Workspace Group H2 24/25 Earnings Report

Workspace Group EPS Results

• Actual EPS: GBX 34.50
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Workspace Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Workspace Group Announcement Details

• Quarter: H2 24/25
• Date: 6/5/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, June 5, 2025
• Conference Call Time: 4:00AM ET

Workspace is London's leading owner and operator of flexible workspace, currently managing 4.7 million sq. ft. of sustainable space at 79 locations in London and the South East. We are home to some 4,000 of London's fastest growing and established brands from a diverse range of sectors. Our purpose, to give businesses the freedom to grow, is based on the belief that in the right space, teams can achieve more. That in environments they tailor themselves, free from constraint and compromise, teams are best able to collaborate, build their culture and realise their potential. We have a unique combination of a highly effective and scalable operating platform, a portfolio of distinctive properties, and an ownership model that allows us to offer true flexibility. We provide customers with blank canvas space to create a home for their business, alongside leases that give them the freedom to easily scale up and down within our well-connected, extensive portfolio. We are inherently sustainable - we invest across the capital, breathing new life into old buildings and creating hubs of economic activity that help flatten London's working map. We work closely with our local communities to ensure we make a positive and lasting environmental and social impact, creating value over the long term. Workspace was established in 1987, has been listed on the London Stock Exchange since 1993, is a FTSE 250 listed Real Estate Investment Trust (REIT) and a member of the European Public Real Estate Association (EPRA). Workspace is a registered trademark of Workspace Group (LON:WKP), London, UK.

Workspace Group H2 24/25 Earnings Call Transcript

Key Takeaways

• Occupancy has fallen to 83% and is expected to decline further this year before stabilizing, prompting a “fix our backyard” focus on retention and leasing.
• Adjusted profit reached £66.8 million, up 1.2% year-on-year, enabling a full-year dividend of 28.4 pence (up 1.4 pence) and adjusted EPS of 34.5 pence.
• Net debt has been reduced to £820 million (LTV 34%, interest cover 3.8x) after refinancing £355 million of facilities through to 2028–29, with £260 million of headroom.
• Overall property valuations fell 2.4% in the year—like-for-like values down 1.6%—driven by lower occupancy, 10 bp yield moves and softer ERV growth.
• The new “fix, accelerate, scale” strategy emphasises operational excellence, modest CapEx in high-conviction assets, a £200 million disposal pipeline and longer-term scale through emerging SME markets.

Presentation

[Lawrence Hutchings, CEO at Workspace Group]

Good morning, everyone, and welcome to our full year results presentation and strategy update.

[Lawrence Hutchings, CEO at Workspace Group]

I'm Laurence Hutchings, Chief Executive, and I'm joined today by our CFO, Dave Benson, who many of you know. We also have members of our team in the audience, including our senior team who will help with Q and A at the end of the presentation. It's great to see so many familiar faces in the audience. Thank you for coming along and the same to the people who are joining us today on our webcast. It's been a challenging and rewarding period.

[Lawrence Hutchings, CEO at Workspace Group]

That said, I'm pleased to be here and importantly not on crutches this time. Turning to the agenda. I have a few slides as an overview and then we'll go through the highlights of our full year twenty twenty fourtwenty twenty five. Dave will take us through the detail of the results. I will then return to share my thoughts and insights on the business and our strategy.

[Lawrence Hutchings, CEO at Workspace Group]

Seems to have a clicker problem. It's okay. We'll get there. Excellent. We've delivered a solid performance in full year twenty fourtwenty five acknowledging the declines in occupancy.

[Lawrence Hutchings, CEO at Workspace Group]

As mentioned in our Q4 trading and financial statements, we expect occupancy to decline further this year before it stabilizes. We've undertaken a significant amount of research on the flex and SME markets in The UK, and I'm confident that the market is there to support a rebuilding of occupancy. Of course, this won't happen overnight. Our strategy will address this and embed a new focus on operational excellence to fix our backyard, accelerate income and growth and deliver scale over time. I believe Workspace has an exciting future and the right strategy, but more on that later.

[Lawrence Hutchings, CEO at Workspace Group]

It's not working. Brilliant. It's been a robust year with a challenging macroeconomic backdrop and increasing competition. We have delivered £66,800,000 in adjusted profit, which is on consensus and a 1.2% increase on last year. This has enabled us to pay a fully covered dividend of 28.4p, an increase of 1.4.

[Lawrence Hutchings, CEO at Workspace Group]

As you know, our occupancy declined to 83% on an adjusted basis and we will see the full impact of that this financial year. We'll be detailing our plan to stabilize and rebuild our income later in this presentation. I will now ask Dave to take us through the financial detail.

[Dave Benson, CFO at Workspace Group]

Thanks, Laurence, and good morning, everybody. As Laurence mentioned, overall, it's been a solid performance in the context of macroeconomic and competitive headwinds. In terms of customer activity, as the top two charts on this slide show, we saw softer demand for much of the year, particularly in the third quarter, which was impacted by concern around The U. K. Budget.

[Dave Benson, CFO at Workspace Group]

Rates of conversion from inquiries to deals have, however, been at historic highs And an improvement in trading conditions, combined with the early impact of strategic actions that we've taken, resulted in a strong improvement in Q4. As highlighted in our quarterly trading updates and at the half year, we have, however, seen a drop in occupancy due to a higher than usual number of customer vacations, particularly larger customers. Demand for our core product, however, remains good, and we continue to see improved pricing with our average rent per square foot growing just under 5% over the last twelve months. Pricing growth was a little weaker in the fourth quarter, reflecting selective price reductions and promotions, which helped drive the strong pickup in demand that we saw in that final quarter. Turning to the income statement.

[Dave Benson, CFO at Workspace Group]

Underlying rental income increased £2,300,000 to £135,500,000 reflecting the increase in average rent per square foot achieved over the last year. Net rental income was down 3.2% to £122,100,000 following the disposals made over the last year, but this was offset by the corresponding saving in interest costs and lower admin expenses, resulting in adjusted underlying earnings per share, up 1.2% to 34.5p. Based on our trading profit performance and confidence in the longer term prospects of the company, the Board is recommending a final dividend of 19p, taking the full year dividend to 28.4p. On the balance sheet and notwithstanding a decrease in the property valuation, which I'll come back to, we've maintained our capital discipline with trading profit fully covering dividends and the proceeds from property disposals exceeding capital expenditure, resulting in net debt down to £820,000,000 and NTA per share of £7.74 Looking at the property valuation. Overall, we saw an underlying decrease of 2.4% in the year, reflecting lower occupancy.

[Dave Benson, CFO at Workspace Group]

This slide sets out the valuation movements by property category. On the left hand side, you can see the valuation at March 31. And on the right hand side, you can see the movements in the year. In the first row is the like for like portfolio, which accounts for around threefour of the overall value. As you can see, the like for like valuation was down 1.6%, with a 10 basis point yield movement reflecting lower occupancy, particularly sorry, partly offset by a 1% overall increase in ERV per square foot.

[Dave Benson, CFO at Workspace Group]

Following a strong recovery from COVID, ERV growth in the year returned to a lower level of annual increase, although we have continued to see relatively stronger growth in ERVs for smaller spaces. Valuation movements in the non like for like categories were largely driven by market yield movements with more pronounced yield expansion in Southeast offices and with refurbishments also impacted by increases in build costs and lower residential values. Turning to debt. We continue to maintain a wide range of facilities with a spread of maturities, largely fixed interest rates and significant headroom. Over the past twelve months, we have successfully refinanced £355,000,000 of bank facilities, extending the maturities until 2028 and 2029 and put in place an additional £80,000,000 term loan to proactively increase available headroom in advance of repaying £80,000,000 of private placement loans in August.

[Dave Benson, CFO at Workspace Group]

The facilities have the option to extend their maturities by up to two years as well as increase facility amounts subject to lender consent. This gives us significant flexibility with no additional refinancing required before 2027. Our focus on capital recycling has reduced our net debt and improved our debt metrics. At the March, we had £260,000,000 of cash and undrawn facilities with loan to value down to 34%, interest cover of 3.8x and our net debt to EBITDA down to 8.1x. Looking forwards, macroeconomic uncertainty continues to impact sentiment.

[Dave Benson, CFO at Workspace Group]

As previously announced, earnings this year will be impacted by a number of factors, including a lower opening rent roll, continued pressure on occupancy from further large unit vacations, additional costs, including an increase in the living wage and higher national insurance contributions and an increase in the cost of debt following the repayment of the £80,000,000 of private placement loans. We have planned capital expenditure of around 50,000,000 to £60,000,000 focused on high return asset management opportunities on buildings where we have conviction, which will be offset by proceeds from further property disposals. And I'll now hand back to Laurence to talk you through our strategy.

[Lawrence Hutchings, CEO at Workspace Group]

Thank you, Dave. The macro environment remains challenging. And in some of our markets, supply has increased. Additionally, we've identified that we need to sharpen up operationally. We have developed a strategy that will take forward the best elements of our forty years of history and experience providing space for London's SMEs.

[Lawrence Hutchings, CEO at Workspace Group]

This will position the business to be a clear market leader. Coming in as new CEO provides the opportunity to question every element of our business model and franchise. It's very helpful to start with a blank sheet of paper. I sought out insights from people across the industry, many of you in the audience today, our competition, our customers, and our team members. I had a number of questions.

[Lawrence Hutchings, CEO at Workspace Group]

First and foremost, are we in the right market? Is there enough growth and opportunity in London? Are SMEs still our target customer? And is the flexible space market the right place to be? Secondly, what needs to change organizationally?

[Lawrence Hutchings, CEO at Workspace Group]

This speaks to structure, culture and our processes and systems to ensure we are capable of winning on the ground once more. Assuming we're in the right market, is our product up to scratch for our target SME? Do we have the right real estate? Are we allocating capital into the locations, buildings and areas that align with the needs of our customers? And finally, what opportunities exist for the business to scale over the longer term?

[Lawrence Hutchings, CEO at Workspace Group]

How do we capitalize on the growing and fragmented SME and flex markets? The answers to these questions give us confidence in the strategy we have developed to deliver an income led business focused on dividend growth. The starting point was research. We didn't want to mark our own homework. We enlisted the help of three leading data and research firms, the Data City, Bohirst, and global advisory firm OC and C, who have recent experience in The UK flex sector.

[Lawrence Hutchings, CEO at Workspace Group]

Is London the right geography for workspace? We are all aware of the increased levels of competition, and I had heard feedback about diversification opportunities that may exist in the regions. We had our own foray into the Southeast in recent years, as you're aware. However, the research was categoric. The capital is still a growth engine of UK SMEs.

[Lawrence Hutchings, CEO at Workspace Group]

And as this graph shows, the number of London SMEs has grown by 3.4% annually over the last fourteen years. And importantly, that is twice the rate of the rest of The UK. Despite lower growth over the past few years, the research gives us confidence in the future, which I'll come to. Turning to our target customer by size, shown here in the bright blue circles. The number of these businesses, their formation is growing strongly.

[Lawrence Hutchings, CEO at Workspace Group]

Our smaller target customers shown by the one to nine circle, while slightly lower growth provide an opportunity for us to access early stage exciting companies as they grow and then look to scale. There is more for us to do in this market, and I'll touch on that later. The third important factor is aligning ourselves to the SMEs within each industry who have the best growth potential. Our researchers confirm that these are the makers, creators and innovators as shown on the slide. Mapping this against our existing customer base, we know that 55% of our customers today are in fact creators and innovators versus 25% for the wider market.

[Lawrence Hutchings, CEO at Workspace Group]

We have numerous examples of these customers who have grown or scaled with us over time, including Wilde, who create sustainable bathroom products. They're a phenomenal growth story and have just been acquired by Unilever. Importantly, they're looking to scale with us once again in our portfolio and most likely at Kennington. The research has also indicated that these creators and innovators are best positioned to benefit from the long term structural trends in our economy. Turning to supply.

[Lawrence Hutchings, CEO at Workspace Group]

We looked at our competition in detail, appreciating this is a new and somewhat opaque market. So reliable data is very hard to obtain. Flex is a growth sector and there have been distinct periods of change in the last ten years. After a period of contraction post COVID, the market has grown again and become more fragmented with new smaller and more nimble capital light operators who are mostly office focused in Central CBD locations. This is where we expect to see the largest increases in supply.

[Lawrence Hutchings, CEO at Workspace Group]

In a more competitive market where demand has slowed, differentiation is essential. And what differentiates Workspace? Our scale, which provides us economies, our ownership, which affords us higher margins, our locations and character buildings, our studios and workspaces, and our inherent appeal to creators and innovators. This chart is one of the most interesting from my perspective. Of the 440,000 SMEs in London, Two Hundred And Ten Thousand are in our target employee size band.

[Lawrence Hutchings, CEO at Workspace Group]

70,000 are in our current postcodes. And of that, 25,000 to 35,000 are in our creators and innovators sweet spot. This compares to our current customer base of 4,000. So in other words, we have a 12% market share and a potential customer base with over 25,000 SMEs in our sweet spot target market. Clearly, this suggests there is a compelling opportunity for Workspace right here in London.

[Lawrence Hutchings, CEO at Workspace Group]

All of this answers my earlier question. Yes, we are in the right market. London, creative and innovative scale up SMEs. The market is there. We just need to be better at winning on the ground.

[Lawrence Hutchings, CEO at Workspace Group]

Moving from research to our business. There are two key elements to our model. One is our operating platform. Forty years, sixty three locations. We generate over 8,000 inquiries a year, 6,000 viewings and over 1,200 deals in a year.

[Lawrence Hutchings, CEO at Workspace Group]

This provides us significant scale, but more importantly, momentum. Our platform drives the returns of our £2,400,000,000 investment in real estate. I'm often asked, are you an OpCo or a PropCo? The answer is our job is to be great at both, and there are plenty of examples of that globally. Our strategy addresses the work we are doing on the operational side with a sharper focus on portfolio management and capital allocation.

[Lawrence Hutchings, CEO at Workspace Group]

We are crystal clear on how we improve our operating performance to drive better income led returns from our real estate. And this is our plan of action, our new strategic approach, fix, accelerate and scale. And it ensures that we are agile and can adapt to our fast changing market. The strategic actions all start now. In fact, they started six months ago, and they deliver results over different time periods.

[Lawrence Hutchings, CEO at Workspace Group]

In the short term, we are focused on fixing our backyard. Whilst it won't happen overnight, we have confidence in our ability to rebuild occupancy, earnings and dividend growth. Concurrently, we've undertaken a wholesale review of our portfolio against a set of operational and investment criteria that guides capital allocation and recycling to accelerate that growth. And finally, we have an ambition to scale the business, not for the sake of scale, but because we believe there are accretive opportunities in the fragmented flex market, where we can leverage our portfolio and platform to deliver further income and capital growth. In order to deliver on this strategy and become a clear market leader, we need to embed operational excellence throughout the organization.

[Lawrence Hutchings, CEO at Workspace Group]

This underpins our strategy and will position the business for longer term growth. What do we mean by operational excellence? We need to do things better, faster and for less to think and act more like our SME customers. We've done a ground up root and branch review of every aspect of the organization. We've identified what we need to do to win on the ground.

[Lawrence Hutchings, CEO at Workspace Group]

We need to be more efficient as a business, we need to improve our product, and we need to deliver a seamless customer experience. So how do we deliver? I'm pleased to say we've already started. We've been enacting changes since January. By taking elements of our emerging strategy and applying them to our operational business, we have confirmed that small changes multiplied by the sheer volume of our platform and activity equals something significant.

[Lawrence Hutchings, CEO at Workspace Group]

There are three main areas that we're focusing on to drive this change. Structure, culture, and systems. We're moving towards a flatter structure, so we're able to move information faster up and across the business. We're rebalancing the business by streamlining our support functions to create a leaner, nimble organization and to put more people on the ground on our frontline where it matters. This will save almost £2,000,000 in annualized efficiencies.

[Lawrence Hutchings, CEO at Workspace Group]

And by creating a culture of empowerment, we'll give those people on the ground the tools and accountability they need to meet our high standards of customer service and retention objectives. In terms of systems, we're bringing our three main systems, property management, finance and CRM under one umbrella and launching an upgraded CRM later this year, along with a new customer portal that will enhance engagement with customers. And we're using AI to deliver more targeted and efficient marketing, enhanced space planning and optimize our sales process. When we get this right, we'll have significant operational leverage, meaning economies of scale and importantly, impact on the bottom line, our earnings. Organizational change takes time to embed.

[Lawrence Hutchings, CEO at Workspace Group]

However, we have commenced the journey and we're starting to see results. So what does operational excellence look like for our customers? We've built a very clear picture of the criteria that are essential to creating a successful workspace building or product, a combination of our buildings, our amenity and our services. From location, size, access to transport and the surrounding SME demographics in any given London borough to the building services or amenity and then through to the soft services and the communities within these buildings that we curate. The approach provides clarity and a roadmap for every aspect of our business and importantly for our team members.

[Lawrence Hutchings, CEO at Workspace Group]

The criteria has helped to establish the areas we need to improve in our operational business to support a recovery in retention and customer acquisition, which takes me on to the next slide. Let's dig into the fix. We have three areas of focus that we're going to expand on in the next few slides. Firstly, customer retention. Then leasing and customer acquisition, our demand engine.

[Lawrence Hutchings, CEO at Workspace Group]

And central to both is our product or customer proposition, I. E, our buildings and the services we provide. Looking first at retention. Reducing churn of our existing customers and defending our income is critical, especially in a competitive market where the cost of customer acquisition has increased. Previously, a customer leaving was an opportunity to drive pricing.

[Lawrence Hutchings, CEO at Workspace Group]

But in today's market, that is not the case. And we need to do everything we can to retain customers. So what are we doing differently? We're improving our product. We're better leveraging and incentivizing our teams.

[Lawrence Hutchings, CEO at Workspace Group]

We're enhancing our customer experience. And we're building an ecosystem of services that add value to customers and make them stickier. Focusing on customer acquisition. In an increasingly competitive market, we need to be better at differentiating Workspace and be clearer about who we're for, those creative and innovative businesses so that our offer stands out from the crowd. You may have seen our first ever TV campaign, which went live recently.

[Lawrence Hutchings, CEO at Workspace Group]

Almost 60% of our inquiries come direct through our website. By increasing the number of inquiries through marketing and social media campaigns, this feeds directly into viewings and then down to conversion of deals. Put another way, with 600 to 900 inquiries a month, hundred to 900 inquiries a month, if we converted everyone, we wouldn't have an occupancy challenge today. Enhanced data, insight and reporting is making the sales process more efficient. And we've changed how we incentivize our sales team to drive better conversion outcomes.

[Lawrence Hutchings, CEO at Workspace Group]

We're implementing more targeted marketing plans aimed at both larger and smaller businesses. The sales and leasing teams have ambitious targets for large space lettings and they're engaged with larger companies directly through events, social media and direct mail as well as using subscription databases to target upcoming lease renewals. For smaller businesses, we've created the Workspace Launchpad offer providing ready to go spaces on even more flexible terms for early stage scale up businesses. Onto our product. We're very conscious that a lot of this is theory.

[Lawrence Hutchings, CEO at Workspace Group]

And I can already hear people asking, how do you know it's going to work on the ground? Well, we're starting from a great place. We own fantastic real estate. This is one of the things that attracted me to Workspace. Quite a few of the buildings are very close to where I live.

[Lawrence Hutchings, CEO at Workspace Group]

But reviewing our assets compared to the competition, there are areas where we need to bring our product back up to scratch. I'm not talking about major refurbishments that are CapEx intensive, rather high touch and first impression areas in our buildings where standards had slipped, prompting some negative customer feedback. So we've selected two of what I call our high conviction buildings, VOXX and the Leather Market. They're classic workspace properties, characterful buildings steeped in history. They appeal to our creators and innovators.

[Lawrence Hutchings, CEO at Workspace Group]

Both had some vacancy, meaning we're able to measure the impact of the changes that we've made. Importantly, we did the work in a matter of weeks by changing our approach to procurement and with modest CapEx. It's all designed to capture the imagination of our existing customers and the prospects, our incoming SMEs on their viewings. Remember, these are emotional decisions for our SME business owners.

The changes The changes that we're making here at VOXX in our leather market respond directly to what our customers are telling us.

We see a real opportunity to improve the experience that our SME customers have in these buildings, and we believe by improving that experience that we'll improve our attention and attract more SME customers to our buildings. So it's really about driving occupancy in the business.

The key areas we are focused on in this project have been driven by the customer insight data. We'd really focus on high touch areas such as front of house, breakout spaces, external areas like terraces, corridors and bathrooms.

The design focus for this project was to look at quick wins. So those things include furniture, lighting, getting the acoustics right, dealing with floors, using color and art in in corridors and on walls. These are the spaces that have the biggest impact for workspace customers.

A part of this project that I'm really proud of is that we've reflected the history of the building within the design. At the leather market, a former tannery, we've bought in elements that reflect that history.

We've really sort of dived into to the whole leather making process. So we've been using leather tools in the graphics. We've been using the stitching motif in leather all around the building.

I love all the interiors. I love, like, the styling, all the choices in furniture.

So with the reception for Fox, we've made some significant changes to the lighting and the acoustics, which together will really make the space a much more pleasant place to to work.

I love it. It's so colorful and it's it's bright and it's inviting.

I think it just looks so much more fun now. And I think the theme of it being an old Marmite factory is really, like, tied in, which I like, with all the hops everywhere and the new meeting room names. I really love that.

The exterior seating area is gonna be a fantastic new addition to to the space that they have now with lots of different seating styles and using the space in a different way.

I think my favorite part is probably the courtyard. I think I'm very excited to kind of relax in here during the summer.

This project is about creating an environment that people are proud to belong to, and that allows our SME customers to attract and retain the best staff, making sure those senses of arrival, and those places where people meet within the buildings, that those are as compelling.

[Lawrence Hutchings, CEO at Workspace Group]

We've shown how we're enhancing the product for our customers, but we're also working to enhance the experience for them. We understand what's important to our customers. More than half agree that being in a workspace building helps them connect with other businesses, which in turn helps them grow. However, is room to improve that.

[Lawrence Hutchings, CEO at Workspace Group]

At the two properties we've just seen, Leathermarket and Vox, we're piloting a new team structure that puts more people on the ground who are responsible for fostering that community, making connections and facilitating networking, which supports business growth and advocacy. This all comes back to our short term goal as a better customer experience and sense of community enhances retention, which supports occupancy. In addition, we've identified through our research further enhancements to our product by creating scalable value add services that will help drive the success of our customers and their scale up ambitions. As always, we are driven by customer insight. We interviewed customers to understand the key challenges facing their businesses, and we piloted two propositions that complement our core offering and will help differentiate Workspace from competitors.

[Lawrence Hutchings, CEO at Workspace Group]

The Skills Accelerator, where we provide expert led training workshops for customers to upskill their teams at affordable prices on topics such as generative AI. Then the Workspace Navigator, which gives exclusive access for early stage businesses to a range of services and support provided by Workspace's partner network. Once these pilots are complete, we will embed the offers in the new My Workspace customer portal and then roll them out across the portfolio. To bring all that together, we have the platform and infrastructure which has been tested and fine tuned to drive both retention and new customer acquisition. In addition to all the levers I've run through to rebuild occupancy, we will continue to be pragmatic on pricing.

[Lawrence Hutchings, CEO at Workspace Group]

Then as tension returns, we are never far from a mark to market opportunity given the structure of our leases. But relying on rate is not the only lever. We have the blueprint through the pilot projects to improve and differentiate our product and enhance our customer experience. So where does fixed take us? I've been fascinated by our income model since joining.

[Lawrence Hutchings, CEO at Workspace Group]

We have four main drivers of income growth when we get our operational platform humming at its peak. With lower occupancy, we have an inherent opportunity through our focus on leasing and retention as I've set out to return to our long run average, which is closer to 90%. This represents approximately £10,000,000 in income. We can also deliver growth through ancillary income. Our meeting rooms, basements and car parks all have scope to improve income.

[Lawrence Hutchings, CEO at Workspace Group]

Our leasing model typically two year terms with a fixed 5% increase at the end of year one followed by a mark to market at expiry provides access to our reversion. And this incentivizes us to create tension in the supply demand economic on a building by building basis. By subdividing larger spaces into our sweet spot 300 to 1,200 square foot studios provides considerable uplift in income that exceeds our hurdle rates of return on the capital that we require. We will also increase the rate of recycling, specifically of our low yielding and ex growth assets in mature markets, are typically below our marginal cost of debt, providing a further uplift in income. When we get our operational platform right, this creates considerable scope for importantly, income generation and growth.

[Lawrence Hutchings, CEO at Workspace Group]

Planning for the medium term now, we've done a forensic review of our portfolio, analyzing asset by asset according to our property life cycle model. And we're adopting a new more clinical approach to capital recycling to accelerate income growth over the medium term. Understanding the life cycle of our assets from an operational standpoint is key. We've conducted a detailed review of our portfolio, mapping each building against our portfolio life cycle, which you can see here on this chart. There are four stages depending on factors such as occupancy, pricing growth, CapEx requirements and adherence to our brilliant basic standards.

[Lawrence Hutchings, CEO at Workspace Group]

The first is incubation and it's either for nascent properties in the early stages of letting up, for example, Leroy House in Islington or nascent SME locations. Maturing for assets where occupancy is increasing and rents are growing as a result. Performance buildings that have sustainable income growth and are delivering returns that exceed our cost of capital. Finally, properties at the reposition stage of the cycle either require more significant CapEx to boost performance or our targets for capital recycling. This guides our business on where we need to invest to maintain our income and maximize our income growth opportunity.

[Lawrence Hutchings, CEO at Workspace Group]

Our life cycle exercise and our workspace criteria has helped us categorize each asset as high conviction, conviction or low conviction. We have factored in CapEx required to bring the assets in line with our criteria and the forecast returns over one, three and five year horizon against our hurdle rates or marginal cost. The high conviction assets meet our criteria and in some cases may require a light refresh like the two that you saw on the video subject to their occupancy metrics and the competition profile in the immediate area. These are our pilot projects. Conviction, meets the physical and real estate criteria.

[Lawrence Hutchings, CEO at Workspace Group]

However, investment in amenity and presentation is required to meet our high operational standards. And last, low conviction, we will recycle these assets. What's interesting for me is that the high conviction assets are our best performing buildings by occupancy over the last three years as evidenced in this slide. Occupancy levels are well above our portfolio average of 83%, which tells me when we get it right, we can deliver performance and create tension, which drives income growth. Interestingly, when you look at the income growth that we've managed to achieve out of these high conviction buildings, it is also impressive.

[Lawrence Hutchings, CEO at Workspace Group]

Where we get our real estate and operational strategy right, we are capable of producing strong income led returns. We will continue to be responsible stewards of capital, and we're going to be more clinical on capital recycling. Archer Street in Soho on the slide, which we sold in March is a great example. A character building, as you can see in this photo, and in a great creative and SME location in Soho. However, at 20,000 square feet, its size doesn't allow us to create the amenity that our customers want, the amenity that enables us to drive income growth.

[Lawrence Hutchings, CEO at Workspace Group]

So we exit and recycle our capital into higher return opportunities. Our portfolio lifecycle exercise has identified a disposal pipeline of around 200,000,000 pounds of low conviction assets to be executed over the next twenty four months. Proceeds from disposals will be recycled to fund investment in CapEx at our conviction and high conviction properties, maintain prudent levels of gearing and enable investment in new emerging SME locations. More on this in a moment. So what does Accelerate achieve?

[Lawrence Hutchings, CEO at Workspace Group]

We take our $2,300,000,000 of real estate and we invest in subdivision, enhancing amenity and the presentation experience. As we've just said, we recycle assets that are either in mature SME markets or do not fit our unique workspace criteria to fund CapEx and selectively invest in new growth areas and of course lower leverage. Knowing where and when to invest, sell and acquire is clearly critical. So we're going to be laser focused, dispassionate and disciplined to deliver income growth. Once we've embedded operational excellence, we have the platform and foundations to facilitate and unlock the benefits of scale.

[Lawrence Hutchings, CEO at Workspace Group]

We are doing the work today to lay the groundwork for the future. As you'd expect, we won't go into specifics, but we see three areas of potential future growth. First, our experience and on-site alongside our research means we have a huge amount of knowledge on the SME map of London and its real estate. We've identified emerging and high growth SME locations. The SME Map of London is constantly shifting.

[Lawrence Hutchings, CEO at Workspace Group]

Secondly, we're excited about the opportunities that increased specialization in the flex market presents. We are well positioned to provide space to some of these specialist clusters and operators and are actively exploring this opportunity now. And finally, with operational excellence and a seamless operating platform, we'll be able to support with limited growth in our cost base, a significant increase in our footprint across London. This could include growing through acquisitions and or leveraging our platform with selected partners. I mentioned earlier the ever moving SME map of London.

[Lawrence Hutchings, CEO at Workspace Group]

No one is better placed with our 63 locations, 4,000 customers and forty year history to grasp the significant opportunity to identify and take advantage of emerging higher yielding and growth areas. I often say in the office, where is the Bermondsey of tomorrow? The blue dots indicate where our London assets are today. We've identified through our research potential growth areas based on their SME populations, the intensity of the local competition and importantly, the proximity to transport links. This is workspace returning to its origins by entering new urban locations in London ripe for regeneration and will drive both income growth and capital growth over the medium to longer term.

[Lawrence Hutchings, CEO at Workspace Group]

We have set out a plan that will fix, accelerate and scale the business over the long term. It is an evolution in what we do and a revolution in how we do it, and we are moving at pace. We have the assets, customer proposition, platform, scale, experience, ambition and now the strategy to deliver a compelling equity led story sorry, income led equity story. Before I move to Q and A, I've taken you through this strategy, and by taking you through this strategy, it reminds me of all the reasons why I took this job. Workspace is a great business and I saw the opportunity to build on its legacy.

[Lawrence Hutchings, CEO at Workspace Group]

Like many businesses, it needs a reset. And that's why I'm excited and determined to deliver on this plan to take Workspace to where we truly believe it belongs as a clear market leader. This is our intent and my commitment. There's a real sense of enthusiasm from the team and we are energized by the challenge as we set out on this journey. I'm sure some of you have questions.

[Lawrence Hutchings, CEO at Workspace Group]

We'll go to the room first and then those on the webcast. Thank you. Excellent. Denise. Got one over here. Take the first question from Denise. Thank you.

[Denese Newton, Director - Real Estate at Stifel Financial Corp]

Good morning, Ed. Denise Newton from Stifel. Just on your capital recycling, obviously, you mentioned the time frame for the disposals is about twenty four months. Your sort of annual run rate of CapEx is maybe 40,000,000 to £50,000,000 Have you already identified opportunities to deploy effectively excess capital relatively earlier than you might do in the run

[Lawrence Hutchings, CEO at Workspace Group]

We have identified some opportunities. I think they're two very good questions. You'll note that we sold GBP 100,000,000 worth of non core assets last year, so the run rate is consistent. Q2 was a little bit heavier sorry, H2 was heavier than H1, Dave, wasn't it, as we moved in and started to make some important decisions about assets that perhaps we'd been sitting on the fence on for a while, if that makes sense. So the run rate we feel comfortable with effectively based on what we've achieved in last year.

[Lawrence Hutchings, CEO at Workspace Group]

The CapEx is a very interesting question. We have if we look at the CapEx for this year, just over half of it is committed to projects, large projects like the extension of the biscuit factory, for example, which is absorbing quite a bit of our CapEx. So we from our standpoint, we can accommodate that run rate of CapEx to deliver the refresh to the buildings. I think the advantage of having a of an excess of disposals over CapEx requirements, we may be able to accelerate that, Denise, even further, if that makes sense. So we mentioned the sources of proceeds.

[Lawrence Hutchings, CEO at Workspace Group]

You're first to invest back into our buildings, driving occupancy is critical. That's fundamentally the cheapest growth we have in the business. We own the buildings already, as you would appreciate, the space is sitting there. We have the operational platform that can deliver once we've made these changes and we've made a lot of them already. We've got more to come.

[Lawrence Hutchings, CEO at Workspace Group]

And then effectively, the second use of capital is to look at can we put a flag in some of these the new Bermondsey's effectively and start to unlock the next era of growth for Workspace.

[Analyst]

Kalim Mali from Colytics. I've got three, if I can. We've seen very strong rent growth in 2025. How are you thinking about recalibrating the balance between rent growth and occupancy going into 2026? And do you have a sense of maybe how price elastic your different sized customers are?

[Lawrence Hutchings, CEO at Workspace Group]

Yes, that's two good questions. Think just to pick up, actually there's not three. In terms of listing with price elasticity first, because that leads into the other All of our research indicates that when we get the offer right, which is our core products of the building and we understand where that location, what the locational and property characteristics are effectively, character buildings in locations where there's a high level of SMEs and that SME population is growing, where we've got very strong access to transport is clearly important, where we get those building services right, so the amenity fundamentally, so cafes, breakout areas, and the presentation is right, and where we get the services that we wrap around that offer that help our SME scale and grow, we create a connection effectively to our buildings and to our business that becomes quite sticky and that allows a degree of price elasticity if that makes sense. Because these businesses are not property businesses fundamentally as you'd appreciate. So the the, I call it brain damage involved in moving effectively takes time out of those SMEs, you know, core focus, which is scaling that business effectively as you'd appreciate.

[Lawrence Hutchings, CEO at Workspace Group]

So they don't approach moving lightly if that makes sense. There has to be a real reason And that's why we've got this focus on product. If we get that product right fundamentally for our customers, then we create customers who are fundamentally more loyal and therefore pricing isn't the primary consideration, if that makes sense, and that gives us some elasticity. I'm not suggesting for a moment that we have enormous amounts of elasticity. I've mentioned in this presentation, we live in a more competitive environment fundamentally, and we're in a situation where, due to numerous factors, that SME formation has slowed a little.

[Lawrence Hutchings, CEO at Workspace Group]

It's still growing, but it's slowed. So in an environment where we've got slower growth in business formation and scale up and more competition, clearly, we need to be a little more focused to win market share. We believe we can win market share in that environment. The second question was, I believe the relationship between rate or rent and occupancy. And there's people in this room who are in our senior team who have been in the business for a long period of time.

[Lawrence Hutchings, CEO at Workspace Group]

And they've worked through the GFC and they've worked through COVID and their experience and insights are incredibly valuable. But the history of the business is that there are two levers, rent and grow and occupancy fundamentally, and that when occupancy effectively starts to fall, we just let the rent lever off slightly and then rebuild occupancy and pull that rent lever back. And I think we're in exactly that situation today, to be frank with you, and we have been using those levers. As and to paint a very clear picture, I put a chart with five buildings or six buildings up and occupancy is over 90%. When we're over 90%, we've got tension.

[Lawrence Hutchings, CEO at Workspace Group]

And as Dave highlighted, we have been driving rents and we've seen increase in ALVs. But where we've got occupancy that's in the sort of mid-80s and lower effectively, and we have a series of buildings in that position, we're starting to lose tension. And our customers know because they live in those environments as you'd appreciate. They know there's less people there. So in that case, we let rate come off, build occupancy, and then bring rate back effectively.

[Lawrence Hutchings, CEO at Workspace Group]

So it's a very dynamic business. We sit in a trading meeting every Monday morning for an hour and we review the 200 inquiries we've had the week before, where they're from, what type of businesses, how many are being generated by us, how many by our brokers, the majority by us on our website. We then talk about how many viewings we've got booked for the next week. We talk about how many deals we did, how many notices we've got to leave our platform. It's that dynamic if that makes sense and if that helps and answers your question.

[Analyst]

One, earlier in the year, at the half year presentation, you said that the direct impact from the budget on both Workspace and SMEs will be limited. Is it fair to assume with the benefit of hindsight that the actual impact was a lot greater than what you originally anticipated? And could you share any areas where that might have differed from your original assumptions?

[Lawrence Hutchings, CEO at Workspace Group]

Yes. Good question. I think if we're referring to the budget and the NII changes, which I suspect is what you're referring to, we did a lot of work on that. And I might hand over to Dave because Dave did quite a bit of work on the impact of NII on our customers. Dave?

[Dave Benson, CFO at Workspace Group]

Yes. So what we said was that the direct impact, so taking National Insurance, for instance, if you're a five person business in London, SMEs, service based, actually, the net cost of the NII change is pretty limited on your business. But your customers may well be international businesses or larger corporates, etcetera, and the impact on them is more significant. And if they are exposed to sectors such as with high people costs, then they will feel the impact much more. So I think that we said the direct impact was limited, but the concern, and I think this was always the case, that the concern that, that generated about what the wider economic condition trading conditions might be, that was that is the challenge that we're particularly in the third quarter.

[Lawrence Hutchings, CEO at Workspace Group]

And then just picking up the sort of hindsight comment from the half year. We and hopefully, we've made it clear, we're not standing here trying to attribute responsibility for the decline in occupancy to what's happened in the macro and budget and decisions have been taken around the balance between tax and business growth. But what I can say and what I've learned over the last seven to eight months, our SME customers tend to react a little earlier to uncertainty, if that makes sense. So in the wider economy, we've seen a slowdown in business investment. As you'd appreciate, in an SME context, a decision to invest is to scale up effectively.

[Lawrence Hutchings, CEO at Workspace Group]

So as you'd appreciate, we have noticed that is that process has slowed and that often decision to scale up is taking more space or moving from one location to another. And that is an opportunity that hits our website effectively, comes into our demand funnel. You know, we convert, you know, 20% of deals that come in or the inquiries that come in. So that that does have an impact and we have seen it. But what we want to say very clearly is that there is enormous opportunity for us in London.

[Lawrence Hutchings, CEO at Workspace Group]

We have 4,000 customers, 25,000 to 35,000 available market. Yes, we appreciate what's happening in the wider picture. But however, in the macro, however, we work to do in terms of improving how we operate that and we have sufficient available market to deliver a recovery in our earnings and led by improving occupancy and getting occupancy back to long run average. So I just wanted to be clear on that point. We appreciate it's going to take some time.

[Lawrence Hutchings, CEO at Workspace Group]

We appreciate that. If you put the £10,000,000 I think we did £40,000,000 with the new deals last year. So you put that £10,000,000 in lease up effectively into context, but it's very achievable.

[Analyst]

Thank you.

[Bjorn Zietsman, Director - Equity Research Real Estate at Panmure Liberum]

Bjorn Zieterman from Panmellibram. A few questions for me, please. You mentioned some non property related CapEx, specifically like upgrading the CRM systems. What percentage of CapEx or amounts are you attributing to for those purposes?

[Dave Benson, CFO at Workspace Group]

It's pretty small, it's single digit millions. So yes, a couple of percent.

[Bjorn Zietsman, Director - Equity Research Real Estate at Panmure Liberum]

And then you mentioned that previously holding losing a customer was an opportunity to increase price. Is that because you believe reversion has peaked or embedded reversion is now in decline? Or do you think that's more because the customer acquisition cost is now quite high?

[Lawrence Hutchings, CEO at Workspace Group]

Think answering that question, I think both. I've said that customer cost of customer acquisition, Will who heads up our marketing team and that includes lead generation effectively, new business. It's a fact it is costing more fundamentally for lead generation. We use all the website tool optimization that we can get effectively. As you'd appreciate, that's a duopoly.

[Lawrence Hutchings, CEO at Workspace Group]

I don't want to say any more about that. But as you would appreciate those costs have gone up. And in a market that's more competitive where demand has come back a little, it's still positive, it's come back a little. As you would appreciate those competitive pressures, we live in a competitive environment. That competition profile changes building to building.

[Lawrence Hutchings, CEO at Workspace Group]

If we take this building where we are within a stone's throw in a circumference of this building, there's uncommon for WeWork times two, industrious, etcetera, and yet we do very well in this environment. So we're not concerned about competing, but the reality of the situation is it is far more cost effective for us to retain an existing customer than go and secure a new one. That's the reality. By the time you factor in, there is some level of vacancy. We've lost the rent.

[Lawrence Hutchings, CEO at Workspace Group]

We've picked up a business rate liability. We've got service charge liabilities. So as you appreciate, that dynamic means that we the focus of the business has shifted to retention effectively. We haven't forgotten about new business, but there's a lot more emphasis on retention. In terms of ERV, and that's one of the another thing that's fascinating me about this business is if I and we actually have a chart in the appendices if you get pick up a copy.

[Lawrence Hutchings, CEO at Workspace Group]

But it what it does basically does is has our buildings and the low point in rent effectively, the band of the low point let's take take an example like Meadowbox in Southwark. And the low point in rent might be £50. And the high point in rent is like £120 and the ERVs at £80 fundamentally. So as you'd appreciate, there's two things we can do there. If we can't grow that 120, how many of the 50s can we get up to the 80, if that makes sense?

[Lawrence Hutchings, CEO at Workspace Group]

So it's a quite a nuanced and different approach to what you'd have in a traditional piece of long lease real estate, if that makes sense.

[Bjorn Zietsman, Director - Equity Research Real Estate at Panmure Liberum]

And then finally, a question just on occupancy. You say you expect it to get worse before it gets better. Is that because you can pinpoint certain leases or assets that might get worse? And if so, how much worse do you think it might get?

[Lawrence Hutchings, CEO at Workspace Group]

Yes. We've sought to be transparent about what we know today effectively. What we know is, as you've just mentioned, our standard lease provides for six month notice. The majority of our customers are on a six month notice. So at a point in time, we're holding a stock of notices effectively.

[Lawrence Hutchings, CEO at Workspace Group]

So that's and and the vast majority of them go through with that notice. In some cases, minority of cases, we're able to convince them to stay, but the majority of them go. So we've made some assumptions about the stock of initial notices that we say we call them initials, the stock of initials that we have in hand today. Then we've made a series of assumptions about the leasing run rate, if that makes sense. And then sitting between those two is existing customers who are either contracting or expanding, and there's always a lot of that going on.

[Lawrence Hutchings, CEO at Workspace Group]

The SMEs are very dynamic constituencies you would appreciate. And we support that and we actively support it even if it's intra lease, we support it, if that makes sense. Someone might be nine months into a two year lease and something's happened in their business. They've secured a new customer. Of course, we'll rip that document up, find them a new space in that building or a nearby one or somewhere else in this myriad of examples of that.

[Lawrence Hutchings, CEO at Workspace Group]

But as you appreciate, what we've seen is the volatility. We had some volatility in the people leaving the platform early last year. That has stabilized on the back of all the work that we've done. We've managed to get that under what we call control back to long term averages. What we're now seeing is some volatility in the leasing line.

[Lawrence Hutchings, CEO at Workspace Group]

And for example, Q3, last quarter of calendar, was one of the toughest leasing quarters that we've seen in a long time, and that was across the market. Q4, we had one of the best leasing quarters we've had in a long time. And when I say a long time, ten years. So now in Q4, we put some of the initiatives that I've outlined in strategy in place that helped us. But once again, we also spoke to our competitors and the stakeholders in the market.

[Lawrence Hutchings, CEO at Workspace Group]

The market had a better Q1 this year, our Q4 than it did Q3. So I think there's a little bit of market factor and certainly a degree of the responses that we'd already put in place, which was testing elements of strategy, bringing that forward and seeing how that worked effectively. Things like incentivizing our leasing team in a different way. Things like incentivizing the flex brokers in a different way. It's about 30%, forty % of our business.

[Lawrence Hutchings, CEO at Workspace Group]

Things like doing a little bit more price stunting on our website for example. So that was on selected units and selected buildings, but it had an impact, drove traffic to the website. So we have levers fundamentally, but as you'd appreciate, the volatility in those lines makes it very difficult getting back to your question for us to say with absolute certainty, we think it's going to be 81 or it's going to be 82 or it's going be 80. We we it will be lower. We feel reasonably certain that it will be lower based on what we can see and that's the transparency we're providing to the market. Good

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

morning. It's Adam Chapton from Green Street. I have three questions. How much income is associated with the GBP 200,000,000 of low conviction assets that you've identified?

[Lawrence Hutchings, CEO at Workspace Group]

They're typically lower yielding, aren't they Dave? Below our marginal cost.

[Dave Benson, CFO at Workspace Group]

Yes. Mean broadly, it's probably about 5%, six % yield on those.

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

Okay. That's a sort of top line And just talking about sort of sources and uses of capital to an earlier question, you talked about what you might do with the sort of excess from disposals and then the CapEx run rate. You also mentioned lower leverage or leverage reduction in the slides. Is that I mean, it's a good thing to say, but is that likely to be material?

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

Are talking about reducing net debt over the next two years because if we leave LTV aside because who knows what happens to the B, I guess, ICR and debt to EBITDA are likely to worsen. Where do you see the net debt trajectory in the next two to three I

[Lawrence Hutchings, CEO at Workspace Group]

think, Dave, we've already been lowering reducing net debt, as you've seen, but I'll let Dave answer that.

[Dave Benson, CFO at Workspace Group]

Yes. Can say exactly that. I mean over the last couple of years, we have been making significant disposals, and we're saying we continue to make significant disposals. We have also been investing CapEx, both in larger scheme but also in smaller value add opportunities. But the net has allowed us to reduce net debt.

[Dave Benson, CFO at Workspace Group]

And I think over the next couple of years, we'd expect to see something similar.

[Lawrence Hutchings, CEO at Workspace Group]

Yes. Okay. We're not standing here saying we're going to go out overnight and do a wholesale reduction of leverage. But what we're saying is we're going to look, once again, dispassionate and clinically, as we sell these assets, is the best use of those proceeds fundamentally? Where do we get the highest margin?

[Lawrence Hutchings, CEO at Workspace Group]

We know with the assets that we've already sold in this last year, the average yield of those was 5.2%. We've just refinanced our revolver at 6.5%. So there's a pretty compelling argument as you would appreciate in the absence of having something better fundamentally as you appreciate. But we're going to manage those uses sources and uses very, very, very carefully. But we have our own leverage.

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

Sure. Just the last one. You talked about cost of customer acquisition increasing, it sounds like in a sort of structural manner on the marketing side. So the discounts that you've been offering on the website sort of there's a 20% discount, I think, in earlier in the year, and then it's first month free, I think, is up at the Are they so you mentioned that's generated a lot of interest. Is that included in your customer acquisition cost analysis? Or is that that you think of it?

[Lawrence Hutchings, CEO at Workspace Group]

Yes, it is included in our cost of customer acquisition, any incentive we're providing. The thing I found fascinating with my retail background is once again, we're in a we've got customers and we've got a product fundamentally. And the principles are largely similar and Will is in the front row, as I said, who's responsible for all of that. But we if you take the 20% promotion that you referred to earlier, that was one of the things we put in place not long after I joined to stimulate. That was one of the strategy price levers.

[Lawrence Hutchings, CEO at Workspace Group]

And what was fascinating is that promotion actually we made a big deal on the website. Our competitors were doing similar things to be frank with you, but we needed to differentiate. So we weren't doing the same thing, but we needed to differentiate. We had a different idea. We provided the 20% discount.

[Lawrence Hutchings, CEO at Workspace Group]

It was on specific units in specific buildings. So it might have been a unit that had very impaired natural light for example or there was a configuration issue or it was up a few stairs from a lift landing and so accessibility was challenged in some way or in a geography where we know we've had some challenges fundamentally. So we're very specific about units. But Will, I'm just trying to remember in the end, how many deals did we do on that 20% promotion? It was low, wasn't it?

[Will Abbott, Chief Customer Officer at Workspace Group]

Yes. It wasn't a huge volume. But what it did do is it got a lot of people into the website and it moved people through the journey. And obviously, when we do viewings, we show people one space in one building. We'll often try and show them others.

[Will Abbott, Chief Customer Officer at Workspace Group]

So a lot of customers that came in on a viewing for a promo site or a promo space actually ended up converting in a different space. So as a means of driving conversion and bringing that forward, it worked very effectively.

[Lawrence Hutchings, CEO at Workspace Group]

So I liken it to the sale rail in the store and the sticker on the window. Effectively, we've all had that experience We've got in the sale isn't what I want. But while I'm there and as you appreciate, if someone's gone through the trouble of going through our website, speaking to one of our sales representatives, they're there to take space, yes. And getting back to the point that was made earlier about price elasticity, what they want is home for their business so that they can scale and grow effectively. So pricing is an important measure.

[Lawrence Hutchings, CEO at Workspace Group]

It's driving demand. And as we mentioned in that funnel, effectively, it's largely mathematical. As I mentioned, we put a hundred in, we get 20 deals out. That's so putting more demand into that funnel, which is something Will's been doing a great job of, and we're experimenting constantly. So see if one thing works, Or if it doesn't, we can change it immediately on the website, which is a huge advantage.

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

Sorry, just one follow-up on that. So speaking to other flex providers, admittedly, maybe with a slightly different product to you, it seems like rent freeze have settled out at 8% to 10% in Central London. I think traditionally, you wouldn't have offered any rent freeze. We talked about this temporary offer. As things stabilize, do you assume that you'll go back to no rent freeze? Or should we assume

[Lawrence Hutchings, CEO at Workspace Group]

majority of our deals still don't have incentives in them, to be frank with you, getting back to this price elasticity. These are people who are driven and they're in a hurry often because the nature of those businesses, they're very dynamic. They don't have property directors working for them. They don't have advisors. There's no real estate agents advising them.

[Lawrence Hutchings, CEO at Workspace Group]

Might be an opportunity for the people on the webcast, I don't know. But it therefore, you don't have the same level of sophistication around properties if that makes sense. But they are like all of us. They see a promotion and it's in something that they want and naturally, it does trigger something. And we do acknowledge that and that is another reason why we're saying these London growth areas and where our properties are located are typically where there's less competition.

[Lawrence Hutchings, CEO at Workspace Group]

But where we are in markets, where there is a lot of competition, we are feeling there's no question the impact of some of the price measures that our competitors are in. So we will meet those we're going to be pragmatic. We need to build occupancy to rebuild tension. But we have many markets where we don't have competitors and that's our focus and that is one of our considerations we're looking at investing. What does the competitive profile look like?

[Lawrence Hutchings, CEO at Workspace Group]

But it works both ways and I think this is important mentioning. I mentioned Mayor Street and Hackney earlier, not far from where I live. If you go back three years or four years ago, there were four competitors in Mayor Street. Second Home, WeWork, Nettle Building, and ourselves. Today, there are two.

[Lawrence Hutchings, CEO at Workspace Group]

So we've been a net beneficiary of contraction and competition in those markets. And we're actually at a point where potentially there's a growth opportunity there. Now Hackney is a very good SME market. So it's I think it's important to stress, yes, we're seeing competition, but that's increasingly these central areas as we mentioned. Areas like that we've seen contraction and we're a net beneficiary of that contraction.

[Lawrence Hutchings, CEO at Workspace Group]

And we think there's going be some more contraction in some of those areas. And as you appreciate, we mentioned we're in a very, very good position to compete. Our margins we think are double to triple because we own the buildings to someone who's a traditional capital light liability heavy model, which in London is still the majority of the competitors. They're not operating agreements like a hotel, they're signing leases. So their margins as there is we think half to a third of our margins.

[Lawrence Hutchings, CEO at Workspace Group]

So we're in a very strong position. But we'd rather than fight on price, invest in product. Because owning the real estate, we get a return on the investment in the product.

[Neil Green, Analyst at J.P.Morgan Cazenove]

Morning. Neil Green from JPMorgan.

[Lawrence Hutchings, CEO at Workspace Group]

Hi, Neil.

[Neil Green, Analyst at J.P.Morgan Cazenove]

Hi. Just one question on the accelerate element of the strategy, please. Is it possible to get an idea of the range of returns you underwrite on these high conviction versus conviction versus low conviction assets, please?

[Lawrence Hutchings, CEO at Workspace Group]

Well, if you look at the history, the high conviction buildings have delivered double digits. Clearly, the conviction buildings at various stages of the life cycle have also delivered similar levels of return. I think in the world that we're in today, naturally, we're going to be that's more competitive and there's been a little more uncertainty, which is affecting some SME behaviors. We haven't nailed down to what they clearly need to exceed our cost of capital, there's no question, as you would appreciate. But we are very confident that the conviction buildings with investment and the high conviction buildings can deliver very, very solid income growth and our assets start from a good place.

[Lawrence Hutchings, CEO at Workspace Group]

We're not talking about yields in the threes and fours as you would appreciate. So we believe we can deliver a compelling income led and income growth equity story of when we get the configuration of our portfolio and our operations right.

[Neil Green, Analyst at J.P.Morgan Cazenove]

Thank you.

[Lawrence Hutchings, CEO at Workspace Group]

Any questions off the webcast, Claire?

[Clare Marland, Head of Corporate Communications at Workspace Group]

Yes, I've got three questions. From Vencey at Kempen, you've highlighted that you've introduced a ready to go product for very early stage businesses. We've seen U. K. Peers show strong performance for fully managed space on a larger scale. Is this also something you've considered?

[Lawrence Hutchings, CEO at Workspace Group]

I think it's from our perspective, we've seen a market opportunity at the smaller end. As you know, we provide an all studio or all workspace model. We don't provide hot desking. So traditionally, we've been in the five people to 100 people market. We've seen an opportunity in that smaller.

[Lawrence Hutchings, CEO at Workspace Group]

We're seeing good demand in sort of 300 square feet suite market or studio market. We'd like to approach that. We believe there's less competition there and that market is attractive to us. It's a logical extension or adjacent market to what we already do. When we talk about larger spaces, we have larger customers fundamentally.

[Lawrence Hutchings, CEO at Workspace Group]

That is where we're seeing more competition. And that's why we've seen it's been one of the drivers with large units vacating. I think that market will remain competitive in the short to medium term. So we would rather focus on a market where there is less competition that speaks to our sweet spot effectively. And the great thing about these smaller start up businesses is we have a history of these people scaling with us.

[Lawrence Hutchings, CEO at Workspace Group]

And that's an opportunity they take more and more space. They stay with us for a long period of time. Our average customer, I think, is with us five years, for example.

[Clare Marland, Head of Corporate Communications at Workspace Group]

Second question is from Paul May at Barclays. What gives you confidence that you can recycle capital out of the £200,000,000 worth of assets that you've mentioned were lower yielding? Who's buying these assets as buyers will also face the higher marginal cost of capital?

[Lawrence Hutchings, CEO at Workspace Group]

And that's we've as I say, we've sold GBP 100,000,000 of these assets already. Typically, they're assets that have lower occupancy. So the yields we're talking about are initial yields fundamentally, as you would appreciate. Someone sees an opportunity that we don't see, the buildings don't fit our criteria. Often the types of uses, alternate uses are a very, very large part of who we're selling these buildings to.

[Lawrence Hutchings, CEO at Workspace Group]

So whether it's being sold for residential conversion, whether it's an educational use, whether it's an owner occupier effectively. We're talking about small lot sizes. If you take 200,000,000 over the number of buildings we're talking about, you sort of £8,000,000 to £10,000,000 a lot effectively. So you'd appreciate that is a sector of the market which is seeing liquidity at the moment. A lot of high net worths and those sorts of people can access these buildings, lots of owner occupiers, as we mentioned, educational uses, research, etcetera.

[Lawrence Hutchings, CEO at Workspace Group]

What we're clear on is we don't like selling to competitors as you'd appreciate. So we're very, very clear on that. But we've got a lot of control over that and we're confident we can execute. In fact, Richard, our Investment Director is in the room, I can see him nodding profusely. So yes, it's hopefully that answers Paul's question.

[Clare Marland, Head of Corporate Communications at Workspace Group]

Thank you. Follow-up another question on capital recycling from Justin Bell at Deutsche Numis. He's picked up on some comments made at Sirius' results earlier in the week where the CEO said that they were keen to engage on some of our assets. What's your perspective on these comments? And is capital recycling a short or medium term goal?

[Lawrence Hutchings, CEO at Workspace Group]

I was half wondering that Andrew is going pop in today. I'd have to tell him that this is not one of the buildings we want to sell. But the look Andrew, know Andrew well and we like Andrew a lot and we admire what he's done with that business. The short answer is we're dispassionate about who we sell these businesses to as I said and we will continue to be so. We recently sold Archer Street which I showed on the slides was to Ian Hawkesworth.

[Lawrence Hutchings, CEO at Workspace Group]

He bought that building. So we're certainly we're engaged with Andrew at the end of the day, who's going to give us effectively the best price on that disposal and that's going to drive our decision making. We have interest in some of those properties already, but we don't have a problem engaging with Andrew. Any other questions for the webcast? No.

[Lawrence Hutchings, CEO at Workspace Group]

Any other questions from the room? It just leaves me to close. I just want once again to thank everybody for attending today's presentation. I appreciate it's been longer than normal. I appreciate your focus and attention.

[Lawrence Hutchings, CEO at Workspace Group]

I really appreciate the questions. And my last thank you is to our team back in Kennington and across our 63 properties. They do a phenomenal job day in day out. I want to appreciate I want to thank them and show our appreciation for all their hard work and for the work that's gone in behind the results from last year and the work that's going in already in terms of delivering against our strategy. We're asking people to do a bit more.

[Lawrence Hutchings, CEO at Workspace Group]

We appreciate it. Thank you very much. Thank you for your time.

Participants

Executives

• Lawrence Hutchings, CEO
• Dave Benson, CFO
• Will Abbott, Chief Customer Officer
• Clare Marland, Head of Corporate Communications

Analysts

• Denese Newton, Director - Real Estate at Stifel Financial Corp
• Analyst
• Bjorn Zietsman, Director - Equity Research Real Estate at Panmure Liberum
• Adam Shapton, European Research Analyst at Green Street Advisors, LLC
• Neil Green, Analyst at J.P.Morgan Cazenove