Saba Capital has requested Workspace Group (WKP) wind down its £779m portfolio and return capital to shareholders within one year.

Paul Kazarian, a partner at the activist investor responsible for closed-ended funds, outlined a plan for the real estate investment trust (Reit) of London-based offices to fully dispose of its assets over the next 12 months, warning that Saba would ‘consider all options available’ if it did not receive a favourable response by 20 February.

A key reasoning for the request is Workspace’s entrenched discount, which currently sits 45% below its net asset value (NAV) after suffering a share price fall of 44.9% over the past five years.

‘Considering the company’s persistent trading discount, refinancing challenges, and structural impediments in its shareholder base, the current model no longer represents the best path to value creation,’ Kazarian said in an open letter.

‘A managed wind-down would allow for a disciplined, phased realisation of the value embedded in the company’s assets.’

He said that the cost of capital for property trusts has ‘fundamentally shifted’ in recent years, with lenders becoming more selective and refinancing terms more expensive. This has led Workspace to continue struggling ‘despite a stable operating platform and capable management team’.

‘Continuing under these conditions exposes the company to avoidable risks,’ Kazarian added.

He also critiqued the high concentration of shares in the hands of a small number of holders. This disproportionate ownership ‘presents a multitude of challenges’, including a misalignment with long-term expansion, weak signalling to the market, limited liquidity, and a reduction in the free float, Kazarian said.

Workplace’s largest shareholder, the London and Amsterdam Trust – a Cayman Islands-based company owned by British real estate developer Nicholas Roditi – upped its stake in the Reit to 29% on Monday. Saba owns a smaller 13.5% of Workplace’s shares.

Saba is, however, a top shareholder in several investment trusts itself, including Edinburgh Worldwide (EWI), where it used its 30% stake to request a vote to remove the board which is taking place next week.

It also owns over 30% of Herald (HRI), who is launching a 100% tender offer to see off ‘short-term shareholders’ – namely Saba.

Speaking of Workplace’s top-heavy shareholder register, Kazarian said: ‘This shareholder composition is itself an obstacle to future growth and capital-raising efforts. 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.’

Given Workplace’s financing headwinds, Kazarian said the Reit’s assets would be better off in the hands of ‘a larger acquirer or acquirers with the resources available to maximise their cashflows, reduce operating costs and finance them at a lower cost’.

He added that Saba would ‘welcome the opportunity to assist in any way possible, including facilitating introductions to potential institutional buyers for the assets’.

Kazarian suggested selling the easiest-to-market assets within the first three months and using the proceeds to reduce leverage, before disposing of core assets in the following six months to fully remove its debt. He expects Workplace to fully dispose of all its assets and complete the wind-down process within nine-to-12 months.

Berenberg analyst Tom Musson said Saba’s wind-down proposal had ‘theoretical appeal’ but would be ‘extremely challenging to execute’ in reality given the short timeframe.

‘Workspace’s 60‑asset portfolio is operationally complex, and management is already working hard to execute £200m of disposals over two years – making a £2.3bn sale programme in 12 months highly unrealistic, in our view, particularly from assets with greater capex requirements,’ he said.

However, Kazarian argued in the letter that a managed wind-down would ‘allow NAV to be realised directly rather than waiting for a persistently sceptical market to recognise it’.

Saba has influenced the closure of other property trusts it invests in, such as Life Science Reit (LABS). The investor in labs, offices and manufacturing facilities in the life sciences sector traded on a steep discount of 48.3% when it announced its intention to close in September, and continues to languish 45.2% below its NAV today.

It has been a disappointing holding for shareholders since listing in November 2021, with shares down 58.9%.