26 Sep Regus owner IWG slammed by landlords after threat to dissolve £790m of lease guarantees
The serviced offices giant formerly known as Regus has declared war on landlords by threatening to dump hundreds of lease commitments unless they agree to swingeing rent cuts.
IWG, run by Mark Dixon, is set to put Jersey-based subsidiary Regus plc into insolvency in a matter of days, dissolving £790m of lease guarantees across 500 centres. Doing so would be hugely controversial. In 2018, the value of the subsidiary’s guarantees quadrupled to £758m. IWG extracted a £635m dividend in January last year, all but wiping out its assets.
The threat has sparked fury among property owners. “This was not about Covid — this was clearly pre-determined … It is immoral at best,” a landlord said.
Dixon is known for strong-arm tactics. IWG, then called Regus, was rebuked by the British Property Federation in 2010 for threatening to put parts of its business into administration if not granted rent cuts, and in 2003 Dixon put Regus’s US business into Chapter 11 bankruptcy protection to force landlords to renegotiate leases and waive outstanding rent.
Covid-19 has brutally exposed the weaknesses of the co-working model, where the operator takes a long-term lease on an office and leases out the space on short-term deals. WeWork, IWG’s ambitious American rival, has had to borrow billions of dollars to survive. To capitalise on opportunities arising from the distress in the sector, IWG raised a £320m war chest through a rights issue in May.
At its interim results last month, IWG reported a pre-tax loss of £176m, but said it had spare liquidity of £830m. This year its shares have fallen by 42% to £2.53, valuing the company at £2.6bn.
Dixon took control of Regus in the early 1990s and has transformed it into a business with sales of £2.7bn and 3,392 centres globally — 306 of them in the UK.
The news comes at a time when more that than 900 of their own clients have signed a petition calling for IWG to freeze rents and memberships or provide substantial discounts.
Customers have typically been sent letters offering a 50 per cent discount on rent for April and May if they commit themselves to paying rent for an additional three months at the end of their lease. Alternatively they can take a 50 per cent discount for two months and spread out the repayment of the rest over the remainder of their lease up to a maximum of 12 months.
During lockdown, when the start-ups that populate IWG’s buildings were unable to use them, Dixon infuriated tenants by offering to reduce rents only if they signed up to longer leases or repaid the amount at a later date.
The buildings guaranteed by Regus plc are said to include 100 Bishopsgate, which Canada’s Brookfield is trying to sell, and Battersea Power Station.
Last week, IWG told landlords it had won permission from the Royal Court of Jersey to place Regus plc into insolvency, and that it would be seeking reduced rents on its properties. The subsidiary’s accounts were signed off by KPMG in July.
IWG said the £635m dividend extracted from Regus plc was part of “normal financial planning”, and that the increase in the value of its guarantees had been driven by its expansion.