Before COVID, Blackstone’s The Office Group Was Flying

New accounts filed for the UK and European flexible office company bought by Blackstone show the company was performing strongly before the outbreak of the coronavirus.

Revenue for The Office Group rose by 23% in 2019 to £119M, and earnings before interest, tax, depreciation and amortisation rose from £13M to £52M, figures for the holding company that owns it show.

A change in the way leases are classified in company accounts drove part of the increase in EBITDA, but The Office Group also opened and leased six new buildings across London in 2019, adding 344K SF of leased space to its portfolio. The accounts show that its mature portfolio was 95% leased at the end of 2019. It said its membership base increased by 19% during the year. 

The London-focused company’s portfolio now totals 2.2M SF across 52 buildings either open or in planning, five of which are in Germany.

Of course these figures reflect performance in a world before COVID-19 hit the flexible office sector hard. The Office Groups flags the negative impact of COVID in its accounts, but it does not specify how it has affected occupancy.

According to data from Instant Group, contractual occupancy — the amount of space companies are paying for — in the UK flexible office sector was 67% at the end of August this year. Actual occupancy in flexible offices is much lower, with national UK lockdown rules saying staff must work from home where possible. 

While occupancy is likely to have dropped, the company has had continued success in attracting large occupiers to its space during the pandemic. In October, it agreed a deal to lease 50K SF at Douglas House in Fitzrovia to BP. It has also struck significant deals with corporate occupiers including Ocado and GSK in recent months.  

Blackstone bought The Office Group in 2017 in a deal that it said valued the company at around £500M. It was founded before the last financial crash by joint CEOs Charlie Green and Olly Olsen. 

The Office Group has £74M of cash or cash equivalents on its balance sheet, which the firm said is enough to weather the downturn created by the pandemic. The company has continued to pay rent on its buildings throughout the pandemic.

The company owns the freehold or long leasehold of 10 of its 52 properties, and these were valued at £341M at the end of 2019. The total portfolio was valued at £1.1B. The company bought the 150K SF Chancery House for £114M in December, a purchase made using an £89M term loan plus a £31M capital expenditure facility that will be used to refurbish the building.

Overall the company has £458M of debt, most of which matures in 2024, and it paid £15M in interest during the year. 

The average length of the leases it has taken out is 17 years, and it will make rental payments of £546M over the life of its leases, the accounts showed. 

The company did not pay a dividend in 2018, but Blackstone has already made a significant return on its investment. In 2018, following a significant refinancing that increased its debt from £188M, The Office Group paid a £130M dividend to its owners, of which Blackstone is by far the largest, though the company’s management still owns a slice.