Saba Capital, the activist hedge fund seeking to take control of Edinburgh Worldwide, has launched its next campaign, pressing Workspace Group (WKP) to enter a managed wind-down.
Saba holds a 13.5% stake in the £786m real estate investment trust (REIT) and flexible office space provider. It has issued an open letter to its board urging them to sell its portfolio over the next year, repay debts and return capital to shareholders.
Workspace shares have never recovered from the 2008 financial crisis before which they peaked at £36.71, before crashing to 96p in 2009 and slowly recovering to £12.68 five years ago. Since then they have sunk to 405p.
Saba portfolio manager Paul Kazarian said the shares had traded significantly below net asset value for years despite Workspace having a stable operating platform and capable management team.
He said Workspace’s 45% discount was the widest of 19 UK REITS and signalled the market’s lack of confidence that the company could deliver equity value. A steady disposal programme or sale of the entire portfolio to larger acquirers with lower financing costs would allow the “NAV to be realised directly rather than waiting for a persistently sceptical market to recognise it”.
It would also give a clean exit to other shareholders who may have become trapped in the illiquid stock, Kazarian said.
He also claimed the 7%-yielder might struggle to maintain its dividend once it refinanced its below-market-rate borrowings as they mature in the next few years.
Despite the uncertain economic outlook, demand for high quality income-producing assets remained strong, which the Saba partner said meant a fire sale of assets at distressed prices could be avoided.
Kazarian “respectfully” requested that the board adopt his proposal by 20 February at the latest. “Should no market announcement be made by that date, we will consider all options available to us.”
The deadline is a month after the 20 January general meeting which New York-based Saba has called at Edinburgh Worldwide (EWI) as it attempts for a second time in a year to oust the investment trust’s board and appoint its own nominees. Gaining control of the £781m global smaller companies trust would give it access to the valuable 15.9% exposure it has to Elon Musk’s SpaceX.
Saba owns stakes in dozens of UK investment companies having bought in while many stood on wide discounts before pushing their boards to take steps to improve shareholder returns. It scored its biggest success yet in November when Smithson (SSON), a £1.6bn rival to EWI where it holds 16% of the shares, announced plans to convert to an open-ended fund to allow shareholders to exit at NAV.
Our view
Richard Williams, senior analyst at QuotedData, said: “It’s no real surprise that Saba is pushing for a managed wind-down here given the wide disconnect between the book value of Workspace assets and the value that the market is putting on them. However, this is an interesting extension to Saba’s recent strategy – targeting undervalued trusts/companies that have a catalyst to quickly realising a profit, including SDCL Energy Efficiency Income (SEIT) and Life Science REIT (LABS). In this case, however, it is actively looking to initiate that. We wait to see the reply from the Workspace board and other major shareholders.”
