WOTSO Property enters new era as asset management brought in-house

After reporting a turnaround in its fortunes with a $4.6 million statutory profit in the December half, real estate investment trust and flexi-workspace company WOTSO Property (ASX: WOT) has restructured its leadership and management arrangements in a bid to capitalise on new opportunities.

Until now WOTSO Property has been externally managed by Blackwall (ASX: BWF), which owns an estimated 30 per cent of the listed entity, stapled to the BlackWall Property Trust.

It is an arrangement that cost around $1.9 million in management fees in the December half, or around half of WOTSO's total administration expenses.

Whilst Blackwall is maintaining its stake in the group, independence is the name of the game from now on for WOTSO after acquiring the the management rights from its major shareholder, with Blackwall and WOTSO joint managing director and COO Jessie Glew becoming CEO of the rejuvenated group.

The other joint managing director and executive director, Tim Brown, will leave the company alongside non-executive director Robin Tedder, with Paul Tresidder will join WOTSO as a non-executive director.

"Acknowledging that the external management of WOTSO Property served a purpose, the directors believe that this has become an impediment to WOTSO’s future growth and that it is time for WOTSO Property to move forward as a fully independent standalone entity," the company stated.

Jessie Glew tells Business News Australia the board is very excited about the changes given the opportunities in the flexi-workspace industry, with plans to acquire and repurpose distressed assets in the suburbs and regions of Australia and New Zealand.

"Now WOTSO doesn't pay fees to BWF, and we can be in a better position to buy real estate or roll out more WOTSO spaces," she says.

"We are looking to do a capital raise, whether that's in WOTSO or through a subsidiary of WOTSO Property," she adds, noting that this will require the conservation of funds, so a decision has been made to cut distributions to achieve that goal.

The business also plans to leverage the WOTSO WorkSpace business to produce higher returns in the real estate the group owns, and strategically lease third-party sites to expand the WOTSO WorkSpace business.

"We have been pleasantly reassured by a recent valuation of the WOTSO operating business at $80 million which we consider to be a realistic valuation of the current business which sets us in a good position for further growth," the group stated in today's announcement.

The WOTSO operating business now reports annualised turnover of almost $29 million, up from $25.5 million in December 2022. Inclusive of its interest in a property in Pyrmont, Sydney, the company's property portfolio is valued at more than $300 million.

As of December 2023 WOTSO owned 15 properties, not including its investment in the Pyrmont property, and had 25 sites with 7,307 desks with the lion's share in Sydney. Net rental was up 6 per cent in the period to $12.4 million.

In the last six months of 2023 the company launched four new WOTSO locations, including its entry into the New Zealand market with the Takapuna property in Auckland purchased late 2022, alongside "favourable lease arrangements" Toowoomba (QLD), Botany (NSW) and Robina (QLD).

"While the introduction of new locations initially impacts total occupancy rates as we grow our member base, we concluded the half-year with an occupancy rate of 77 per cent," the company said.

In June the occupancy rate was higher at 82 per cent, and at the end of 2023 the company's non-WOTSO property portfolio maintained a robust 96 per cent occupancy.

For comparison, in its half-yearly results today Cromwell Property Group (ASX: CMW) reported a 93.4 per cent occupancy, while rates recently reported by Centuria Office REIT (ASX: COF) and Dexus (ASX: DXS) were 96.2 per cent and 94.5 per cent respectively.

"Nevertheless as our growing revenue streams drive net rental income growth to accelerate faster than the increase in borrowing costs, WOT remains in a good position to weather the higher interest rate environment and produce excess funds from operations," the company said.