£380M Wiped From Value Of Walkie Talkie Building As Refinancing Looms

London Walkie Talkie
Photo credit: Wikimedia Commons/mattbuck
Walkie Talkie Building In London

The value of one of London’s most recognisable skyscrapers has dropped significantly since it was purchased by a Hong Kong-based investor. Now, the owner needs to refinance a loan against the building in the next seven months.

The 687K SF 20 Fenchurch Street, better known as the Walkie Talkie, was bought by food and ingredients conglomerate Lee Kum Kee for £1.3B in 2017, the highest price ever paid for a single UK office building.

But accounts for the LKK-controlled special-purpose vehicle that owns the building filed on 22 July show that the value of the building had fallen to £901M at the end of 2023.

Past accounts for the SPV showed that the value of the building dropped from £1.28B in 2017 to £1.18B at the end of 2020. The value rose to £1.19B in 2021 before falling by £106M in 2022 and another £185M in 2023. It ended the year valued at £901M once minor additions were taken into account. Cushman & Wakefield is the building’s valuer.

Gross property income from the building rose from £52.2M to £53.5M in 2023, but net rental income decreased from £38.7M to £38M because of increased property expenditures.

The building’s owner took out a £600M loan from HSBC and Bank of China secured against the building in February 2020. Amortisation of £30M a year brought the amount outstanding down to £487M, which is repayable in February.

The accounts say the owner had begun refinancing discussions with the lender, and the loan was expected to be refinanced. But because the loan had less than a year to run and had not been refinanced when the accounts were filed, the debt maturity represented “the existence of a material uncertainty that may cast significant doubt over the Limited Partnership’s ability to continue as a going concern.”

If the loan is not refinanced, the owner would have to support the SPV, the accounts say. And if rental values decline by 10% or interest rates stay at 5.25% during 2024 and 2025, the owner would need to step in and provide financial support to avoid a debt covenant breach.

The interest rate on the loan is the Sterling Overnight Index Average plus a margin of 0.85%, and the interest payable is £27.8M. The interest coverage ratio is 1.5x, and the loan-to-value covenant is 55%.

Loan covenants were not breached in 2023, the accounts say.

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