Workspace readies itself to face flex’s next test
The finance boss of flexible office operator Workspace Group hopes the FTSE 250 company’s latest results will draw a line under pandemic-posed questions about the sector’s resilience, leaving the business well-placed to face a new set of challenges as the UK economy takes a turn for the worse.
Chief financial officer Dave Benson joined Workspace in April 2020, less than a month after the UK entered its first Covid-19 lockdown. A former corporate finance director at Whitbread, his task since then has been to steer the company through the pandemic alongside colleagues led by chief executive – and former finance director – Graham Clemett.
Today (15 November) the company posted a half-year profit of £35.8m, 10 times that for the first half of 2021. Net rental income rose by more than a third to £56.1m, while its total rent roll was 2.4% ahead at £134.7m.
The finance boss of flexible office operator Workspace Group hopes the FTSE 250 company’s latest results will draw a line under pandemic-posed questions about the sector’s resilience, leaving the business well-placed to face a new set of challenges as the UK economy takes a turn for the worse.
Chief financial officer Dave Benson joined Workspace in April 2020, less than a month after the UK entered its first Covid-19 lockdown. A former corporate finance director at Whitbread, his task since then has been to steer the company through the pandemic alongside colleagues led by chief executive – and former finance director – Graham Clemett.
Today (15 November) the company posted a half-year profit of £35.8m, 10 times that for the first half of 2021. Net rental income rose by more than a third to £56.1m, while its total rent roll was 2.4% ahead at £134.7m.
“This business has been providing flexible space to SMEs for 30 years – there is a lot of experience within the business and we have weathered cycles before,” Benson tells EG. “Covid was a particular test, I guess probably the most extreme test the businesses has faced. It weathered that well. Occupancy came off about 10%; pricing came off similarly. But what we have seen over the past 18 months is a rapid recovery.”
Occupancy has stabilised, the company said today, and Benson says that “this year is all about pricing recovery”. “There is good momentum – we are seeing solid demand, notwithstanding Tube strikes, incredible weather, and not even taking into account economic and political turmoil,” he adds.
That customer demand “underpins everything” for the finance chief during a time of economic uncertainty, and so the goal for Benson now is to try to ensure that doesn’t slip during a rocky spell for the economy.
“Customer demand drives occupancy, and if you have full buildings you don’t have to carry the cost of the services, the customers bear it,” he says. “It drives pricing, and pricing increases revenue, but also drives ERV, which drives valuations. So customer demand is really important. That is the thing I’m focused on most.”
[caption id="attachment_1158980" align="aligncenter" width="847"] Workspace’s Pill Box premises in Bethnal Green, E2[/caption]
The balance sheet is “in a strong position”, the CFO says, with valuations largely flat over the six months, loan-to-value at 33% before a planned disposal programme and £263m of cash and available facilities. Energy costs are hedged.
However, there are still factors outside Benson’s influence. “I can’t control interest rates, and therefore I can’t control what happens to yields,” he says. “We can mitigate those because we are seeing good demand and pricing that mitigates them, but I can’t control that.”
A downturn in the dealmaking market is also dragging out disposals. Sales are underway – the company expects to finalise the £55m sale of a residential scheme in Wandsworth early next year and aims to offload its Chocolate Factory office scheme in Wood Green – and the disposal of non-core assets acquired through the company’s takeover of McKay Securities is ongoing. But transactions have slowed as the pricing expectations of buyers and sellers drift apart.
“The market over the past six months has been hugely volatile,” Benson says. “That volatility has not helped in terms of trying to work out what the right price should be and where it should sit. To compound that, there have been some forced sellers, funds with redemptions, which, again, doesn’t help to set where the real market price is.
“Our valuation has been pretty much flat, but certainly industrial yields have moved out more. That will help to close the gap between sellers’ and buyers’ expectations… We do seem to have had a bit more stability in the broader macroeconomic environment in recent weeks, and I’m hopeful that with that stability we should start to see things settling over the next few weeks and months.”
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