when one looks at other transactions occurring in this sub-sector (for example the £1.5bn merger of The Office Group and Fora) the deal feels a little unexciting. Having said that, the market seems to have ignored the other news with the announcement, the recovery in NTA to 969p as at January implying 4% growth over the previous 4 months. This is an impressive turnaround after a 15% fall since March 2020 and reflects the improving market conditions. As a result, the shares are trading on a wide 33% discount to NAV which seems an overreaction and we upgrade to Buy, adjusting our target price to 830p.
Eyes on the ball Workspace’s rent roll remains well below its pre-pandemic level, and we believe the recovery here is the key driver over the coming years, rather than the opportunity that McKay Securities provides. Whilst our expectations for a long recovery are unchanged, an updated NAV ahead of our expectations and recent share price underperformance leave Workspace trading on a c.30% discount to spot NAV. This seems more than enough, and today we upgrade our recommendation from Reduce to Hold, while maintaining our 750p TP. James.Carswell@peelhunt.com, Matthew.Saperia@peelhunt.com, Sebastian.Isola@peelhunt.com 5-page note
Workspace’s announcement this morning that it has agreed a recommended offer for McKay Securities will be a relief for McKay’s long-suffering shareholders and we are pleased that the portfolio will remain in the listed sector (see our February chartbook which considers consolidation in the sector). However, whilst in our view this is a perfectly reasonable deal for Workspace, and unlikely to give shareholders any headaches, we question whether it muddies the Workspace strategy and may take time for full integration into the platform. The purchase expands its reach into the SE (5% of the combined portfolio) and adds 7 offices to its London portfolio, but we are surprised that management appears to want to retain the industrial portfolio (which will be 10% of the combined portfolio - it wasn’t that long ago that Workspace was selling its industrial assets). From a financial perspective, we believe the pricing is fair at a 9% discount to McKay’s adjusted rolled-forward NTA implying a c.5.6% portfolio NIY and £307psf capital value (our estimates). Separately we note that Workspace has had an updated valuation as at end January which suggests a NTA of 969p (ahead of our forecast of 944p for FY2022E and putting the shares on a 21% discount to NAV).
Recommended offer for McKay Securities That McKay Securities is the offeree does not come as a surprise given its stubborn discount and lack of scale. However, we are surprised Workspace is the offeror. We acknowledge it is buying the portfolio at a discount to the prevailing third-party valuation and that there are synergies to be exploited, particularly through McKay’s overhead. However, is a move into South Eastern offices (albeit a small one given it will be just 5% of the combined portfolio) the right thing to do at this time? It certainly is not a game changer, and we remain with Reduce and our 750p TP, while our McKay Securities TP moves to 295p. James.Carswell@peelhunt.com, Matthew.Saperia@peelhunt.com, Sebastian.Isola@peelhunt.com 2-page note
3Q22 Trading Update: (Slowly) Making progress
Despite the work from home guidance over recent months Workspace has experienced good levels of enquiries, viewings and lettings in Q3 and this has continued into the fourth quarter with 487 enquiries and 248 viewings in the first two weeks of January. As a result, like-for-like occupancy has improved by 1% over Q3 (vs +2.7% in Q2) to 86.6% and rents increased by 1.2% (vs 0.3% in Q2). The shares ended last year up just 5.1%, underperforming the wider sector although have had a better start to the year-to-date up 6.6%. We downgraded our rating from Buy to Hold in our chartbook this week on valuation grounds believing the 8% discount to NAV and 34x PE to offer fair value at present although we still see upside to our target price of 903p.
In line with trends reported by traditional London office landlords, WKP delivered a positive outlook with 1H22 results for occupational demand from SMEs as flexibility and quality have moved further up the priority scale post-Covid. Further recovery in occupancy and reducing available supply in th
Interims: On the long road to recovery With enquiries back to pre-Covid levels, office utilisation at 55%, and a c.4% rent roll increase in 2Q, “all signs point to strong underlying momentum”. However, the rent roll remains almost 25% below its pre-Covid level and the valuer continues to mark down the portfolio, driven by declining market rents. Workspace is without doubt on the road to recovery, but we believe it will take some time, and with the shares trading on a tighter NAV discount than its London peers, we retain our Reduce rating. James.Carswell@peelhunt.com, Matthew.Saperia@peelhunt.com, Sebastian.Isola@peelhunt.com
Workspace’s results are below our forecasts with a 1.1% decline in EPRA NAV reflecting a 0.7% underlying valuation decrease. LfL rent roll is up 2.1% reflecting a 3.7% rise in occupancy and whilst rent per sq ft was down 2.1% in the period pricing stabilised in the second quarter (+0.3%). Whilst enquiries and lettings have recovered utilisation rates remain relatively low at around 55% and we think this will limit any rental growth in the near-term. The shares stand at a 7% discount to Sep’21 NTA and we continue to see better value elsewhere in the sector.
NAV broadly in line with our forecast at 928p (-1.1% over the 6 months) with the first half seeing trading activity return to pre-covid levels. Like-for-like occupancy increased (+3.7%) to 85.6% and although rents fell by 2.1% in H1 they stabilised in Q2 (+0.3%). Management expects continued momentum and to be able to increase pricing in H2/next FY. The shares are up 12% year-to-date underperforming the wider sector +22%. At 862p the shares are currently trading on a 7% discount to the reported NAV and offer a 2.5% dividend yield. We expect further share price performance as operations continue to normalise and retain our Buy rating.
1H22 results: More evidence of occupational recovery
A positive update with activity levels up (138 lettings in Q2 up from 119 in Q2 2020), occupancy rates moving in the right direction (+2.7% to 85.6% in Q2) and importantly rents stabilising (+0.3% in Q2). With flexibility key for many tenants, we think Workspace is well positioned to take advantage of the evolving office market. The shares reached a recent high of 971p in August but have lost 15% over the past month (versus the wider UK REIT sector -9%). We think this is unwarranted and reiterate our Buy rating, the shares trading now on a relatively attractive 15% discount to NAV.
Workspace’s Q1 trading update suggests an improving picture with an increase in enquiries and lettings resulting in a marginal pick up in occupancy to 82.7% (+1.1%). However, with short term lease incentives still being provided, average rents continue to edge down (-2.4% over the quarter) although at around half the decline experienced in the previous quarter. Therefore, whilst the net effect was a 1.2% decline in the like-for-like rent roll over the quarter, we would expect this to flat line/turn positive over the next quarter. After a weak 2020 the shares have performed better in the first half of this year but have drifted in recent weeks, now up 8% year-to-date with the shares trading on a 11% discount to NAV. This looks fair value to us and we retain our Hold rating.
Shape of operational recovery remains uncertain
While FY21 results are likely to have marked the trough in earnings and there are early signs of stabilisation in occupancy levels, there is little visibility over the shape of recovery and path to normalisation. The pickup in enquiries and lettings activity post-period end suggests an encouraging
EPRA NTA per share decreased 14% y/y to 938p, broadly in line with our 930p forecast. The dividend has been reinstated, which we had expected, albeit at 17.75p is higher than our 15.0p estimate thanks to profits slightly ahead. 79% of gross rent has been collected, below the peer average but this has materially improved in H2. The company still retains £269m of pro forma cash and undrawn facilities, and good headroom to covenants. A significant improvement in activity is encouraging, but we expect pricing to remain subdued as the focus remains on recovering occupancy. We unwind some of the discount priced in for a world impacted by Covid, leading to our TP upgrade (900p from 750p) but with the shares at a 3% discount to March-21 NTA, offering a prospective dividend yield of 2.2%, we retain HOLD.
Finals: A tough period but in line A tough year for Workspace in which NTA has fallen 14%, EPS -52% and the dividend, down 49%, has been reinstated at 17.75p for FY21. Workspace has seen occupancy (-12%) and rate (-13%) regress substantially in the period and although occupancy has begun to stabilise, the decline in the LFL rent psf accelerated in the second half. Rent collection has improved and Workspace is reporting that enquiries and letting levels have returned to pre-pandemic levels in recent months. However, we see better value elsewhere, with Helical and Derwent, who possess more robust income streams trading at wider discounts. James.Carswell@peelhunt.com, Sebastian.Isola@peelhunt.com, Matthew.Saperia@peelhunt.com
FY21 results: awaiting further clarity on path to recovery
NAV a little below our forecast at 938p (13.8% decline over the year) but earnings ahead (£38.7m trading profit versus our estimate of £35.2m) with a DPS of 17.75p announced. Whilst rents and occupancy fell last year (by 12.9% and to 81.6% like-for-like respectively) the focus is on current trading and in this regard Workspace announces a significant improvement in enquiries, viewings and lettings in recent months and expects occupancy to improve over the forthcoming year. It does, however, highlight that by focusing on occupancy it will continue to price to market so we should expect further rental declines.After a weak 2020, the shares have recovered (+19% year to date and +6% over the past week) and benefited from positive sentiment with the lockdown unwinding and workers starting to return to London. At 913p the shares are now trading on a much narrower discount to NAV of 3% which looks fairer value to us and we downgrade from Buy to Hold (but upgrade our target price to 930p to reflect improved sentiment).
Workspace has reported that it has collected 82% of its rent due for the fourth quarter, in line with the same point for Q3 but still c.6% below the average of its peers. 91% has now been collected for Q3. Occupancy has fallen 3.4% in the quarter to 82.1%, but the speed of decline is slowing. Enquiry levels were down 32% but encouragingly the number of lettings are broadly in line with the same period in the prior year. The balance sheet remains robust; net debt has decreased £5m to £566m, and LTV remains at a reasonable level of 23%. The shares at 724p stand at a 25% discount to spot NTA and offer a dividend yield of 2.6%. HOLD.
EPRA NTA per share decreased 7.6% in the first half of the year to 1,005p, in line with our expectations. A decision on the dividend has been deferred, which we had expected. 66% of gross rent has been collected, below the peer average. However, the company still retains £127m of cash and undrawn facilities and significant headroom to covenants. The shares trade at a 25% discount to spot NTA vs. a sector average of 2% premium and offer a dividend yield of 3.0%. HOLD.
Workspace’s FY20 results are weaker than we’d expected with an H2 valuation decline more severe than other London office peers. EPRA NAV nudged up 0.3% y/y to 1,089p, 5% below consensus. LfL portfolio values fell 1.7% y/y after a 2.5% value decline in H2. EPS was more robust, increasing 10% as expected, helped by 10% of net rental income growth. The dividend is still being paid. Net disposals during FY20 leave LTV at 21% (vs 22% in FY19) and £166m of cash and undrawn facilities exist, which should provide enough liquidity to weather the COVID storm, in our view. We do not think key covenants are a risk, despite poor rent collection levels. The shares at 790p are down 34% YTD and now stand at a 28% discount to March 20 NAV. In our view, the discount to London office REIT peers reflects Workspace’s shorter leases and higher operational gearing, albeit we feel this relative risk is now more than priced in.
Real Estate 20:20 Vision, Redrow, Safestore, MJ Gleeson, Futura Medical, SMID Market Highlights
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In these 6 short videos, Real Estate Analysts Tom Musson and Chris Spearing discuss the sector outlook for 2020, with a focus on the relative attractiveness of Real Estate as an asset class, the nuances in the UK Retail and Industrial markets, and why PHP and Workspace are two key picks. Click the image below to watch the videos.
Podcast - Domino's Pizza Group, Workspace, Speedy Hire, SMID Market Highlights
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Workspace’s first half results confirm good LFL growth enhanced by strong demand at newly completed refurbishment and redevelopments. NAV +2.7% to 1,115p was 1.0% ahead of our forecast, with EPRA EPS +6.8%. Demand levels are robust, with enquiry levels averaging 1,109 per month.
Sustained good demand for new and existing space through Q1, despite wider uncertainty, provides reassurance in our full year forecasts. Enquiry levels remain robust at ~1,000 per month. LTV remains stable providing the basis for continued progression of the group’s refurbishment and redevelopment schemes, on which good progress was made in Q1.
Millennial Lithium, Workspace, Mud & Muck, Codemasters
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Millennial Lithium, Workspace, Mud & Muck, Codemasters, Sanofi, Novartis, Smiths
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Workspace offers significant profits growth potential as market rents are achieved and its substantial pipeline of schemes is completed. We see ~23% upside to the rent roll which, with a continued high drop-through, could prompt ~36% upside to profits.
Workspace delivered good returns in FY19, aided by its focus on the growing market for flexible business space, and enhanced by newly completed refurbishment and redevelopments. FY19 NAV +5% to 1086p was 2% below our forecast, with strong earnings growth +10% and 2% ahead of our forecast.
The departure of Workspace’s CEO is disappointing news, but we are confident that the business can continue to deliver strong returns. Workspace has created significant value-add by its focused strategy of providing flexible work space.
Royal Mail, Workspace, Sylvania Platinum, SMID Market Highlights
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Workspace’s Q3 confirms sustained good levels of customer demand, supportive of market forecasts. Enquiry levels are stable and conversion rates remain on a slowly increasing trajectory.
Workspace continues to deliver strong profit growth. Unlike traditional leased office space, Workspace is confident in the positioning of its product, direct customer relationships, and rising diverse customer base to support its returns. A 70% retention rate demonstrates this is working.
Workspace’s first half results confirm good LFL growth enhanced by strong demand at newly completed refurbishment and redevelopments. NAV +3.7% to 1075p was 1% ahead of our forecast, with earnings +13% and 9% ahead of our forecast.
Workspace’s property tour focused on the growth still to be achieved from its assets with a visit to a recent acquisition with rental growth upside, a completed refurbishment which is letting up strongly and an asset with significant redevelopment potential. Ahead of Workspace's first half results, we expect current trading to have remained good and comfortably supportive of our full year forecasts.
Sustained good demand for new and existing space through Q1 provides reassurance in our full year forecasts. Enquiry levels remain robust ~1,000 per month.
Workspace continues to deliver strong profit growth reflecting rising business demand for flexible space. Its equity placing provides firepower to continue to expand, through delivery of an extensive pipeline of redevelopments and refurbishments as well as acquisitions.
Workspace has announced a 9.96% placing to fund redevelopment, refurbishment and acquisition opportunities as well as the recently acquired Centro buildings. FY18 results confirm +9% NAV growth to 1037p, +20% profits growth and a +30% increase in the DPS to 27.4p.
Three potential bidders for IWG highlight the depth of capital seeking to gain exposure to the flexible work space market, with positive read-across to Workspace. While leasehold providers to this market are rapidly building share, we continue to prefer the added control and flexibility of Workspace’s freehold approach.
Workspace’s £77m acquisition of Centro 1 & 2 consolidates its ownership in Camden and provides immediate opportunity to let vacant space and reposition the estate for higher rents over time. The purchase follows an active final quarter for Workspace which saw two notable planning consents add to its significant pipeline of refurbishments and redevelopments.
We believe the combination of market growth and latent portfolio potential underpins significant long-term upside for Workspace. Flexible work space is the fastest growing segment in the office market.
Workspace’s Q3 confirms sustained strong demand, supportive of current market forecasts. While Q3 enquiry levels were slightly lower, this is not a concern with conversion higher and strengthening again evident in January.
Workspace’s first half results confirm strong capital and profit gain alongside a significant increase in the dividend. NAV +6% to 1014p was 4% ahead of our forecast.
Workspace’s Q1 confirms sustained strong demand through the first quarter, supported by robust enquiry levels. As expected LTV has increased to 21%, but still provides firepower to progress further acquisitions and the development pipeline.
Workspace remains extremely well positioned to benefit from the continued evolution of occupational demand towards shorter, flexible leases. Its combination of freehold model, established scale and customer service focus mean it also offers a unique, lower risk, means to play this trend.
Workspace has delivered another year of strong profit progression as occupational trends towards flexible working continue. Double-digit LFL rental growth has resulted in earnings +14%, ahead of our expectation, and a +40% increase in the dividend.
Workspace’s investor event set out its use of technology to maximise occupational demand and limit the pace of obsolescence within its buildings to the benefit of long-term returns. The event also reaffirmed the increasing competitive advantage of its scale, operational platform and freehold model.
Workspace continues to deliver good rental growth, with no sign of slowdown. Q3 LFL rent +3.5% and +14% YoY was ahead of the momentum achieved in the first two quarters and is trending ahead of our full year expectation. Enquiry levels remain robust and occupancy high at 90.6%, aiding steady pricing growth.
Workspace has one of the most transformed portfolios through this cycle, a flexible lease model which continues to gain traction and is a key part of the future of office occupation, lower direct Brexit occupier risk, low financial risk with LTV at 14% and a significant refurbishment pipeline which could catapult income. A 28% discount to NAV is overdone, with an asset backed 21x P/E and fast growing 4% dividend yield.
Robust rental growth has driven strong profit progression through H1 and supported NAV with only a marginal correction in value to date. H1 NAV was -0.9%, 2% below our expectation as the valuer adopted a more cautious approach to underway refurbishments.
Q1 LFL rental growth +11% YoY was good, although it is too early to ascertain the likely impact of the referendum. Irrespective with the lowest LTV in the sector at 12% and one of the most improved portfolios through this cycle, Workspace is in an exceptionally strong position to navigate any change in demand and capitalise on pricing dislocation.
Workspace's opportunity to sustain sector leading returns remains well supported by rising rents still at a low base, prospective gains on a significant project pipeline and a service offering positioned for changing trends towards flexible office occupation.
Stellar rental growth drives another year of outperformance. NAV +31% is 4% ahead of our forecast and EPS +56% is 6% ahead. LFL rental growth of +15% is enhanced by strong lettings on completed projects and operational gearing.
Workspace’s disposal of 5 industrial properties for £64m continues to realise value from its non-core portfolio at cycle low yields and a 12% premium to book value, while also lowering LTV to a sector low level of 17.4%. Confirmation that the business continues to see strong demand for its core flexible office offering also provides reassurance in current trading. With LFL rental growth still trending at the top-end of the sector, a significant pipeline of refurbishment potential in smaller schemes across Greater London, financial leverage at an all-time low and yields which have not compressed to the extent seen in other real estate asset uses we believe a relative valuation premium remains justified. The shares are down -22% over 3months vs. the sector -12%. The shares now trade on a CY16E P/NAV of 0.72x vs. the UK Real Estate sector 0.88x.
Workspace continues to deliver good rental growth +2.3% on a LFL basis through Q3 and +15.0% YoY; on track to hit our unchanged full year expectation. Occupancy remains stable at 91.2% and continues to support pricing increases, with rent +1.9% in the quarter to £20.58psf. Demand at newly completed space is strong and lettings evidence would suggest Workspace’s budgeting assumptions remain overly cautious. We make no change to our forecasts, which factor 60% NAV growth in the three years to March 18E, the highest in the UK Real Estate sector. The shares trade on a CY16E P/NAV of 0.83x vs. the UK Real Estate sector 0.89x. We maintain a BUY rating.
The pace of growth achieved by Workspace over the last two years has been extraordinary and today's operating metrics suggest that the group will meet our new FY16E forecasts. The total rent roll is growing at an annualised rate of 16.4%. Our upgrades to earnings reflect the continued strong results and represent a CAGR of 25.5% between FY15A-FY18E. The group has positioned itself defensively with a very strong balance sheet but has also embraced the future providing contemporary working environments for which demand should remain robust. The share price has been particularly badly hit in the current rout (-14.6% YTD) so that the shares are now trading 3.4% above the historic NAV of 792p. Our Target Price of 1074p reflects the one year forward forecast total return and we retain our BUY recommendation.
High demand, low availability, conservative valuations and an established operating platform should drive significant total returns across our forecast period. Workspace’s freehold flexible lease model lets smaller spaces at a premium, whilst heightened demand and short lease lengths result in a rapid flow-through to passing rents. Returns are enhanced by acquisitions and a significant pipeline of refurb & redevelopment schemes. BUY.
Strong demand allied with an established operating platform is now driving strong profit growth. We upgrade our earnings forecasts by over 25% and FY16E NAV by 5%. We expect 25% p.a. dividend growth to be sustained in the near-term. The prospect for continued strong growth is underpinned by organic progress, acquisitions and a significant pipeline of refurb & redevelopment schemes lifting low average rents. We maintain a BUY rating.
First half figures are ahead of our forecasts with a significant increase in earnings and the rate of dividend growth. EPRA NAV was +13% on year-end to 792p, 2% ahead of our 779p forecast and EPS was +49% YoY to 12.5p, 34% ahead of our 9.3p forecast. In turn, the dividend was increased +25%. This performance reflects the combination of strong LFL organic growth with completed redevelopments and refurbishments well ahead of budget. We believe there is upside risk to consensus forecasts. On our existing estimates Workspace trades on a CY16E P/NAV of 0.97x in line with the sector average. We maintain a BUY rating.
Workspace is benefiting from a confluence of strong drivers so that the group is producing excellent results. Today's figures do not disappoint. The strength of the SME sector in London, the underlying rental appreciation due to supply constraints and the underlying low base rents have led strong results and management confidence in the momentum is underpinned by the 25% increase in dividend. Competition is growing in the temporary leasing market but the models differ from Workspace in type of offer and target customer. Importantly most are not landlords and so have to compensate for the duration risk with higher rents. We continue to expect the group to generate strong growth over the next two years and so increase our TP to 1074p, a 20% premium of our T+1 NAV/s plus dividend. BUY.
Workspace has agreed to acquire two office properties in London for £24m at low capital values per square foot, in areas close to existing group assets and with medium term regeneration potential. These purchases, in effect, recycle £23m crystallised yesterday through the disposal of a non-core industrial estate at a 25% book gain and low 4.8% yield. Workspace remains our preferred pick in Real Estate with a significant pipeline of value enhancing refurbishment & redevelopments supplementing high spot exposure to strong rental growth across London. Workspace trades at a CY16E P/NAV of 0.97x vs. the UK sector 0.99x. We maintain a BUY rating.
The two acquisitions this morning add to the immediate letting pipeline for the group. Surrey Quays and Alexandra House (in Wood Green) will provide refurbishment opportunities into 2021 while providing solid income in the near term. We have upgraded our estimates since the strong FY15A and 1Q16 figures and retain our target price of 1010p and BUY recommendation.
The £26.1m acquisition of the former Mecca Bingo at Wandsworth re- stocks Workspace’s redevelopment pipeline and provides opportunity to extract marriage value with its adjoining ownership. Having tracked this London asset for several years, Workspace can now commence discussions with the Local Council to explore opportunities for wider redevelopment, which should offer attractive long-term value enhancement. Workspace trades at a CY16E P/NAV of 0.97x vs. the UK sector 0.99x and offers one of the highest total returns at the lowest LTV, substantially underpinned by value enhancing redevelopment and refurbishment schemes. We maintain a BUY rating.
Strong momentum in rental growth has continued into Q1 ‘16, with LFL rent +17.7% YoY. Business centres continue to drive performance with stable occupancy at 90.3% and rent psf +5.8% in the quarter to £23.26. Take up at newly completed space is also strong with rent +21.3% in the quarter. Workspace has amended its banking facilities, extending maturity by 2 years and reducing borrowing cost by 50bps. We make no change to our forecasts, which factor 61% NAV growth in the three years to March 18E, the highest in the UK Real Estate sector. The shares trade on a FY16E P/NAV of 1.08x vs. the UK Real Estate sector 0.99x. We reiterate our BUY rating.
