Workspace Group (LON: WKP) saw its share price decline sharply following the release of its fourth-quarter business and financial update, which included a warning of a substantial decrease in trading profit for the financial year ending March 31, 2027.
The announcement has rattled markets, prompting investors to reassess the company’s near-term prospects as it embarks on a strategic repositioning.
The company’s update highlighted resilient enquiry levels and improved conversion rates, reaching 18% in Q4 2025/26 (up from 16% in Q4 2024/25) amidst a challenging macroeconomic backdrop. However, this positive momentum was overshadowed by concerns about future profitability.
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Despite completing 384 lettings with a total rental value of £8.2 million, a decrease from the £10.1 million recorded in the same quarter last year, the stabilized portfolio occupancy saw a marginal increase of 0.3 percentage points to 81.6%. Stabilised portfolio rent per sq. ft. decreased by 0.9% to £46.31, contributing to a 0.6% reduction in the stabilised portfolio rent roll, which now stands at £108.3 million.
Workspace Group is actively pursuing asset disposals, having exchanged or completed £125.7 million against its £200 million two-year target. Further discussions are underway for eight additional assets, valued at approximately £58 million. The company maintains a robust balance sheet with £241 million in cash and undrawn facilities, and a proforma Loan-to-Value (LTV) ratio of 35%.
The anticipated profit decline for FY 2026/27 is attributed to several factors, including lower opening stabilised portfolio rent roll due to decreased occupancy and pricing, higher average interest costs following debt repayment, and a reduction in capitalised interest from completed development projects. Increased operating expenses, driven by inflation and strategic investments, will also weigh on profitability.
CEO Charlie Green acknowledged the challenges, stating, “Moving forward, it will take time to deliver on our ambitions and, as we deliberately reposition the business, there will be a step down in profitability.” He emphasized the long-term potential, adding, “We have an extraordinary portfolio of quality buildings in good locations and we’re operating in markets with continued long-term structural demand.”
The company intends to adjust its dividend policy, targeting a dividend cover of 1.2x earnings from FY 2025/26 onwards. This decision reflects a disciplined approach to capital allocation, balancing shareholder returns with reinvestment in the business.
Analyst Summary: Bull and Bear Cases
Bull Case:
- Strategic Repositioning: Investments in the portfolio to elevate the offering and target the start-up, SME, and scale-up market.
- Asset Disposals: Focus on selling low-conviction assets to generate capital for reinvestment.
Bear Case:
- Challenging Macroeconomic Environment: Impacting occupancy and pricing, leading to lower rental income.
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