WOTSO Property (ASX:WOT) used its fiscal 2026 first-half earnings call to outline progress in scaling its flexible workspace platform alongside a property portfolio designed to benefit from operating growth over time. Management emphasized disciplined expansion, stabilizing overhead, rising ancillary revenue, and a shift in market conditions that is lowering fit-out costs through increased landlord contributions.
Network expansion and operating leverage
Management said the business has been in a “deliberate scale” phase over the past three years, expanding from 19 locations across Australia in December 2022 to 35 locations across Australia and New Zealand today. The company described the growth as an execution of its strategy to build a scalable operating platform supported by a real estate backbone, rather than an effort to add footprint for its own sake.
Management also flagged that a dispute relating to the North Strathfield location has materially impacted performance there and is the reason an adjustment was shown in its presentation materials. The dispute remains ongoing and is currently expected to be heard by the court around June or July, the company said.
Fit-out economics shift as landlords contribute more
Executives pointed to a market change they said is improving the economics of new sites: more landlords are contributing toward fit-outs. The company said fit-out costs have fallen to about AUD 450 per square meter, roughly 50% lower than historic levels.
In response to a shareholder question on sustainability of the lower capex level, management said current pipeline opportunities include landlord contributions, and executives indicated they are being selective. One executive said the company’s position is that if the landlord fit-out contributions “and the work is not there,” they are not taking up those locations, adding that in the short to medium term they would expect costs to continue to go down, though that could change if the market shifts.
Ancillary revenue growth led by meeting rooms and Virtual Office
Management described ancillary revenue as an increasingly important component of the FlexSpace platform. For the half, revenue from meeting rooms, parking, and Virtual Office rose to AUD 2.8 million. Ancillary RevPAD increased 22% to AUD 59 per desk, and ancillary income represented 16.4% of total flex space sales, up from 13.5% previously, the company said.
Executives highlighted early traction in Virtual Office. Management said Virtual Office revenue reached AUD 600,000 in January performance, which it said annualizes to just under AUD 1.5 million. During Q&A, management said Virtual Office revenue has continued to grow month-on-month and noted the introduction of a “registered business service,” which management said the company has been able to pursue due to its AFSL and new laws around KYC.
Asked how high ancillary services could become as a percentage of total revenue, management did not provide a specific target, but suggested Virtual Office differs from desk and office revenue because it does not face the same capacity constraints. Executives also said Virtual Office has not shown the same seasonality as desk and office revenue, which tends to soften during holiday periods given the month-to-month nature of memberships.
Financial results: revenue up, overhead down, EBITDA higher
For the fiscal 2026 half year, management reported total revenue increased 3% to AUD 24.6 million, supported by a 7% increase in flex-based sales. Cost of sales, including rent expense, rose 6% to AUD 15.6 million. Overhead and administrative costs decreased 7% to AUD 3.9 million. Underlying EBITDA increased 6% to AUD 5.4 million.
Management said revenue growth was driven predominantly by nine new startup locations, which lifted desk inventory to more than 8,000 desks and added over AUD 1 million of sales. Group RevPAD (including startup locations) was flat at AUD 363 per desk. Excluding startup sites, same-location RevPAD increased 3% to AUD 375 per desk, which management attributed to:
- continued occupancy growth in developing locations,
- improved pricing in developing and mature locations, and
- greater emphasis on ancillary streams such as meeting rooms and Virtual Office.
On costs, rent expense on the leased FlexSpace portfolio rose 14% to AUD 5.5 million, which management attributed to new leased startup locations and rent increases tied to a percentage of revenue. Management said other operating expenses increased 2%, mainly due to new startup locations coming online. Across the broader group, operating costs fell 7% as the company cited expense reviews, supplier negotiations, and operational efficiencies, with similar comments applying to the 7% decline in overhead and administrative costs.
Balance sheet, Yandina sale, and capital management
Management said the group’s strategy is supported by property holdings and what it described as a healthy level of gearing. Net assets were reported at AUD 30 million, down from June. Management attributed the decrease primarily to a reduction in the valuation of the Yandina property following its sales campaign outcome and to balance sheet impacts from New Zealand dollar-denominated items. Fit-out property and equipment also declined as depreciation exceeded capex spend, partially offset by landlord contributions on new locations.
The company said it divested the Yandina asset in February after the 31 December period end, selling it for AUD 27 million versus a June carrying amount of AUD 29.25 million. Management said the sale was intended to support growth of the FlexSpace business.
Borrowings were described as not materially changed during the period, but management highlighted a restructure and extension of an AUD 44 million cross-collateralized facility with NAB into three separate facilities, with an effective margin of 1.73%. The restructure carved the Dickson and Symonston assets into standalone facilities.
At 31 December, borrowings were AUD 33 million, including AUD 23 million with maturities within 12 months and AUD 10 million related to the Yandina facility, which management said was repaid after period end. Management said it expects to renew the expiring facilities on similar terms with existing lenders, except that it is exploring shifting the Hobart and Newcastle facility from ANZ to NAB. Net gearing was just under 32% at 31 December and, management said, decreased to 26% after period end following the Yandina sale and repayment of the related facility.
In Q&A, management said the absence of Yandina’s net rental income would likely cause free cash flow to dip in the short term, though it noted the offset of interest expense savings and pointed to cost reductions and the expected ramp-up of new sites over time. Executives also said proceeds from the sale have bolstered cash, which they plan to redeploy into growing the FlexSpace business, while in the interim using the funds to offset debt in redraw facilities and earn interest on short-term deposits to reduce net finance costs.
About WOTSO Property (ASX:WOT)
Wotso Property is a real estate investment trust externally managed by BlackWall Fund Services Limited. It invests in the real estate markets across Australia. It primarily invests in the industrial, retail and commercial Australian properties, and unlisted property securities. Wotso Property is based in Australia.
