Is fast-growing Workspace Group plc ord gbp1 a top property buy after 11.1% rent growth?

Roland Head explains why Workspace Group plc ord gbp1 (LON:WKP) may offer value after today’s Q3 results.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares of serviced office space provider Workspace Group (LSE: WKP) edged lower this morning, despite it reporting total rent growth of 11.1% for the nine months to 31 December.

Workspace said that like-for-like rents rose by 3.5% during the final quarter of 2016, while LFL occupancy rose from 90.3% to 90.6%. The group’s dividend payout is expected to rise by 46% this year, giving a prospective yield of 2.7%.

In this article I’ll look at the latest numbers from Workspace, and explain why the shares may offer value after last year’s 10% decline. I’ll also consider the appeal of another FTSE 250 property stock with a strong record of growth.

Significant attractions?

Property investors have become nervous about heavy exposure to large retail and office developments over the last year. But demand for Workspace’s brand of modern, serviced office space seems to have remained stable.

The group’s average annual rent per square foot rose by 12.6% to £27.38 in 2016, while its rent roll rose by 11% to £86.9m. Overall occupancy, including newly-refurbished units, rose from 85.8% to 87.4% during the year.

Workspace has low debt levels, with a loan-to-value ratio of just 14%. One reason for this seems to be that the group funds new development projects by selling on some of its properties with residential planning permission. Three such developments were sold in October for a total of £26.5m. This matches almost exactly the £27m required to fund two new development projects that kicked off during the quarter.

The firm’s stock currently trades at a 17% discount to its net asset value of 915p per share. This may reflect market concerns that Workspace tenants are typically on short leases. The group could be left with half-empty buildings during a major recession. Asset values could fall too.

Personally, I’d prefer to buy at a discount to book value of at least 20%, with a dividend yield of more than 3%. But Workspace’s current valuation isn’t that far from this target. In my view, the stock looks reasonably priced and could deliver positive returns.

A safer alternative?

Workspace isn’t the only property stock that does things a little bit differently. Self-storage specialist Big Yellow Group (LSE: BYG) has delivered a 159% return for investors over the last five years.

It recently said that like-for-like occupancy rose by 2.4% to 76% during the final quarter of last year, while revenue for the last nine months was 8% higher than the comparable period.

Big Yellow’s 89 storage units are spread across the UK, although there’s an emphasis on London. Measured by value, 96% of the group’s property assets are freehold, with the remainder on short leases.

Unlike Workspace, Big Yellow shares currently trade at a premium of about 25% to their book value of 594p. One reason for this may be that the shares offer a much higher dividend yield. The 2016/17 forecast payout of 27.7p equates to a yield of 3.9%, which is in line with the sector average.

Unless you expect Brexit to trigger a major recession, I’d argue that Big Yellow looks reasonably attractive at current levels. I’d be happy to buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

The Nasdaq index keeps hitting new all-time records in 2024, as US tech stocks fly. How much could I have…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£500 to invest a month? Consider aiming to turn that into a £20,000 passive income like this!

With a regular monthly investment, it's possible to build a large and steady passive income for retirement. Royston Wild explains.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Investing Articles

As retirement needs soar 60%, here’s how I’m building wealth with UK shares

A regular investment in UK shares and funds could help Brits create a large and lasting pension. Our writer Royston…

Read more »

Investing Articles

I’d buy Games Workshop shares before they reach the FTSE 100!

Games Workshop shares look likely to join the FTSE 100 soon. Here’s why I think investors should consider buying the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Could me buying this stock with a $2.5bn market-cap be like investing in Tesla in 2010?

Archer Aviation (NASDAQ:ACHR) stock's nearly doubled so far in November. Could this start-up be another Tesla in the making?

Read more »

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »