Workspace NAV surges on soaring demand for London office space - UPDATE

12th Nov 2014 10:24

London office space provider Workspace impressed with its first-half results that showed its net asset value (NAV) well ahead of expectations thanks to strong demand and income growth across its portfolio.The company later announced it had raised gross proceeds of £96.5m, almost 10% of its previous share capital, in a cash-box placing on Wednesday at a price of 660p per share.Profit before tax rose 61% to £173.7m in the six months to 30 September, with adjusted underlying earnings per share up 27% to 8.4p and the interim dividend per share hiked 10% to 3.89p.NAV per share rose 20% to £5.97 as its underlying properties saw a 15% valuation uplift to £1.23bn, with a like-for-like capital value per square foot up 12% to £227, excluding October's disposal of a portfolio of ten non-core industrial properties.Workspace enjoyed yield compression of 40 basis points, with like-for-like net initial yield hitting 6.0% at the period end, from 6.4% at end-March."This has been a great first half of the financial year, with continued strong demand and income growth across the portfolio," said chief executive Jamie Hopkins.He pointed to lettings and pricing well ahead of expectations from two newly opened centres, the Pill Box in Bethnal Green and ScreenWorks in Islington.With two further business centres opening on Bankside and Wandsworth in the second half of the year, analysts scrabbled to increase their full-year forecasts.Hopkins added: "We are progressing well with the next phase of our redevelopment and refurbishment activity, as well as looking to acquire further complementary properties in strategic locations across London where we can utilise the strength of our brand, marketing and asset management skills to generate superior value for our shareholders."He said the proceeds of the placing would be used to continue refurbishing the portfolio, which should enhance rental income and values, and to make further acquisitions "in core London locations where there is an opportunity to apply the Workspace model to drive rents and values".This would see at least 40% of the portfolio either acquired, redeveloped or refurbished between 2012 and 2019.Peel Hunt said the company was "shooting the lights out" with a NAV increase "well ahead" of expectations, and which followed a 43% increase last year."We provisionally increase our full-year NAV forecast by 11% and expect today's 9.99% cashbox placing to be well supported."Analysts predicted a tight discount for the placing, with a price likely to be ahead of Tuesday's close of 670p."Despite the large gains over the past 18 months we see significant scope for upside. The shares now trade on a small discount to our new, provisional EPRA NAV forecast of 680p and we continue to expect very large NAV growth."Even though the shares trade on a 12.2% premium to its NAV, Investec added that Workspace remained "well positioned to continue benefiting from the strong fundamentals of the London property market" and reiterated its 'buy' recommendation.