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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Songbird | LSE:SBD | London | Ordinary Share | GB00B4MTF637 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 344.875 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSBD
RNS Number : 4165A
Songbird Estates PLC
30 March 2012
SONGBIRD ESTATES PLC
30 MARCH 2012
ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
The Board of Songbird Estates plc is pleased to announce positive results for the year ended 31 December 2011.
The information in this announcement, which was approved by the Board of directors on 29 March 2012, does not comprise statutory accounts within the meaning of the Companies Act 2006.
A list of defined terms used throughout this Announcement is provided in 'Definitions'.
HIGHLIGHTS
Exciting development pipeline remains on track, on budget and on schedule
-- 25 Churchill Place - Construction underway and funding secured (Note (i)).
-- Crossrail station - performing within budget and platform level handed over to Crossrail 5 months ahead of schedule (Note (i)).
Hot Features
Premium
-- Joint Ventures:
- 20 Fenchurch Street - on schedule to be topped out by the end of 2012 (Note (i)).
- Shell Centre - 50:50 joint venture entered into with Qatari Diar (Note (i)).
-- Land Assembly - post year end, secured 100.0% ownership of the Wood Wharf joint venture (Note (i)).
-- Existing sites - planning consents for sites at One Park Place, Heron Quays West and Newfoundland being reviewed to maximise value (Note (i)).
Continued leasing and pre let activity by Canary Wharf Group - demand from an increasingly diversified tenant base
-- Weighted average lease term 14.9 years assuming exercise of all break options (Note (i)). -- Occupancy at 96.5% (31 December 2010 - 96.1%) (Note (i)).
-- Terms agreed with European Medicines Agency for 25 year lease of 250,000 sq ft at 25 Churchill Place at GBP46.50 psf (3.3% ahead of pre let ERV) with options on further 4 floors. Locks in a minimum rental commitment of GBP11.6m p.a. (Note (i)).
-- Over 80,000 sq ft of further lettings, including leases with BBVA and MetLife at One Canada Square, at rents in the range GBP41.50 - GBP43.50 psf (Note (i)).
-- Lease extension signed in 2012 with Bank of New York Mellon on over 152,000 sq ft in One Canada Square at GBP42.50 psf (10.4% ahead of built ERV) (Note (i)).
Portfolio resilient in the face of economic headwinds with strong retail performance
-- Retail performing well - portfolio valuation up 8.1% over the year and turnover up by 2.2% (Note (i)).
-- Benchmark initial yield 5.35% (unchanged from 2010) (Note (i)).
-- Market value of the investment portfolio up by 1.3% over the year, net of 0.6% decline since 30 June 2011 (Note (i)).
-- GBP20.0m valuation uplift on 25 Churchill Place over the year, with additional GBP60.0m estimated by valuers to come (Note (i)).
-- Including land, portfolio valuation up 1.8% over the year (net of 0.2% decline since June 2011) (Note (i)).
Secure financial position retained giving flexibility for 2012
-- 5 year facility secured against 50 Bank Street with GBP92.3m drawn down in June 2011, GBP190.0m construction loan facility secured against 25 Churchill Place (Note (ii)).
-- Scheduled loan amortisation of GBP66.0m paid in the year (Note (ii)).
-- Average Group loan maturity of 13.9 years in line with weighted average lease term (Note (i)).
Financial summary
-- Adjusted net assets GBP1,452.1m at 31 December 2011, an increase of GBP22.4m or 1.6% from GBP1,429.7m at 31 December 2010, net of a reduction of GBP32.8m or 2.1% since 30 June 2011 (Note (iii)).
-- Adjusted NAV per share 190p compared with 187p at 31 December 2010 and 194p at 30 June 2011 (Note (iii)).
-- Underlying profit before tax GBP4.6m (2010 - GBP28.8m) (Note (iv)).
Note:
(i) Refer to Business Review. (ii) Refer to Note 17. (iii) Refer to Note 2. (iv) Refer to Consolidated Income Statement.
For further information, please contact:
Songbird Estates plc
John Garwood
Tel: +44 (0) 20 7477 1000
Brunswick Group LLP
Elizabeth Adams/ Tim Danaher
Tel: +44 (0) 20 404 5959
RESULTS IN BRIEF
2011 2010
Note GBPm GBPm
-------- --------
Rental income (excluding tenant incentives adjustments) (i) 251.3 287.5
Underlying operating profit (ii) 207.4 268.4
Capital and other items:
- write down of Lehman incentives (i) - (50.1)
- revaluation of investments in associates (iii) 7.6 2.7
- profit on sale of investment property (iv) - 155.1
- termination of AIG facility (v) - 144.5
- net revaluation movements (vi) 63.7 327.9
- net derivatives and Preference Shares expense (vii) (288.7) (127.1)
- debt repurchase costs (vii) - (18.0)
Underlying profit before tax (ii), (viii) 4.6 28.8
(Loss)/profit on ordinary activities before tax (ii) (212.8) 463.8
Tax (ix) 128.7 (42.9)
(Loss)/profit after tax (ii) (84.1) 420.9
Basic and diluted (losses) or earnings per share (viii) (9.0)p 41.3p
Note:
(i) See Note 3. (ii) See Consolidated Income Statement. (iii) See Note 8. (iv) See Note 7. (v) See Note 17. (vi) See Note 4. (vii) See Note 5. (viii) See Note 2. (ix) See Note 6.
CHAIRMAN'S OPERATIONAL REVIEW
INTRODUCTION
In 2011 the Group remained successful across all activities ranging from construction through to leasing and asset management whilst continued steps were taken to drive future growth.
The Group acquired 100% control of the Wood Wharf joint venture which currently has consent for 4.6m sq ft of development. Coupled with existing sites at Canary Wharf, there is now scope for 9.3m sq ft of further development on or around the Estate. Away from Canary Wharf, the Group entered into a joint venture with Qatari Diar which successfully bid for the mixed use redevelopment of the 5.25 acre Shell Centre site at the heart of London's South Bank. The Group is also involved, through a joint venture, in the 680,000 sq ft development at 20 Fenchurch Street.
The recently acquired sites at Wood Wharf and the Shell Centre will both be mixed use business, retail and residential developments and will enable the Group, to diversify its tenant base and its activities. The Group now has a development pipeline of over 11m sq ft owned directly by the Group or through joint ventures. The extent and range of these sites will ensure that the Group is well positioned to adapt to changing market demands and to take advantage of the widely anticipated shortage of residential and Grade A office space.
Euro and Eurozone uncertainty overshadowed the year. Perhaps, unsurprisingly, demand and supply, were therefore both relatively constrained in the London market. There also remains some hesitancy in the occupational market. However, though there was a greater level of fragility in the real estate office market in the last months of 2011, London remains perceived as a relatively safe haven for real estate investors. Leasing activity at Canary Wharf held up remarkably well during the year, despite these market conditions. This is best demonstrated by the conclusion of the pre let of 250,000 sq ft in the building now being constructed for EMA at 25 Churchill Place and by other lettings to a range of new tenants at Canary Wharf. Further evidence of the continuing attraction of the Canary Wharf Estate was provided shortly after the year end by the lease extension signed by Bank of New York Mellon on over 152,000 sq ft in One Canada Square. The recent influx of Shell employees and the phased movement of J.P. Morgan employees to their new European headquarters in 2012 will further increase the working population at Canary Wharf. The completion of these moves will mark a milestone in the development of Canary Wharf as, for the first time, the working population will be in excess of 100,000 - a notable achievement.
FINANCIAL REVIEW
Year on year, the market value of the investment portfolio increased by GBP62.0m or 1.3%, primarily reflecting an improvement in rental values, and net of a fall of 0.6% in the second half of the year. At the year end, the benchmark initial yield for the office portfolio remained at 5.35% and the weighted average equivalent yield was 5.4% in comparison with 5.3% at 30 June 2011. For the retail portfolio the weighted average equivalent yield was unchanged at 5.2%. Including development sites, the market value of the total portfolio increased by GBP87.0m or 1.8%, net of a reduction of GBP12.5m or 0.2% in the second half.
Adjusted NAV per share finished the year at GBP1.90, in comparison with GBP1.87 at 31 December 2010, an increase of 1.6% over the year but net of a reduction of 4p or 2.1% in the second half as a result of the fall in the property valuation.
The underlying profit for the year of GBP4.6m compared with GBP28.8m for 2010. The reduction in underlying profit was partly attributable to a reduction in rental income, following the sale of 2 properties in the previous year, and partly as a result of a reduction in income from lease surrenders. The reduction in profit from these factors was partly mitigated by reduced financing costs following repayment of the Shareholder Loan in October 2010. More details can be found in Business review - Operating results.
At 31 December 2011, the Group had unsecured cash deposits of GBP864.8m, of which GBP853.5m was attributable to Canary Wharf Group. The weighted average cost of Canary Wharf Group's debt was 6.2% and the weighted average maturity was 13.9 years. This compares with the weighted average unexpired lease term of 14.9 years assuming exercise of all break options. Net of cash, the Group's look through LTV at 31 December 2011 was 66.7%.
OPERATIONAL REVIEW
At Canary Wharf, construction activity by the Group has intensified during 2011 and in recent months. Following the pre let of 250,000 sq ft to EMA, construction of the 530,000 sq ft building at 25 Churchill Place commenced in January of this year. The concrete core has already reached level 6 and is due to be topped out in June 2012 with steel construction starting the following month. Interim works are now being undertaken for J.P. Morgan at Riverside South to bring this site up to ground level. Work on the Crossrail station at Canary Wharf is continuing within budget and the station box was completed and handed over to CLRL 5 months ahead of schedule earlier in March, to allow preparations for the tunnelling machines. The completed Crossrail project will be a welcome addition to London's transport infrastructure in 2018 and will also facilitate further expansion on land at and adjacent to the Canary Wharf Estate, such as the Wood Wharf site.
Discussions continued during the latter half of 2011 for the acquisition of 100.0% ownership of the Wood Wharf joint venture. These discussions resulted in the Group acquiring the 25.0% stake of Ballymore in December 2011 and the 50.0% stake of BWB in January 2012. The Group now has full control over the timing and design for this scheme, which will be a mixed use development. By area, this site is approximately one third of the size of the Estate and it is likely to appeal to a wide range of tenants, which will extend the current diversification of the Canary Wharf tenant base. The Group is now considering which options for development are likely to be most effective for current and future market conditions. The Group is also currently reviewing options for its existing schemes at 1 Park Place, Heron Quays West and Newfoundland in order to ensure that the Group is best placed to continue offering potential occupiers bespoke, high quality space which reflects the market's changing needs.
In addition to the EMA pre let, transactions were concluded at Canary Wharf on more than 80,000 sq ft, including lettings to BBVA and Metlife Services in One Canada Square and to G4S Secure Solutions in 40 Bank Street. In January 2012, Bank of New York Mellon also renewed its lease on 152,000 sq ft in One Canada Square which was due to expire in 2014 for an additional term of 8 years. These transactions were completed at, or above the valuers' ERV for lettings of existing space. Reflecting this activity, the occupancy rate in buildings at Canary Wharf owned by the Group stood at 96.5% at the year end. These recent transactions are a sign of confidence that the Group is well placed to continue to match demand for high quality space from an increasingly diverse range of sectors.
Canary Wharf retail had another outstanding year, with valuations increasing by 8.1%. Turnover was up 2.2% for the year to December 2011 and footfall increased by 1.52% to 739,760 per week and all retail units are occupied. It can be seen from this performance that the impact to date of the Westfield Stratford City development on Canary Wharf has been muted. Moreover, the target demographics of the two malls are quite distinct and the tenant mix at Canary Wharf is very broad, including independent, national and international brands.
To satisfy demand from shoppers and retailers, the Group is now building 143,000 sq ft of new retail space at Canary Wharf. Construction is continuing on the 43,000 sq ft extension to the Jubilee Place Mall. This extension will create an additional 25 units which will open in November 2013. A number of these units are already in solicitors hands. As a further indication of confidence in retail at Canary Wharf, work is commencing on the development of 100,000 sq ft of new retail above the Crossrail station at Canary Wharf.
Away from Canary Wharf, in July 2011, the Group entered into a 50:50 joint venture with Qatari Diar which successfully bid for the redevelopment of the Shell Centre site on the South Bank. Shell will remain in the famous Shell Tower but have also agreed to anchor the development by pre letting a 210,000 sq ft office building on the site. Extensive consultation on the redevelopment of this site is currently being conducted with the community and a range of stakeholders before the final shape of the mixed use master plan will be completed. It is anticipated that an application for planning consent for this site will be submitted prior to the year end.
Construction of the 37 storey building at 20 Fenchurch Street started in January 2011. The Group is acting as construction manager and is co development manager with Land Securities in this joint venture project. Piling has been completed and the concrete core will soon be topped out. Steel work has now commenced and following the decision to proceed with the full build out last year, the building is on schedule for completion in 2014.
CONCLUSION
In an eventful year both the Olympic Games and the Queen's Jubilee celebrations will promote London to a global audience. The Olympic Games will, in particular, place both the East End and Canary Wharf at the forefront of the world's attention which is likely to further enhance their respective profiles and emphasise the eastward shift of London's centre of gravity.
Although demand for high grade office space across London has reduced largely due to broader economic uncertainties, supply has remained relatively constrained. Overseas real estate investors and businesses are also still being attracted to the relative stability, transparency and traditional strengths of London as a pre-eminent global business centre. With the benefit of an enviable development pipeline and proven development and construction skills, the Group can adapt to fluctuating market conditions and tenant demand and will be able to take advantage of the improved market climate once the economic cycle turns.
DAVID PRITCHARD
Chairman
BUSINESS REVIEW
The following Business Review aims to provide shareholders with a summary of the business of the Group both during the year ended and as at 31 December 2011, as well as summarising significant events which have occurred after this date.
Property portfolio
The principal asset of the Company is its indirect investment in Canary Wharf Group which is engaged in property investment and development and is currently primarily focused on the development of the Estate. Canary Wharf Group is also involved, through joint ventures, in the redevelopment of 20 Fenchurch Street and, since July 2011, the Shell Centre. In addition, Canary Wharf Group has been involved in a joint venture to develop Wood Wharf. In January 2012 Canary Wharf Group completed its acquisition of WWLP and associated companies and was granted a new overriding 250 year lease of Wood Wharf (see Business Review - Wood Wharf).
At 31 December 2011, Canary Wharf Group's investment property portfolio comprised 16 completed properties (out of the 35 constructed on the Estate) totalling approximately 7.0m sq ft NIA. The properties included in Canary Wharf Group's investment property portfolio at 31 December 2011 are shown in the table below.
External Principal tenants and
Property address NIA Leased valuation sub tenants
---------------------- ---------- ------- ----------- ---------------------------
sq ft % GBPm
One Churchill Place 1,038,500 100.0 725.0 Barclays, BGC
10 Cabot Square/5
North Colonnade 634,100 100.0 370.0 Barclays, WPP Group
20 Cabot Square/10
South Colonnade 558,100 100.0 318.0 Barclays
Bank of New York Mellon,
Moody's, HSBC, Mirror
Group, State Street, FSA,
One Canada Square 1,220,500 85.0 659.5 NYSE, BBVA, Metlife
33 Canada Square 562,700 100.0 366.0 Citigroup
20 Bank Street 546,500 100.0 430.0 Morgan Stanley
Shell, Skadden, Allen
40 Bank Street 606,000 90.0 340.0 & Overy, ANZ, JLL
Northern Trust, Goldenberg
50 Bank Street 210,600 100.0 147.5 Hehmeyer
Clifford Chance, FTSE,
10 Upper Bank Street 1,027,300 100.0 690.0 Total
Boots, Tesco, Zara and
Cabot Place Retail 141,600 99.1 172.0 other retail tenants
Gap, Next and other retail
Canada Place Retail 71,300 100.0 176.8 tenants
Boots, M&S Food, Wagamama
Jubilee Place Retail 93,500 100.0 132.7 and other retail tenants
Churchill Place Barclays, Jamie's Italian
Retail 34,900 99.6 20.3 and other retail tenants
Waitrose Food & Home,
Reebok,
16-19 Canada Square 213,600 100.0 72.5 Plateau Restaurant
Reuters Plaza 8,900 100.0 15.5 Carluccio's, Smollensky's
Lloyds Bank, Canteen,
The Parlour, Roka and
Park Pavilion 22,900 100.0 20.7 Wahaca
Car parks - - 44.0
Total 6,991,000 96.5 4,700.5
---------- ------- -----------
At 31 December 2011, the investment property portfolio was 96.5% let. In connection with the sale of 25 Bank Street to J.P. Morgan in December 2010, a surrender was agreed of J.P. Morgan space on floors 44 - 46 of One Canada Square totalling 87,500 sq ft. This space was previously leased until April 2013 and J.P. Morgan paid a surrender premium equivalent to the foregone rent and service charges, together with dilapidations. Prior to the surrender by J.P. Morgan, the investment property portfolio was 97.1% let at 31 December 2010 whereas following the surrender the investment portfolio was 96.1% let.
As well as the rental income generated from completed properties, income is generated from managing the entire Estate which, in addition to the completed properties owned by Canary Wharf Group, includes 19 properties totalling 8.7m sq ft in other ownerships.
The properties of Canary Wharf Group are under lease to a range of tenants. At 31 December 2011, the weighted average unexpired lease term for the office investment portfolio was approximately 16.2 years, or 14.9 years assuming the exercise of outstanding break options (31 December 2010 - 16.9 years or 15.7 years respectively). Of the square footage under lease at 31 December 2011, 80.6% does not expire or cannot be terminated by tenants during the next 10 years.
Leasing
In the year ended 31 December 2011, over 57,000 sq ft of leases were completed in One Canada Square, including:
-- BBVA took 28,993 sq ft on level 44 for a 15 year term with a break option after 10 years on the whole and on part (5,000 - 7,500 sq ft) after 5 years.
-- Metlife Services took an additional 22,072 sq ft on level 50 for a 10 year term with a break option after 5 years.
These leases were at rents in the range GBP41.50 - GBP43.50 psf, which compares with the valuers' ERV for single floor lettings of GBP41.50 psf.
In 40 Bank Street, leases over an additional 24,000 sq ft were completed with a range of tenants, including G4S Secure Solutions over 19,113 sq ft on a short term lease.
In January 2012, Canary Wharf Group renewed leases with Bank of New York Mellon on 152,226 sq ft in One Canada Square for a term of 8 years from 1 January 2014 at a rent of GBP42.50 psf (10.4% ahead of built ERV) subject to an 18 month rent free period. There will be tenant only break options over 2 floors totalling 56,249 sq ft in January 2019 subject to a 10 month rent penalty. This compares with the valuers' ERV for lettings of existing space greater than 100,000 sq ft of GBP38.50 psf.
The FSA's short term lease of floor 24 in One Canada Square (26,200 sq ft) determined on 31 December 2011, as did Satyam's lease on floor 10 (2,237 sq ft). In addition, HSBC has exercised its break option over a floor in One Canada Square (27,104 sq ft) with effect from March 2012.
All options to sub let space back to Canary Wharf Group have been exercised and at 31 December 2011 the estimated net present value of sub let liabilities was approximately GBP31.0m discounted at 6.2%, being Canary Wharf Group's weighted average cost of debt (31 December 2010 - GBP37.6m, discounted at 6.3%). These sub let commitments have been reflected in the market valuation of the Group's properties.
Retail
With a working population of just over 95,000 people and excellent transport links, Canary Wharf continues to develop as an exciting retail and leisure destination. The arrival of J.P. Morgan and Shell staff in 2012 will bring an additional 10,000 people working on the Estate.
Canary Wharf Group enjoyed strong retail performance in the period, with turnover up 2.2% for the year to December 2011 and near 100.0% occupancy. Agreements for 12 retail units were exchanged during the period, with a further 6 since the year end. These include coffee shops, electrical goods, health food, restaurants and clothing outlets. Boisdale opened a new 12,000 sq ft live jazz, whisky and cigar restaurant in April 2011, adding to the excellent mix of hospitality destinations and further increasing visitor numbers in the evenings and at weekends.
Canary Wharf Group continues to undertake active and successful asset management of its retail space. Rents remain highly competitive and the retail at Canary Wharf is regarded as one of the leading prime retail developments in the UK. Canary Wharf Group is constantly striving to extend the scale and breadth of the retail offering. Kiosk spaces have been created in Reuters Plaza and underground car park space has been developed to extend several retail units. Canary Wharf Group is now proceeding with a 43,000 sq ft extension of retail into the car park beneath the Jubilee Place mall. Despite the difficult retail climate, a number of tenants are also expanding on the Estate, including Jaeger and Aquascutum, and there is a waiting list of tenants wanting to take space on the Estate. Canary Wharf is a specialist mall unlike the recently opened Westfield Stratford City mall which is expected to operate as a regional mall similar to Lakeside Thurrock and Bluewater. Canary Wharf Group is confident that the atmosphere and unique surroundings at Canary Wharf will distinguish this offering from other retail areas and that retail at Canary Wharf will continue to thrive.
Construction
In August 2011, Canary Wharf Group announced that EMA had agreed a pre let of 250,000 sq ft in a new office building of approximately 525,000 sq ft to be constructed at 25 Churchill Place. Construction of the shell and core of the building commenced in February 2012. In accordance with Canary Wharf Group's development strategy at Canary Wharf, the substructure was completed previously.
EMA will occupy the promenade, ground and the first 9 office floors in the 20 storey building. The agreed rent is GBP46.50 psf (3.3% ahead of pre let ERV) commencing in January 2015 with 5 yearly upwards only rent reviews. The length of the lease is 25 years with no break options and EMA will receive the equivalent of a 37 month rent free period in cash, which will be used to pay for EMA's fit out of the building. EMA also has a call option over an additional 108,000 sq ft. The lease to EMA locks in a minimum rental commitment of GBP11.6m per annum. The balance of the space is being marketed by Canary Wharf Group as construction progresses. Canary Wharf Group has entered into a new GBP190.0m construction and development loan facility (see Business Review - Borrowings) which will be utilised to fund the construction of this building.
Development properties
In January 2010, Canary Wharf Group acquired a long leasehold interest in 1 Park Place. This site benefits from a planning consent for approximately 950,000 sq ft of development, but Canary Wharf Group has prepared and intends to submit an application for a revised scheme of approximately 650,000 sq ft.
Heron Quays West has consent for an office scheme of 1.3m sq ft, however a number of alternative development options, both for office, and also mixed office and residential use, are now being considered.
Consent has been granted on the adjacent Newfoundland site for 200,000 sq ft of hotel and serviced apartments. An alternative all residential concept is being considered.
The remaining development site at North Quay has planning consent for 2.4m sq ft.
In summary, the total development capacity at the date of this report at each of Canary Wharf Group's development sites is as follows:
NIA
m sq ft
---------
Based on existing planning permissions:
- North Quay 2.39
- Heron Quays West 1.33
- Newfoundland 0.23
- Crossrail retail 0.10
- 1 Park Place (proposed development) 0.65
4.70
Secured subsequent to the year end:
- Wood Wharf 4.60
9.30
---------
Sold to J.P. Morgan:
Riverside South (Canary Wharf Group acting as
- development and construction manager) 1.90
---------
The site at Riverside South was acquired by J.P. Morgan in November 2008 and Canary Wharf Group was appointed to act as development and construction manager under a contract with a term to October 2016. The terms of this contract include a right of first offer for Canary Wharf Group in the event J.P. Morgan decides to sell the site. Initial infrastructure works have been completed on the site and J.P. Morgan has instructed Canary Wharf Group to bring the development to street level.
Canary Wharf Group has received GBP76.0m as an advance of developer's profit in conjunction with this development. This sum will be set against Canary Wharf Group's entitlement to future profits if J.P. Morgan proceeds with full construction.
20 Fenchurch Street
In 2010, Canary Wharf Group and Land Securities formed 20 FSLP, a 50:50 joint venture to develop 20 Fenchurch Street in the City. The existing property, which was acquired as a cleared site with some ancillary neighbouring holdings, was sold by Land Securities to this partnership for a consideration of GBP90.2m, in line with the March 2010 valuation. After syndication, Canary Wharf Group has retained a 15.0% equity interest in this project.
Planning consent for the proposed 37 storey building was originally granted in October 2009. The building will provide approximately 690,000 sq ft of world class space in floor plate sizes of 14,000 sq ft to 28,000 sq ft, with a sky garden on the top 3 floors. Some revisions to the consented scheme, recommended by Canary Wharf Group to improve its buildability and letting prospects, have been incorporated and received planning consent in July 2011. Construction commenced on site in January 2011 and is progressing on schedule and within budget. 20 FSLP has made the decision to proceed with full build out of the scheme, targeting completion in April 2014. The building is on schedule to be topped out by the end of 2012.
Land Securities and Canary Wharf Group were appointed as joint development managers and both are responsible for leasing, with Land Securities taking the lead. Canary Wharf Contractors Limited, a wholly owned subsidiary of Canary Wharf Group, was appointed as construction manager.
Shell Centre
In July 2011, Canary Wharf Group and Qatari Diar concluded an agreement to redevelop the Shell Centre. Canary Wharf Group and Qatari Diar have entered into a 50:50 joint venture and have committed to contributing GBP150.0m each to the joint venture to secure the 5.25 acre site on a 999 year lease. Canary Wharf Group's contribution is being satisfied from existing corporate resources. The aggregate GBP300.0m payment for the site is conditional on planning permission being received for the project within 3 years. Canary Wharf Group will act as construction manager for the project and will also be joint development manager with Qatari Diar. The joint development manager fees generated from the transaction will be apportioned between the parties.
The development will be mixed use, comprising office, residential and retail space. The existing 27 storey tower in the middle of the Shell Centre will be preserved and retained by Shell. Shell will also take a 210,000 sq ft pre let of one of the new office buildings to be constructed on the site.
Discussions have commenced with the local planning authority and relevant stakeholders to establish planning constraints, detailed designs and a timetable for construction of a project which will re energise an important section of the South Bank, London.
Wood Wharf
On 18 January 2012, Canary Wharf Group announced it had acquired full ownership of WWLP and associated companies and entered into an overriding 250 year lease of Wood Wharf.
Canary Wharf Group acquired 100.0% of WWLP by combining its own 25.0% effective interest with the 75.0% interests acquired from its original joint venture partners, BWB and Ballymore. It also agreed the restructuring of BWB's ongoing participation as freeholder of Wood Wharf. As a result, Canary Wharf Group now has control over the timing and design of the scheme. The acquisition of Ballymore's 25.0% effective interest was completed in December 2011 and BWB's 50.0% effective interest was acquired in January 2012.
Wood Wharf will be a new mixed use development scheme adjacent to the Estate. In May 2009 the current master plan received planning consent for 4.6m sq ft net. This represents an area almost one third of the size of the Estate and comprises approximately 1.25m sq ft of residential development, 0.2m sq ft of retail, 3.1m sq ft of offices and a 0.2m sq ft hotel. Detailed consent was granted on the 3 office buildings closest to the Estate totalling 1.5m sq ft net in July 2009. In light of changing market conditions, the best use of this site is being reviewed, potentially altering the mix of uses in favour of residential, reducing the size of individual office buildings to reflect target sectors and to differentiate the new district from the existing Estate.
The consideration for the acquisition of BWB's 50.0% interest in Wood Wharf subsequent to the year end in January 2012 was GBP52.4m together with a restructured 250 year lease that will see an annual ground rental payment to BWB increase to GBP6.0m by 2016. For the remainder of the lease, this payment will be subject to upwards only review linked to the passing rent achieved on the office buildings (the ground rent being equivalent to 3.75% of passing rents) and the ground rents paid by purchasers of the residential apartments built on the scheme. The GBP52.4m payment comprises an upfront payment of GBP4.4m and a series of 4 annual payments up to and including 2015. The total consideration paid in December 2011 for the acquisition of Ballymore's 25.0% effective interest in Wood Wharf was GBP38.0m.
Crossrail
Construction commenced on the Crossrail station at Canary Wharf in May 2009 and Canary Wharf Group has assessed that it has now fulfilled its funding obligations to the project. CLRL will pay a fixed price of GBP350.0m and Canary Wharf Group bears the risk for the difference between actual costs and the fixed price payable by CLRL. The original anticipated total cost of the station was GBP500.0m. Construction of the station box continues to plan and the box has been completed 5 months ahead of schedule and the platform level was handed over to CLRL in March 2012 to enable access for the tunnelling machines. The project is performing within budget. The first trains are due to run in 2018 when Crossrail opens for passenger service. Planning permission has also been granted for a 100,000 sq ft retail area above the station which will be subject to a long lease to Canary Wharf Group.
Canary Wharf Group's contribution to the station will be credited against any transport Section 106 contributions for certain agreed development sites on the Estate (comprising 25 Churchill Place, North Quay, Heron Quays West (including Newfoundland) and Riverside South) which may be required as part of the London Plan. Accordingly, costs borne by Canary Wharf Group on construction of the station are allocated to these development properties.
Valuations
The net assets of the Group, as stated in its Consolidated Balance Sheet at 31 December 2011, were GBP1,653.4m. In arriving at this total:
(i) properties held as investments were carried at GBP4,509.7m, which represents the market value of those properties of GBP4,700.5m at that date as determined by Canary Wharf Group's external valuers, CBRE, Savills or Cushman, less an adjustment of GBP183.1m for tenant incentives and GBP7.7m for deferred lease negotiation costs; and
(ii) properties held for development were carried at GBP291.8m, representing the market value of those sites of GBP293.5m as determined by Canary Wharf Group's external valuers, less an adjustment of GBP1.7m for deferred lease negotiation costs.
At 31 December 2011, the benchmark initial yield adopted by the valuers remained unchanged from 30 June 2011 at 5.35%. The weighted average yields applied in deriving the market valuation of Canary Wharf Group's investment properties can be summarised as:
31 December 30 31
June December
2011 2011 2010
% % %
------------ ------ ----------
Office portfolio:
Weighted average initial yield 5.1 5.0 4.8
Weighted average equivalent yield 5.4 5.3 5.2
Retail portfolio:
Weighted average initial yield 5.1 5.0 4.9
Weighted average equivalent yield 5.2 5.2 5.4
The valuations at 31 December 2011 are based on assumptions which include future rental growth, anticipated void costs, the appropriate discount rate or yield and, in the case of development properties, the estimated costs of completion. In valuing the properties on the Estate the valuers also take account of market evidence which included the lettings completed in the year referred to earlier in this Business Review.
The retail portfolio continued to perform strongly and over the year the market value increased by 8.1%, of which 3.6% was in the second half. The market value of the office portfolio increased by 0.3% over the year, net of a 1.2% decline since June 2011.
Taking office and retail together, the valuation of the investment portfolio on the basis of market value increased by GBP62.0m or 1.3% and, after allowing for additions and adjustments in respect of lease incentives, the carrying value increased by GBP43.9m or 1.0%. In the second half of the year the valuation of the investment portfolio reduced by GBP26.0m or 0.6% and the carrying value reduced by GBP35.2m or 0.8%. The reduction was primarily driven by a slight softening in yields as detailed above.
CBRE and Savills have provided a joint opinion as at 31 December 2011 that the market value of sites held for development, comprising those sites, excluding Wood Wharf and Riverside South, as disclosed in the Development section of this Business Review, was GBP293.5m. This includes 25 Churchill Place, valued at GBP80.0m by Savills, where construction of the shell and core commenced after the year end. The market value of this site has increased by GBP20.0m over the year, with a further GBP60.0m of developer's profit estimated by the valuers as still to come and excluded from the valuation of the site in its existing state at 31 December 2011. The total market value of the development sites of GBP293.5m compares with GBP268.5m at 31 December 2010. Taking into account capital expenditure in the year and adjusting for deferred negotiation costs, there was an increase in carrying value of GBP19.8m of which GBP10.9m has been recognised since 30 June 2011. In valuing the properties held for development, the valuers have allowed for estimated costs to complete, including an allowance for fit out and developer's profit. In addition they have allowed for letting, disposal, marketing and financing costs.
Over the year, market value of the entire property portfolio increased by GBP87.0m or 1.8% and the carrying value, net of additions and adjusting for tenant incentives, increased by GBP63.7m or 1.3%. These movements were driven by the factors referred to above. In the second half of the year the market value reduced by GBP12.5m or 0.2% and the carrying value reduced by GBP24.3m or 0.5%.
As previously disclosed, a number of properties are subject to leases back to Canary Wharf Group. These have been taken into account in the valuations summarised in the table below, which shows the carrying value of Canary Wharf Group's properties for accounts purposes, in comparison with the supplementary valuations provided by the external valuers.
31 December 31 December
2011 30 June 2011 2010
Market Market Market
value value value
in in in
Carrying existing Carrying existing Carrying existing
value state value state value state
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------- ---------- --------- ---------- --------- ----------
Retained portfolio:
Investment
- properties (i) 4,509.7 4,700.5 4,532.6 4,726.5 4,445.5 4,638.5
Properties
held for
- development (ii) 291.8 293.5 280.0 280.0 268.5 268.5
4,801.5 4,994.0 4,812.6 5,006.5 4,714.0 4,907.0
Sold property:
Property under
construction
at Riverside
South (iii) 75.6 133.7 76.0 131.7 74.6 127.3
4,877.1 5,127.7 4,888.6 5,138.2 4,788.6 5,034.3
========= ========== ========= ========== ========= ==========
Note:
(i) The carrying value represents market value less an adjustment for lease incentives and deferred
lease negotiation costs. The tenant incentives and deferred lease negotiation costs adjustment
at 31 December 2011 was GBP190.8m (30 June 2011 - GBP193.9m, 31 December 2010 - GBP193.0m).
Market value in existing state is shown prior to these amounts.
(ii) Properties held for development includes 25 Churchill Place which has been classified as under
construction from February 2012 following the commencement of shell and core works. The carrying
value represents market value less an adjustment for deferred lease negotiation costs of GBP1.7m.
(iii) The carrying value at 31 December 2011 represents GBP61.0m of costs transferred to cost of
sales (30 June 2011 - GBP58.2m, 31 December 2010 - GBP55.6m) and GBP14.6m transferred to payments
on account (30 June 2011 - GBP17.8m, 31 December 2010 - GBP19.0m). Market value in existing
state includes the present value of the minimum developer's profit from the sale of Riverside
South assuming J.P. Morgan does not proceed with full build out and excludes the profit recognised
on the disposal of the site in 2008.
Operating results
The following review of the Group's operating results relates to the year ended 31 December 2011. The comparatives relate to the year ended 31 December 2010.
Revenue is generated primarily by the rents and service charges earned by Canary Wharf Group from its property interests on the Estate together with turnover recognised on construction contracts and fees earned from construction and development management agreements. Total revenue for 2011 was GBP352.3m, against GBP359.6m for 2010, of which rental income after spreading lease incentives, increased from GBP233.8m to GBP250.0m.
In the first quarter of 2010, the Administrator ceased paying rent on 25 Bank Street. As a result, the unamortised incentives attributable to Lehman's lease totalling GBP50.1m were written off to the Consolidated Income Statement and disclosed as a capital and other item. The impact of spreading lease incentives was to reduce rental income by GBP1.3m in 2011 (2010 - GBP3.6m excluding the accelerated charge relating to Lehman).
Excluding the accounting adjustments arising from spreading tenant incentives, rental income reduced from GBP287.5m to GBP251.3m, a reduction of GBP36.2m or 12.6%, primarily attributable to the sale of 2 properties in 2010. During 2010 the Group also recognised GBP18.3m of income in connection with the termination of certain leases on the Estate by tenants whereas in 2011 only GBP0.1m of such income was recognised.
Service charge income increased from GBP74.3m for 2010 to GBP75.2m, an increase of GBP0.9m or 1.2%. Miscellaneous income, including insurance rents, the provision of tenant specific services outside the standard service charge and fees recognised on the provision of development and construction management services increased from GBP17.8m for 2010 to GBP21.6m for 2011.
Turnover for 2011 also included GBP5.4m recognised on the construction pre sold property, accounted for as construction contracts, compared with GBP15.4m in 2010. The reduction in revenue from this source was due to the completion of the initial phase of infrastructure works on the Riverside South site.
Cost of sales includes rents payable and property management costs, movements on provisions for certain other lease commitments, as well as costs allocated to cost of sales on construction contracts. Rents payable and property management costs were GBP101.1m for 2011 in comparison with GBP98.9m for 2010. Taking into account service charge and property related miscellaneous income totalling GBP95.6m for 2011 (2010 - GBP92.1m), a deficit was recorded on property management of GBP5.5m (2010 - GBP6.8m). This deficit was attributable to unlet space on which service charges were not recoverable.
Provisions and accruals relating to the remaining vacant leasehold property, rent support commitments entered into in prior years and certain other obligations of Canary Wharf Group increased by GBP1.9m in 2011 before adjustment for discounting, compared with a reduction of GBP1.8m in 2010. In addition the results for 2011 included GBP0.1m of dilapidations and other costs attributable to the termination of leases compared with GBP2.4m in 2010.
Cost of sales for 2011 included GBP5.4m of costs recognised on construction of Riverside South. 2010 included GBP10.4m of costs recognised on pre sold properties and was stated net of a release of GBP5.0m of surplus accruals relating to properties completed in prior years. No profit has been recognised on the construction contract entered into in connection with the sale of Riverside South although the potential surplus has been taken into account in calculating adjusted NAV (see Note 2).
Net development, rental and related income for 2011 was GBP243.8m, a reduction of GBP5.9m compared with 2010, attributable to the factors referred to above.
In addition to its share of the operating losses of the joint venture entities in which it has invested in the year totalling GBP0.3m, the Group has recognised its share of the revaluation surplus recorded on 20 Fenchurch Street totalling GBP7.6m which has been classified as a capital and other item. This compared with an impairment release of GBP2.7m in 2010.
Administrative expenses for 2011 were GBP43.6m in comparison with GBP38.6m for 2010. The increase in administrative expenses was partly attributable to the accounting charge of GBP2.3m recognised in the Consolidated Income Statement in connection with Canary Wharf Group's share allocation to employees (see Note 21) which vested in June 2011. There was also an increase in professional fees in the year, principally relating to Canary Wharf Group's investments. These items were partly offset by a reduction in Canary Wharf Group's other payroll costs.
Underlying operating profit (as defined in Note 2) for 2011 was GBP207.4m in comparison with GBP268.4m for 2010. Of the reduction of GBP61.0m, GBP33.8m was attributable to the reduction in recognised rental income and GBP5.0m to the timing of profit recognition on pre sold property. The increase in administrative expenses of GBP5.1m and the reduction in income from the termination of leases of GBP15.9m also contributed to the fall.
A net revaluation surplus of GBP63.7m (Note 4) was recognised in the Consolidated Income Statement in the year compared with GBP327.9m in 2010. The changes in the valuation of the property portfolio are explained in more detail in Business Review - Valuations.
In December 2010, Canary Wharf Group completed the disposal of 25 Bank Street for a gross consideration of GBP495.0m which resulted in a profit of GBP155.1m (Note 7). In conjunction with the sale of 25 Bank Street, Canary Wharf Group agreed terms with AIG for the termination of the rental cover facility on this building for a net receipt of GBP144.5m.
Total operating profit for 2011 was GBP278.7m compared with GBP848.5m in 2010. The reduction was attributable to revaluation movements, the sale of 25 Bank Street and settlement with AIG, together with the other factors referred to above.
Underlying net financing costs (Note 5) for 2011 were GBP202.8m against GBP239.6m for 2010. The reduction in underlying net interest payable of GBP36.8m was primarily attributable to a reduction in interest payable following the repayment of the Shareholder Loan and of loans secured against the buildings located at 5 Churchill Place and at 10 Cabot Square and 20 Cabot Square. This was partly offset by interest payable on the GBP92.3m loan facility secured against 50 Bank Street which was drawn down in June 2011. Investment revenues also reduced in 2011 following the repayment in October 2010 of the Drapers Gardens construction loan facility which was acquired by Canary Wharf Group in January 2010.
Net financing costs classified as capital and other items include movements in the market value of derivative financial instruments and, in 2010, losses recorded on the repurchase of debt. Movements on derivative financial instruments and interest payable on the Preference Shares, but excluding the repurchase of debt, resulted in a net cost of GBP288.7m being recognised in the Consolidated Income Statement in 2011 compared with GBP127.1m in 2010.
In 2010, the loan facility secured against the buildings at 10 Cabot Square and 20 Cabot Square was repaid. Costs including breakage costs incurred on closing out the associated interest rate swap, fees and accounting adjustments (comprising the write off of unamortised deferred fees and the recycling of the unamortised balance on the hedging reserve) resulted in a charge to the Consolidated Income Statement of GBP18.0m which was classified as a capital and other item.
The loss for the year before tax for 2011 was GBP212.8m in comparison with a profit of GBP463.8m for 2010. The results for 2011 and 2010 included certain capital and other profits and losses as described above. Underlying profit before tax for 2011 was GBP4.6m (2010 - GBP28.8m).
Tax for 2011 taken to the Consolidated Income Statement comprised a corporation tax charge of GBP0.1m and a deferred tax credit of GBP128.8m. The deferred tax credit is primarily attributable to EZAs claimed in prior periods as disclosed in the Tax section of this Business Review. In 2010 tax comprised a corporation tax charge of GBP35.7m and a deferred tax charge of GBP7.2m.
The loss for the year after tax for 2011 was GBP84.1m in comparison with a profit of GBP420.9m for 2010.
The basic and diluted losses per share (Note 2) for 2011 was 9.0p (2010 - earnings of 41.3p). There were no adjustments required in respect of dilutive instruments at either 31 December 2011 or 31 December 2010.
Tax
In both 2011 and 2010, EZAs and plant and machinery capital allowances sheltered a small part of taxable profits.
The contingent tax payable if Canary Wharf Group was to dispose of its owned property portfolio at the market values disclosed in this Business Review is included in the revaluation surplus component of the net deferred tax balance recognised at each balance sheet date.
During the year, the Group released a deferred tax liability of GBP72.1m in relation to previous EZA claims as these amounts can no longer be claimed back upon disposal of the relevant property interest.
The tax position of the Group is further disclosed in Note 6.
Consolidated balance sheet and key performance indicators
Net assets in the Group's Consolidated Balance Sheet were GBP1,653.4m at 31 December 2011 in comparison with GBP1,895.6m at 30 June 2011 and GBP1,753.6m at 31 December 2010. The reduction in net assets over the year was primarily attributable to the loss after tax for the year of GBP84.1m which includes revaluation movements on the property portfolio and on derivative financial instruments. The reduction in net assets since 30 June 2011 was attributable to the loss in the second half of the year of GBP219.4m which was primarily attributable to an adverse movement in the fair value of derivatives and the reduction in the valuation of the property portfolio.
The Company's objective is to manage its investment in Canary Wharf Group so as to maximise net asset value from its investment properties and property development, although the Group is impacted by movements in the wider property market. The Board considers that the most appropriate indicator of the Group's performance is adjusted NAV per share attributable to members of the Company. This measure serves to capture the Board's judgements concerning, inter alia, letting strategy, redevelopment and financial structure.
Adjusted NAV per share includes the valuation surplus on construction contracts but excludes deferred tax and fair value adjustments on derivatives. Adjusted NAV per share increased from GBP1.87 at 31 December 2010 to GBP1.90 at 31 December 2011, an increase of 3p or 1.6% per share attributable to the factors noted above.
Adjusted NAV per share reduced by 4p per share or 2.1% from GBP1.94 at 30 June 2011.
The calculation of adjusted NAV per share is set out in Note 2. Adjusted NNNAV per share is set out in the following table:
31 December 30 June 31 December
2011 2011 2010
Note GBPm GBPm GBPm
------------ -------- ------------
Adjusted net assets attributable
to members of the Company (i) 1,452.1 1,484.9 1,429.7
Fair value adjustment in
respect of financial assets
and liabilities net of tax
thereon (ii) (476.5) (189.6) (229.7)
Deferred tax (iii) 14.3 (69.2) (109.6)
Non controlling interest
in above adjustments 141.6 79.6 104.3
Adjusted NNNAV 1,131.5 1,305.7 1,194.7
------------ -------- ------------
(i),
Adjusted NAV per share (iv) GBP1.90 GBP1.94 GBP1.87
Adjusted NNNAV per share (iv) GBP1.48 GBP1.71 GBP1.56
Note:
(i) Refer to Note 2.
(ii) Comprises the mark to market of derivatives in Note 2 and the after tax difference between
the market value and book value of debt disclosed in Note 17.
(iii) Refer to Note 6.
(iv) Calculation based on 764.9m Ordinary Shares in issue at 31 December 2011, 30 June 2011 and
31 December 2010.
Principal risks and uncertainties
Continuous monitoring of the principal risks and uncertainties facing the business of the consolidated Group is undertaken through regular assessment and formal quarterly reports to the audit committees and boards of both the Company and Canary Wharf Group. The boards and audit committees of the Group focus on the risks identified as part of the Group's systems of internal control which highlight, amongst others, key risks faced by the Group and allocate specific day to day monitoring and control responsibilities as appropriate. The current key risks of the consolidated Group include the cyclical nature of the property market, financing risk, concentration risk and policy and planning risks.
Concentration risk
The majority of the Group's real estate assets are currently located on or adjacent to the Estate with a majority of tenants linked to the financial services industry. Wherever possible steps are taken to mitigate or avoid material consequences arising from this concentration and to diversify the tenant base. Although the focus of the Group has been on and around the Estate, where value can be added Canary Wharf Group will also consider opportunities elsewhere and is now involved in joint ventures developing 20 Fenchurch Street and the Shell Centre.
Cyclical nature of the property market
The valuation of the Group's assets is subject to many external economic and market factors. The turmoil in the financial markets in recent years has been reflected in the property market by such factors as a significant decline in tenant demand for space in London, the oversupply of available space in the office market and changing market perceptions of property as an investment resulting in fluctuations of property valuations in general. Fears of an oversupply of available space in the market have however been mitigated by the difficulty in securing finance for speculative development and reduced demand. The market has also been assisted by the continuing presence of overseas investors attracted by the relative transparency of the real estate market in London which is viewed as both stable and secure. Changes in financial and property markets are kept under constant review so that the Group can react appropriately and tailor the business plans of the Group accordingly. While the Group has no direct exposure to the Euro, the ongoing uncertainty reflecting issues in the macroeconomy, particularly relating to the Eurozone, continues to impact the real estate market. The impact of these uncertainties is closely monitored.
Financing risk
The broader economic cycle inevitably leads to movements in inflation, interest rates and bond yields. The Group finances its operations largely through a mixture of surplus cash, secured borrowing and debentures. The Group borrows at both fixed and floating rates and uses interest rate swaps or caps to modify exposure to interest rate fluctuations. After taking account of interest rate hedging all of the Group's facilities are fixed long term loans.
The ongoing financial markets' uncertainty continues to significantly limit the availability of funding. In common with other UK property companies, such lack of financing facilities may have an impact on the business of the Group if the lending markets remain limited for the foreseeable future.
The Board continues to monitor the financial markets with the aim of identifying an appropriate financing arrangement for the Company. The weighted average maturity of the Group's loans excluding the Preference Shares is 14.9 years. Further detail on the management of treasury risk can be found in the Business Review - Treasury objectives and Note 17 which includes a summary of the key financial covenants applicable to each of the Group's facilities.
At 31 December 2011, GBP275.0m of Preference Shares were in issue.
Policy and planning risks
All of the Group's assets are currently located within London. Appropriate contact is maintained with local and national government, but changes in governmental policy on planning or tax could limit the ability of the Group to maximise the long term potential of its assets. These risks are closely monitored.
Treasury objectives
The principal objectives of the Group's treasury function are to ensure the availability of finance to meet the Group's current and anticipated requirements and to minimise the Group's cost of capital. The treasury function operates as a cost centre rather than a profit centre and does not engage in the trading of financial instruments.
The Group's financial instruments, other than derivatives, comprise borrowings, cash and liquid resources, and various items such as trade receivables and trade payables that arise directly from its operations. The Group enters into derivative transactions (principally interest rate swaps and caps) only in order to manage the interest rate risk arising from the Group's variable rate borrowings. Details of the financial risks facing the Group are disclosed earlier in this section and in Note 17.
Borrowings
In June 2011, Canary Wharf Group entered into a GBP92.3m 5 year facility secured against 50 Bank Street. The facility carries interest at 3 months LIBOR plus a margin of 2.0%. The exposure to movements in LIBOR is fully hedged at an all in rate including margins of 4.415%.
In December 2011, Canary Wharf Group entered into a GBP190.0m development loan facility to fund the construction of a new building at 25 Churchill Place. No amounts had been drawn down against this facility at 31 December 2011. The facility carries interest at 3 month LIBOR plus a margin of 300 bps until rent commencement, following which the margin may drop to 250 bps or 225 bps, subject to satisfaction of certain interest cover tests. The loan is also subject to a maximum LTV covenant of 65.0% and is repayable in December 2016. Finance costs incurred on this loan during the construction period will be capitalised as part of the cost of construction of the building.
Also in December 2011, Canary Wharf Group restructured its finance lease obligation by acquiring the finance lessor company at a cost of GBP42.4m. The effect of this restructuring is that Canary Wharf Group has extinguished its finance lease liability. A total cost of GBP1.0m has been recognised on the transaction, comprising fees of GBP0.2m and an adjustment to the carrying value of the finance lease liability of GBP0.8m. These costs have been taken to the Consolidated Income Statement and form part of net financing costs in Underlying profit. The restructuring was funded by releasing GBP42.4m of cash which was previously held as collateral against the finance lease liability.
As part of the Company's refinancing in 2009, the Company issued GBP275.0m of Preference Shares which carry a quarterly coupon of 2.5% payable in arrears. During the year, the Company paid outstanding Preferential Dividends totalling GBP35.0m, including GBP6.9m accrued at 31 December 2010.
At 31 December 2011, net debt (including derivative financial instruments at fair value, net of monetary deposits and cash and cash equivalents) stood at GBP3,216.3m, an increase of GBP338.9m from GBP2,877.4m at 31 December 2010. The components of net debt are shown in Note 17.
The increase in total borrowings, including derivatives, from GBP3,990.7m to GBP4,216.3m reflects the movements on loans referred to above and movements in the fair value of the Group's derivatives, partly offset by scheduled amortisation under Canary Wharf Group's securitisation and other secured debt.
The increase in total borrowings was accompanied by a reduction in cash and cash equivalents from GBP1,108.2m to GBP996.1m. The reduction in cash was primarily attributable to the investments in joint ventures, offset in part by loan draw downs.
At 31 December 2011, the Group's weighted average cost of debt was 6.2% including credit wraps, but excluding the coupon on the Preference Shares (31 December 2010 - 6.3%). The Group borrows at both fixed and floating rates and uses interest rate swaps or caps to modify exposure to interest rate fluctuations. All of the Group's facilities are fixed after taking account of interest rate hedging.
Cash flow
Cash generated from operating activities for 2011 was GBP254.0m in comparison with GBP348.9m for 2010. This reduction was primarily attributable to the settlement in 2010 with AIG of GBP144.5m together with a reduction in net proceeds from construction contracts and working capital movements. Operating cash flows in 2011 included GBP11.4m of proceeds and GBP4.7m of costs on construction contracts compared with GBP32.9m and GBP30.3m respectively for 2010. Excluding the impact of construction contracts, cash generated from operations reduced from GBP346.3m to GBP247.3m. Corporation tax of GBP2.1m was paid in the year, whereas GBP5.4m was paid in 2010.
Cash flows from investing activities resulted in a cash outflow of GBP85.9m for 2011 compared with an inflow of GBP516.9m for 2010. In 2011 the cash outflow included GBP22.7m of development expenditure on properties to be retained by Canary Wharf Group and investment in associates of GBP60.9m which included the investment in the Shell Centre and the acquisition of Ballymore's interests in Wood Wharf. In 2010 cash inflows included GBP470.0m of proceeds from the sale of 25 Bank Street and GBP190.0m from the sale of 5 Churchill Place. These inflows in 2010 were partly offset by GBP127.5m of development expenditure and a net investment in associates of GBP15.2m, including the initial investment in 20 Fenchurch Street.
Cash flows from financing activities for 2011 resulted in an outflow of GBP37.2m compared with GBP550.8m for 2010. The 2011 cash flows included GBP92.3m before fees drawn down on the loan facility secured against 50 Bank Street, offset by GBP66.0m of scheduled amortisation on Canary Wharf Group's securitisation and other secured debt, GBP42.4m paid to restructure the finance lease obligation and a GBP13.8m dividend paid by Canary Wharf Group to its minority shareholders, together with GBP7.3m on the acquisition of Ordinary Shares by the Trust. 2010 included the repayment of the loan facility secured on 10 Cabot Square and 20 Cabot Square of GBP348.7m and the repurchase of the Shareholder Loan for GBP135.0m, net of draw downs during the year under this facility totalling GBP23.2m. 2010 also included the repayment of GBP123.5m drawn on the 5 Churchill Place construction loan facility and GBP77.2m of scheduled amortisation on Canary Wharf Group's securitisation and other secured loans, together with the GBP23.1m dividend paid by Canary Wharf Group to its minority shareholders. These cash flows were partly offset by the GBP135.0m net proceeds from the Open Offer.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out elsewhere in the Business Review. The finances of the Group, its liquidity position and borrowing facilities are described in the Business Review - Borrowings and the risks faced by the Group are set out in the Business Review - Principal risks and uncertainties and Note 17.
The Group has considerable financial resources and at 31 December 2011 Canary Wharf Group had cash balances totalling GBP988.5m of which GBP853.5m was unsecured. In addition Canary Wharf Group enjoys the benefit of leases with a weighted average unexpired lease term of 14.9 years assuming the exercise of all break options, and the average maturity of the Group's debt at 31 December 2011 was 13.9 years. At 31 December 2011 the occupancy level was 96.5%. Accordingly, the directors believe that the Group is well placed to manage its business risks successfully despite the continuing uncertain economic climate.
Having made the requisite enquiries, the directors have a reasonable expectation that the Company and the Group will have adequate resources to continue their operations for the foreseeable future and, therefore, continue to adopt the going concern basis in preparing this Announcement.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2011
2011 2010
Capital Capital
Underlying* and other Total Underlying* and other Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------------- --------- ------------ ------------- --------
Gross development,
rental and related
income 3 352.3 - 352.3 409.7 (50.1) 359.6
Cost of sales (108.5) - (108.5) (109.9) - (109.9)
Net development, rental
and related income 3 243.8 - 243.8 299.8 (50.1) 249.7
Share of associates
and joint ventures
after tax 8 (0.3) 7.6 7.3 (0.2) 2.7 2.5
Administrative expenses (43.6) - (43.6) (38.6) - (38.6)
Other income 7.5 - 7.5 7.4 - 7.4
Net revaluation movements 4 - 63.7 63.7 - 327.9 327.9
Profit on sale of
investment
property 7 - - - - 155.1 155.1
Termination of AIG
facility 17 - - - - 144.5 144.5
Operating profit 207.4 71.3 278.7 268.4 580.1 848.5
Net financing costs
- investment revenues 5 7.9 - 7.9 25.8 - 25.8
- financing costs 5 (210.7) (288.7) (499.4) (265.4) (127.1) (392.5)
debt repurchase
- costs 5 - - - - (18.0) (18.0)
(202.8) (288.7) (491.5) (239.6) (145.1) (384.7)
Profit/(loss) for the
year before tax 4.6 (217.4) (212.8) 28.8 435.0 463.8
-------------- ---------------- ------------ -------------
Tax 6 128.7 (42.9)
(Loss)/profit for the
year after tax 2 (84.1) 420.9
--------- --------
Attributable to:
Equity holders of the
Company (68.1) 277.8
Non controlling interest (16.0) 143.1
(84.1) 420.9
--------- --------
(Losses)/earnings per
share
- basic and diluted 2 (9.0)p 41.3p
*As defined in Note 2.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2011
2011 2010
GBPm GBPm
------- -------
(Loss)/profit after tax (84.1) 420.9
Transferred from equity in respect
of cash flow hedges 9.2 44.4
Tax on items transferred from equity
(including change in tax rate) (4.9) (13.7)
4.3 30.7
Total comprehensive income for the
year (79.8) 451.6
------- -------
Attributable to:
Equity holders of the Company (65.1) 299.1
Non controlling interest (14.7) 152.5
(79.8) 451.6
------- -------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2011
Cancelled Total Non
Share Treasury share Hedging other controlling Retained Share
premium shares reserve reserve reserves interests earnings capital Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- --------- ---------- -------- --------- ------------ --------- -------- --------
1 January 2010 1,071.0 (9.4) 59.5 (88.0) 1,033.1 512.6 (419.7) 65.6 1,191.6
Profit for the year
after tax - - - - - - 420.9 - 420.9
Net income recognised - - - - - - 420.9 - 420.9
Transferred to non
controlling
interests - - - (9.4) (9.4) 152.5 (143.1) - -
Transferred to
income:
cash flow
- hedges - - - 44.4 44.4 - - - 44.4
Tax on transfers - - - (13.7) (13.7) - - - (13.7)
Total comprehensive
income and expense
for the year - - - 21.3 21.3 152.5 277.8 - 451.6
Issue of Ordinary
Share capital (net
of expenses) 124.1 - - - 124.1 - - 10.9 135.0
Reserve movements in
respect of treasury
shares - (1.5) - - (1.5) - - - (1.5)
Dividends paid by
subsidiary
undertaking - - - - - (23.1) - - (23.1)
31 December 2010 1,195.1 (10.9) 59.5 (66.7) 1,177.0 642.0 (141.9) 76.5 1,753.6
Loss for the year after tax - - - - - - (84.1) - (84.1)
Net expense recognised - - - - - - (84.1) - (84.1)
Transferred to non controlling
interests - - - (1.3) (1.3) (14.7) 16.0 - -
Transferred to income:
- cash flow hedges - - - 9.2 9.2 - - - 9.2
Tax on transfers - - - (4.9) (4.9) - - - (4.9)
Total comprehensive income and
expense for the year - - - 3.0 3.0 (14.7) (68.1) - (79.8)
Acquisition of treasury shares - (7.3) - - (7.3) - - - (7.3)
Acquisition of Canary Wharf Group
shares - - - - - (2.3) - - (2.3)
Reserve movements in respect of
treasury shares - 2.3 - - 2.3 - 0.7 - 3.0
Dividends paid by subsidiary
undertaking - - - - - (13.8) - - (13.8)
31 December 2011 1,195.1 (15.9) 59.5 (63.7) 1,175.0 611.2 (209.3) 76.5 1,653.4
-------- ------- ----- ------- -------- ------- -------- ----- --------
Description of the nature and purpose of each reserve
The Treasury Shares reserve represents the cost of Ordinary Shares held in Trust. Details of the movements on the Treasury Shares reserve are disclosed in Note 21.
The cancelled share reserve comprises the nominal value of 601,068,076 deferred shares cancelled in 2009.
The hedging reserve comprises the amounts deferred in equity under previously effective hedges which are recognised in the Consolidated Income Statement in the same period in which the hedged item affects net profit or loss.
Retained earnings includes, inter alia, revaluation surpluses in respect of the Group's properties that are recognised in the Consolidated Income Statement.
CONSOLIDATED BALANCE SHEET
at 31 December 2011
2011 2010
Note GBPm GBPm
---------- ----------
Assets:
Non current assets
Investment properties 7 4,509.7 4,445.5
Development properties 7 291.8 268.5
Plant and equipment 7 0.5 1.0
4,802.0 4,715.0
Other non current assets
Investments 8 112.5 43.0
Tenant incentives and other non current
assets 10 192.5 193.0
Deferred tax 6 14.3 -
5,121.3 4,951.0
Current assets
Trade and other receivables 9 46.7 67.6
Monetary deposits 11 3.9 5.1
Cash and cash equivalents 12 996.1 1,108.2
1,046.7 1,180.9
Total assets 6,168.0 6,131.9
Liabilities:
Current liabilities
Current portion of long term borrowings 14 (93.6) (98.7)
Corporation tax 13 (52.9) (55.0)
Trade and other payables 13 (236.1) (212.8)
(382.6) (366.5)
Non current liabilities
Borrowings 15 (3,575.6) (3,595.0)
Derivative financial instruments 16 (547.1) (297.0)
Deferred tax liabilities 6 - (109.6)
Provisions 18 (9.3) (10.2)
(4,132.0) (4,011.8)
Total liabilities (4,514.6) (4,378.3)
Net assets 1,653.4 1,753.6
---------- ----------
Equity
Share capital 19 76.5 76.5
Other reserves 1,175.0 1,177.0
Retained earnings (209.3) (141.9)
Total equity attributable to members
of the Company 1,042.2 1,111.6
Non controlling interests 611.2 642.0
Total equity 1,653.4 1,753.6
---------- ----------
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2011
2011 2010
Note GBPm GBPm
-------- --------
Net cash flows from operating activities 22 254.0 348.9
Interest paid (245.2) (266.3)
Interest received 7.3 25.7
Interest element of finance lease rentals (0.2) (0.5)
Breakage costs - (40.5)
Financing expenses on new loans (4.9) -
Net cash inflow from operating activities 11.0 67.3
Cash flows from investing activities
Development expenditure (22.7) (127.5)
Purchase of property, plant and equipment - (0.1)
Sale of investment property - 659.7
Investment in and net loans to associates (60.9) (15.2)
Acquisition of shares in Canary Wharf Group plc (2.3) -
Net cash (outflow)/inflow from investing activities (85.9) 516.9
Cash flows from financing activities
Dividends paid to minority shareholders (13.8) (23.1)
Repayment of construction loan - (123.5)
Redemption of securitised debt (57.5) (59.0)
Redemption of secured loan (8.5) (18.2)
Draw down of secured loan 92.3 -
Repayment of secured loans - (348.7)
Issue of Ordinary Share capital - 140.0
Fees on issue of Ordinary Share capital - (5.0)
Draw down of Shareholder Loan - 23.2
Repurchase of Shareholder Loan - (135.0)
Acquisition of own shares (see below) (7.3) (1.5)
Repayment of finance lease obligation (42.4) -
Net cash outflow from financing activities (37.2) (550.8)
Net (decrease)/increase in cash and cash equivalents (112.1) 33.4
Cash and cash equivalents at start of year 1,108.2 1,074.8
Cash and cash equivalents at end of year 12 996.1 1,108.2
-------- --------
The acquisition of own shares in 2010 totalling GBP1.5m was disclosed as part of cash flows from investing activities in the 2010 Report and Financial Statements. In preparing the Consolidated Cash Flow Statement for 2011, this cash outflow has been reclassified and now forms part of cash flows from financing activities in accordance with IAS 7 and the cash flow for 2010 has been reallocated accordingly.
NOTES TO THE ANNOUNCEMENT
for the year ended 31 December 2011
1. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
The financial information presented in this Announcement has been prepared based on the Group's financial statements which are prepared in accordance with IFRS as adopted for use in the EU. While the financial information contained in this Announcement has been prepared based on the Group's financial statements which are prepared in accordance with IFRS, this Announcement does not itself contain sufficient information to comply with IFRS. This Announcement does not constitute the Group's statutory accounts for the year ended 31 December 2011 but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts. Their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) of the Companies Act 2006.
This Announcement has been prepared under the historical cost convention as modified by the revaluation of land and buildings and certain financial instruments and the deferred tax thereon.
The following new and revised accounting standards and interpretations have been adopted by the Group in 2011. Their adoption has not had any significant impact on the amounts reported in these financial statements, but, with the exception of IFRS 1, may impact the accounting for future transactions and arrangements.
-- IAS 24 (revised 2009): Related party disclosures; -- Amendments to IFRIC 14: Prepayments of a minimum funding requirement; -- IFRIC 19: Extinguishing financial liabilities with equity instruments;
-- Amendment to IFRS 1: Limited exemption from comparative IFRS 7 disclosures for first time adopters;
-- Amendment to IAS 32: Classification of rights issues; and -- Improvements to IFRSs 2010.
Other than the above, this Announcement has been prepared in accordance with the accounting policies set out in the Group's financial statements for the year ended 31 December 2010. A copy of the statutory accounts for the year ended 31 December 2010 has been delivered to the Registrar of Companies. The auditors' report on these accounts was unqualified did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) of the Companies Act 2006.
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates.
The financial information has been prepared on a going concern basis, which assumes the Group will be able to meet its liabilities as they fall due for the foreseeable future.
2. PERFORMANCE MEASURES
Basic earnings and losses per share
2011 2010
Earnings/(losses) Per share Earnings/(losses) Per share
GBPm p GBPm p
------------------ ---------- ------------------ ----------
Underlying profit for
the year before tax 4.6 0.6 28.8 4.3
Capital and other items (217.4) (28.8) 435.0 64.7
Tax 128.7 17.1 (42.9) (6.4)
(Loss)/profit after
tax (84.1) (11.1) 420.9 62.6
Less: non controlling
interest 16.0 2.1 (143.1) (21.3)
(Loss)/profit after
tax attributable to
members of the Company (68.1) (9.0) 277.8 41.3
------------------ ---------- ------------------ ----------
Underlying earnings exclude the write down of unamortised Lehman incentives (Note 10), profits on sale of property, termination of the AIG facility, movements on property revaluations, movements in the fair value of ineffective hedging instruments and other derivatives, interest payable on the Preference Shares, refinancing gains and losses and tax.
Losses and earnings per share for 2011 has been calculated by reference to the loss attributable to equity shareholders of GBP68.1m for 2011 (2010 - profit of GBP277.8m) and on the weighted average of 756.1m Ordinary Shares in issue for 2011 (2010 - 672.5m). The number of Ordinary Shares excludes the shares held in trust in connection with Canary Wharf Group's employee share benefit plan.
The number of Ordinary Shares reflects the issue on 11 October 2010 of 109,375,000 Ordinary Shares through the Open Offer of which 1,174,972 shares were acquired by the Trust. The Open Offer was not treated as a rights issue and accordingly the weighted average number of Ordinary Shares was not treated as diluted. Had the Open Offer been treated as a rights issue for the purposes of IAS 33, earnings per share for 2010 would have been stated at 40.6p instead of 41.3p. The result for 2011 would not have been affected by this change.
Warrants were issued in connection with the Shareholder Loan for a total of 2,836,666,668 Ordinary Shares with a strike price of 1.5p. If exercised at the date of this report the Warrants would equate to an additional 28,835,517 Ordinary Shares with an exercise price of 150p each. No dilution arises from the Warrants as the average market price of Ordinary Shares during the year of 134p did not exceed the exercise price.
31 December 30 June 31 December
2011 2011 2010
GBPm GBPm GBPm
------------ -------- ------------
Balance sheet net assets 1,653.4 1,895.6 1,753.6
Adjustment for: deferred
tax (14.3) 69.2 109.6
Mark to market of derivatives 547.1 277.7 297.0
Add: surplus arising on
construction contracts 58.1 55.7 52.7
2,244.3 2,298.2 2,212.9
Non controlling interest
in the balance sheet (611.2) (689.5) (642.0)
Non controlling interest
on adjustments above (181.0) (123.8) (141.2)
Adjusted net assets 1,452.1 1,484.9 1,429.7
------------ -------- ------------
Adjusted NAV per share 190p 194p 187p
Adjusted NAV per share includes the valuation surplus on construction contracts of GBP58.1m at 31 December 2011 (30 June 2011 - GBP55.7m, 31 December 2010 - GBP52.7m), and excludes fair value adjustments on derivatives and deferred tax.
The number of shares in issue was 764.9m Ordinary Shares at each balance sheet date.
3. REVENUE
2011 2010
GBPm GBPm
-------- -------
Rent receivable 251.3 287.5
Write off of Lehman incentives and
deferred leasing costs
(Note 10) - (50.1)
Recognised incentives and committed
rent increases (1.3) (3.6)
250.0 233.8
Service charge income 75.2 74.3
Miscellaneous income 21.6 17.8
Receivable on termination of leases 0.1 18.3
Construction contract revenue 5.4 15.4
Gross development, rental and related
income 352.3 359.6
Service charge and other direct property
expenses (101.1) (98.9)
Movement in accruals and provisions
for leasehold commitments (1.9) 1.8
Payments on termination of leases (0.1) (2.4)
Construction contract expenditure (5.4) (10.4)
Net development, rental and related
income 243.8 249.7
-------- -------
4. NET REVALUATION MOVEMENTS ON PROPERTY AND INVESTMENTS
2011 2010
GBPm GBPm
----- ------
In Consolidated Income Statement
Revaluation of investment properties 43.9 332.6
Revaluation of development properties 19.8 (4.7)
63.7 327.9
----- ------
5. NET FINANCING COSTS
2011 2010
GBPm GBPm
-------- --------
Interest revenue
Deposits, other loans and securities 7.9 25.8
-------- --------
Interest expense
Notes and debentures (146.3) (152.3)
Shareholder Loan - (34.0)
Other bank loans and overdrafts (63.4) (78.5)
Obligations under finance leases (1.0) (0.6)
(210.7) (265.4)
Underlying net financing costs (202.8) (239.6)
-------- --------
Other financing costs
Valuation movements on fair value
of derivatives (250.1) (67.4)
Finance costs of non equity shares
(Note 17) (29.4) (30.6)
Hedging reserve recycling (9.2) (29.1)
(288.7) (127.1)
Net financing expenses (491.5) (366.7)
-------- --------
Costs on repurchase or repayment
of debt (including hedge reserve
recycling)
- Secured debt - (18.0)
- (18.0)
Net financing costs (491.5) (384.7)
-------- --------
Total financing income 7.9 25.8
Total financing expenses (499.4) (410.5)
Net financing costs (491.5) (384.7)
-------- --------
Financing expenses relating to Canary Wharf Group's construction loan facility will be transferred to the cost of the building as incurred from commencement of construction in 2012 until practical completion of the building is achieved.
The interest rate swap associated with the loan facility secured against the buildings at 10 Cabot Square and 20 Cabot Square was broken when the associated loan was repaid in 2010 at a cost of GBP23.7m. Fees of GBP1.0m were also incurred on repayment of this loan. Accounting adjustments, comprising the write off of unamortised deferred fees of GBP2.7m and the recycling of the related unamortised balance on the hedging reserve of GBP15.3m were also taken to the Consolidated Income Statement which resulted in a charge of GBP18.0m, classified as a capital and other item.
6. TAX
2011 2010
GBPm GBPm
-------- --------
Tax charge
Current tax charge to income (0.1) (35.7)
Deferred tax 128.8 (7.2)
Group total tax 128.7 (42.9)
-------- --------
Tax reconciliation
Group profit on ordinary activities
before tax (212.8) 463.8
Tax on profit on ordinary activities
at UK corporation tax rate of 26.5%
(2010 - 28.0%) 56.4 (129.9)
Effects of:
Change in tax rate (2.7) 4.1
Adjustments in respect of prior years 2.7 2.4
Effect of reversal of previously
restricted capital loss and indexation
allowances upon disposal of investment
property - 43.4
Indexation allowances and net effect
of restriction or reversal of previously
restricted capital losses and indexation
allowances 16.8 56.6
Release of EZA clawback provision 72.1 3.7
Expenses not deductible for tax purposes (8.2) (9.0)
Deferred tax assets not recognised
on losses (0.4) (3.9)
Other differences (8.0) (10.3)
Group total tax 128.7 (42.9)
-------- --------
2011 included on account corporation tax payments of GBP2.1m. Taking into account the availability of brought forward tax losses and other reliefs, a charge of GBP0.1m was recognised in the year, which served to reduce the accrual for corporation tax payable to GBP52.9m at 31 December 2011 from GBP55.0m at 31 December 2010 (Note 13).
At 31 December 2010, the Group had provided GBP72.1m for the potential clawback of EZAs claimed in the event that the Group was to sell the property interests to which those claims related. The period in which such a potential clawback could have occurred has now expired and accordingly the provision has been released.
All deferred tax assets and liabilities may potentially be offset. The amount at which deferred tax is stated, after offsetting for financial reporting purposes, comprises:
GBPm
--------
Net liability at 1 January 2010 (88.7)
Credit to income (7.2)
Credit to equity (13.7)
Net liability at 31 December 2010 (109.6)
Credit to income 128.8
Charge to equity (4.9)
Net asset at 31 December 2011 14.3
--------
7. INVESTMENT, DEVELOPMENT AND CONSTRUCTION PROPERTIES AND PLANT AND EQUIPMENT
Non current assets and construction contracts at 31 December 2011 comprised:
Plant
Investment Development Construction &
properties properties contracts Total equipment Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------- -------- ----------- --------
Market value
at
1 January 2011 4,638.5 268.5 - 4,907.0
Adjust for brought
forward:
- tenant incentives* (184.4) - - (184.4)
unamortised
lease negotiation
- costs* (8.6) - - (8.6)
Carrying value
at
1 January 2011 4,445.5 268.5 - 4,714.0 1.0 4,715.0
Additions 20.3 3.5 1.4 25.2 - 25.2
Revaluation movement 43.9 19.8 - 63.7 - 63.7
Transfer to cost
of sales - - (5.4) (5.4) - (5.4)
Transfer to payments
on account - - 4.0 4.0 - 4.0
Depreciation - - - - (0.5) (0.5)
Carrying value
at
31 December 2011 4,509.7 291.8 - 4,801.5 0.5 4,802.0
------------ ------------ ------------- -------- ----------- --------
Adjust for:
- tenant incentives* 183.1 - - 183.1
unamortised
lease negotiation
- costs* 7.7 1.7 - 9.4
Market value
at
31 December 2011 4,700.5 293.5 - 4,994.0
------------ ------------ ------------- --------
* Refer to Note 10 for further details.
No property interests were held under operating leases and classified as investment properties.
In August 2011, Canary Wharf Group reached agreement with EMA for a pre let of 250,000 sq ft in a new office building of approximately 525,000 sq ft to be constructed at 25 Churchill Place. EMA also has a call option over an additional 108,000 sq ft. Construction on the shell and core of the building commenced in February 2012.
In January 2010, Canary Wharf Group completed the disposal of 5 Churchill Place for a gross aggregate consideration of GBP208.0m. The market value of the property at 31 December 2009 was GBP192.0m and the adjustment attributable to tenant incentives and deferred negotiation costs was GBP15.8m. Allowing for adjustments in construction costs recognised in the period of GBP1.0m, the carrying value at the date of sale was GBP175.2m.
In December 2010, Canary Wharf Group completed the disposal of 25 Bank Street for a gross aggregate consideration of GBP495.0m. After taking into account costs associated with selling the building, including relocating existing sub tenants, legal and professional fees, certain other allowances and the write off of unamortised tenant incentives, the Group recorded a profit on disposal of GBP155.1m.
As disclosed in Note 10, in the first half of 2010 unamortised lease incentives attributable to Lehman's lease were written off to the Consolidated Income Statement and treated as a capital and other item within revenue. Unamortised tenant incentives attributable to the sub tenants in the building at the date of disposal totalled GBP2.7m.
In November 2008, Canary Wharf Group entered into an agreement with J.P. Morgan for the development of the Riverside South site on the Estate. Further to this agreement, Canary Wharf Group acts as development and construction manager in relation to the site and has received GBP76.0m as an advance of developer's profit. This sum will be set against Canary Wharf Group's entitlement to future profits arising from the development. Income earned on this project subsequent to the sale of the site in 2008 has been deferred and is recognised over the term of the contract in accordance with IFRIC 15. As a result, no profit has been recognised on this project to date. The 2008 agreement was modified in 2010 and expires in October 2016. In the event construction does not progress, Canary Wharf Group has a right of first offer for the site.
On 24 December 2008, Canary Wharf Group entered into agreements with the Secretary of State for Transport and CLRL for the design and construction of the Crossrail station at Canary Wharf. GBP350.0m of the cost of the station will be met from the Crossrail budget and the balance by the Group. The anticipated cost to the Group has been accounted for when incurred, as additions to development properties and allocated to each development property including the Riverside South project on a sq ft basis. Canary Wharf Group's contribution will be applied against any transport Section 106 contributions for certain agreed development sites on the Estate which may be required as part of the London Plan. Canary Wharf Group assesses that it has now fulfilled its funding obligations under the terms of the agreement.
Valuation
The fair value of Canary Wharf Group's properties has been arrived at on the basis of valuations carried out by external valuers, CBRE, Savills or Cushman as at 31 December 2011. The valuations, which conform to International Valuation Standards, were arrived at by reference to market evidence of transaction prices for similar properties.
The assumptions on which the valuations are based are summarised in the Business Review - Valuations.
The properties have been valued individually and not as part of a portfolio and no allowance has been made for expenses of realisation or for any tax which might arise. The valuations reflect usual deductions in respect of purchaser's costs and, in particular, full liability for UK stamp duty as applicable at the valuation date.
Construction contracts
Construction contracts comprise amounts recoverable under long term development contracts less payments on account. The amounts for payments on account at the Balance Sheet date are as follows:
Riverside
South
GBPm
----------
1 January 2010 22.4
Advances received 32.9
Contract revenue recognised as revenue in the
Consolidated Income Statement (15.4)
Offset from construction contracts (2.4)
31 December 2010 37.5
Advances received 11.4
Contract revenue recognised as revenue in the
Consolidated Income Statement (5.4)
Offset from construction contracts 4.4
Gross amount due to customers for contract work
at 31 December 2011 47.9
------
Cumulative amounts accounted for as construction contracts are as follows:
GBPm
-------------------
Advances received 123.5
Recognised as revenue (61.0)
Offset from construction contracts (14.6)
Payments on account (Note 13) 47.9
-------------------
8. INVESTMENTS
The investments balance
comprises:
31 December 31 December
2011 2010
GBPm GBPm
------------ ------------
Shares 0.7 9.7
Loans 106.4 42.0
107.1 51.7
Fees on acquisition 5.0 2.6
Share of post acquisition
losses (0.9) (0.6)
Revaluation of property
interests 7.6 -
Impairment of investment (6.3) (10.7)
112.5 43.0
------------ ------------
The fair values of all equity securities are based on the net assets of those companies as adjusted for the fair values of assets and liabilities.
Investments comprise:
31 December 31 December
2011 2010
GBPm GBPm
------------ ------------
Associates and joint ventures 112.3 42.8
Other investments 0.2 0.2
112.5 43.0
------------ ------------
The carrying value of the investment in associates and joint ventures comprised:
Wood Drapers 20 Fenchurch Shell
At 31 December 2011 Wharf Gardens Street Centre Total
GBPm GBPm GBPm GBPm GBPm
------- --------- ------------- -------- -------
Initial investment - 6.7 0.1 - 6.8
Fees 3.6 0.7 - 0.7 5.0
Equity funding - 2.3 - - 2.3
Loan funding 27.1 - 21.8 19.5 68.4
Recognised share of
losses (6.0) (5.1) (0.1) - (11.2)
Acquisition of additional
interest 38.0 - - - 38.0
Share of revaluation
surplus - - 7.6 - 7.6
Final dividend - (4.6) - - (4.6)
62.7 - 29.4 20.2 112.3
------- --------- ------------- -------- -------
The share of associates' and joint venture's profits and losses recognised in the Consolidated Income Statement in 2011 comprised:
Wood Drapers 20 Fenchurch Shell
At 31 December 2011 Wharf Gardens Street Centre Total
GBPm GBPm GBPm GBPm GBPm
------- --------- ------------- -------- ------
Other expenses (0.2) - (0.1) - (0.3)
Revaluation of property
interest - - 7.6 - 7.6
(0.2) - 7.5 - 7.3
------- --------- ------------- -------- ------
In December 2011, Canary Wharf Group acquired an additional 25.0% effective interest in WWLP from Ballymore for a total consideration of GBP38.0m which was paid in cash. Subsequent to the year end, in January 2012, Canary Wharf Group acquired the remaining 50.0% effective interest in Wood Wharf from BWB for a total consideration of GBP52.4m. In conjunction with the acquisition, BWB granted a new 250 year lease of the site subject to a ground rental payment to BWB which will increase to GBP6.0m per annum by 2016, followed by upwards only reviews linked to the passing rent achieved on the office buildings and the ground rents paid by purchasers of the residential apartments to be built on the site. The GBP52.4m consideration comprises an upfront payment of GBP4.4m and a series of 4 annual payments up to and including 2015.
As a result of the acquisition of Ballymore's interest, Canary Wharf Group held a 50.0% effective interest in Wood Wharf at 31 December 2011. The investment was accounted for as an investment in an associated undertaking at that date.
At 31 December 2011, the carrying value of the Group's investment in Wood Wharf was GBP62.7m. This carrying value comprised the initial entry premium of GBP1.9m and subsequent loan funding of GBP27.1m, less the impairment and share of losses recognised totalling GBP6.0m, together with the cost of acquiring Ballymore's interest of GBP38.0m and fees of GBP1.7m. The premium recognised on the acquisition of Ballymore's interest was GBP16.6m.
WWLP has entered into a non recourse loan facility of GBP5.2m of which GBP0.2m was repaid in the year. The final maturity of the loan is in December 2013. This bank loan first must be repaid before loans provided to WWLP by Canary Wharf Group can be repaid. All loans must have been repaid in full prior to any dividends being declared.
In June 2007, Canary Wharf Group entered into a joint venture to undertake the redevelopment of Drapers Gardens. The property was completed in November 2010 and the joint venture entities then completed the sale of the property. At 31 December 2010, the Group carried its investment in the remaining joint venture entities at its share of net assets totalling GBP4.6m. The joint venture entities returned this amount in 2011 by way of dividends and loan repayments. The remaining net assets of the joint venture are expected to be utilised in winding up the structure. Following the payment of the final dividend by the Drapers Gardens entities, the brought forward impairment provision has been realised and offset against the Group's investment in shares in these entities.
In October 2010, Canary Wharf Group announced that it had entered into a joint venture with Land Securities to develop 20 Fenchurch Street. The property has been sold by Land Securities to the joint venture at a price of GBP90.2m, in line with the March 2010 valuation. After syndication, Canary Wharf Group has a 15.0% equity interest in the joint venture and is acting as construction manager and joint development manager.
In September 2011, an external revaluation resulted in an additional revaluation surplus of GBP50.6m on the project, of which GBP7.6m is attributable to the Group and has been taken to the Consolidated Income Statement and classified as a capital and other item.
The Group's investment was stated at GBP29.4m at 31 December 2011 (31 December 2010 - GBP16.4m), representing the initial investment plus associated fees, together with subsequent funding and the Group's share of the revaluation surplus.
In July 2011, Canary Wharf Group and Qatari Diar entered into a 50:50 joint venture to redevelop the Shell Centre and have committed to contribute GBP150.0m each to secure the site on a 999 year lease. Discussions have commenced with local planning authorities and relevant stakeholders to establish planning consents, detailed designs and a timetable for construction of the project. At 31 December 2011, Canary Wharf Group and Qatari Diar had each invested GBP19.5m in the joint venture structure. Canary Wharf Group incurred fees of GBP0.7m in establishing the joint venture.
Wood Wharf, Drapers Gardens and the Shell Centre project have a 31 December year end and 20 Fenchurch Street has a 31 March year end. The results of Wood Wharf, Drapers Gardens, 20 Fenchurch Street and the Shell Centre attributable to the Group have been derived from their UK GAAP management accounts after making any necessary IFRS adjustments. Following the dividend and loan repayments made by the remaining Drapers Gardens entities in the year, only negligible net assets remain in that joint venture. The Group's share of profits and losses of associated and joint venture undertakings is as follows:
Summarised profit and loss 20 Fenchurch Drapers
accounts for 2011 Shell Centre Street Gardens Wood Wharf
GBPm GBPm GBPm GBPm
------------- ------------- --------- -----------
Other (costs)/income - (1.0) - 0.2
Revaluation gain - 50.6 - -
Net financing costs - - - (0.9)
Profit/(loss) before and
after tax - 49.6 - (0.7)
Group share - 7.5 - (0.2)
------------- ------------- --------- -----------
Summarised balance sheets 20 Fenchurch Drapers
at 31 December 2011 Shell Centre Street Gardens Wood Wharf
GBPm GBPm GBPm GBPm
------------- ------------- --------- -----------
Total assets 40.4 196.9 - 136.1
Total liabilities (1.4) (0.9) - (43.9)
Net assets 39.0 196.0 - 92.2
Group share 19.5 29.4 - 46.1
------------- ------------- --------- -----------
9. TRADE AND OTHER RECEIVABLES
2011 2010
GBPm GBPm
----- -----
Trade receivables 4.8 3.4
Other receivables 20.6 18.6
Contract balances (Note 7) - 2.4
Prepayments and accrued income 17.1 43.2
Deferred financing expenses 4.2 -
Total trade and other receivables 46.7 67.6
----- -----
Financing expenses of GBP4.2m incurred on Canary Wharf Group's construction loan facility have been deferred. The first draw down under this facility is expected to occur in 2012 at which time these fees will be transferred to Borrowings and netted against the outstanding balance on the loan.
10. TENANT INCENTIVES AND OTHER NON CURRENT ASSETS
Lease incentives include rent free periods and other incentives given to lessees on entering into lease arrangements.
Rent Total Deferred
free Other tenant tenant negotiation
periods incentives incentives costs Total
GBPm GBPm GBPm GBPm GBPm
-------- ------------- ----------- ------------- -------
1 January 2010 139.1 64.2 203.3 6.4 209.7
Transfer from investment
properties (Note
7) - 53.4 53.4 - 53.4
Recognition of rent
during rent free
periods 11.0 - 11.0 - 11.0
Write off of Lehman
incentives (50.1) - (50.1) - (50.1)
Amortisation (9.0) (5.6) (14.6) (0.4) (15.0)
Deferred lease negotiation
costs - - - 3.3 3.3
Written off on sale
of property (9.3) (9.3) (18.6) (0.7) (19.3)
31 December 2010 81.7 102.7 184.4 8.6 193.0
Recognition of rent
during rent free
periods 12.2 - 12.2 - 12.2
Amortisation (8.1) (5.4) (13.5) (0.6) (14.1)
Deferred lease negotiation
costs - - - 1.4 1.4
31 December 2011 85.8 97.3 183.1 9.4 192.5
-------- ------------- ----------- ------------- -------
At 31 December 2009, lease incentives included GBP50.1m attributable to Lehman's lease of 25 Bank Street. The Administrator ceased paying rent on the building with effect from 31 March 2010. Accordingly, the remaining Lehman incentives were written off to the Consolidated Income Statement in the 6 months ended 30 June 2010 and disclosed as a capital and other item.
11. MONETARY DEPOSITS
Monetary deposits comprise amounts held on deposit with original maturities in excess of 3 months or not held for the purpose of meeting short term cash commitments. These deposits are charged, relate to Canary Wharf Group's construction contracts and mature over the life of those contracts.
2011 2010
GBPm GBPm
----- -----
Monetary deposits held at bank 3.9 5.1
----- -----
12. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise:
2011 2010
GBPm GBPm
------ --------
Unsecured cash 864.8 899.8
Collateral for borrowings 116.7 194.4
Security for obligations 14.6 14.0
996.1 1,108.2
------ --------
The Group's collateral for borrowings can be analysed by the borrowings to which it relates as follows:
2011 2010
GBPm GBPm
------ ------
Securitised debt 97.8 133.2
Secured loans 18.9 18.8
Finance lease - 42.4
116.7 194.4
------ ------
Until the finance lease restructuring in December 2011, the finance lease obligation was fully cash collateralised. The cash collateral balance at 31 December 2010 compared with a carrying value of the finance lease liability for accounts purposes of GBP41.6m.
13. TRADE AND OTHER PAYABLES AND CORPORATION TAX
2011 2010
GBPm GBPm
------ ------
Trade payables 7.5 12.6
Tax and social security costs 7.2 7.4
Other payables 24.2 20.7
Other accruals 67.9 66.5
Deferred income 81.4 68.1
Payments on account (Note 7) 47.9 37.5
Total trade and other payables 236.1 212.8
------ ------
Corporation tax 52.9 55.0
------ ------
For further information on corporation tax refer to Note 6.
14. CURRENT PORTION OF LONG TERM BORROWINGS
The current portion of long
term borrowings comprises:
2011 2010
GBPm GBPm
----- -----
Accrued interest payable 27.1 32.7
Repayable within one year:
- securitised debt 57.5 57.5
- secured loans 9.0 8.5
Long term borrowings repayable
within one year 93.6 98.7
----- -----
The terms of the Group's loan facilities are summarised in Note 17.
15. BORROWINGS
Non current liability borrowings
comprise:
2011 2010
GBPm GBPm
-------- --------
Securitised debt 2,322.1 2,384.8
Secured loans 983.0 899.7
Finance lease obligations - 41.6
3,305.1 3,326.1
Preference Shares 270.5 268.9
3,575.6 3,595.0
-------- --------
The terms of the Group's loan facilities are summarised in Note 17.
16. DERIVATIVE FINANCIAL INSTRUMENTS
Hedge accounting
The Group uses interest rate swaps and interest rate caps to hedge exposure to the variability in cash flows on floating rate debt, including its bank facilities and floating rate bonds, caused by movements in market rates of interest. At 31 December 2011 the fair value of these derivatives resulted in the recognition of a liability of GBP547.1m (31 December 2010 - liability of GBP297.0m). The Group has no interest rate swaps or collars which qualify for hedge accounting.
2011 2010
GBPm GBPm
-------- --------
Liabilities:
Securitisation (280.2) (126.4)
Other secured loans (266.9) (170.6)
(547.1) (297.0)
-------- --------
17. NET DEBT
2011 2010
GBPm GBPm
-------- ----------
Securitised debt 2,682.7 2,591.1
Other secured loans 1,263.1 1,082.2
Finance lease obligations - 41.6
3,945.8 3,714.9
Non equity shares and associated
financing costs 270.5 275.8
Gross debt 4,216.3 3,990.7
-------- ----------
Current liabilities 93.6 98.7
Non current liabilities:
- borrowings 3,575.6 3,595.0
derivatives included in non
- current liabilities 547.1 297.0
Gross debt 4,216.3 3,990.7
Cash and cash equivalents (996.1) (1,108.2)
Monetary deposits (3.9) (5.1)
Net debt 3,216.3 2,877.4
-------- ----------
As a result of the terms and conditions of the Preference Shares, such shares have been classified as borrowings and the Consolidated Income Statement includes a charge to profit in respect of the coupon payable calculated at 2.5% per quarter. The accrued finance charge for the Preference Shares was GBP6.9m at 31 December 2010 and is classified as part of current liabilities. There was no accrued finance charge at 31 December 2011 as a result of the payment of the Preferential Dividend in December 2011.
The amounts at which borrowings are stated, including share capital classified as debt, comprise:
Other Finance Non
Securitised secured lease Total equity
debt loans obligations borrowings shares Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------ --------- ------------- ------------ -------- --------
1 January 2011 2,591.1 1,082.2 41.6 3,714.9 275.8 3,990.7
Drawn down in
year - 92.3 - 92.3 - 92.3
Effective interest
rate adjustment (3.3) (0.1) 1.0 (2.4) 1.6 (0.8)
Accrued finance
charges (1.4) 0.9 (0.2) (0.7) 27.8 27.1
Repaid in year (57.5) (8.5) (42.4) (108.4) (34.7) (143.1)
Movements in fair
value of derivatives 153.8 96.3 - 250.1 - 250.1
31 December 2011 2,682.7 1,263.1 - 3,945.8 270.5 4,216.3
------------ --------- ------------- ------------ -------- --------
Payable within
one year or on
demand 80.4 13.2 - 93.6 - 93.6
Payable in more
than one year 2,322.1 983.0 - 3,305.1 270.5 3,575.6
Derivatives classified
as:
- non current liabilities 280.2 266.9 - 547.1 - 547.1
2,682.7 1,263.1 - 3,945.8 270.5 4,216.3
------------ --------- ------------- ------------ -------- --------
All the borrowings of Canary Wharf Group are secured against designated property interests of Canary Wharf Group.
(1) At 31 December 2011, the following notes issued by CWF II, a subsidiary of Canary Wharf Group, were outstanding:
Principal
Tranche GBPm Interest Repayment
--------- ---------- --------- -------------------
By instalment from
A1 1,088.4 6.455% 2009 to 2030
By instalment from
A3 400.0 5.952% 2032 to 2035
A7 222.0 Floating In 2035
By instalment from
B 190.1 6.800% 2005 to 2030
B3 104.0 Floating In 2035
C2 275.0 Floating In 2035
D2 125.0 Floating In 2035
2,404.5
----------
In April 2009, Canary Wharf Group repurchased certain floating rate Notes with an aggregate principal amount of GBP119.7m for an aggregate consideration, excluding accrued interest, of GBP35.5m. The Notes repurchased have not been cancelled, remain in issue and, in accordance with the requirements of the securitisation, continue to be fully hedged. The repurchase was accounted for as an extinguishment of debt.
Interest on the floating rate Notes is at 3 month LIBOR plus a margin. The margins on these Notes are: A7 Notes - 0.19% p.a. increasing to 0.475% in January 2017; B3 Notes - 0.28% p.a. increasing to 0.7% p.a. in January 2017; C2 Notes - 0.55% p.a. increasing to 1.375% in April 2014; and D2 Notes - 0.84% p.a. increasing to 2.1% in April 2014.
All of the floating rate Notes are hedged by means of interest rate swaps and the hedged rates plus the margins are: A7 Notes - 5.1135%; B3 Notes - 5.1625%; C2 Notes - 5.4416%; and D2 Notes - 5.8005%. These swaps expire in 2035 concurrent with the Notes.
In addition to the 3 classes of floating rate Notes referred to above, the following classes of fixed rate Notes remained outstanding at 31 December 2011, carrying the interest rates stated: GBP1,088.4m of A1 Notes - 6.455%; GBP400.0m of A3 Notes - 5.952% and GBP190.1m of B Notes - 6.800%.
The principal amount of the Notes outstanding at 31 December 2011 was GBP2,404.5m, or GBP2,284.8m excluding the Notes repurchased. The Notes are secured on certain property interests of Canary Wharf Group and the rental income stream therefrom.
Prior to withdrawing 25 Bank Street, the CWF II securitisation had the benefit of an agreement with AIG which provided at the election of Canary Wharf Group for the payment of the contracted rent under the lease following a default by Lehman, either in its entirety or to cover any shortfall. The agreement was for a period of 4 years from the first draw down and any amounts claimed would have been repayable by Canary Wharf Group if subsequent recoveries made in respect of amounts claimed or subsequent rentals in the properties exceeded the rents that would have been received from Lehman. In November 2010, terms were agreed with AIG for the termination of the facility in consideration for a payment to Canary Wharf Group of GBP144.5m. This sum represented the net present value of the amounts anticipated to be drawn under the facility, net of the fees payable to AIG and the anticipated recovery from the Lehman administration process.
Separately, the securitisation has 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. AIG has posted approximately GBP269.6m as cash collateral in respect of this obligation. The annual fee payable in respect of the arrangement is GBP2.2m.
CWF II also has the benefit of a GBP300.0m liquidity facility provided by Lloyds, under which drawings may be made in the event of a cash flow shortage under the securitisation. This facility is renewable annually.
The weighted average maturity of the debentures at 31 December 2011 was 15.5 years (31 December 2010 - 16.1 years). The debentures may be redeemed at the option of the issuer in an aggregate amount of not less than GBP1.0m on any interest payment date subject to the current rating of the debentures not being adversely affected and certain other conditions affecting the amount to be redeemed.
(2) In December 2011, Canary Wharf Group entered into a GBP190.0m development loan facility secured against the property now under construction at 25 Churchill Place. No draw downs had been made under this facility at 31 December 2011. The margin on the loan is 300 bps over LIBOR from first draw down to rent commencement, following which the margin may drop to 250 bps or 225 bps subject to the satisfaction of certain interest cover tests. Up front fees of GBP4.2m were incurred on entering into the facility and a commitment fee of 150 bps per annum is payable on the undrawn facility.
(3) In February 2007, Canary Wharf Group entered into a 3 year GBP155.0m construction loan facility secured on 5 Churchill Place. Interest was charged at LIBOR plus a margin of 0.9% hedged at 5.625%. At 31 December 2009 GBP123.4m including interest had been drawn down under this facility. Practical completion of the building was achieved in August 2009 and the loan was repaid in January 2010 upon completion of the sale of the building. As a result of repaying the loan, Canary Wharf Group paid GBP15.9m to cancel its liability under the associated interest rate swap arrangements.
(4) Canary Wharf Group has a GBP350.0m loan facility which is secured against Canary Wharf Group's retail properties and car parking interests.
The loan facility carries interest at LIBOR plus a margin of 2.75%. Canary Wharf Group has entered into an arrangement whereby the exposure to the movement in 3 month LIBOR rates in the facility is fully hedged with fixed interest rate swaps at a weighted average, including margins, of 7.2%. The loan is repayable in December 2014.
(5) A bank loan with an outstanding principal amount of GBP348.7m secured against 10 Cabot Square and 20 Cabot Square was repaid in November 2010. The related interest rate swap was broken at a cost of GBP23.7m, of which GBP20.1m was provided in the hedging reserve at 31 December 2009. The related unamortised balance on the hedging reserve of GBP15.3m and unamortised deferred fees of GBP1.7m have been written off the Consolidated Income Statement. Fees of GBP1.0m were incurred in connection with the repayment.
(6) A bank loan comprising an initial principal of GBP608.8m is secured against One Churchill Place. The loan amortises with a balloon payment of GBP155.0m on maturity in July 2034. The loan carries a hedged interest rate of 5.82%. In 2011, GBP8.5m of loan principal was repaid in accordance with the loan agreement reducing the principal at 31 December 2011 to GBP559.6m.
(7) In June 2011, Canary Wharf Group entered into a GBP92.3m 5 year facility secured against 50 Bank Street. The facility carries interest at 3 month LIBOR plus a margin of 2.0%. The exposure to movements in LIBOR is fully hedged at an all in rate including margins of 4.415%. The facility is repayable in June 2016.
(8) In December 2011, Canary Wharf Group restructured a finance lease by acquiring the finance lessor company at a total cost of GBP42.4m. The transaction was funded by releasing the charge over related cash collateral. The effect of the restructuring was to extinguish the liability under the finance lease. A total cost of GBP1.0m has been recognised on the transaction, comprising fees of GBP0.2m and an adjustment to the carrying value of the finance lease liability of GBP0.8m.
Comparison of market values and carrying amount
31 December 2011 31 December 2010
Market Carrying Market Carrying
value amount Difference value amount Difference
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------- ----------- ---------- ---------- -----------
Securitisation (2,305.5) (2,402.5) 97.0 (2,371.2) (2,464.7) 93.5
Secured loans (997.8) (996.2) (1.6) (911.6) (911.6) -
Finance lease - - - (41.6) (41.6) -
Non equity shares (270.5) (270.5) - (275.8) (275.8) -
(3,573.8) (3,669.2) 95.4 (3,600.2) (3,693.7) 93.5
Other financial liabilities:
- interest rate derivatives (547.1) (547.1) - (297.0) (297.0) -
Cash and monetary deposits 1,000.0 1,000.0 - 1,113.3 1,113.3 -
Total (3,120.9) (3,216.3) 95.4 (2,783.9) (2,877.4) 93.5
---------- ---------- ----------- ---------- ---------- -----------
The differences above are shown before any tax relief. Short term receivables and payables have been excluded from these disclosures as their carrying amount approximates fair value. The fair value of the sterling denominated fixed rate bonds has been determined by reference to the prices available on the markets on which they are traded. The fair values of other debt instruments have been calculated by discounting cash flows at the relevant zero coupon LIBOR interest rates prevailing at the balance sheet date. The fair value of the Preference Shares is considered to be their carrying value. The fair values of interest rate derivative instruments have been determined by reference to market values provided by the relevant counter parties.
Financial risks
Interest rate risk
The Group finances its operations through a mixture of surplus cash, bank borrowings and debentures. The Group borrows principally in sterling at both fixed and floating rates of interest and then uses interest rate swaps, caps or collars to generate the desired interest profile and to manage the Group's exposure to interest rate fluctuations. The Group's policy is to keep the majority of its borrowings at fixed rates and all of the Group's borrowings at 31 December 2011 and 31 December 2010 were fixed after taking account of interest rate hedging and cash deposits held as cash collateral (Note 12).
Liquidity risk
The Group's policy is to ensure continuity of funding and at 31 December 2011 the average maturity of Canary Wharf Group's debt was 13.9 years (31 December 2010 - 14.9 years). Shorter term flexibility has historically been achieved by holding cash on deposit and through construction facilities typically with a term of 3 to 6 years arranged to fund the development of new properties.
Loan covenants
Canary Wharf Group's loan facilities are subject to financial covenants which include maximum LTV ratios and minimum ICRs. The key covenants for each of Canary Wharf Group's facilities are as follows:
(i) CWF II securitisation, encompassing 7 investment properties representing 66.7% of the investment property portfolio by value. The principal amount outstanding at 31 December 2011 was GBP2,404.5m or GBP2,284.8m excluding the repurchased Notes.
Maximum LMCTV ratio of 100.0%. Based on the valuations at 31 December 2011, the LMCTV ratio at the interest payment date in January 2012 would have been 72.5%.
The securitisation has no minimum ICR covenant. Canary Wharf Group has the ability to remedy a breach of covenant by depositing eligible investments (including cash). The final maturity date of the securitisation is 2035, subject to earlier amortisation on certain classes of Notes.
(ii) Loan of GBP559.6m secured against One Churchill Place, representing 15.4% of the investment property portfolio by value.
This facility is not subject to any LTV or ICR covenants and has a final maturity of 2034, subject to amortisation over that term.
(iii) Loan of GBP350.0m secured against the principal retail and infrastructure parking properties of Canary Wharf Group, representing 14.8% of the investment property portfolio by value.
Maximum LTV ratio of 70.0%. Based on the valuations at 31 December 2011, the LTV was 50.8%.
Minimum ICR covenant of 120.0%. The maximum ICR covenant was satisfied throughout the year. Canary Wharf Group has the ability to remedy any potential breach of covenant by depositing cash.
The facility repayment date is 17 December 2014.
(iv) Loan of GBP92.3m secured against 50 Bank Street, representing 3.1% of the investment property portfolio by value. Maximum LTV ratio of 75.0% for the first 3 years of the loan reducing to 72.5% thereafter. Based on the valuation at 31 December 2011 the LTV was 62.6%.
The minimum ICR covenant is 150.0%. The covenant was satisfied throughout the year.
The facility repayment date is 7 June 2016.
18 PROVISIONS
Provisions have been made in respect of the following liabilities:
Vacant leasehold Other lease
properties commitments Total
GBPm GBPm GBPm
----------------- ------------- ------
1 January 2010 1.0 2.1 3.1
Utilisation of provision - (2.5) (2.5)
Unwind of discount - 0.5 0.5
Change in provision (0.6) 0.1 (0.5)
Initial provision - 9.6 9.6
31 December 2010 0.4 9.8 10.2
Utilisation of provision (0.4) (2.8) (3.2)
Unwind of discount - 0.4 0.4
Change in provision - 1.9 1.9
31 December 2011 - 9.3 9.3
----------------- ------------- ------
Vacant leasehold properties
At 31 December 2010, the provision for the estimated net liability in respect of vacant leasehold properties was GBP0.4m and was held in respect of a lease which was determined in 2009. At 31 December 2010, GBP1.3m was held as cash collateral. The final payments due for this property were settled in the year in line with expectations and the remaining cash collateral has been released.
Other lease commitments
In connection with the sale of 5 Churchill Place in 2010, Canary Wharf Group has agreed to pay rents and other costs incurred on 2 unlet floors for a period of 5 years from the date of sale. Canary Wharf Group recognised a provision of GBP9.6m discounted at 6.4% which was deducted from the profit on disposal of the building. At 31 December 2011 the provision totalled GBP7.3m discounted at 6.2% (31 December 2010 - GBP7.7m at 6.3%), with the movement reflecting a combination of changes in potential future letting assumptions, the discount unwind and utilisation.
In connection with the sale of certain properties during 2005, Canary Wharf Group agreed to provide rental support either in respect of unexpired rent free periods or until the next rent review date. A provision in respect of these commitments was recognised at the date of disposal. The remaining provision at 31 December 2011 was GBP2.0m calculated on the basis of a discount rate of 6.2% (31 December 2010 - GBP2.1m discounted at 6.3%). This commitment relates to the lease back of certain car parking spaces which will expire in 2028.
19. SHARE CAPITAL
Issued share capital comprises:
2011 2010
GBPm GBPm
------ ------
Equity shares:
- Ordinary Shares 76.5 76.5
Shares not classified
as equity:
- Preference Shares 275.0 275.0
Total 351.5 351.5
------ ------
As at 31 December 2011 and 31 December 2010 a total of 764,913,962 Ordinary Shares and 275,000,000 Preference Shares were in issue.
20. DIVIDENDS
During the year ended 31 December 2011, Preference Dividends of GBP35.0m (2010 - GBP27.6m) were paid, including GBP0.2m of interest on arrears. The amount of dividend accrued on the Preference Shares at 31 December 2011 was GBPnil whereas at 31 December 2010 - GBP6.9m was accrued.
21. SHARE BASED PAYMENTS
The Trust holds Ordinary Shares which may be used to satisfy any allocations of shares or options granted under any share plan Canary Wharf Group may adopt. The assets of the Trust are held separately from those of Canary Wharf Group and with effect from January 2012 the trustee of the Trust is Sanne Trust Company Limited.
In December 2010, Canary Wharf Group allocated 2,165,000 Ordinary Shares to certain directors and senior employees of Canary Wharf Group who may elect to have the shares released to them at any time between the vesting date of 30 June 2011 and 31 December 2013 subject to any dealing restrictions. The recipients may elect to redeem or sell any or all of their allocated shares. In the event the recipient elects to sell the allocated shares, Canary Wharf Group has the option to pay the equivalent amount in cash with the purpose of releasing these shares back to the Trust.
The cost to the Group of the share allocation has been calculated by reference to the share price at the grant date of GBP1.42 per Ordinary Share. The cost of the allocation totalling GBP3.1m has been charged to the same expense category as the employment costs of the relevant employee. Of the total cost, GBP2.3m was taken to Administrative expenses in the Consolidated Income Statement and allocated against underlying profit and the balance, which related to employees of Canary Wharf Group's construction subsidiary, was charged to development properties.
In June 2011, 364,750 shares were released to certain employees at an average price of GBP1.53 per share. Canary Wharf Group elected not to pay the equivalent amount in cash. In September 2011, a further 1,392,750 shares were released at an average price of GBP1.19 per share of which 866,195 were acquired by Canary Wharf Group at a total cost, including employers' expenses, of GBP1.3m. The remaining 407,500 Ordinary Shares which have vested but not been exercised remain within the Trust.
In October 2011 Canary Wharf Group acquired an additional 5,000,000 Ordinary Shares on the open market at an aggregate cost of GBP6.1m. Following the acquisition of shares in the year and the allocations to certain directors and employees of Canary Wharf Group, the trustee of the Trust held 12,325,865 Ordinary Shares at 31 December 2011 (31 December 2010 - 8,217,170), including the Ordinary Shares which have vested but not released.
22. NOTES TO THE CASH FLOW STATEMENT
Reconciliation of profit on ordinary activities before tax to cash generated from operations.
2011 2010
GBPm GBPm
-------- --------
(Loss)/profit on ordinary activities
before tax (212.8) 463.8
Non cash movements
Net valuation movements on properties (63.7) (327.9)
Profit on disposal of investment
property - (155.1)
Share of profit after tax of associates (7.4) (2.5)
Adjustment for share allocation 2.3 -
Spreading of tenant incentives, committed
rent increases and letting fees 0.5 50.8
Depreciation 0.5 0.6
Profit recognised on construction
contracts - (5.0)
(67.8) (439.1)
(280.6) 24.7
Changes to working capital and other
cash movements
Net financing costs 491.5 384.7
Utilisation of and other movements
in provisions (1.4) (2.9)
Decrease/(increase) in receivables 23.3 (17.3)
Increase/(decrease) in payables 16.6 (37.5)
Proceeds from construction contracts 11.4 32.9
Construction contract expenditure (4.7) (30.3)
Cash generated from operations 256.1 354.3
Income tax paid (2.1) (5.4)
Net cash from operating activities 254.0 348.9
-------- --------
23. FINANCIAL COMMITMENTS
Commitments of Canary Wharf Group for future expenditure:
2011 2010
GBPm GBPm
------ ------
Crossrail station - 44.6
Joint ventures 56.3 -
Other construction projects 275.7 85.0
332.0 129.6
------ ------
24. EVENTS AFTER THE BALANCE SHEET DATE
On 29 March 2012, Canary Wharf Group declared a dividend of 4p per share totalling GBP25.6m payable on 13 April 2012 of which GBP17.8m will be receivable by SFL, a wholly owned subsidiary of the Company. The Board proposes that the proceeds will be used to pay Preferential Dividends as they fall due and the balance of funds in the Company will be used for working capital purposes.
Wood Wharf
On 18 January 2012, Canary Wharf Group announced it had acquired full ownership of WWLP and associated companies and entered into an overriding 250 year lease of the Wood Wharf site.
Canary Wharf Group acquired 100.0% of WWLP by combining its own 25.0% effective interest with the 75.0% interests acquired from its original joint venture partners, BWB and Ballymore. It also agreed the restructuring of BWB's ongoing participation as freeholder of Wood Wharf. As a result, Canary Wharf Group now has control over the timing and design of the scheme.
The consideration paid for the acquisition of BWB's 50.0% interest in Wood Wharf was GBP52.4m together with a restructured 250 year lease that will see an annual ground rental payment to BWB increase to GBP6.0m by 2016. For the remainder of the lease, this payment will be subject to upwards only review linked to the passing rent achieved on the office buildings and the ground rents paid by purchasers of the residential apartments built on the scheme. The GBP52.4m payment comprises an upfront payment of GBP4.4m and a series of 4 annual payments up to and including 2015. The total consideration paid in December 2011 for the acquisition of Ballymore's 25.0% effective interest in Wood Wharf was GBP38.0m.
DEFINITIONS
20 Fenchurch Street A 690,000 sq ft building under construction
in the City of London
20 FSLP 20 Fenchurch Street Limited Partnership
2009 Refinancing GBP620.0m placing and compensatory open offer
Transactions in 2009, GBP275.0m issue of Preference Shares
and GBP135.0m Shareholder Loan facility
Act The Companies Act 2006
Administrator PricewaterhouseCoopers, administrator of Lehman
AIG American International Group, Inc
AIM London Stock Exchange Alternative Investment
Market
Articles Articles of Association of Songbird Estates
plc
Ballymore Ballymore Properties Limited
Barclays Barclays plc
BBVA Banco Bilbao Vizcaya Argentaria S.A.
Board Board of directors of the Company
bps Basis points
BWB British Waterways Board
Canary Wharf/Estate Canary Wharf Estate including Heron Quays
West, Park Place, Riverside South and North
Quay
Canary Wharf Group Canary Wharf Group plc and its subsidiaries
CBRE CB Richard Ellis Limited, Surveyors and Valuers
Chairman Chairman of the Board
CIC China Investment Corporation
CLRL Cross London Rail Links Limited
Company Songbird Estates plc
Cushman Cushman & Wakefield, Real Estate Consultants
CWF II Canary Wharf Finance II plc
Drapers Gardens Drapers Gardens scheme in the City of London
EMA European Medicines Agency
ERV Estimated Rental Value
EU European Union
EZAs Enterprise Zone Allowances
FVTPL Fair Value Through Profit and Loss
Glick Shareholders Investment vehicles and Trusts connected with
Simon Glick and his family
Group The Company, its wholly owned subsidiaries
and Canary Wharf Group
HSO HighSpeed Office Limited
IAS International Accounting Standards
IAS 7 International Accounting Standard 7 Statement
of Cash Flows
IAS 17 International Accounting Standard 17 Leases
IAS 32 International Accounting Standard 32 Financial
Instruments: Presentation
IAS 33 International Accounting Standard 33 Earnings
per Share
IAS 39 International Accounting Standard 39 Financial
Instruments: Recognition and Measurement
IAS 40 International Accounting Standard 40 Investment
Property
ICR Interest Cover Ratio
IFRIC International Financial Reporting Interpretations
Committee
IFRIC 15 International Financial Reporting Interpretations
Committee 15 Agreements for the Construction
of Real Estate
IFRS International Financial Reporting Standards
IFRS 3 International Financial Reporting Standard
3 Business Combinations
IFRS 5 International Financial Reporting Standard
5 Non current Assets Held for Sale and Discontinued
Operations
IFRS 7 International Financial Reporting Standard
7 Financial Instruments: Disclosures
IFRS 8 International Financial Reporting Standard
8 Operating Segments
Land Breeze Land Breeze S.a.r.l.
Land Securities Land Securities Group plc
Lehman Lehman Brothers Limited (in administration)
Lloyds Lloyds Banking Group
LMCTV Loan Minus Cash to Value
London Plan Mayor of London Planning document published
by the Greater London Authority
LTV Loan to Value
m Million
Morgan Stanley Morgan Stanley & Co Limited including all
related funds, entities and associates
MS Morgan Stanley Real Estate Fund IV International
GP LLC and Morgan Stanley European Real Estate
Special Situations II Offshore Inc
NAV Net Asset Value
NIA Net Internal Area
NNNAV Triple Net Asset Value
Notes Notes of Canary Wharf Group's securitisation
OMR Open Market Rent
Open Offer An open offer for the issue of new 109,375,000
Ordinary Shares completed in October 2010
Ordinary Shares Ordinary shares of 10p each
Preference Shares Preference shares of GBP1.00 each
Preferential Dividend Fixed cumulative divided of 2.5% per quarter
of aggregate amount of nominal value and any
share premium paid up on Preference Shares
Provision of Services A provision of services agreement between
Agreement the Company and Canary Wharf Group
psf Per square foot
Qatar Holding Qatar Holding, LLC
Rothschild NM Rothschild & Sons Limited
Savills Savills Commercial Limited, Chartered Surveyors
Section 106 Section 106 of the Town and Country Planning
Act 1990
SFL Songbird Finance Limited
Shareholder Loan GBP135.0m loan facility entered into by SFL
and certain significant shareholders in 2009
and repaid in 2010
Shell Shell International Limited
Shell Centre A 5.25 acre site on the South Bank, London
Significant Shareholders Glick Shareholders, Land Breeze, MS Shareholders
and Qatar Holding
Skadden Skadden Arps Slate Meagher & Flom LLP
sq ft Square foot/square feet
Syndication Partners Entities relating to Canary Wharf Group, Chengdong
Investment Corporation, Morgan Stanley and
Qatar Holding
Treasury Shares Shares acquired by any Group entity and not
cancelled
Trust Canary Wharf Employees' Share Ownership Plan
Trust
UK United Kingdom of Great Britain and Northern
Ireland
UK GAAP United Kingdom Generally Accepted Accounting
Practice
VAT Value Added Tax
Warrants Warrants over Ordinary Shares
Wood Wharf A 16.8 acre site adjacent to the Estate
WWLP Wood Wharf Limited Partnership
This information is provided by RNS
The company news service from the London Stock Exchange
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