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RNS Number : 6751Z Canary Wharf Finance II PLC 15 September 2022
CANARY WHARF FINANCE II PLC
15 SEPTEMBER 2022
PUBLICATION OF THE HALF YEARLY FINANCIAL REPORT FOR THE 6 MONTHS ENDED 30 JUNE
2022
Pursuant to sections 4.2 and 6.3.5 of the Disclosure and Transparency Rules,
the board of Canary Wharf Finance II plc is pleased to announce the
publication of its half yearly financial report for the 6 months ended
30 June 2022, which will shortly be available from
https:group.canarywharf.com/about-us/investors/canary-wharf-finance-ii-plc.
The information contained within this announcement, which was approved by the
board of directors on 15 September 2022, does not comprise statutory accounts
within the meaning of the Companies Act 2006 and is provided in accordance
with section 6.3.5(2)(b) of the Disclosure and Transparency Rules.
In compliance with the Listing Rule 9.6.1, a copy of the 30 June 2022 half
yearly financial report will be submitted to the UK Listing Authority via the
National Storage Mechanism and will shortly be available to the public for
inspection at
www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism.
Dated: 15 September 2022
Contact for queries:
J J Turner
Company Secretary
Canary Wharf Finance II plc
Telephone: 020 7418 2000
INTERIM MANAGEMENT STATEMENT
This interim management statement relates to the 6 months ended 30 June 2022
and contains information that covers the period from 1 January 2022 to 15
September 2022, the date of publication of this interim management statement.
BUSINESS REVIEW
The company is a subsidiary of Canary Wharf Group plc, Canary Wharf Group
Investment Holdings plc, and its ultimate parent undertaking is Stork Holdco
LP, an entity registered in Bermuda.
The company is a finance vehicle that issues securities which are backed by
commercial mortgages over properties within the Canary Wharf estate. The
company is engaged in the provision of finance to the Canary Wharf Group,
comprising Canary Wharf Group plc, the ultimate parent undertaking Stork
Holdco LP and the wider group subsidiaries. References to 'the Group' and
'Canary Wharf Group' refer to Stork Holdco LP and its subsidiaries. All
activities take place within the United Kingdom.
At 30 June 2022, the company had £1,370,199,520 (31 December 2021 -
£1,384,862,120) of notes listed on the London Stock Exchange and had lent the
proceeds to a fellow subsidiary undertaking, CW Lending II Limited ('the
Borrower') under a loan agreement ('the Intercompany Loan Agreement'). The
notes are secured on a pool of properties at Canary Wharf, owned by fellow
subsidiary undertakings, and the rental income therefrom.
Results for the period
As shown in the company's Income Statement, the company's loss after tax for
the 6 month period was £4,948,001 (period ended 30 June 2021 - loss of
£4,929,325).
This loss included hedge reserve recycling recognised in the Income Statement
of £5,005,643 (period ended 30 June 2021 - £4,987,552). Including the
hedge reserve recycling impact in other comprehensive income the profit for
the period was £57,642 (period ended 30 June 2021 - £58,227).
The balance sheet shows the company's financial position at the period end and
indicates that net assets were £5,591,392 (31 December 2021 - £5,533,750).
The weighted average maturity of the company's securitised debt is 10.5 years
(31 December 2021 - 10.8 years). The weighted average interest rate of the
securitised debt is 6.1% (31 December 2021 - 6.1%).
In the opinion of the Board, these Financial Statements enable shareholders to
make an informed assessment of the results and activities of the company for
the period ended 30 June 2022.
PRINCIPAL RISKS AND UNCERTAINTIES
The risks and uncertainties facing the business are monitored through
continuous assessment, regular formal reviews and discussion at the Canary
Wharf Group Investment Holdings plc audit committee and board. Such
discussion focuses on the risks identified as part of the system of internal
control which highlights key risks faced by the Group and allocates specific
day to day monitoring and control responsibilities as appropriate. As a
member of Canary Wharf Group, the current key risks of the company include,
the cyclical nature of the property market, concentration risk and financing
risk.
Cyclical nature of the property market
The valuation of the Company and Group's assets are subject to many other
external economic and market factors. In recent years, the London real
estate market has had to cope with fluctuations in demand caused by key events
such as the uncertainty in the Eurozone and the implications of the UK's
withdrawal from the EU. The full impact of the Russian invasion of Ukraine
and sanctions imposed on Russia as a consequence and of the coronavirus is not
yet possible to predict. The real estate market has to date, however, been
assisted by the depreciation of sterling since the EU referendum and the
continuing presence of overseas investors attracted by the relative
transparency of the real estate market in London which is still viewed as both
relatively stable and secure. Previous Government announcements, in
particular the changes to stamp duty underpinned continuing demand in the
residential market and the value of the Group's development sites. Property
valuations for office properties let on long leases to tenants with good
covenants have remained relatively strong despite continuing economic
uncertainties which are unhelpful to confidence across the wider real estate
sector.
Concentration risk
The Group's real estate assets are currently located on or adjacent to the
Estate. Although a majority of tenants have traditionally been linked to the
financial services industry, this proportion has now fallen to around only 50%
of tenants. Wherever possible steps are still taken to mitigate or avoid
material consequences arising from this concentration.
Although the focus of the Group has been on and around the Estate, where value
can be added the Group will also consider opportunities elsewhere. The Group
is involved as construction manager and joint development manager in the joint
venture with Qatari Diar to redevelop the Shell Centre in London's South
Bank. The Group has also reviewed current consents for development to react
to changes in the market. This review has led to an increased focus on the
residential build to rent sector as reflected in the composition of the master
plan for the mixed use development at Wood Wharf.
Financing risk
The broader economic cycle inevitably leads to movements in inflation,
interest rates and bond yields. The company has borrowing at floating and
fixed rates of interest. Where required the company uses derivative
financial instruments to manage exposure to interest rate fluctuations.
The company has issued debenture finance in sterling at both fixed and
floating rates and uses interest rate swaps to modify its exposure to interest
rate fluctuations. All of the company's borrowings are fixed after taking
account of interest rate hedges. All borrowings are denominated in sterling
and the company has no intention to borrow amounts in currencies other than
sterling.
The company enters into derivative financial instruments solely for the
purposes of hedging its financial liabilities. No derivatives are entered
into for speculative purposes.
The company is not subject to externally imposed capital requirements.
The company's securitisation is subject to a maximum loan minus cash to value
('LMCTV') ratio covenant.
The maximum LMCTV ratio is 100.0%. Based on the 30 June 2022 valuations of
the properties upon which the company's notes are secured, the LMCTV ratio at
the interest payment date in July 2022 was 42.7%. The securitisation is not
subject to a minimum interest coverage ratio. A breach of certain financial
covenants can be remedied by depositing eligible investments (including cash).
DIRECTOR'S RESPONSIBILITY STATEMENT
The board of directors, comprising Sheikh Khalifa Al-Thani, Theodor Berklayd,
Sir George Iacobescu CBE, Shoaib Z Khan, Katy J Kingston (alternate director
to Shoaib Z Khan), Jeremy J Turner (alternate director to Sir George
Iacobescu) and Rebecca J Worthington, confirms to the best of its knowledge
that:
· the condensed set of financial statements which has been prepared in
accordance with the applicable set of accounting standards give a true and
fair view of the assets, liabilities, financial position and profit or loss of
the company as required by Rule 4.2.4 of the Disclosure and Transparency Rules
of the United Kingdom's Financial Conduct Authority (the 'DTRs'); and
· the interim management statement includes a fair review of the information
required by Rule 4.2.7 of the DTRs (indication of important events during the
first 6 months and description of principal risks and uncertainties for the
remaining 6 months of the year).
INCOME STATEMENT
for the 6 months ended 30 June 2022
Audited Unaudited Unaudited
year ended 6 months 6 months
31 December ended ended
2021 30 June 2022 30 June 2021
£ Note £ £
(72,999) Administrative expenses (12,360) (11,460)
(72,999) OPERATING LOSS (12,360) (11,460)
83,144,521 Interest receivable 2 40,700,198 41,610,913
(92,990,408) Interest payable 3 (45,635,839) (46,528,778)
(9,918,886) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (4,948,001) (4,929,325)
- Tax on loss on ordinary activities 4 - -
(9,918,886) LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE PERIOD/YEAR (4,948,001) (4,929,325)
OTHER COMPREHENSIVE INCOME
9,984,111 Hedge reserve recycling 5,005,643 4,987,552
9,984,111 OTHER COMPREHENSIVE INCOME FOR THE PERIOD/YEAR 5,005,643 4,987,552
65,225 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD/YEAR 57,642 58,227
All amounts relate to continuing activities in the United Kingdom.
The Notes numbered 1 to 8 form an integral part of this Half Yearly Financial
Report.
The Half Yearly Financial Report for the 6 months ended 30 June 2022 was
approved by the Board of Directors on 15 September 2022.
STATEMENT OF FINANCIAL POSITION
as at 30 June 2022
Audited Unaudited Unaudited
31 December 30 June 30 June
2021 2022 2021
£ Note £ £
CURRENT ASSETS
Debtors: 5
1,592,708,302 Amounts falling due after one year 1,405,445,743 1,615,808,366
51,682,572 Amounts falling due within one year 50,751,752 50,429,644
3,720,537 Cash at bank 3,374,335 3,671,989
1,648,111,411 1,459,571,830 1,669,909,999
(49,869,359) Creditors: 6 (48,534,594) (48,574,881)
Amounts falling due within one year
1,598,242,052 NET CURRENT ASSETS 1,411,037,236 1,621,335,118
1,598,242,052 1,411,037,236 1,621,335,118
TOTAL ASSETS LESS CURRENT
LIABILITIES
(1,592,708,302) Creditors: 7 (1,405,445,844) (1,615,808,366)
Amounts falling due after more than one year
5,533,750 NET ASSETS 5,591,392 5,526,752
CAPITAL AND RESERVES
50,000 Called up share capital 50,000 50,000
(137,072,876) Hedging reserve (132,067,233) (142,069,435)
142,556,626 Retained earnings 137,608,625 147,546,187
5,533,750 SHAREHOLDER'S FUNDS 5,591,392 5,526,752
The Notes numbered 1 to 8 form an integral part of this Half Yearly Financial
Report.
STATEMENT OF CHANGES IN EQUITY
for the 6 months ended 30 June 2022
Called up Hedging Retained Total
share
capital reserve earnings
£ £ £ £
At 1 January 2021 50,000 (147,056,987) 152,475,512 5,468,525
Loss for the period - - (4,929,325) (4,929,325)
Other comprehensive income - 4,987,552 - 4,987,552
Total comprehensive income - 4,987,552 (4,929,325) 58,227
At 30 June 2021 50,000 (142,069,435) 147,546,187 5,526,752
- - (4,989,561) (4,989,561)
Loss for the period
Other comprehensive income - 4,996,559 - 4,996,559
Total comprehensive income - 4,996,559 (4,989,561) 6,998
At 31 December 2021 50,000 (137,072,876) 142,556,626 5,533,750
- - (4,948,001) (4,948,001)
Loss for the period
Other comprehensive income - 5,005,643 - 5,005,643
Total comprehensive income - 5,005,643 (4,948.001) 57,642
At 30 June 2022 50,000 (132,067,233) 137,608,625 5,591,392
The Notes numbered 1 to 8 form an integral part of this Half Yearly Financial
Report.
NOTES TO THE INTERIM REPORT
for the 6 months ended 30 June 2022
1. ACCOUNTING POLICIES
The statutory accounts have been prepared in
accordance with Financial Reporting Standard (FRS) 102 "The Financial Report
Standard applicable in the UK and Republic of Ireland". Accordingly, this
condensed set of financial statements has been prepared in accordance with FRS
104 "Interim Financial Reporting".
The accounting policies applied in the
preparation of this Interim Report are consistent with those that will be
adopted in the statutory accounts for the year ending 31 December 2022. The
full accounting policies of the company, set out in the 2021 statutory
accounts, have been applied in preparing this Interim Report.
The financial information relating to the 6
months ended 30 June 2022 and 30 June 2021 is unaudited.
The results for the year ended 31 December 2021
are not the company's statutory accounts. A copy of the statutory accounts
for the year has been delivered to the Registrar of Companies. The auditor's
report on those accounts was not qualified, did not contain any reference to
any matters which the auditor drew attention by way of emphasis without
qualifying the report and did not contain statements under Section 498(2) or
(3) of the Companies Act 2006.
In accordance with FRS 102, the company will be
exempt from presentation of cash flow statement in its next annual financial
statements as it will be included in the consolidated financial statements of
Canary Wharf Group Investing Holdings plc, and accordingly the company has
taken an equivalent exemption in preparing these condensed interim financial
statements.
Replacement of LIBOR as an interest rate benchmark
From 24 January 2022, LIBOR has been replaced by SONIA (Sterling Overnight
Index Average) as the Risk Free Reference Rate for Sterling Transactions.
The Group has obtained its lenders approval to adopt SONIA from 24 January
2022 for all LIBOR related loans, plus a Credit Adjustment Spread. This has
not resulted in any changes to group's financial instrument effectiveness.
2. INTEREST RECEIVABLE AND SIMILAR INCOME
Audited Unaudited Unaudited
year ended 6 months 6 months
31 December ended ended
2021 30 June 2022 30 June 2021
£ £ £
- Bank interest receivable 261 -
83,144,521 Interest receivable from Group undertakings 40,699,937 41,610,913
83,144,521 40,700,198 41,610,913
3. INTEREST PAYABLE AND SIMILAR CHARGES
Audited Unaudited Unaudited
year ended 6 months 6 months
31 December ended ended
2021 30 June 2022 30 June 2021
£ £ £
83,006,297 Interest payable on securitised debt (Note 7) 40,630,196 41,541,226
- Fair value adjustments - -
9,984,111 Hedge reserve recycling 5,005,643 4,987,552
92,990,408 45,635,839 46,528,778
Included within interest payable on securitised
debt is £800,129 (June 2021 - £847,749) amortisation of issue premium.
Fair value adjustments
Audited Unaudited Unaudited
year ended 6 months 6 months
31 December ended ended
2021 30 June 2022 30 June 2021
£ £ £
(88,290,467) Derivative financial instruments (139,717,378) (65,561,091)
35,880,164 Securitised debt (31,470,817) 20,140,561
52,410,303 Loan to fellow subsidiary undertaking 171,188,195 45,420,530
- - -
4. TAXATION
Audited Unaudited Unaudited
year ended 6 months 6 months
31 December ended ended
2021 30 June 2022 30 June 2021
£ £ £
Tax charge
- Current tax chargeable to income - -
- - -
Tax reconciliation
(9,918,886) Loss on ordinary activities before taxation (4,948,001) (4,929,325)
1,884,588 Tax on loss at UK corporation tax rate 940,120 936,572
Effects of:
(1,896,981) Fair value movements (951,072) (947,635)
12,393 Group relief 10,952 11,063
- - -
5. DEBTORS
Audited Unaudited Unaudited
31 December 30 June 30 June
2021 2022 2021
£ £ £
Due within one year:
29,325,200 Loan to fellow subsidiary undertaking 29,325,200 29,325,200
16,192,846 Accrued interest on loan to fellow subsidiary undertaking 15,540,418 16,235,090
6,164,526 Amounts owed by fellow subsidiary undertakings 5,886,134 4,869,354
51,682,572 50,751,752 50,429,644
Due after more than one year:
1,592,708,302 Loan to fellow subsidiary undertaking 1,405,445,743 1,615,808,366
1,592,708,302 1,405,445,743 1,615,808,366
The loan to a fellow subsidiary undertaking comprises:
Audited Unaudited Unaudited
31 December 30 June 30 June
2021 2022 2021
£ £ £
1,706,676,001 Brought forward 1,622,033,502 1,706,676,001
(29,325,200) Repaid in period (14,662,600) (14,662,600)
(1,673,865) Amortisation of issue premium (800,128) (847,749)
(1,233,131) Accrued financing expenses (611,636) (611,556)
(52,410,303) Fair value adjustment (171,188,195) (45,420,530)
1,622,033,502 Carried forward 1,434,770,943 1,645,133,566
29,325,200 29,325,200 29,325,200
Payable within one year or on demand
1,592,708,302 Payable after more than one year 1,405,445,743 1,615,808,366
1,622,033,502 1,434,770,943 1,645,133,566
The loans to a fellow subsidiary undertaking bear fixed rates of interest
between 5.41% and 7.07% and are repayable in instalments between 2005 and
2037.
Other amounts owed by Group companies are non-interest bearing and repayable
on demand.
The A7, B3 C2 and D2 tranches of the intercompany loan are carried at fair
value. The A1, A3 and B tranches are carried at amortised cost. The total
fair value of the loans to fellow subsidiary undertakings at 30 June 2022 was
£1,537,198,578 (31 December 2021 - £1,832,728,937), calculated by reference
to the fair values of the company's financial liabilities. In the event that
the company were to realise the fair value of the securitised debt and the
derivative financial instruments, it would have the right to recoup its losses
as a repayment premium on its loans to CW Lending II Limited. As such, the
fair value of the loans to Group undertakings is calculated to be the sum of
the fair value of the securitised debt and the fair value of the derivative
financial instruments. The carrying value of financial assets represents the
company's maximum exposure to credit risk.
6. CREDITORS: Amounts falling due within one year
Audited Unaudited Unaudited
31 December 30 June 30 June
2021 2022 2021
£ £ £
29,325,200 Securitised debt (Note 7) 29,325,200 29,325,200
16,246,891 Accrued interest on debt 15,594,319 16,288,628
11,978 Accounts payable 126,729 -
4,284,594 Amounts owed to Group undertakings 3,477,306 2,952,593
696 Accruals and deferred income 11,040 8,460
49,869,359 48,534,594 48,574,881
Amounts owed to group undertakings are interest free and repayable on demand.
7. CREDITORS: Amounts falling after more than one year
Audited Unaudited Unaudited
31 December 30 June 30 June
2021 2022 2021
£ £ £
1,286,124,454 Securitised debt 1,238,579,374 1,286,495,142
306,583,848 Derivative financial instruments 166,866,470 329,313,224
1,592,708,302 1,404,445,844 1,615,808,366
The amounts at which borrowings are stated comprise:
Audited Unaudited Unaudited
31 December 30 June 30 June
2021 2022 2021
£ £ £
1,311,801,686 Brought forward 1,315,449,655 1,311,801,686
(29,325,200) Repaid in period (14,662,600) (14,662,600)
(1,673,865) Amortisation of issue premium (800,128) (847,749)
(1,233,130) Accrued financing expenses (611,536) (611,556)
35,880,164 Fair value adjustment (31,470,817) 20,140,561
1,315,449,655 Carried forward 1,267,904,574 1,315,820,342
29,325,200 29,325,200 29,325,200
Payable within one year or on demand
1,286,124,455 Payable after more than one year 1,238,579,374 1,286,495,142
1,315,449,655 1,267,904,574 1,315,820,342
The principal terms of the company's borrowings are:
Tranche Principal Interest Hedged rate Repayment
£m
A1 188.1 6.455% - By instalment 2009 - 2030
A3 400.0 5.952% - By instalment 2032 - 2035
A7 222.0 SONIA + 0.5943% 5.3985% January 2035
B 117.5 6.800% - By instalment 2005 - 2030
B3 77.9 SONIA + 0.8193% 5.5825% January 2035
C2 239.7 SONIA + 1.4943% 6.2666% January 2035
D2 125.0 SONIA + 2.2193% 7.0605% January 2035
1,370.2
The class A1, A3 and B notes were issued at a premium which is being amortised
to the income statement on a straight line basis over the life of the relevant
notes. At 30 June 2022 £11,424,139 (31 December 2021 - £12,224,268)
remained unamortised.
The notes are secured on 6 properties at Canary Wharf, owned by fellow
subsidiary undertakings, and the rental income stream therefrom.
The company uses interest rate swaps to hedge exposure to the variability in
cash flows on floating rate debt caused by movements in market rates of
interest. The hedged rates of the floating notes, including the margins, are
between 5.40% and 7.06%.
The floating rate notes are carried at fair value through profit or loss.
The fixed rate notes are carried at amortised cost. The total fair value
of the securitised debt at 30 June 2022 was £1,370,332,108 (31 December 2021
- £1,526,145,089). The fair values of the sterling denominated notes have
been determined by reference to prices available on the market on which they
are traded.
At 30 June 2022, the fair value of the interest rate derivatives resulted in
the recognition of a liability of £166,866,470 (31 December 2021 -
£306,583,848). The fair values of the derivative financial instruments have
been determined by reference to the market values provided by a third party
valuer.
The securitisation continues to have the benefit of an arrangement with AIG
which covers the rent in the event of a default by the tenant of 33 Canada
Square over the entire term of the lease. At 30 June 2022, AIG had posted
£82,605,176 as cash collateral in respect of this obligation.
The company also has the benefit of a £300 million liquidity facility
provided by Lloyds Bank plc, under which drawings may be made in the event of
a cash flow shortage under the securitisation. The liquidity facility
matures on 22 October 2037 and at 30 June 2022 remains undrawn.
8. CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
As at 30 June 2022 and 31 December 2021, the company had given security over
all its assets, including security expressed as a first fixed charge over its
bank accounts, to secure the notes referred to in Note 7.
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