Saba Capital, the activist hedge fund led by Boaz Weinstein, has a new target: Workspace Group , a U.K. real estate investment trust (REIT). The New York-based fund manager is calling for a managed wind-down of the trust, which operates office buildings in London and the south-east of England. In a letter to the Workspace board, Saba — which holds 13.5% of the trust’s shares — said the company’s “highly persistent” discount to net asset value of around 45% is now “entrenched.” Tougher refinancing conditions for commercial real estate and a “highly concentrated” and “illiquid” shareholder composition make it impossible for Workspace’s management to unlock value, Paul Kazarian, a partner at Saba, said in the letter. Saba founder and chief investment officer Boaz Weinstein first highlighted Workspace as a potential opportunity at the Sohn London hedge fund conference in November. Now, the activist investor is stepping up the pressure, giving the board until February 20 to adopt its proposals in full or face further escalation. Workspace owns and manages 73 office assets across London and the south-east of England, totaling around 4.3 million square feet. WKP-GB 5Y mountain Workspace Group. Saba sees Workspace’s concentrated shareholder base as an “obstacle to future growth” which will continue to discourage investors from building new positions and hamper future fundraising efforts, Kazarian said in the letter. “It is unlikely to change organically, and in its current form, it reinforces the impression that the Company lacks a viable long-term path within capital markets,” he wrote. Instead, Saba believes a staged asset sale over 12 months would allow Workspace to repay debt and deliver a “timely and substantial” return of capital to shareholders, adding that recent deals show high-quality commercial real estate can be sold at or above book value. “Public markets investors are requiring a 7.0% dividend yield to invest in the company’s shares, among the highest dividend yields in the U.K. REIT sector, where the industry average is 5.5%,” Kazarian said. “Private market investors have demonstrated willingness to acquire high-quality assets at lower targeted returns, which could result in much higher values for the company’s assets in a competitive sale process.” ‘Out of touch’ Workspace CEO Lawrence Hutchings acknowledged a “tough operating environment in our market” in its half-year results statement in November. But one analyst called the proposals “out of touch” with the dynamics of the U.K. real-estate sector. In a note, Panmure Liberum analysts criticized Saba’s plan, suggesting it “fundamentally misunderstands” the nature of Workspace’s business. “REITs are different beasts,” Panmure analyst Tim Leckie wrote. The 12-month timeframe for the asset disposal is “out of touch” with liquidity and transaction constraints in commercial real estate, while its portfolio of largely short-term lets requires local market knowledge and in-house expertise, he continued. “The only path to value for WKP shareholders is backing CEO Lawrence Hutchings and his operational strategy,” Leckie said in the Jan. 14 note. Workspace declined to comment on Saba’s proposals when contacted by CNBC. EWI-GB 1Y mountain Edinburgh Worldwide Investment Trust. The dramatic break-up plan is the latest salvo in Saba’s long-running fight against the boards of U.K. investment trusts, which are known as closed-end funds in the U.S. The $6 billion hedge fund firm, which trades credit relative value opportunities, has built up large stakes in several trusts, often with the aim of overhauling the boards in order to drive change and slash the large NAV discounts. One current high-profile battle centers around Baillie Gifford’s tech-focused Edinburgh Worldwide Investment Trust . EWIT shareholders will vote later this month on plans to remove the existing board and replace them with Saba-backed directors.
