Shares in Workspace (WKP) plunged after the flexible office space firm warned of a ‘substantial step down’ in FY27 profits. Investors headed for the exits as Workspace also rebased the dividend due to the need to invest in its portfolio to reposition the business.
The stock price slump left activist shareholder Saba Capital with a bloody nose.
The US hedge fund has been pushing for a managed wind-down of the Real Estate Investment Trust (REIT). Saba has argued Workspace should sell assets and return capital to shareholders, citing a wide and persistent discount to net asset value (NAV) as well as poor share performance.
Unpacking the alert
FTSE 250 constituent Workspace owns and operates flexible workspace in London and the South East. It currently manages 3.8 million square feet of sustainable space at 57 locations.
In a Q4 update, Workspace said trading was ‘steady’ in the final quarter with 384 new lettings completed. However, the company saw a year-on-year reduction in the total rental value of these lettings, from £10.1 million to £8.2 million. Furthermore, enquiries and viewings were both down year-on-year.
But what really sent the shares into a tailspin was the warning Workspace expects a ‘substantial step down’ in FY27 profit compared to FY26.
Led by new CEO Charlie Green, the company blamed lower rents, property disposals and an array of higher costs for the alert, including rising energy and interest bills. Workspace is responding to the tough macroeconomic backdrop by converting larger units to smaller spaces, selling non‑core assets and focusing on operational resilience.
Today’s update also disappointed income-focused investors in Workspace. Having reviewed its dividend policy, the landlord intends to return to cover of 1.2 times earnings for the year to March 2026 onwards.
Elevating the offering
‘The opportunity moving forward is to reposition and elevate our offering so that we fully address the changing needs of our customers,’ explained Green.
‘In doing so, we will own the value category and be the first-choice provider of space for the start-up, SME and scale-up market.
‘This will require investment in our portfolio and our scale will then give us the platform to create a significant market advantage in how we provide for our customers.’
Workspace seems confident in the structural demand for its space and its strategy to deliver sustainable earnings growth.
The company is also mulling additional asset sales, beyond the previously identified £200 million disposal programme. The plan is to speed up its repositioning and boost balance sheet capacity.
That’s all well and good, but the flexible office space looks challenged to us. Companies are keen to have employees back in the office and start-ups and SMEs are a risky customer base.
Our preference is for REITs focused on the more dependable industrial and commercial property sub-sectors.
Read the press release here: https://www.workspace.co.uk/investors/investor-centre/regulatory-news
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