Canary Wharf Group has lost more than £900mn in value as a result of a £553mn loan deal.
The developer and manager for the London Docklands estate, owned by Brookfield and Qatar Investment Authority, reported on Thursday a 14.7% annual decline in the value its property holdings. This will amount to £6.8bn (£6.6bn) in 2023.
Independent valuers marked down the office buildings that make up most of the portfolio to £4.3bn. This was offset by increasing retail values and stable residential assets.
The rise in interest rates has impacted the value of commercial property. There are also concerns about the state of the office sector. Canary Wharf is also facing challenges due to the departure of tenants as the estate tries to diversify.
The group has a net debt of £3.7bn. The group’s efforts to refinance its upcoming loans are a prominent example of the challenges faced by property owners in a world of rising borrowing costs and falling property values.
Canary Wharf Group announced Thursday that it will extend the loan for an office building located at 25-30 Churchill Place, along with two other debt agreements, by five years. The building is the home of Big Four accounting firm EY.
Becky Worthington, chief financial officer of the company, said that it was in negotiations with lenders to review its options and extend or refinance a further £900mn debt before the year’s end.
Worthington said, “We’ve been working on the balance sheet debt side.” She said that the loans “are testament to our assets, Canary Wharf’s transformation and the support from our lenders towards our long-term plans”.
Canary Wharf has a better position than other investment groups, given its long-term leases and the large sums of money its shareholders have.
The departure of tenants like HSBC and Clifford Chance has questioned the appeal of the core office portfolio. Others have stayed, such as Barclays , Morgan Stanley and Barclays . Older office buildings on the estate will likely need expensive renovations to attract new tenants, or adapt them for other uses.
“Values are down.” The refinance can’t be done on an equal basis. They have the money, but they can refinance and get more time. Ramzi Kattan, a Moody’s Ratings analyst, said: “I think that’s the real story.”
Canary Wharf, like other real estate investors has been forced to reduce the size of their loans in order to refinance on properties worth less. The deal at 25-30 Churchill Place which is leased by European Medicines Agency included repayment of about £100mn out of £439mn loans as well as an incremental agreement to pay more of the debt in the future.
According to documents from the company, the group has seen its loan-to-value ratio rise above the target of 50% in recent years. This is because the value of their holdings have been affected by rising interest rates and concerns about the health of office markets.
The current property market is in a downturn. Shareholder support is crucial. In October, Brookfield and QIA announced that they would be extending a £100mn shareholder loan and adding £300mn in new equity to Canary Wharf. This was their first equity injection after buying Canary Wharf back in 2015.
Worthington stated: “We plan and run the business on the assumption that we don’t need any additional money from shareholders.” The capital they invested in the business was certainly very helpful.
In the last year alone, the group has already signed debt agreements worth approximately £930mn with lenders such as Citi, Standard Chartered Starwood, and CBRE Investment Management. The loans were linked to the group’s residential portfolio and its development pipeline.
It also approved a £80mn for a new construction loan to build serviced apartments. A £132mn loan was used to replace an existing construction facility, which included offices, hotels, and leisure facilities.
The company reported record revenue and visitor numbers. On average, 1.3mn visitors visited the estate every week. The underlying profit before tax (which excludes any changes in the property value) fell from £40mn to £28mn due to increased financing costs.
Canary Wharf must still pay £564mn due in November on loans tethered to 1-5 Bank Street – an office building that houses SocGen and EBRD. Worthington stated that there had been “very positive progress in negotiations” with lenders regarding the repayment and extension of debt.
Bloomberg data shows that the green bond’s first tranche, worth £350mn, is due to mature in April 2025. The price of the green bond at the time was 92 pence per pound.
Canary Wharf Group Investment Holdings received confirmation in writing from Brookfield and QIA, that they would provide financial assistance as part of its “going concern analysis” in the annual report.
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