REG - Canary Wharf Fin II - Half-year Report
09/09/2024 19:15
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RNS Number : 4967D Canary Wharf Finance II PLC 09 September 2024
CANARY WHARF FINANCE II PLC
9 SEPTEMBER 2024
PUBLICATION OF THE HALF YEARLY FINANCIAL REPORT FOR THE 6 MONTHS ENDED 30 JUNE
2024
Pursuant to sections 4.2 and 6.3.5 of the Disclosure and Transparency Rules,
the board of Canary Wharf Finance II plc ("the Company") is pleased to
announce the publication of its half yearly financial report for the 6 months
ended 30 June 2024, 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 9 September 2024, does not comprise statutory accounts
within the meaning of the Companies Act 2006 and is provided in accordance
with section 6.3.5 of the Disclosure and Transparency Rules.
In compliance with the Listing Rule 9.6.1, a copy of the 30 June 2024 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: 9 September 2024
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 2024
and contains information that covers the period from 1 January 2024 to 9
September 2024, 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 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 Investment Holdings, and the wider group
subsidiaries. The Group owns, manages and develops the Canary Wharf Estate
(the 'Estate') in East London. All activities take place within the United
Kingdom. The company plans to continue trading in the same manner for the
foreseeable future.
At 30 June 2024, the nominal value of the loan notes held by the company and
listed on the London Stock Exchange was £1,050,744,441 (31 December 2023 -
£1,326,211,720). This movement includes the additional early repayment of
the A1 and A3 notes on 22nd January 2024. The company 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.
Going Concern
Having made the requisite enquiries and assessed the resources at the disposal
of the company, the directors have a reasonable expectation that the company
will have adequate resources to continue its operation for the foreseeable
future. Accordingly, they continue to adopt the going concern basis in
preparing the financial statements.
Results for the period
As shown in the company's Income Statement, the company's loss after tax for
the 6 month period was £5,086,693 (period ended 30 June 2023 - loss of
£4,959,754).
This loss included hedge reserve recycling recognised in the Income Statement
of £5,042,960 (period ended 30 June 2023 - £5,024,076). Including the
hedge reserve recycling impact in other comprehensive income the loss for the
period was £43,733 (period ended 30 June 2023 - profit of £64,322).
The balance sheet shows the company's financial position at the period end and
indicates that net assets were £5,687,065 (31 December 2023 - £5,730,798).
The weighted average maturity of the company's securitised debt is 9.20 years
(31 December 2023 - 7.69 years). This increase is due to the partial early
repayment of the A1 and A3 notes on 22(nd) January 2024. The weighted
average interest rate of the securitised debt is 6.0% (31 December 2023 -
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 2024.
PRINCIPAL RISKS AND UNCERTAINTIES
The company faces several principal risks and uncertainties that could
significantly impact its business model and financial performance, primarily
centred around market and financing risks.
Market Risk
Market risk is a key risk, as the ability of the company with the support of
group companies to meet debt obligations relies on generating sufficient
rental income. In recent years, businesses have re-evaluated their office
space requirements considering remote working trends and changing business
models, leading to a decrease in demand for traditional office spaces.
Despite this, the office assets that fund the company's securitisation have
maintained a high occupancy rate in recent years with credit worthy tenants
and the company continue to secure new deals including an extension with
Morgan Stanley until at least 2038. To further navigate these challenges, a
proactive approach is adopted in managing our property portfolio. This
involves closely monitoring market trends, identifying emerging demand
patterns, and adapting our properties to meet evolving tenant demands.
Additionally, fostering strong tenant relationships, offering flexible leasing
terms, and enhancing the amenities and services within our office buildings
and estate helps to differentiate our properties in a competitive market
environment.
Financing Risk
Financing risk is another risk given the company has issued debenture finance
in sterling at both floating and fixed rates of interest. The broader
economic cycle inevitably leads to movements in inflation, interest rates and
bond yields, which can lead to fluctuations in interest payments. To manage
this risk, the company uses derivative financial instruments in the form of
interest rate swaps to manage its exposure to interest rate fluctuations and
does not enter into these arrangements for speculative purposes. 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 is not subject to externally imposed capital requirements, however
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 2024 valuations of the properties upon which the company's notes are
secured, the LMCTV ratio at the interest payment date in July 2024 was
49.99%. 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,
Shoaib Z Khan, Katy J Kingston (alternate director to Shoaib Z Khan), 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');
· 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). The interim management report includes a
fair review of the information required by DTR 4.2.8R (disclosure of related
parties' transactions and changes therein); and
· the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein).
STATEMENT OF COMPREHENSIVE INCOME
for the 6 months ended 30 June 2024
Unaudited Unaudited
6 months 6 months
ended ended
30 June 2024 30 June 2023
Note £ £
Administrative expenses (70,600) (9,613)
OPERATING LOSS (70,600) (9,613)
Interest receivable 2 31,352,117 39,796,139
Interest payable 3 (36,368,210) (44,746,280)
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (5,086,693) (4,959,754)
Tax on loss on ordinary activities 4 - -
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE PERIOD/YEAR (5,086,693) (4,959,754)
OTHER COMPREHENSIVE INCOME
Hedge reserve recycling 5,042,960 5,024,076
OTHER COMPREHENSIVE INCOME FOR THE PERIOD/YEAR 5,042,960 5,024,076
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD/YEAR (43,733) 64,322
The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial
Report.
STATEMENT OF FINANCIAL POSITION
as at 30 June 2024
Unaudited Audited
30 June 31 December
2024 2023
Note £ £
CURRENT ASSETS
Debtors: 5
Amounts falling due after one year 939,069,639 955,034,884
Amounts falling due within one year 47,876,508 356,796,143
Cash at bank 2,592,848 2,082,013
989,538,995 1,313,913,040
Creditors: 6 (44,782,389) (353,147,358)
Amounts falling due within one year
NET CURRENT ASSETS 944,756,606 960,765,682
944,756,606 960,765,682
TOTAL ASSETS LESS CURRENT
LIABILITIES
Creditors: 7 (939,069,541) (955,034,884)
Amounts falling due after more than one year
NET ASSETS 5,687,065 5,730,798
CAPITAL AND RESERVES
Called up share capital 50,000 50,000
Hedging reserve (111,951,933) (116,994,893)
Retained earnings 117,588,998 122,675,691
SHAREHOLDER'S FUNDS 5,687,065 5,730,798
The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial
Report.
STATEMENT OF CHANGES IN EQUITY
for the 6 months ended 30 June 2024
Called up Hedging Retained Total
share
capital reserve earnings
£ £ £ £
At 1 January 2023 50,000 (127,052,421) 132,648,927 5,646,506
Loss for the period - - (4,959,754) (4,959,754)
Other comprehensive income - 5,024,076 - 5,024,076
Total comprehensive income - 5,024,076 (4,959,754) 64,322
At 30 June 2023 50,000 (122,028,345) 127,689,173 5,710,828
- - (5,013,482) (5,013,482)
Loss for the period
Other comprehensive income - 5,033,452 - 5,033,452
Total comprehensive income - 5,033,452 (5,013,482) 19,970
At 31 December 2023 50,000 (116,994,893) 122,675,691 5,730,798
- - (5,086,693) (5,086,693)
Loss for the period
Other comprehensive income - 5,042,960 - 5,042,960
Total comprehensive income - 5,042,960 (5,086,693) (43,733)
At 30 June 2024 50,000 (111,951,933) 117,588,998 5,687,065
The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial
Report.
NOTES TO THE INTERIM REPORT
for the 6 months ended 30 June 2024
1. ACCOUNTING POLICIES
The year end 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 2024. The full accounting policies
of the company, set out in the 2023 statutory accounts, have been applied in
preparing this Interim Report.
The financial information relating to the 6 months ended
30 June 2024 and 30 June 2023 is unaudited.
A copy of the statutory accounts for the year ended 31 December
2023 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 a 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.
2. INTEREST RECEIVABLE AND SIMILAR INCOME
Unaudited Unaudited
6 months 6 months
ended ended
30 June 2024 30 June 2023
£ £
Bank interest receivable 17,612 7,178
Interest receivable from Group undertakings 31,334,505 39,788,961
31,352,117 39,796,139
3. INTEREST PAYABLE AND SIMILAR CHARGES
Unaudited Unaudited
6 months 6 months
ended ended
30 June 2024 30 June 2023
£ £
Interest payable on securitised debt (Note 7) 31,325,250 39,722,204
Hedge reserve recycling 5,042,960 5,024,076
36,368,210 44,746,280
Included within interest payable on securitised debt is
£828,773 (June 2023 - £752,507) amortisation of issue premium. The hedge
reserve recycling relates to the release of accumulated historic fair value
movements on derivative financial instruments that were part of an effective
cash flow hedge.
Fair value adjustments
Unaudited Unaudited
6 months 6 months
ended ended
30 June 2024 30 June 2023
£ £
Derivative financial instruments (Note 7) (40,622,650) (36,033,045)
Securitised debt (Note 7) 35,483,466 (9,954,723)
Loan to fellow subsidiary undertaking (Note 5) 5,139,184 45,987,768
- -
4. TAXATION
Unaudited Unaudited
6 months 6 months
ended ended
30 June 2024 30 June 2023
£ £
Tax charge
Current tax chargeable to income - -
- -
Tax reconciliation
Loss on ordinary activities before taxation (5,086,693) (4,959,754)
Tax on loss at UK corporation tax rate of 25.0% (30 June 2023: 22.0%) (1,271,673) (1,091,146)
Effects of:
Fair value movements 1,260,740 -
Group relief 10,933 1,091,146
- -
5. DEBTORS
Unaudited Audited
30 June 31 December
2024 2023
£ £
Due within one year:
Loan to fellow subsidiary undertaking 18,543,912 325,526,903
Accrued interest on loan to fellow subsidiary undertaking 12,109,389 15,331,476
Amounts owed by fellow subsidiary undertakings 17,223,207 15,937,764
47,876,508 356,796,143
Due after more than one year:
Loan to fellow subsidiary undertaking 939,069,639 955,034,884
939,069,639 955,034,884
The loan to a fellow subsidiary undertaking comprises:
Unaudited Audited
30 June 31 December
2024 2023
£ £
Brought forward 1,280,561,787 1,318,467,636
Repaid in period (315,972,798) (29,325,200)
Amortisation of issue premium (828,773) (1,531,718)
Accrued financing expenses (1,007,481) (1,975,028)
Fair value adjustment (5,139,184) (45,861,574)
Debt modification charge - 40,787,671
Carried forward 957,613,551 1,280,561,787
18,543,912 325,526,903
Payable within one year or on demand
Payable after more than one year 939,069,639 955,034,884
957,613,551 1,280,561,787
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 (see Note
7). The total fair value of the loans to fellow subsidiary undertakings at
30 June 2024 was £917,656,018 (31 December 2023 - £1,230,385,065),
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
Unaudited Audited
30 June 31 December
2024 2023
£ £
Securitised debt (Note 7) 18,543,912 325,526,905
Accrued interest on debt 11,871,715 15,385,497
Accounts payable 662 -
Amounts owed to Group undertakings 14,350,100 12,181,686
Accruals and deferred income 70,000 53,270
44,782,389 353,147,358
Amounts owed to group undertakings are interest free and repayable on demand.
7. CREDITORS: Amounts falling after more than one year
Unaudited Audited
30 June 31 December
2024 2023
£ £
Securitised debt 896,149,236 871,491,929
Derivative financial instruments 42,920,305 83,542,955
939,069,541 955,034,884
The amounts at which borrowings are stated comprise:
Unaudited Audited
30 June 31 December
2024 2023
£ £
Brought forward 1,197,018,834 1,247,846,985
Repaid in period (315,972,798) (29,325,200)
Amortisation of issue premium (828,773) (1,531,718)
Accrued financing expenses (1,007,581) (1,975,027)
Loan fair value adjustment 35,483,466 (58,783,877)
Debt modification charge - 40,787,671
Carried forward 914,693,148 1,197,018,834
18,543,912 325,526,905
Payable within one year or on demand
Payable after more than one year 896,149,236 871,491,929
914,693,148 1,197,018,834
The principal terms of the company's borrowings are:
Tranche Principal Interest Hedged rate Repayment
£m
A1 74.5 6.455% - By instalment 2009 - 2030
A3 208.0 5.952% - By instalment 2024 - 2035
A7 222.0 SONIA + 0.5943% 5.3985% January 2035
B 103.7 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
1,050.8
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 2024, £8,567,432 (31 December 2023 - £9,444,793)
remained unamortised.
The notes are secured on 5 properties at Canary Wharf, owned by fellow
subsidiary undertakings, and the rental income stream therefrom. The 6
properties are 1 Canada Square, 33 Canada Square, 20 Bank Street, 40 Bank
Street and 20 Cabot Square/10 South Colonnade.
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 2024 was £917,656,018 (31 December 2023 -
£1,146,842,110). 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 2024, the fair value of the interest rate derivatives resulted in
the recognition of a liability of £42,920,305 (31 December 2023 -
£83,542,955). 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 2024, AIG had posted
£42,939,690 as cash collateral in respect of this obligation.
The company also has the benefit of a £300.0m 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 2024 remains undrawn.
8. CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
As at 30 June 2024 and 31 December 2023, 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.
9. CONTROLLING PARTY
The company's immediate parent undertaking is
Canary Wharf Finance Holdings Limited.
As at 30 June 2024, the smallest group of which the
company is a member and for which group financial statements are drawn up
is the consolidated financial statements of Canary Wharf Group Investment
Holdings plc. Copies of the financial statements may be obtained from
the Company Secretary, One Canada Square, Canary Wharf, London E14 5AB.
The largest group of which the company is a member for which group
financial statements are drawn up is the consolidated financial statements of
Stork Holdco LP, an entity registered in Bermuda and the ultimate parent
undertaking and controlling party. Stork Holdco LP is registered at 73 Front
Street, 5th Floor, Hamilton, HM12, Bermuda.
Stork Holdco LP is controlled as to 50.0% by Brookfield
Property Partners LP and as to 50.0% by Qatar Investment Authority.
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