Daily Brief: If You Buy Into Soho House’s IPO, It Promises It’ll Definitely – Probably, Maybe – Start Growing Again Soon

Daily Brief: If You Buy Into Soho House’s IPO, It Promises It’ll Definitely – Probably, Maybe – Start Growing Again Soon

over 2 years ago3 mins

Membership Collective Group (MCG) filed for a US initial public offering (IPO) this week, but the owner of Soho House members clubs looks like it has champagne tastes on a beer budget.

What does this mean?

MCG has been busy: the company owns a home decor retailer, nine workspaces in London, LA, and New York, and 28 Soho House members clubs around the world. The latter boast 119,000 members who each shell out a regular membership fee, as well as pay for food, drink, and other services at their venue of choice.

But not enough, apparently: the company saw its revenue slip from $642 million in 2019 to $384 million last year. Add to that a $235 million loss in 2020 and a $91 million loss in the first quarter of this year, and suddenly it’s not looking so fancy anymore. MCG, then, will be hoping investors give it a pass what with this anything-but-average last 18 months, and instead buy into its potential for future growth.

Pandemic pain

Why should I care?

For markets: That’s a lot of debt.

Investors buying into the IPO are essentially betting that Soho House will benefit now that fatcats are donning their going-out monocles again. They might also point to flexible working, which could give revenue at Soho House’s workspaces a boost. But the risks are serious: the company has $826 million in debt, which it plans to pay off using most of the money it raises from the IPO. That’ll leave very little left to invest in actually growing the business…

Zooming out: This time it’s different.

Anything the US can do, Iceland can do better: shares of bank Islandsbanki started trading on Tuesday in the country’s biggest-ever IPO. It feels like just yesterday when Iceland’s biggest banks were being wiped out by the financial crisis, so here’s hoping things work out better this time around. And seeing as Islandsbanki’s shares initially jumped 20%, it’s off to a good start.

Keep reading for our next story...

Blackstone's Buying A Real Estate Firm For $6 Billion

Blackstone image

Blackstone – one of the world’s biggest real estate investors – announced on Tuesday that it was spending $6 billion on the keys to residential landlord Home Partners of America (HPA).

What does this mean?

HPA owns more than 17,000 single-family homes across the US, buying would-be tenants’ properties of choice and offering them the chance to eventually become owners themselves. And homes are a hot market right now: sales activity hit its highest level since 2006 last year, with remote working and rock-bottom interest rates sending demand for bigger living spaces through the roof. Median prices, meanwhile, have increased by 28% since 2019. That’s attracted the attention of big investors, which snapped up 15% of US homes for sale in the first quarter of 2021. Blackstone – which bought HPA from two rival private equity firms – will be hoping that trend continues, turning the firm a tidy profit when it sells HPA to either other private or public investors.

Median home prices
Source: The Wall Street Journal, National Association of Realtors

Why should I care?

The bigger picture: Bad call or good call?

Private equity investors – which have over $1.5 trillion burning a hole in their pockets – have a reputation for sniffing out opportunities. And if the current US housing shortage takes a decade to fix like some analysts are predicting, the firm could ride the residential real estate wave for a while yet. But the global housing market is showing the telltale signs of a bubble, and Blackstone’s big move could just as likely be a rash call.

Home price to income ratios
Source: Bloomberg

For you personally: This could affect the whole real estate market.

Private equity firms have a reputation for bumping up prices to generate as much cash as quickly as possible. And while HPA’s portfolio represents just 0.25% of single-family homes in the US, higher rents and home prices from Blackstone could encourage other residential real estate owners to follow suit – making it harder for tenants and buyers alike across America.

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