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Canary Wharf Group has agreed a £553m funding package as the Financial District landlord faces a series of debt deadlines at a time of increasing doubts about its attractiveness to critical office tenants.
The developer and manager of London’s Docklands estate said it would extend loans linked to an office building to EY at 25-30 Churchill Place by five years, alongside two other debt deals.
Chief Financial Officer Becky Worthington told the Financial Times the company was negotiating with lenders and reviewing its options for another £900 million of debt, which it plans to extend or refinance before the end of the year.
“We have been working on the debt side of the balance sheet,” Worthington said. She said: “The loans are testament to the strength of our assets, the transformation that has taken place in Canary Wharf and the support we have from our lenders for our long-term plan.”
Canary Wharf Group – owned by Brookfield and the Qatar Investment Authority – holds properties worth £7.6bn, burdened with net debt of £4.2bn. The 2023 annual report, due to be published on Thursday, is expected to show significant losses in the value of office properties.
The group’s refinancing challenge represents a prominent example of the situation facing property owners around the world who need to refinance their loans at a time of higher borrowing costs and lower property values.
Canary Wharf is in a stronger position than some other investment groups due to the long leases on some of its main office properties and the large financial resources of its shareholders.
However, the attractiveness of its core office portfolio has been called into question by the departure of tenants such as HSBC and Clifford Chance. Others, including Barclays and Morgan Stanley, have decided to stay. The settlement’s older office buildings will probably need to be extensively modernized in order to attract new tenants or adapt them to a different use.
“The values have fallen. You can’t refinance it on a like-for-like basis. But they have the money to refinance it and get more time. I think that’s really the story,” said Ramzi Kattan at Moody’s Ratings.
Like other property investors, Canary Wharf has had to reduce the size of its loans to refinance against properties that are worth less. The deal at 25-30 Churchill Place, which is also let to the European Medicines Agency, involved the repayment of around £100m of loans out of £439m, as well as an agreement to gradually pay down further debt over time .
The group’s loan-to-value ratio has already risen above its 50 percent target, according to company documents, as the value of its holdings was hit by higher interest rates and fears about the health of the office market.
Shareholder support will be critical to weathering the current real estate downturn. Brookfield and QIA announced in October they would invest £300m of new equity and extend a £100m shareholder loan to Canary Wharf – their first capital injection since buying Canary Wharf in 2015.
Worthington said: “We plan and run the business on the basis that we do not need any further money from shareholders. But the capital they put into the company was certainly very helpful.”
The group had already completed debt deals worth around £930m last year with lenders including Citi, Standard Chartered, Starwood and CBRE Investment Management. The loans were tied to the company’s residential portfolio and development pipeline.
On Thursday it also agreed an £80m construction loan for new serviced apartment buildings and replaced an existing development with a £132m loan for a mixed-use building comprising offices, hotels and leisure facilities.
Canary Wharf still has to deal with the November maturity of £564 million of loans tied to 1-5 Bank Street, an office tower home to SocGen and EBRD. Worthington said there had been “very positive progress” in negotiations with lenders to pay off and extend the debt.
Additionally, the first tranche of the £350 million green bond is due in April 2025, trading at around 92 pence per pound, according to Bloomberg data.
In 2022, Canary Wharf Group Investment Holdings, one of the key entities within the group’s corporate structure, received written confirmation from Brookfield and QIA that the two shareholders would provide financial support as part of the “going concern” analysis in its annual report.