Workspace hikes dividend 40% despite profit dip

London-focused serviced office group Workspace upped its dividend by a whopping 40% as annual profits fell due to a smaller property valuation uplift but its net asset value per share swelled 3.3%.

The EPRA net asset value per share of 953p was towards the upper end of the wide range of analyst estimates from 812p to 979p.

The FTSE 250 group bumped up its final dividend 40% to 14.27p to lift the total dividend by the same degree to 21.07p, which the board said reflected "strong financial results and confidence in the outlook for the business".

The total rent roll increased 14.5% to £89.5m from rental growth at like-for-like properties and a strong letting performance at recently completed projects, or 13.7% on a like-for-like basis, while rent per square foot was up 12.9% on a like-for-like basis.

There was an underlying increase of 2.1% in the property portfolio to £1.8bn.

"This year, more than ever before, we have seen increasing evidence that our strategy is working," said chief executive Jamie Hopkins.

"Demand, from all types of businesses across London, is firmly moving towards the highly designed and super connected space let on personalised and flexible terms that Workspace offers."

Despite the uncertainty in the market following the EU Referendum, Hopkins said the company was confident of its ability to deliver long-term shareholders value, with a bulging pipeline of refurbishments and redevelopments of around 1m square feet over the next three years.

"We continue to see healthy demand for our space and we have the financial resources to take advantage of acquisition opportunities."

Profits before tax for the year of £88.8m were down significantly on the £391.3m the previous year when the company had enjoyed a large increase in the fair value of investment properties.

Adjusted underlying earnings per share were up to 30.6p from 26.8p.

Chairman Daniel Kitchen stressed that despite the Brexit vote, the company feels London remains "the right market" for the business and still holds significant growth opportunities.

"Clearly, this is not without risk, and share prices across the real estate sector were impacted following the EU Referendum last June amid concerns that London would lose its unique attraction as a centre for business. Operationally, we saw no such impact on demand but we remain alert to the risks that further political and economic uncertainty could bring to the business."

Broker Numis this week noted that Workspace is facing more competition as interest in flexible working increases apace, with British Land the latest to launch its own offering in London.

"Our concern for WKP is not the credibility of flexible working as a product, indeed we see the phenomenon as a structural change for the office market which continues to play out, but instead the dramatic increase in supply which has responded to increased interest."