Not that boring

Servcorp has a simple business : co-working.
They mainly lease large office spaces from office owners and then rent out small office spaces to tenants.
And they do it on a global basis, with offices in Australia/NZ, Asia, Europe and the US*.

This is a tough business, as Servcorp mentions that there is a churn rate of 60 % per year.
Apparently, this is not only about renting office space for their clients, but also offering services (differentiation seems to be about the offered services).

Obviously, they are not alone in this market.
But , they do it much better than some of their competitors (We Work globally or Victory Offices locally) which are struggling.
I have not yet been able to find the main reasons why, but their past results are a good illustration of their success.

Listening/reading some past comments, some people see them as too conservative.
And it is true that their number of offices has decreased between FY 18 and FY 20 and has stabilised since then.

2 interesting elements which show that the company may turn more dynamic :
- in Feb 23, it mentioned its intention to recommence expansion of global footprint and plans to spend 60 m $ on expansion over the next 18 months,
- at its AGM this month, the company mentioned that it will do a strategic review of its Middle East business**, which seems to be very successful.

Some examples which show that the company is doing well in the short term :
- in FY 23, they had an increase of their results (and + 10 % for their dividend), due in particular to a positive pricing effect,
- the company has also just revised upwards its guidance for FY 24, given the good trend for the first 4 months of FY 24 and expects to increase its dividend by 14 % in FY 24 (to 25 c)

One major difference with a lot of real estate companies : Servcorp has no debt and in fact, a large net cash position.
So they largely benefit from the increase in interest rates.
My understanding is that they do not own many offices (Servcorp is mainly a tenant), so they are not exposed to the devaluation of offices.

I am not a big fan with their disclosure, as the company is mainly focusing on underlying trends.
I prefer to focus on published data, in particular for free cash flow.
Based on published data, they have a free cash flow yield of around 12 %, which gives a good coverage for their dividend.

* according to their disclosure, they hardly break-even in the US, but are profitable in all other geographic areas, with a significant part of their profit coming from North Asia.
** not a new idea as it was already mentioned in an AFR article in 2019.