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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 : 9058N
Songbird Estates PLC
13 September 2013
SONGBIRD ESTATES PLC
(the "Company')
Ordinary Shares of 10 pence each ("Ordinary Shares")
ISIN code GB00B4MTF637
For immediate release
13 SEPTEMBER 2013
ANNOUNCEMENT OF RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
The Board of Songbird Estates plc is pleased to announce positive results for the 6 months ended 30 June 2013.
The information in this Announcement, which was approved by the Board of directors on 12 September 2013 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 (i)
Portfolio valuation continues to advance
-- Portfolio valuation up 2.6% to GBP5,673.0m over the period, including land and adjusting for property acquisitions and other capital expenditure.
-- Market value of investment portfolio up 2.3% over the period. -- Retail investment portfolio performing well - valuation up 6.7% in the half year. -- Office investment portfolio valuation up 1.6%. -- Benchmark initial yield unchanged at 5.0%.
Financial summary
-- Net assets GBP2,010.6m at 30 June 2013, an increase of GBP236.2m or 13.3% from GBP1,774.4m at 31 December 2012.
-- Adjusted net assets per share GBP2.23 compared with GBP2.10 at 31 December 2012, an increase of 6.2%.
-- Adjusted NNNAV per share GBP1.73 compared with GBP1.46 at 31 December 2012, an increase of 18.5%.
-- Profit after tax GBP239.3m (6 months ended 30 June 2012 - GBP82.3m).
Secure income stream
-- Weighted average lease term 14.6 years or 13.4 years assuming exercise of all break options.
-- Lettings of approximately 100,000 sq ft, subsequent to the period end.
Secure financial position provides foundation for Canary Wharf Group's strategy
-- Average loan maturity of 12.5 years compares with weighted average lease term.
-- Drawdowns commenced under GBP190.0m construction loan facility secured against 25 Churchill Place.
Development programme pipeline progressing well
-- 25 Churchill Place - construction continues on schedule and within budget.
-- Canary Wharf Crossrail station - on schedule and within budget. Construction continues on 115,000 sq ft of retail space above the station opening on a phased basis between 2015 and 2018.
-- Retail expansion - 44,000 sq ft expansion of Jubilee Place mall on schedule to open in November 2013, of which 92.3% is currently let or in solicitors' hands.
-- Joint ventures: - 20 Fenchurch Street - 57.0% let with negotiations on a further 100,000 sq ft.
- Shell Centre - conditional planning consent achieved in May 2013, although now subject to call in by the Secretary of State.
Investment portfolio
-- Level39 - Europe's largest accelerator space for technology opened in March 2013.
-- Level 42 - approval for the conversion of an additional floor in One Canada Square to expand the offering to high growth companies.
-- 7 Westferry Circus - 177,700 sq ft building on the Estate acquired in March 2013 for GBP46.6m.
-- 15 Westferry Circus - 171,000 sq ft building on the Estate acquired subsequent to the period end.
-- Refurbishment of One Canada Square substantially complete at cost of GBP34.0m.
Note:
(i) Refer to Business Review.
RESULTS IN BRIEF
Hot Features
Premium
Unaudited
Six months Unaudited
ended Six months ended
30 June 30 June
2013 2012
Note GBPm GBPm
------------ ------------------
Rental income (i) 134.6 130.3
Refurbishment costs (ii) (6.0) -
Underlying operating profit (ii) 102.6 118.0
Capital and other items:
revaluation of investments
- in associates (iii) 3.9 1.1
- net revaluation movements (iv) 145.8 95.4
gain on derivatives net
- of Preference Share expense (v) 103.9 (11.6)
Underlying profit before tax (ii) 10.2 17.3
Profit on ordinary activities
before tax (ii) 263.8 102.2
Tax (vi) (24.5) (19.9)
Profit after tax (ii) 239.3 82.3
Basic and diluted earnings
per share (vii) 22.2p 7.0p
Note:
(i) See Note 3. (ii) See Unaudited Condensed Consolidated Income Statement. (iii) See Note 8. (iv) See Note 4. (v) See Note 5. (vi) See Note 6. (vii) See Note 2.
CONTACT
John Garwood
Company Secretary
Songbird Estates plc
Telephone: +44 (0) 20 7477 1000
Simon Sporborg / Elizabeth Adams
Brunswick Group LLP
Telephone: +44 (0) 20 7404 5959
CHAIRMAN'S OPERATIONAL REVIEW
Introduction
The Group has continued to perform effectively across all of its activities during the first half of 2013 at a time when the market is showing signs of increasing confidence. Building on the strength of the core portfolio at Canary Wharf, further progress has also been made by Canary Wharf Group, the Group's main operating company, in broadening its product, location and tenant base. The stronger emphasis on residential development illustrates the Group's ability to provide bespoke buildings capable of meeting the demands of all environments, from residential and office to retail and leisure facilities.
Reflecting signs that activity in the office letting market is improving, in the year to date the Group has let around 100,000 sq ft at Canary Wharf, the majority of which has been concluded since the end of June. At 20 Fenchurch Street, more than half of the space is now let or in solicitors' hands. Construction on all of Canary Wharf Group's projects and joint ventures remains on schedule and on budget.
Retail strength continued to be experienced at Canary Wharf. There are currently no vacancies and a high level of demand for new retail space being created in the Jubilee Place mall extension and above the Canary Wharf Crossrail station.
Financial Review
Adjusted NAV per share increased 6.2%, or 13p, from GBP2.10 at 31 December 2012 to GBP2.23 at 30 June 2013. Net assets increased from GBP1,774.4m at 31 December 2012 to GBP2,010.6m at 30 June 2013, a rise of GBP236.2m or 13.3%.
The retail portfolio again performed strongly, increasing in value by 6.7% in the period, reflecting a slight hardening of yields, progress with the expansion of Jubilee Place mall and growth in passing rents. The valuation of the office portfolio rose by 1.6% in the period and this resulted in an overall increase in the investment portfolio of 2.3%. Including development sites, the market value of the total portfolio, adjusting for property acquisitions and capital expenditure, increased by 2.6% in the 6 months to 30 June 2013.
Underlying profit before tax for the first half of 2013 was GBP10.2m, compared with GBP17.3m for the equivalent period in 2012, the reduction being mainly attributable to a GBP6.0m charge in relation to the refurbishment of One Canada Square. Including capital and other items, profit after tax for the 6 months ended 30 June 2013 was GBP239.3m in comparison with GBP82.3m for the first half of 2012.
At 30 June 2013, the Group had unencumbered cash deposits of GBP497.5m. Excluding preference shares, the weighted average cost of debt remained at 5.8%. The weighted average maturity of the Group's loan facilities was 12.5 years, which compares favourably with the weighted average unexpired lease term assuming exercise of all break options.
Operational Review
At Canary Wharf
Construction activity on the Estate has continued on time and on budget. The Canary Wharf Crossrail station is progressing on schedule and the excitement about this project was evident in May and June when tunnel boring machines, Elizabeth and Victoria, entered the station box at Canary Wharf.
Development on the 525,000 sq ft building at 25 Churchill Place is also ahead of schedule. There is an existing prelet of 250,000 sq ft to EMA which is due to move into the building in mid 2014. The remainder of the space is currently being marketed.
Although there was subdued leasing activity on the Estate during the period, since June, Shell has agreed to take an additional 38,225 sq ft across 2 floors in 40 Bank Street and, in One Canada Square, 54,000 sq ft has been taken on levels 7 and 8. These deals, together with other smaller lettings, bring the total let to date in 2013 to around 100,000 sq ft.
The Group is particularly pleased with the success of Level39, Europe's largest accelerator space for financial, retail and future technologies. Since opening in March all of the available space has been taken prompting expansion to a high growth technology floor on level 42 of One Canada Square. The success of Level39 is testament to the Group's vision, its commitment to diversification and its responsiveness to market demands.
Retail remains a success story with the Canary Wharf malls continuing to be fully let. This demand shows no sign of abating. There are 2 areas of retail expansion, the 44,000 sq ft Jubilee Place mall extension and the 115,000 sq ft of leisure and retail above the Canary Wharf Crossrail station. These are both already experiencing letting success. The Jubilee Place mall continues to welcome a range of leading brands within its extension which will be open for trade on 1 November 2013. At the date of this report, all of the 27 units in this extension had either exchanged or were in solicitors' hands. Even though Phase I of the Canary Wharf Crossrail shopping mall is not scheduled to open until 2015, around 50.0% of the 88,000 sq ft is already let, under offer or in solicitors' hands. Phase II, which will comprise 27,000 sq ft of additional space, will open when the station becomes fully operational in 2018.
The investment portfolio of the Group has been increased to 7.4m sq ft by the acquisition of 2 buildings on the Estate. 7 Westferry Circus was originally sold by the Group in 2005 and then re acquired in March 2013 for GBP46.6m. This acquisition was followed after the period end by the purchase of 15 Westferry Circus which was acquired for GBP128.0m and funded by way of a 3 year loan facility; the Group also assumed a GBP11.4m liability on a related out of the money swap. The Group plans to reposition these assets so that they are more attractive to a wider range of occupiers.
Looking ahead and subsequent to the period, we received the positive news that planning consent had been approved for the Heron Quays West site. This consent is for an office development comprising approximately 700,000 sq ft. Plans for One Park Place are still under consideration as the Group continues to ensure that the best use is made of its development sites. In June, the Group submitted a planning application for a stunning new development at Newfoundland. The fully residential tower, designed by Horden Cherry Lee Architects, will contain around 550 luxury apartments and, if the application is successful, a start on site is anticipated by the end of this year.
A notable strength of the Group over the last 25 years has been its ability to evolve in response to rapidly changing market requirements. The Group is now applying this approach to Wood Wharf, the 20 acre site adjacent to the Estate. A new masterplan for a 4.8m sq ft net mixed use development is being put into place and will target growing business sectors, particularly technology and new media firms as well as adding an increased proportion of residential space. The revised masterplan will improve integration with the local residential community and provide new cultural amenities. It is hoped that the new planning application will be submitted by the end of the year.
Away from Canary Wharf
Construction on the Rafael Vinoly designed 20 Fenchurch Street building is on budget and ahead of schedule. This exciting joint venture with Land Securities in the heart of the City will provide approximately 690,000 sq ft of world class space with a sky garden on the top 3 floors. Leasing momentum has gathered as this building is already 57.0% let and scheduled to receive its first tenant in mid 2014.
Although supported and approved by both Lambeth Borough Council and the Mayor of London, the application for the 1.4m sq ft Shell Centre redevelopment on London's South Bank was recently called in by the Secretary of State for Communities and local Government. This was obviously disappointing for the Group and our joint venture partner Qatari Diar. The project was poised to deliver a large number of new jobs, new homes including affordable housing and other significant local benefits. The Group is now focussing on the most efficient way to resolve this situation.
Sustainability
The Board supports the commitment to sustainability shown by Canary Wharf Group which has been reflected in achieving a commendable GRI accredited B+ ranking for sustainability performance in 2012. This mark reflects the significant work undertaken by the Group with local communities, suppliers, investors and other stakeholders in and around Canary Wharf. The 2012 Sustainability Report is also aligned with the EPRA Best Practices Recommendations on Sustainability Reporting.
Conclusion
We are proud that the Group has earned the reputation of consistently delivering its projects on schedule and within budget. We have also remained steadfast during the recent turbulent economic conditions and are committed to broadening the Group's product, location and tenant base. Now that there are signs of a recovering market, the Board is confident that the Group will be able to deliver strong and durable results.
David Pritchard
Chairman
BUSINESS REVIEW
The following Business Review is intended to provide shareholders with an overall summary of the business of the Group, both during the 6 months ended and also as at 30 June 2013. Where applicable, it also summarises significant events which have occurred subsequent to this date.
A list of defined terms used throughout this Announcement is provided in Definitions.
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 and the adjacent Wood Wharf site. Elsewhere in London, Canary Wharf Group is also involved through joint ventures in the redevelopment of 20 Fenchurch Street and the Shell Centre.
Investment Portfolio
At 30 June 2013, Canary Wharf Group's investment portfolio comprised 17 completed properties (out of the 35 constructed on the Estate) totalling approximately 7.2m sq ft of NIA.
In March 2013, Canary Wharf Group acquired the long leasehold interests in 7 Westferry Circus at Canary Wharf for GBP46.6m plus SDLT and fees. This building was originally constructed by Canary Wharf Group in 1992 and sold in November 2005 for GBP96.6m. The building totals 177,700 sq ft across 8 floors and includes 157,100 sq ft of office space and 15,500 sq ft of retail space. The office space is fully let to EMA until December 2014. Following EMA's move to its new offices at 25 Churchill Place, Canary Wharf Group intends to refurbish the office space and market the building. The retail space in the building is fully let to a range of tenants including Starbucks, Pret A Manger and Savills.
The weighted average unexpired lease term for the investment property portfolio at 30 June 2013 was approximately 14.6 years, or 13.4 years assuming the exercise of outstanding break options (31 December 2012 - 15.5 years or 14.2 years respectively). The reduction of 0.9 years since the year end reflects the acquisition of 7 Westferry Circus in the period which is let on a lease expiring in December 2014. On a like for like basis, the weighted average unexpired lease term at 30 June 2013 would have been 15.0 years or 13.7 years assuming exercise of all break options.
Subsequent to the period end, in July 2013, Canary Wharf Group acquired 15 Westferry Circus, a 171,000 sq ft building on the Estate, fully let to Morgan Stanley on a lease expiring in August 2026. As consideration for the acquisition, Canary Wharf Group paid approximately GBP128.0m, fully funded by way of a 3 year loan facility, and has assumed a pre existing senior interest swap which was secured against the building and had an out of the money position of GBP11.4m. This property was originally constructed by Canary Wharf Group in 2002 and sold in 2005 for consideration of GBP134.8m. As a result of this building being reacquired, Canary Wharf Group's portfolio had increased to 7.4m sq ft at the date of this report.
The investment property portfolio was 95.3% let at 30 June 2013 (31 December 2012 - 95.5%). 69.2% of the square footage under lease to office tenants does not expire, or cannot be terminated by the tenants, during the next 10 years.
As well as the rental income generated from properties owned by Canary Wharf Group, income is generated from managing the entire Estate which, in addition to the 17 completed properties owned by Canary Wharf Group at 30 June 2013, included 18 properties totalling 8.5m sq ft in other ownerships.
One Canada Square
In the first half of the year, Canary Wharf Group substantially completed an extensive refurbishment of the mechanical and engineering systems in One Canada Square, a multi let building of over 1.2m sq ft at the heart of the Estate. The total spend was approximately GBP34.0m plus VAT which was incurred over the last 5 years. This total has now been analysed to determine the extent to which works related to repairs or capital expenditure as applicable. As a result, it is anticipated that capital allowances will be claimed on approximately GBP29.0m of expenditure. The balance of GBP5.0m (or GBP6.0m including irrecoverable VAT) has been classified as repairs and taken to the profit and loss account in the period. This adjustment is included within cost of sales, but is net asset neutral.
Level39
In March 2013 Level39, Europe's largest accelerator space for financial, retail and future technologies was opened by the Mayor of London, Boris Johnson. Level39 provides office space for tech companies as well as events and social space designed to help these growing businesses create, test the market and deliver world class financial, retail and future city technology products and services. The aim is that by attracting high growth technology companies to Level39 they will then view space at Canary Wharf and Wood Wharf as attractive long term options.
Since opening, the facility has hosted a significant number of events targeting the TMT sector and has achieved 100.0% occupancy. There are currently applications from over 80 additional high tech companies looking to locate to Level39. The success of Level39 has already resulted in a number of these existing tech companies expanding and, with the demand for more space, a high growth technology floor has been created on level 42 where these growing companies are now being housed.
Leasing
At 20 Fenchurch Street, Canary Wharf Group is acting as joint development manager with Land Securities. The joint venture let 66,300 sq ft to Liberty Syndicates in February 2013, together with 51,000 sq ft to Liberty Mutual. Markel has now taken an additional 24,500 sq ft in the building increasing its total letting to 74,500 sq ft. At the date of this report, 57.0% of the space is let, including all the retail space in the sky garden at the top of the building which is let to Rhubarb. The joint venture is currently in negotiations on over 100,000 sq ft and expects to let further space ahead of practical completion in April 2014.
At Canary Wharf, after a relatively quiet start to the year, the level of enquiries and tenant presentations has increased significantly. During this period the number of viewings has doubled in comparison to the second half of 2012. In the last 3 months of the period, proposals were made to 24 companies of which 7 were on over 100,000 sq ft of space, 6 were between 30,000 sq ft and 100,000 sq ft and 11 were under 30,000 sq ft.
Subsequent to the period end, Shell agreed to take a further 38,225 sq ft across 2 floors in 40 Bank Street, taking its total space in this building to 225,000 sq ft. The latest lease is at a rent of GBP36.00 psf for a term of 5 years, subject to a 9 month rent free period and a break option at year 3. Secure Trading, a Fintech company, is under offer on part of level 19 measuring 6,243 sq ft, at a rent of GBP40.00 psf on a 10 year lease with a break option at year 5.
In One Canada Square, levels 7 and 8 totalling 54,000 sq ft have just been let in their existing condition for a term of 5 years subject to annual breaks after the first 2 years. In addition the firm of accountants Kingsley Hamilton took a further 1,154 sq ft of expansion space at a rent of GBP40.00 psf on a lease expiring on 31 October 2017.
In terms of space under offer, a recruitment company is taking 2,594 sq ft on part of level 28 at GBP42.50 psf on a 5 year lease with a break option at year 3 and a broker on part of level 28 is taking 1,241 sq ft at a rent of GBP41.00 psf on a 3 year term.
All options to sublet space back to Canary Wharf Group have been exercised and at 30 June 2013 the estimated net present value of sublet liabilities was approximately GBP22.1m discounted at 5.8%, being Canary Wharf Group's weighted average cost of debt (31 December 2012 - GBP26.1m discounted at 6.2%). These sublet commitments have been reflected in the market valuation of Canary Wharf Group's properties.
Retail
At 30 June 2013, the retail malls at Canary Wharf continued to be fully let with demand from both new entrants and existing occupiers looking to expand. In Canada Place Mall, Boots expanded into the space formerly occupied by Fat Face and has been able to extend the cosmetics range in the store as a result. HMV continued to trade following its being placed into administration in January 2013 as the Canary Wharf unit was one of the core group of units which was acquired by the new owners when the business emerged from administration.
In Cabot Place, the unit formerly occupied by Jessops, which was also placed into administration in January 2013, was acquired by Ryman at an increased rent. In One Canada Square, a new food retailer, Pure, was introduced to replace a food outlet that was under performing. Canary Wharf Group will continue to actively manage the existing retail portfolio.
At Jubilee Place, construction began in February 2012 on the 44,000 sq ft expansion of the mall which will open for trade on 1 November 2013. The retail brands due to open include Banana Republic, COS, The White Company, bareMinerals, Rituals, Oliver Bonas, Emmett Shirts and Le Pain Quotidien, alongside independent swimwear designer Orlebar Brown. At the date of this report, 22 of the 27 new units had exchanged and 3 were in solicitors' hands, taking the total committed to 92.3% of the available space and 90.5% of total income. The final 2 units are at heads of terms.
Construction is progressing well on the 115,000 sq ft of retail and leisure accommodation above the Canary Wharf Crossrail station, of which 100,000 sq ft is retail. Within the development, 87,000 sq ft is scheduled to open for trade in April 2015, ahead of the actual station opening in 2018. The first 4 lettings have now exchanged and 2 more are in solicitors' hands, which in total represents 35.0% of both the available space and total income.
Construction
As well as the retail expansion projects, work continued towards completion of 25 Churchill Place, a new 525,000 sq ft office building. In August 2011, EMA agreed a prelet of 250,000 sq ft in this building which is on schedule to complete in mid 2014.
Work on the building began in February 2012 and the structure was formally topped out in February 2013. Cladding is substantially complete and building services installation is also in its final stages. Construction is on schedule for delivery with the EMA floors fitted out in mid 2014. The balance of the available space is being marketed as construction progresses.
EMA will occupy the promenade, ground and first 9 floors in the 20 storey building. The agreed rent is GBP46.50 psf commencing 1 January 2015, with 5 yearly upwards only rent reviews. The length of the lease is 25 years with no break options and EMA has staged options to take an additional 4 floors of around 27,500 sq ft each. 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 in the building.
As well as the construction projects at Canary Wharf, Canary Wharf Group is also acting as construction manager for the development at 20 Fenchurch Street (see Business Review - 20 Fenchurch Street).
Crossrail
Construction commenced on the Canary Wharf Crossrail station in May 2009 and has progressed ahead of schedule. The station will be delivered to CRL for 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 CRL. Canary Wharf Group's contribution to construction of the station will be credited against any Crossrail Section 106 and/or CIL contributions for certain agreed development sites on the Estate (comprising North Quay, Heron Quays West, Newfoundland and Riverside South) which may be required as part of the London Plan. Accordingly, any costs borne by Canary Wharf Group on construction of the station have been allocated to these development properties.
The project is performing well against budget. The tunnel boring machines arrived at the station from the east in May and June 2013 and the first trains are due to run in 2018 when Crossrail opens for passenger service. The structure is complete and internal works are well advanced.
Development sites
Heron Quays West currently has consent for an office scheme of over 1.3m sq ft. However, in view of changing market conditions, Canary Wharf Group has reviewed alternative development options and in July 2013 submitted an application for an office development comprising approximately 700,000 sq ft on the eastern half of the site. Consent for this scheme was awarded on 30 August 2013. Options for the western half of the site are still under consideration.
In July 2013, Canary Wharf Group also submitted a planning application for a residential scheme on the adjacent Newfoundland site. The scheme proposed extends to 485,000 sq ft over 59 floors and will replace the existing consent for 230,000 sq ft of hotel and serviced apartments. If Canary Wharf Group is successful in obtaining consent for the residential scheme, a start on site is anticipated by the end of the year.
One Park Place benefits from planning consent for approximately 950,000 sq ft of development but Canary Wharf Group intends to submit a new application for a revised scheme of approximately 650,000 sq ft now that the acquisition of 15 Westferry Circus has been completed.
The remaining development site at North Quay has planning consent for almost 2.4m sq ft of office space. However, this is to be reviewed to determine whether an alternative scheme would be more appropriate.
In summary, the total development capacity at each of Canary Wharf Group's development sites, excluding sites under development, is currently as follows:
NIA
m sq ft
----------
Total development pipeline:
Canary Wharf, based on existing and/or
proposed consents:
- Heron Quays West 1.33
- North Quay 2.39
- Newfoundland 0.48
- One Park Place 0.65
- Wood Wharf 4.60
9.45
----------
Sold to J.P. Morgan:
Riverside South (Canary Wharf Group acting as development
- and construction manager) 1.90
----------
In joint venture with Qatari Diar:
- Shell Centre (see Business Review - Shell Centre) 1.40
----------
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 contract includes a right of first offer in the event J.P. Morgan decides to sell the site. J.P. Morgan has instructed Canary Wharf Group to proceed with the next phase of infrastructure works consisting of river wall protection, utilities installation and the lower ground level floor slabs. These are progressing well with completion now targeted for the first quarter of 2014.
Canary Wharf Group has received GBP76.0m as an advance of developer's profit in conjunction with the development. This sum will be set against Canary Wharf Group's entitlement to future profits should J.P. Morgan proceed with full construction.
Wood Wharf
In January 2012, Canary Wharf Group acquired full control of the Wood Wharf joint venture and entered into a new overriding 250 year lease of the site.
Canary Wharf Group secured 100.0% ownership of Wood Wharf by combining its original 25.0% effective interest with the 75.0% interests acquired from its joint venture partners, CRT and Ballymore. It also agreed the restructuring of CRT'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.
Wood Wharf will be a new mixed use development scheme adjacent to the existing Estate. In May 2009, the current master plan received planning consent for 4.6m sq ft net. This consent, which was renewed in 2012 and represents an area almost one third of the size of the Estate, currently comprises approximately 1.25m sq ft of residential, 3.1m sq ft of offices, 0.2m sq ft of retail 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. Having gained full control of the scheme, the best uses for the site have been reviewed, leading to an alteration to the mix of uses in favour of residential, reducing the size of individual office buildings to appeal to new target sectors and to integrate and connect this new district to the existing Estate.
Work on an amended master plan is progressing well and it is envisaged that application for a revised outline planning consent will be submitted in late 2013. At the same time, design work is proceeding on the first phase of private and affordable residential property and on 2 office buildings, in order to submit full details of these to the planning authority.
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. After syndication, Canary Wharf Group has retained a 15.0% equity interest in this project. Canary Wharf Contractors Limited, a wholly owned subsidiary of Canary Wharf Group, was appointed as sole construction manager. Land Securities and Canary Wharf Group were appointed as joint development managers and both are responsible for leasing.
Planning consent for a 37 storey building was 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. Construction commenced on site in January 2011 and is progressing on schedule and within budget. The building was topped out at the end of 2012 and the cladding is nearing completion. The building remains on schedule to achieve practical completion in April 2014, with the first tenant due to move in shortly afterwards. As referred to in Business Review - leasing, the building is currently 57.0% prelet. The joint venture is now setting up the property management team, ready to take over the building on completion.
Shell Centre
In July 2011, Canary Wharf Group and Qatari Diar concluded a 50:50 joint venture agreement to redevelop the Shell Centre. The joint venture agreed to pay GBP300.0m to secure the 5.25 acre site on a 999 year lease. Of this total, GBP30.0m was paid on exchange of the agreement with Shell and the balance 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 is also joint development manager with Qatari Diar. The joint development manager fees generated from the transaction are being apportioned between the parties.
The development will be mixed use comprising office, residential and retail space, which will regenerate an important section of the South Bank in central London. The existing 27 storey tower in the middle of the Shell Centre will be preserved and retained by Shell. Shell initially agreed to take a 210,000 sq ft prelet of one of the 2 new office buildings to be constructed on the site but have subsequently agreed to increase the lease to the full 245,000 sq ft available in the building. In total the redevelopment will comprise 523,000 sq ft of office space, 79,000 sq ft of shops, restaurants, cafes and a health club, together with 835,000 sq ft of residential, creating 877 homes.
In May 2013, a resolution to grant planning permission was achieved subject to finalising a Section 106 agreement and stage 2 referral to the GLA and Secretary of State. On 17 July the GLA issued its stage 2 report endorsing Lambeth's right to determine the application and supportive of the development plans. Subsequently, on 4 September 2013, the joint venture was notified that the Secretary of State had called in the planning application. This is a disappointing decision which may delay the project and with it the regeneration of the local area and the creation of thousands of jobs. The joint venture will, however, be considering the most effective means of addressing this issue.
Valuations
The net assets of the Group, as stated in the Condensed Consolidated Balance Sheet as at 30 June 2013, were GBP2,010.6m. In arriving at this total:
(i) properties held as investments were carried at GBP4,838.1m, which represents the market value of those properties of GBP5,020.5m at that date as determined by Canary Wharf Group's external valuers, CBRE, Savills or Cushman, less an adjustment of GBP175.3m for tenant incentives and GBP7.1m for deferred negotiation costs;
(ii) the properties under construction were carried at GBP210.8m representing the market value of those sites of GBP212.5m, less an adjustment of GBP1.7m for deferred negotiation costs; and
(iii) properties held for development were carried at GBP495.0m, representing their market value of GBP440.0m, adjusted by GBP55.0m for the present value of the minimum ground rents payable under the 250 year lease of Wood Wharf. At inception of the lease this liability was separately recognised within Non current liabilities.
At 30 June 2013, the yields applied in deriving the market valuation of the investment properties can be summarised as:
30 June 31 December
2013 2012
% %
-------- ------------
Office portfolio:
Weighted average initial yield:
- excluding 7 Westferry Circus 5.0 5.0
- including 7 Westferry Circus 5.3 -
Weighted average equivalent yield 5.3 5.4
Retail portfolio:
Weighted average initial yield 4.8 5.0
Weighted average equivalent yield 5.0 5.1
The weighted average initial yield for the portfolio at 30 June 2013 was impacted by the acquisition of 7 Westferry Circus during the period, let on a lease expiring in December 2014. Excluding this acquisition, the weighted average initial yield for the remainder of the portfolio was 5.0%, unchanged from 31 December 2012.
The retail investment portfolio again performed strongly with market value increasing by 6.7%, in part as a result of a small reduction in yields, in part as a result of rental growth and in part reflecting progress with the Jubilee Place mall expansion. The market value of the office investment portfolio increased by 1.6% over the period. The benchmark initial yield for rack rented office properties remained at approximately 5.0%.
Taking office and retail together, the market value of the investment portfolio increased by GBP111.5m or 2.3% in the period. After allowing for capital expenditure, including the acquisition of 7 Westferry Circus and adjustments in respect of lease incentives and deferred negotiation costs, the carrying value of the investment portfolio increased by GBP111.6m over the 6 months or 2.4%.
The valuers have also provided their opinions of the market value for sites held for development which comprised North Quay, Heron Quays West, Newfoundland, One Park Place and Wood Wharf. Excluding the adjustment for ground rents, these sites were valued in aggregate at GBP440.0m at 30 June 2013, in comparison with GBP415.0m at 31 December 2012, an increase of 6.0% reflecting the demand for sites capable of accommodating residential development.
The properties under construction were valued at GBP212.5m (31 December 2012 - GBP137.5m). The valuation of these sites is stated by the valuers net of provision for developer's profit of GBP58.5m which will be released as these properties are let and approach completion.
The market value of the entire property portfolio, after adjusting for property acquisitions and other capital expenditure, increased by GBP141.8m or 2.6% in the period. This increase in value was driven by the factors stated previously.
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 following table, 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.
30 June 2013 31 December 2012 30 June 2012
Market Market Market
Carrying value in Carrying value in Carrying value in
value existing state value existing state value existing state
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------- ---------------- --------- ---------------- --------- ----------------
Retained portfolio:
Investment properties (i) 4,838.1 5,020.5 4,676.1 4,862.5 4,543.9 4,734.0
Property under
construction (ii) 210.8 212.5 135.8 137.5 94.3 96.0
Properties held for
development (iii) 495.0 440.0 470.0 415.0 468.5 413.5
5,543.9 5,673.0 5,281.9 5,415.0 5,106.7 5,243.5
Sold property:
Property under
construction at
Riverside South (iv) 70.0 143.1 69.6 139.7 67.1 134.9
5,613.9 5,816.1 5,351.5 5,554.7 5,173.8 5,378.4
========= ================ ========= ================ ========= ================
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 30 June 2013 was GBP182.4m (31 December 2012 - GBP186.4m, 30 June 2012 - GBP190.1m). Market
value in existing state is shown prior to these amounts.
(ii) Properties held for development at 30 June 2012 included Crossrail retail which was reclassified
to properties under construction following commencement of work in July 2012. The carrying
value represents market value less an adjustment for deferred lease negotiation costs of GBP1.7m.
(iii) Includes Wood Wharf subject to a 250 year lease. The present value of the ground rents payable
under this lease was calculated at GBP55.0m at inception (Note 13). The market value in existing
state is shown prior to this amount.
(iv) The carrying value in the Condensed Consolidated Balance Sheet at 30 June 2013 is stated net
of GBP70.3m of costs transferred to cost of sales (31 December 2012 - GBP66.6m, 30 June 2012
- GBP61.1m) and GBP0.3m transferred to payments on account (31 December 2012 - GBP(3.0)m,
30 June 2012 - GBP(6.0)m transferred from payments on account). 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 already
recognised on the disposal of the site in 2008.
The valuations at 30 June 2013 are based on assumptions which include future rental income, anticipated void costs, the appropriate discount rate or yield and, in the case of development properties, the estimated costs of completion. In addition the valuations allow for letting, disposal, marketing and financing costs. The valuers also make reference to market evidence of transaction prices for similar properties on the Estate. In valuing the sites held for development and properties under construction, the valuers have allowed for estimated costs to complete, including an allowance for fit out and developer's profit.
Operating Results
The following review of the Group's operating results relates to the 6 months ended 30 June 2013. The comparatives relate to the 6 months ended 30 June 2012.
Revenue is generated primarily by the rents and service charges earned by Canary Wharf Group from its property interests on the Estate together with the recognition of amounts earned in respect of work performed on construction contracts and fees earned from construction and development management agreements.
Total revenue for the 6 months ended 30 June 2013 was GBP182.3m, against GBP177.7m for the 6 months ended 30 June 2012, of which rental income, prior to the adjustments required to spread lease incentives and committed rent increases, was GBP134.6m (6 months ended 30 June 2012 - GBP130.3m). The increase in rental income was attributable to the acquisition of 7 Westferry Circus, expiry of rent free periods and increased retail rents.
The impact of spreading lease incentives was to reduce rental income by GBP3.4m for the 6 months ended 30 June 2013, compared with GBP1.3m for the same period in 2012. After this adjustment, rental income increased from GBP129.0m in the first half of 2012 to GBP131.2m in the first half of the current year.
Service charge income reduced from GBP40.1m to GBP39.1m and 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, reduced from GBP8.5m to GBP7.7m over the period. Revenue for the 6 months ended 30 June 2013 also included GBP0.6m of dilapidations recoveries.
In the 6 months ended 30 June 2013, turnover and cost of sales included GBP3.7m in respect of the construction contract for Riverside South, in comparison with GBP0.1m for the 6 months ended 30 June 2012. No profit has been recognised on the construction contract although the potential surplus has been taken into account in calculating adjusted NAV (see Business Review - Balance Sheet and Key Performance Indicators).
Cost of sales includes rents payable, property management costs including refurbishment and repair costs, movements on provisions for certain lease commitments, as well as costs recognised on construction contracts.
Canary Wharf Group has now substantially completed the refurbishment of the mechanical and engineering systems in One Canada Square and determined that GBP6.0m of the total cost of GBP34.0m plus VAT should be classified as repairs and taken to cost of sales in the period. The remainder of the costs have been capitalised and were included as additions to investment properties within fixed assets as they were incurred. This reclassification from building cost to cost of sales has resulted in an equivalent increase in the revaluation movement on One Canada Square in the period.
Other rents payable and property management costs were GBP49.4m in comparison with GBP46.3m for the 6 months ended 30 June 2012. Taking into account service charge and miscellaneous property income totalling GBP45.7m for the 6 months ended 30 June 2013 (6 months ended 30 June 2012 - GBP47.5m), a deficit on property management of GBP3.7m was recorded (6 months ended 30 June 2012 - surplus of GBP1.2m).
An increase in provisions (before adjustment for discounting) of GBP0.3m was recognised in the 6 months ended 30 June 2013 relating to certain rent support commitments and other obligations. This compared with an increase of GBP0.4m in the 6 months ended 30 June 2012.
For the 6 months ended 30 June 2013, net development, rental and related income was GBP122.3m, a reduction of GBP8.6m compared with the 6 months ended 30 June 2012. This was primarily attributable to the GBP6.0m charge in respect of refurbishment costs and the increase in void costs.
Administrative expenses for the 6 months ended 30 June 2013 were GBP20.8m in comparison with GBP13.6m for the 6 months ended 30 June 2012. The increase was in part attributable to a GBP2.4m charge recognised in relation to an allocation of shares to certain of Canary Wharf Group's directors and senior employees in the period. In addition professional fees were higher in the period, primarily as a result of fees incurred in pursuing a claim against Lehman Brothers Inc. as guarantor of the Lehman lease at Canary Wharf.
Including other operating income of GBP1.1m for the 6 months ended 30 June 2013 (6 months ended 30 June 2012 - GBP0.7m), underlying operating profit (as defined in Note 2) for the 6 months ended 30 June 2013 was GBP102.6m in comparison with GBP118.0m for the 6 months ended 30 June 2012. The reduction in underlying operating income was primarily attributable to the increased void costs, refurbishment costs and administrative expenses.
In addition to the underlying operating profit, a net revaluation surplus of GBP145.8m was recognised in the Condensed Consolidated Income Statement in the period compared with GBP95.4m in the 6 months ended 30 June 2012. The changes in the valuation of the property portfolio are explained in more detail in the Business Review - Valuations and in Note 4.
The Group has also recognised its share of the revaluation surplus recorded on 20 Fenchurch Street totalling GBP3.9m for the 6 months ended 30 June 2013. This surplus has been taken to the Condensed Consolidated Income Statement and classified as a Capital and Other item. In the 6 months ended 30 June 2012, a revaluation surplus on 20 Fenchurch Street of GBP1.1m was recognised.
Total operating profit for the 6 months ended 30 June 2013 was GBP252.3m against a profit of GBP214.5m for the 6 months ended 30 June 2012. The change was attributable to movements in property revaluations and the other factors referred to above.
Underlying net financing costs for the 6 months ended 30 June 2013 were GBP92.4m against GBP100.7m for the 6 months ended 30 June 2012. Underlying net financing costs are stated net of GBP6.8m of interest payable which has been capitalised and transferred to Property under construction in non current assets. This amount represents the finance costs relating to the Group's borrowings which are deemed to have been utilised in financing the properties under construction and comprises GBP2.6m of construction loan interest and GBP4.2m of general interest.
Movements in the fair value of derivative financial instruments resulted in a gain of GBP116.7m after recycling being recognised in the Condensed Consolidated Income Statement as a Capital and Other item in the 6 months ended 30 June 2013 compared with a gain of GBP3.0m in the 6 months ended 30 June 2012.
Financing costs relating to non equity shares were GBP12.8m for the 6 months ended 30 June 2013 in comparison with GBP14.6m for the 6 months ended 30 June 2012. This reduction in financing cost was attributable to the terms of the preference shares being amended in August 2012.
The profit before tax for the 6 months ended 30 June 2013 was GBP263.8m in comparison with GBP102.2m for the 6 months ended 30 June 2012. The results for the 6 months ended 30 June 2013 and the 6 months ended 30 June 2012 included certain Capital and Other profits and losses as described above. The underlying profit before tax for the 6 months ended 30 June 2013 was GBP10.2m (6 months ended 30 June 2012 - GBP17.3m), the reduction being mainly attributable to the reduction in operating profit as a result of the GBP6.0m charge in respect of refurbishment costs.
Tax for the 6 months ended 30 June 2013 comprised a corporation tax charge of GBP2.6m, and a deferred tax charge of GBP21.9m. The tax charge for the 6 months ended 30 June 2012 comprised a corporation tax credit of GBP3.2m, together with a deferred tax charge of GBP23.1m.
The contingent tax payable if Canary Wharf Group were to dispose of its owned property portfolio at the market values disclosed in this Business Review is included in the net deferred tax balance recognised at each balance sheet date.
The profit after tax for the 6 months ended 30 June 2013 was GBP239.3m in comparison with GBP82.3m for the 6 months ended 30 June 2012.
The basic and diluted earnings per share for the 6 months ended 30 June 2013 was 22.2p (Note 2) compared with 7.0p for the 6 months ended 30 June 2012.
Consolidated Balance Sheet and Key Performance Indicators
Net assets in the Group's Condensed Consolidated Balance Sheet were GBP2,010.6m at 30 June 2013, an increase of GBP236.2m or 13.3% from GBP1,774.4m at 31 December 2012. The increase in net assets was primarily attributable to the increase in the carrying value of properties held as non current assets by GBP149.7m over the period (Note 4) and the movement in the fair value of financial instruments of GBP116.7m after hedging reserve recycling, combined with the underlying profit for the period of GBP10.2m, the finance cost relating to non equity shares of GBP12.8m and a tax charge of GBP24.5m.
The Company's objective is to manage its investment in Canary Wharf Group so as to maximise net asset values from its property investment and development activities. 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 external valuation surplus on the construction contracts but excludes deferred tax and fair value adjustments on derivatives. The calculation of adjusted NAV is disclosed in Note 2 and indicates that adjusted NAV per share increased by 6.2% from GBP2.10 at 31 December 2012 to GBP2.23 at 30 June 2013.
Adjusted NNNAV per share is set out in the following table:
30 June 31 December 30 June
2013 2012 2012
Note GBPm GBPm GBPm
-------- ------------ --------
Adjusted net assets attributable to members of the Company (i) 1,652.4 1,556.5 1,525.3
Fair value adjustment in respect of financial assets and liabilities
net of tax thereon (ii) (490.2) (665.3) (515.7)
Deferred tax (iii) (41.0) (15.1) (10.8)
Non controlling interest in above adjustments 162.7 208.4 161.3
Adjusted NNNAV 1,283.9 1,084.5 1,160.1
-------- ------------ --------
Adjusted NAV per share (i), (iv) GBP2.23 GBP2.10 GBP1.99
Adjusted NNNAV per share (iv) GBP1.73 GBP1.46 GBP1.52
Note:
(i) Refer to Note 2.
(ii) The fair value adjustment comprises the mark to market of derivatives in Note 12 and the after
tax difference between the market value and book value of debt (Note 12).
(iii) Refer to Note 6.
(iv) Calculation based on 740.4m Ordinary Shares in issue at 30 June 2013 (31 December 2012 - 740.4m,
30 June 2012 - 764.9m).
As a result of the Share Buyback, the number of Ordinary Shares in issue reduced from 764.9m to 740.4m at a cost of GBP30.4m (31 December 2012 - GBP30.3m). 24,509,820 of the Ordinary Shares purchased were acquired in the second half of 2012 and 29,526 in January 2013. Reversing the impact of the Share Buyback on a proforma basis would have resulted in an adjusted NAV attributable to members of the Company of GBP1,586.8m at 31 December 2012 and GBP1,682.8m at 30 June 2013. Likewise, adjusted NNNAV would have increased to GBP1,114.8m at 31 December 2012 and GBP1,314.3m at 30 June 2013. On the basis of the pre Share Buyback number of Ordinary Shares of 764.9m, adjusted NAV per share would have been GBP2.20 at 30 June 2013 (31 December 2012 - GBP2.07) and adjusted NNNAV per share GBP1.72 (31 December 2012 - GBP1.46). The impact on adjusted NAV as at 30 June 2013 of the 29,526 shares purchased in the first half of 2013 was GBP0.1m which has a negligible impact on adjusted NAV per share and NNNAV per share.
Borrowings
In December 2011, Canary Wharf Group entered into a 5 year GBP190.0m development loan facility to fund the construction of a new building at 25 Churchill Place. 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 to 225 bps, subject to satisfaction of certain interest cover tests. An interest rate swap was entered into at a rate of 1.017%, which fixes the interest rate payable under the loan. The fixed rate payable during the construction phase, including the 300 bps margin, is 4.017%. The termination date under the swap is in December 2016. 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 of the building will be capitalised and included as part of the cost of construction. The first drawdown under the loan facility was in January 2013 and at 30 June 2013 GBP59.9m had been drawndown.
Canary Wharf Group's borrowings are secured against designated property interests, and are subject to lending covenants that include maximum LTV ratios and minimum ICRs as outlined in Note 12. For all of its loans, the Group was in compliance with its lending covenants at 30 June 2013 and throughout the period then ended.
At 30 June 2013, net debt (including derivative financial instruments at fair value, net of monetary deposits and cash and cash equivalents) stood at GBP3,466.9m, an increase of GBP24.6m from GBP3,442.3m at 31 December 2012. The components of net debt are disclosed in Note 12.
Total borrowings including derivatives at fair value, reduced from GBP4,194.3m to GBP4,087.8m partly reflecting a GBP119.8m favourable movement in the fair value of derivatives, together with loan amortisation paid in the 6 months. These factors were in part offset by drawings under the construction loan.
The increase in total borrowings was accompanied by a reduction in cash and cash equivalents from GBP749.7m to GBP618.6m, primarily attributable to construction and development expenditure, together with the investment in associates and the acquisition of 7 Westferry Circus.
Excluding the Preference Shares, the weighted average maturity of the Group's loans was 12.5 years at 30 June 2013 (31 December 2012 - 13.0 years).
At 30 June 2013, the Group's weighted average cost of debt was 5.8% including credit wraps, but excluding the coupon on the Preference Shares (31 December 2012 - 5.8%). Canary Wharf Group borrows at both fixed and floating rates and uses interest rate swaps or caps to modify exposure to interest rate fluctuations. Except for certain elements of the debt assumed in connection with the acquisition of Wood Wharf, substantially all of the Group's drawn facilities are fixed after taking account of interest rate hedging and cash deposits held as cash collateral.
Cash Flow
Cash generated from operations for the 6 months ended 30 June 2013 was GBP105.8m in comparison with GBP169.5m for the 6 months ended 30 June 2012. Corporation tax refunds of GBP3.9m were received in the 6 months ended 30 June 2013 whereas refunds of GBP5.3m were received in the first half of 2012. The reduction in cash generated from operations was partly attributable to the GBP15.4m reduction in underlying operating profit and partly attributable to movements in working capital.
Cash flows from investing activities resulted in a cash outflow of GBP136.3m for the 6 months ended 30 June 2013 compared with GBP58.9m for the 6 months ended 30 June 2012. The 6 months ended 30 June 2013 included GBP68.4m of development expenditure (6 months ended 30 June 2012 - GBP31.0m) and GBP54.1m attributable to the purchase of property (6 months ended 30 June 2012 - GBP20.9m). Funding of Canary Wharf Group's associated and joint venture undertakings totalled GBP13.8m compared with GBP7.0m for the 6 months ended 30 June 2012.
The net cash inflow from financing activities for the 6 months ended 30 June 2013 totalled GBP17.9m compared with an outflow of GBP9.5m for the 6 months ended 30 June 2012. The 6 months ended 30 June 2013 included scheduled loan amortisation of GBP37.4m, offset by drawings under Canary Wharf Group's construction loan of GBP59.9m. The 6 months ended 30 June 2012 included the scheduled loan amortisation of GBP33.2m, which was partly offset by the assumption of debt upon the acquisition of Wood Wharf.
Principal Risks and Uncertainties
The principal risks and uncertainties identified by the Group were summarised in the 2012 Report and Financial Statements (refer to Principal Risks and Uncertainties and Treasury Objectives in the Business Review section).
The risks and uncertainties facing the business of the Group are monitored through continuous assessment, regular and formal quarterly review and discussion at audit committee and Board level of both the Company and of Canary Wharf Group. The principal risks and uncertainties continue to include the cyclical nature of the property market, financing risk, concentration risk and policy and planning risk.
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2013
Audited Unaudited Unaudited
Year ended Six months ended Six months ended
31 December 2012 30 June 2013 30 June 2012
Capital Capital Capital
and and and
Underlying* other Total Note Underlying* other Total Underlying* other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- -------- ------------ -------- ------- ------------ -------- --------
Gross
development,
rental and
361.6 - 361.6 related income 3 182.3 - 182.3 177.7 - 177.7
Cost of sales:
-
- - - refurbishment (6.0) - (6.0) - - -
(103.2) - (103.2) - other (54.0) - (54.0) (46.8) - (46.8)
Net
development,
rental and
258.4 - 258.4 related income 3 122.3 - 122.3 130.9 - 130.9
Share of
associates
and joint
ventures
(after
- 3.6 3.6 tax) 8 - 3.9 3.9 - 1.1 1.1
Administrative
(38.6) - (38.6) expenses (20.8) - (20.8) (13.6) - (13.6)
2.3 - 2.3 Other income 1.1 - 1.1 0.7 - 0.7
Net
revaluation
- 215.7 215.7 movements 4 - 145.8 145.8 - 95.4 95.4
Operating
222.1 219.3 441.4 profit 102.6 149.7 252.3 118.0 96.5 214.5
Net financing
costs
- investment
7.5 - 7.5 revenues 5 2.0 - 2.0 4.0 - 4.0
- financing
(206.3) (41.1) (247.4) costs 5 (94.4) 103.9 9.5 (104.7) (11.6) (116.3)
(198.8) (41.1) (239.9) (92.4) 103.9 11.5 (100.7) (11.6) (112.3)
Profit for
the period
23.3 178.2 201.5 before tax 2 10.2 253.6 263.8 17.3 84.9 102.2
------------ -------- ------------ -------- ------------ --------
(18.0) Tax 6 (24.5) (19.9)
Profit for
the period
183.5 after tax 2 239.3 82.3
-------- ------- --------
Attributable
to:
Equity
118.8 shareholders 161.7 52.4
Non
controlling
64.7 interests 77.6 29.9
183.5 239.3 82.3
-------- ------- --------
Earnings per
share
- basic and
15.9p diluted 2 22.2p 7.0p
* As defined in Note 2.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2013
Audited Unaudited Unaudited
Year ended Six months ended Six months ended
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ------------------ ------------------
183.5 Profit for the period after tax 239.3 82.3
Items that may be reclassified subsequently to profit or loss:
6.2 Transferred from equity in respect of cash flow hedges 3.1 3.2
(3.9) Tax on items transferred from equity (4.0) (2.0)
2.3 Other comprehensive income for the period (0.9) 1.2
185.8 Total comprehensive income for the period 238.4 83.5
------------- ------------------ ------------------
120.4 Attributable to:
Equity holders of the Company 161.1 53.2
65.4 Non controlling interests 77.3 30.3
185.8 238.4 83.5
------------- ------------------ ------------------
Other comprehensive income does not include any items that will not be reclassified subsequently to profit or loss.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2013
Capital Cancelled Total Non
Share redemption Treasury share Hedging other controlling Retained Share
premium reserve Shares reserve reserve reserves interests earnings capital Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ----------- --------- ---------- -------- --------- ------------ --------- -------- --------
1 January 2013 1,195.1 2.5 (15.6) 59.5 (62.1) 1,179.4 641.4 (120.4) 74.0 1,774.4
Profit for the
period after
tax - - - - - - - 239.3 - 239.3
Net income
recognised - - - - - - - 239.3 - 239.3
Transferred to
non
controlling
interests - - - - 0.3 0.3 77.3 (77.6) - -
Transferred to
income:
- cash flow
hedges - - - - 3.1 3.1 - - - 3.1
Tax on
transfers - - - - (4.0) (4.0) - - - (4.0)
Total
comprehensive
income and
expense
for the
period - - - - (0.6) (0.6) 77.3 161.7 - 238.4
Shares
cancelled
on
acquisition - - - - - - - (0.1) - (0.1)
Acquisition of
Treasury
Shares - - (4.5) - - (4.5) - - (4.5)
Reserve
movement
in respect of
Treasury
Shares - - - - - - - 2.4 - 2.4
30 June 2013 1,195.1 2.5 (20.1) 59.5 (62.7) 1,174.3 718.7 43.6 74.0 2,010.6
-------- ----------- --------- ---------- -------- --------- ------------ --------- -------- --------
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2012
Capital Cancelled Total Non
Share redemption Treasury share Hedging other controlling Retained Share
premium reserve Shares reserve reserve reserves interests earnings capital Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ----------- --------- ---------- -------- --------- ------------ --------- -------- --------
1 January 2012 1,195.1 - (15.9) 59.5 (63.7) 1,175.0 611.2 (209.3) 76.5 1,653.4
Profit for the
period after
tax - - - - - - - 82.3 - 82.3
Net income
recognised - - - - - - - 82.3 - 82.3
Transferred to
non
controlling
interests - - - - (0.4) (0.4) 30.3 (29.9) - -
Transferred to
income:
- cash flow
hedges - - - - 3.2 3.2 - - - 3.2
Tax on
transfers - - - - (2.0) (2.0) - - - (2.0)
Total
comprehensive
income and
expense
for the
period - - - - 0.8 0.8 30.3 52.4 - 83.5
Reserve
movement
in respect of
Treasury
Shares - - 0.1 - - 0.1 - - - 0.1
Dividends paid
by subsidiary
undertaking - - - - - - (7.8) - - (7.8)
30 June 2012 1,195.1 - (15.8) 59.5 (62.9) 1,175.9 633.7 (156.9) 76.5 1,729.2
-------- ----------- --------- ---------- -------- --------- ------------ --------- -------- --------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED 31 DECEMBER 2012
Capital Cancelled Total Non
Share redemption Treasury share Hedging other controlling Retained Share
premium reserve Shares reserve reserve reserves interests earnings capital Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ----------- --------- ---------- -------- --------- ------------ --------- -------- --------
1 January
2012 1,195.1 - (15.9) 59.5 (63.7) 1,175.0 611.2 (209.3) 76.5 1,653.4
Profit for
the year
after
taxation - - - - - - - 183.5 - 183.5
Net expense
recognised - - - - - - - 183.5 - 183.5
Transferred
to non
controlling
interests - - - - (0.7) (0.7) 65.4 (64.7) - -
Transferred
to income:
- cash flow
hedges - - - - 6.2 6.2 - - - 6.2
Tax on
transfers - - - - (3.9) (3.9) - - - (3.9)
Total
comprehensive
income and
expense
for the
period - - - - 1.6 1.6 65.4 118.8 - 185.8
Shares
cancelled
on
acquisition - 2.5 - - - 2.5 - (30.3) (2.5) (30.3)
Acquisition
of Treasury
Shares - - (0.3) - - (0.3) - - - (0.3)
Reserve
movements
in respect
of Treasury
Shares - - 0.6 - - 0.6 - 0.4 - 1.0
Dividends
paid by
subsidiary
undertaking - - - - - - (35.2) - - (35.2)
31 December
2012 1,195.1 2.5 (15.6) 59.5 (62.1) 1,179.4 641.4 (120.4) 74.0 1,774.4
-------- ----------- --------- ---------- -------- --------- ------------ --------- -------- --------
Description of the nature and purpose of each reserve
The capital redemption reserve comprises the nominal value of 24,539,346 Ordinary Shares cancelled under the terms of the Share Buyback authority (31 December 2012 - 24,509,820).
The Treasury Shares reserve represents the cost of Ordinary Shares held in the Trust. Details of movements on the Treasury Shares reserve are disclosed in Note 17.
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 Condensed Consolidated Income Statement in the same period in which the hedged item affects net profit or loss.
Non controlling interests represents those shareholdings in Canary Wharf Group which are not owned by Songbird. The total number of Canary Wharf Group ordinary shares owned by Songbird was 443,305,541, representing 69.37% of the issued share capital at each balance sheet date.
Retained earnings includes, inter alia, revaluation surpluses in respect of properties that are recognised in the Condensed Consolidated Income Statement.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AT 30 JUNE 2013
Audited Unaudited Unaudited
31 December 30 June 30 June
2012 2013 2012
GBPm Note GBPm GBPm
------------- ---------- ----------
Assets:
Non current assets
4,676.1 Investment properties 7 4,838.1 4,543.9
135.8 Property under construction 7 210.8 94.3
470.0 Development properties 7 495.0 468.5
0.6 Plant and equipment 7 0.6 0.5
5,282.5 5,544.5 5,107.2
Other non current assets
74.6 Investments 8 92.7 56.6
Derivative financial
- instruments 12 3.1 -
Tenant incentives and
188.1 other non current assets 10 184.1 191.8
5,545.2 5,824.4 5,355.6
Current assets
45.1 Trade and other receivables 9 43.3 35.3
2.3 Monetary deposits 12 2.3 2.3
749.7 Cash and cash equivalents 12 618.6 982.0
797.1 664.2 1,019.6
6,342.3 Total assets 6,488.6 6,375.2
Liabilities:
Current liabilities
Current portion of long
(114.3) term borrowings 12 (112.5) (103.0)
(48.0) Corporation tax 11 (54.5) (55.0)
(237.0) Trade and other payables 11 (217.9) (250.1)
(399.3) (384.9) (408.1)
Non current liabilities
(3,554.7) Borrowings 12 (3,569.8) (3,612.9)
Derivative financial
(525.3) instruments 12 (408.6) (540.9)
(65.9) Other non current liabilities 13 (67.0) (64.7)
(15.1) Deferred tax liabilities 6 (41.0) (10.8)
(7.6) Provisions 14 (6.7) (8.6)
(4,168.6) (4,093.1) (4,237.9)
(4,567.9) Total liabilities (4,478.0) (4,646.0)
1,774.4 Net assets 2,010.6 1,729.2
------------- ---------- ----------
Equity
74.0 Share capital 74.0 76.5
1,179.4 Other reserves 1,174.3 1,175.9
(120.4) Retained earnings 43.6 (156.9)
Total equity attributable
1,133.0 to members of the Company 1,291.9 1,095.5
641.4 Non controlling interests 718.7 633.7
1,774.4 Total equity 2,010.6 1,729.2
------------- ---------- ----------
UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS
ENDED 30 JUNE 2013
Unaudited Unaudited
Audited Six months Six months
Year ended ended ended
31 December 30 June 30 June
2012 2013 2012
GBPm Note GBPm GBPm
------------- ------------ ------------
Net cash flows from operating
242.4 activities 15 105.8 169.5
(232.3) Interest paid (120.6) (118.7)
7.1 Interest received 2.1 3.5
(29.1) Breakage costs - -
(7.2) Financial expenses - -
Net cash (outflow)/inflow
(19.1) from operating activities (12.7) 54.3
Cash flows from investing
activities
(75.1) Development expenditure (68.4) (31.0)
Purchase of property,
(0.2) plant and equipment - -
Acquisition of property
(20.9) interests (54.1) (20.9)
Investment in and net
(22.4) loans to associates (13.8) (7.0)
Net cash outflow from
(118.6) investing activities (136.3) (58.9)
Cash flows from financing
activities
Dividends paid to non
(35.2) controlling interests - (7.8)
Redemption of securitised
(57.5) debt (32.6) (28.8)
Repayment of secured
(8.9) loan (4.8) (4.4)
Drawdown of construction
- loan 59.9 -
Payment of Wood Wharf
(1.0) deferred consideration - (1.0)
(30.3) Share Buyback (0.1) -
32.6 Wood Wharf loan notes - 32.6
Repayment of Wood Wharf
(8.3) loan notes - -
(0.1) Acquisition of own shares (4.5) (0.1)
Net cash inflow/(outflow)
(108.7) from financing activities 17.9 (9.5)
Net decrease in cash
(246.4) and cash equivalents (131.1) (14.1)
Cash and cash equivalents
996.1 at period start 749.7 996.1
Cash and cash equivalents
749.7 at period end 12 618.6 982.0
------------- ------------ ------------
NOTES TO THE ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2013
1. BASIS OF PREPARATION
In the current financial period, the Group has adopted the amendments to IAS 1 (Presentation of items in other comprehensive income), IAS 19 (revised 2011) (Employee benefits) and IFRS 13 (Fair value measurement). Otherwise the same accounting policies, presentation and methods of computation have been followed in preparing this Announcement as applied in the 2012 Report and Financial Statements.
The amendments to IAS 1 require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those that will never be reclassified, together with their associated income tax. The amendments have been applied retrospectively, and hence the presentation of items of comprehensive income have been restated to reflect the change. The effect of these changes is evident from the condensed consolidated statement of comprehensive income.
IAS 19 (revised 2011) has not impacted on this Announcement.
The Group has assessed the impact of IFRS 13 on the measurement of fair value for certain assets and liabilities and concluded that the potential adjustments would not be material. IFRS 13 has, however, introduced additional disclosures which are included as appropriate in the Announcement.
The accounting policies applied in the preparation of this financial information are consistent with those that will be adopted in the statutory accounts for the year ending 31 December 2013. The full accounting policies of the Group, set out in the 2012 Report and Financial Statements, have been applied in preparing this Announcement.
The financial information for the 6 months ended 30 June 2013 has been reviewed but is unaudited and was approved by the Board on 12 September 2013. A copy of the statutory accounts for the year ended 31 December 2012 has been delivered to the Registrar of Companies. The auditor's report on these accounts was not qualified and did not contain a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.
The financial information contained in this Announcement does not constitute a complete set of financial statements (including all comparative figures and all required notes). The financial information does not therefore constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and does not purport to show a true and fair view of the Group's financial position and results of operations in accordance with IFRS for the 6 months ended 30 June 2013.
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
Earnings and losses per share were as follows:
Unaudited Unaudited
Audited Six months Six months
Year ended ended ended
31 December 30 June 30 June
2012 2013 2012
Earnings/ Per Earnings/ Per Earnings/ Per
(losses) share (losses) share (losses) share
GBPm p GBPm p GBPm p
---------- ------ ---------- ------- ---------- ------
23.3 3.1 Underlying earnings 10.2 1.4 17.3 2.3
Capital and other
178.2 23.8 items 253.6 34.8 84.9 11.3
(18.0) (2.4) Tax (24.5) (3.4) (19.9) (2.6)
183.5 24.5 Profit after tax 239.3 32.8 82.3 11.0
Less: Non controlling
(64.7) (8.6) interests (77.6) (10.6) (29.9) (4.0)
Profit after tax
attributable to
118.8 15.9 members of the Company 161.7 22.2 52.4 7.0
---------- ------ ---------- ------- ---------- ------
Underlying earnings and losses exclude movements on property revaluations, movements in the fair value of ineffective hedging instruments and other derivatives, interest payable on the Preference Shares and tax.
Earnings and losses per share has been calculated by reference to the profit attributable to equity shareholders of GBP161.7m in the 6 months ended 30 June 2013 (year ended 31 December 2012 - profit of GBP118.8m, 6 months ended 30 June 2012 - profit of GBP52.4m) and on the weighted average of 728.2m Ordinary Shares in issue for the 6 months ended 30 June 2013 (year ended 31 December 2012 - 749.2m, 6 months ended 30 June 2012 - 752.6m). The weighted average number of Ordinary Shares excludes the shares held by the Trust.
Adjusted NAV is calculated as follows:
Audited Unaudited Unaudited
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ---------- ----------
1,774.4 Balance sheet net assets 2,010.6 1,729.2
15.1 Adjustment for: deferred tax 41.0 10.8
525.3 Mark to market of derivatives 405.5 540.9
Add: surplus arising on construction
70.1 contracts 73.1 67.8
2,384.9 2,530.2 2,348.7
Non controlling interests
(641.4) in balance sheet (718.7) (633.7)
Non controlling interests
(187.0) on adjustments above (159.1) (189.7)
1,556.5 Adjusted net assets 1,652.4 1,525.3
------------- ---------- ----------
210p Adjusted NAV per share 223p 199p
Adjusted NAV per share includes the valuation surplus on construction contracts of GBP73.1m (31 December 2012 - GBP70.1m, 30 June 2012 - GBP67.8m). Adjusted NAV per share excludes deferred tax and fair value adjustments on derivatives.
There were 740.4m Ordinary Shares in issue at 30 June 2013 (31 December 2012 - 740.4m, 30 June 2012 - 764.9m).
In total, the Share Buyback resulted in the acquisition of 24,539,346 Ordinary Shares (31 December 2012 - 24.5m) at an aggregate cost of GBP30.4m (31 December 2012 - GBP30.3m). Of the Ordinary Shares purchased, 24,509,820 were acquired in the second half of 2012 and 29,526 in January 2013. Stated before the impact of the Share Buyback, adjusted net assets at 30 June 2013 would have been GBP1,682.8m (31 December 2012 - GBP1,586.8m) and the number of shares would have been 764.9m resulting in an adjusted NAV per share of 220p (31 December 2012 - 207p).
3. REVENUE
Unaudited Unaudited
Audited Six months Six months
Year ended ended ended
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ------------ ------------
263.8 Rent receivable 134.6 130.3
Recognised incentives
(4.4) and committed rent increases (3.4) (1.3)
259.4 131.2 129.0
79.4 Service charge income 39.1 40.1
16.9 Miscellaneous income 7.7 8.5
Receivable on termination
0.3 of leases 0.6 -
Construction contract
5.6 revenue 3.7 0.1
Gross development, rental
361.6 and related income 182.3 177.7
Service charge and other
(96.1) direct property expenses (49.4) (46.3)
- Refurbishment costs (6.0) -
Movements in accruals
and provisions for leasehold
(0.6) commitments (0.3) (0.4)
Payments on termination
(0.9) of leases (0.6) -
Construction contract
(5.6) expenditure (3.7) (0.1)
Net development, rental
258.4 and related income 122.3 130.9
------------- ------------ ------------
4. NET REVALUATION MOVEMENTS ON PROPERTY AND INVESTMENTS
Unaudited Unaudited
Audited Six months Six months
Year ended ended ended
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ------------ ------------
Revaluation of:
147.8 - investment properties 111.6 24.9
(15.1) - property under construction 12.8 (1.2)
83.0 - development properties 21.4 71.7
215.7 145.8 95.4
------------- ------------ ------------
5. NET FINANCING COSTS
Unaudited Unaudited
Audited Six months Six months
Year ended ended ended
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ------------ ------------
Interest revenue
Deposits, other loans
7.5 and securities 2.0 4.0
------------- ------------ ------------
Interest expense
(139.5) Notes and debentures (69.4) (70.1)
(67.7) Other bank loans and overdrafts (26.4) (34.4)
Obligations under long
(5.4) term property lease (2.8) (2.6)
- Construction loan interest (2.6) -
(212.6) (101.2) (107.1)
Interest transferred to
6.3 properties under construction 6.8 2.4
(206.3) (94.4) (104.7)
Underlying net financing
(198.8) costs (92.4) (100.7)
------------- ------------ ------------
Other financing income/(costs)
Valuation movements on
(7.3) fair value of derivatives 119.8 6.2
Finance costs of non equity
(27.6) shares (Note 12) (12.8) (14.6)
(6.2) Hedging reserve recycling (3.1) (3.2)
(41.1) 103.9 (11.6)
(239.9) Net financing costs 11.5 (112.3)
------------- ------------ ------------
7.5 Total financing income 2.0 4.0
(247.4) Total financing expense 9.5 (116.3)
(239.9) Net financing costs 11.5 (112.3)
------------- ------------ ------------
The amount transferred to properties under construction comprised GBP4.2m attributable to the cost of funds of the Group's general borrowings (year ended 31 December 2012 - GBP6.3m, 6 months ended 30 June 2012 - GBP2.4m) and GBP2.6m of financing costs recognised on the construction loan facility. Capitalised general interest has been calculated by reference to the costs incurred by the Group on developing the properties under construction and funded by the Group's general cash resources and the weighted average cost of debt in the period of 5.8% (year ended 31 December 2012 and 6 months ended 30 June 2012 - 6.2%).
6. TAX
Unaudited Unaudited
Audited Six months Six months
Year ended ended ended
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ------------ ------------
Tax (charge)/credit
Current tax charge to
7.5 income (2.6) 3.2
(25.5) Deferred tax (21.9) (23.1)
(18.0) Group total tax (24.5) (19.9)
------------- ------------ ------------
Tax reconciliation
Profit for the period
201.5 before tax 263.8 102.2
Tax on profit at UK corporation
(49.4) tax rate (61.3) (25.0)
Effects of:
(1.3) Change in tax rate 5.8 (0.7)
Adjustments in respect
7.7 of prior years (2.6) 7.5
Indexation allowances
and net effect of restriction
or reversal of previously
restricted capital losses
42.5 and indexation allowances 39.0 5.6
Expenses not deductible
(7.0) for tax purposes (3.2) (3.7)
Deferred tax assets not
(0.7) recognised on losses (0.3) (0.2)
(9.8) Other differences (1.9) (3.4)
(18.0) Group total tax (24.5) (19.9)
------------- ------------ ------------
The applicable corporation tax rate was 23.25% for the current period and 24.5% for each comparative period.
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 deferred tax liability
1 January 2013 (15.1)
Charge to income (21.9)
Charge to equity (4.0)
30 June 2013 (41.0)
-------
7. INVESTMENT, DEVELOPMENT AND CONSTRUCTION PROPERTIES AND PLANT AND EQUIPMENT
Non current assets and construction contracts at 30 June 2013 comprised:
Property
Investment under Development Construction Plant &
properties construction properties contracts Total equipment Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------------- ------------ ------------- -------- ----------- --------
Market value at
1 January 2013 4,862.5 137.5 415.0 - 5,415.0
Adjust for:
- tenant incentives* (178.7) - - - (178.7)
unamortised lease
- negotiation costs* (7.7) (1.7) - - (9.4)
obligations under
long term property
- lease (Note 13) - - 55.0 - 55.0
Carrying value at
1 January 2013 4,676.1 135.8 470.0 - 5,281.9 0.6 5,282.5
Additions 7.4 55.4 (1.0) 0.4 62.2 - 62.2
Capitalised interest - 6.8 - - 6.8 - 6.8
Transfer to cost of sales (6.0) - - (3.7) (9.7) - (9.7)
Transfer to payments on
account - - - 3.3 3.3 - 3.3
Acquisition of properties 49.0 - 4.6 - 53.6 - 53.6
Revaluation movement 111.6 12.8 21.4 - 145.8 - 145.8
Carrying value at
30 June 2013 4,838.1 210.8 495.0 - 5,543.9 0.6 5,544.5
------------ -------------- ------------ ------------- -------- ----------- --------
Adjust for:
- tenant incentives* 175.3 - - - 175.3
unamortised lease
- negotiation costs* 7.1 1.7 - - 8.8
obligations under
long term property
- lease (Note 13) - - (55.0) - (55.0)
Market value at
30 June 2013 5,020.5 212.5 440.0 - 5,673.0
------------ -------------- ------------ ------------- --------
*Refer to Note 10.
On 24 December 2008, the Group entered into agreements with the Secretary of State for Transport and CRL for the design and construction of the Canary Wharf Crossrail station. The station will be delivered to CRL for a fixed cost of GBP350.0m and the construction risk is borne by the Group. The anticipated cost to the Group was accounted for when incurred, as additions to development properties and allocated to certain development properties, including the Riverside South project, on a square foot basis. The Group's contribution will be applied against any Crossrail Section 106 and/or CIL contributions for certain agreed development sites on the Estate which may be required as part of the London Plan.
In August 2011, EMA agreed a prelet of 250,000 sq ft in a new office building of approximately 525,000 sq ft at 25 Churchill Place. EMA also has a call option over an additional 108,000 sq ft. Construction of the shell and core of the building commenced in February 2012 and is on schedule to complete in mid 2014.
The Group has entered into a GBP190.0m construction and development loan facility which is being utilised to fund the construction of 25 Churchill Place (Note 12 (5)). The first drawdown under this loan facility occurred in January 2013.
Construction has also continued on the retail mall located above the Canary Wharf Crossrail station which is scheduled to open on a phased basis between 2015 and 2018.
Prior to drawdown of the construction loan facility, Canary Wharf Group funded both properties under construction from its unrestricted cash. Interest has been capitalised as part of the cost of the projects from the date construction commenced by reference to Canary Wharf Group's weighted average cost of debt and the historical cost of the properties under construction.
Following the commencement of drawdowns under the construction facility, the finance costs recognised in connection with this loan have been capitalised, together with general interest to the extent projects continue to be funded from the Group's unrestricted cash.
The carrying amount of the properties under construction includes an aggregate total of GBP13.1m of capitalised interest (31 December 2012 - GBP6.3m), of which GBP2.6m was construction loan interest (31 December 2012 - GBPnil) and GBP10.5m was general interest (31 December - GBP6.3m). There is no capitalised interest in the carrying amount of the development properties at either 30 June 2013 or 31 December 2012.
In March 2013, Canary Wharf Group acquired the long leasehold interests in 7 Westferry Circus, Canary Wharf for GBP46.6m, plus SDLT and fees of GBP2.4m.
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. Canary Wharf Group will act 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 will be recognised over the term of the contract in accordance with IFRIC 15. 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.
Valuation
The fair value of Canary Wharf Group's properties has been arrived at on the basis of valuations carried out by the external valuers, CBRE, Savills or Cushman at 30 June 2013. The valuations, which conform to International Valuation Standards, were arrived at by reference to market evidence of transaction prices for similar properties.
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 other than in respect of purchaser's costs and, in particular, full liability for UK stamp duty as applicable at the valuation date.
8. INVESTMENTS
The investments balance comprises:
30 June 31 December
2013 2012
GBPm GBPm
-------- ------------
Shares 0.7 0.7
Loans 76.7 62.5
77.4 63.2
Fees on acquisition 0.7 0.7
Share of post acquisition losses (0.1) (0.1)
Revaluation movements 15.1 11.2
Impairment of investment (0.4) (0.4)
92.7 74.6
-------- ------------
Investments comprise:
Associates and joint ventures 92.5 74.4
Other investments 0.2 0.2
92.7 74.6
----- -----
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.
The carrying value of the investment in associates and joint ventures comprised:
Shell
At 30 June 2013 20 FSLP Centre Total
GBPm GBPm GBPm
-------- -------- ------
Initial investment 0.1 - 0.1
Fees on acquisition - 0.7 0.7
Loan funding 45.2 31.5 76.7
Recognised share of losses (0.1) - (0.1)
Revaluation surplus 15.1 - 15.1
60.3 32.2 92.5
-------- -------- ------
Associates and Joint Ventures
In July 2011, Canary Wharf Group entered into a 50:50 joint venture with Qatari Diar to redevelop the Shell Centre. The investors are each committed to contributing GBP150.0m to secure the 5.25 acre site on a 999 year lease. The aggregate GBP300.0m payment for the site is conditional on planning permission being received for the project within 3 years. In May 2013, a resolution to grant planning permission was achieved subject to finalising a Section 106 agreement and stage 2 referral to the GLA and Secretary of State. On 17 July 2013, the GLA issued its stage 2 report endorsing Lambeth Borough Council's right to determine the application and supportive of the development plans. Subsequently, on 4 September 2013, the Secretary of State called in the planning application which is likely to delay completion of the planning process and drawdown of the lease from Shell until sometime in 2014. Canary Wharf Group's investment to 30 June 2013 totalled GBP32.2m (31 December 2012 - GBP26.0m) including GBP15.0m paid upon entering into the agreement with Shell and fees of GBP0.7m (31 December 2012 - GBP0.7m). At 30 June 2013, the joint venture entities had aggregated assets of GBP63.8m and liabilities of GBP0.9m (31 December 2012 - assets of GBP52.1m and liabilities of GBP1.5m).
In October 2010, Canary Wharf Group announced that it had entered into a joint venture with Land Securities to develop 20 Fenchurch Street. After syndication, Canary Wharf Group has retained a 15.0% equity interest in the joint venture and is acting as sole construction manager and joint development manager. The Group's investment was stated at GBP60.3m at 30 June 2013 (31 December 2012 - GBP48.4m) representing the initial investment plus associated fees, together with subsequent funding and the Group's share of revaluation surpluses less Canary Wharf Group's share of operating losses. At 31 March 2013, an external valuation resulted in a cumulative revaluation surplus of GBP100.7m on the project of which GBP15.1m is attributable to Canary Wharf Group. Including the revaluation of property, at 30 June 2013 the 20 Fenchurch Street entities had assets of GBP413.8m and liabilities of GBP12.4m (31 December 2012 - assets of GBP325.3m and liabilities of GBP2.8m).
The Shell Centre entities have a 31 December financial year end and the 20 FSLP entities have a 31 March financial year end. The results of 20 FSLP and the Shell Centre entities attributable to the Group have been derived from their latest available management accounts after making any necessary adjustments. The Group's share of the profits and losses of its joint ventures and associates is as follows:
Summarised profit and loss accounts for the six months ended 30 June 2013 Shell Centre 20 FSLP
GBPm GBPm
-------------- --------
Net operating loss - -
Revaluation gain - 26.2
Profit before and after tax - 26.2
Group share - 3.9
-------------- --------
Summarised balance sheets at 30
June 2013 Shell Centre 20 FSLP
GBPm GBPm
------------- --------
Total assets 63.8 413.8
Total liabilities (0.8) (12.4)
Net assets 63.0 401.4
Group share 31.5 60.3
------------- --------
9. TRADE AND OTHER RECEIVABLES
Audited Unaudited Unaudited
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ---------- ----------
10.6 Trade receivables 9.2 6.8
6.4 Other receivables 15.6 6.2
Prepayments and accrued
20.9 income 18.5 16.7
7.2 Deferred financing expenses - 5.6
45.1 43.3 35.3
------------- ---------- ----------
At 31 December 2012, financing expenses totalling GBP7.2m had been incurred on Canary Wharf Group's construction loan facility and were included in deferred financing expenses within Trade and other receivables. The first drawdown under this facility occurred in January 2013 and these expenses were transferred to Borrowings within Non current liabilities and have been offset against the outstanding loan balance.
10. TENANT INCENTIVES AND OTHER NON CURRENT RECEIVABLES
Non current receivables comprise:
Other Total Deferred
Rent free tenant tenant negotiation
periods incentives incentives costs Total
GBPm GBPm GBPm GBPm GBPm
---------- ------------ ------------ ------------- ------
1 January 2013 86.7 92.0 178.7 9.4 188.1
Recognition of rent during rent free periods 2.9 - 2.9 - 2.9
Amortisation (3.7) (2.6) (6.3) (0.5) (6.8)
Deferred lease negotiation costs - - - (0.1) (0.1)
30 June 2013 85.9 89.4 175.3 8.8 184.1
---------- ------------ ------------ ------------- ------
11. TRADE AND OTHER PAYABLES
Audited Unaudited Unaudited
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ---------- ----------
7.8 Trade payables 11.2 11.8
Tax and social security
7.9 costs 1.3 2.0
10.8 Other payables 21.8 22.1
84.7 Other accruals 62.4 69.8
67.0 Deferred income 60.7 86.9
58.8 Payments on account 60.5 57.5
237.0 Total trade and other payables 217.9 250.1
------------- ---------- ----------
48.0 Corporation tax 54.5 55.0
------------- ---------- ----------
12. NET DEBT
Audited Unaudited Unaudited
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ---------- ----------
2,625.2 Securitised debt 2,527.6 2,648.6
67.0 Wood Wharf loan notes 67.6 76.0
1,229.2 Other secured loans 1,229.1 1,261.0
3,921.4 3,824.3 3,985.6
Non equity shares and associated
272.9 financing costs 263.5 271.2
4,194.3 Gross debt 4,087.8 4,256.8
114.3 Current liabilities 112.5 103.0
Non current liabilities:
3,554.7 - borrowings 3,569.8 3,612.9
- derivatives including
525.3 assets 405.5 540.9
4,194.3 Gross debt 4,087.8 4,256.8
(749.7) Cash and cash equivalents (618.6) (982.0)
(2.3) Monetary deposits (2.3) (2.3)
3,442.3 Net debt 3,466.9 3,272.5
------------- ---------- ----------
Current liabilities comprises:
24.6 Accrued interest payable 24.9 28.0
Borrowings repayable within
75.5 one year 79.1 66.8
Financing costs of non
6.0 equity shares 0.3 -
8.2 Wood Wharf loan notes 8.2 8.2
114.3 112.5 103.0
------------- ---------- ----------
Audited Unaudited Unaudited
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ---------- ----------
Cash and cash equivalents
comprise:
618.7 Unsecured cash 497.5 825.6
118.5 Collateral for borrowings 109.4 141.3
12.5 Security for obligations 11.7 15.1
749.7 618.6 982.0
------------- ---------- ----------
Cash and cash equivalents comprise cash and short term deposits with an original maturity of 3 months or less.
Unsecured cash comprises GBP12.8m held by the Company and its wholly owned subsidiaries (31 December 2012 - GBP31.8m) and GBP484.7m held by Canary Wharf Group (31 December 2012 - GBP586.9m).
Monetary deposits comprise amounts held on deposit with original maturities in excess of 3 months or which are not held for the purpose of meeting short term cash commitments. These deposits relate to Canary Wharf Group's construction contracts.
On 30 August 2012, amendments were made to the terms of the Preference Shares. With effect from that date the coupon payable on the Preference Shares reduced from a fixed rate of 10.0% payable quarterly to 3 month LIBOR plus 7.75% p.a. payable quarterly. Also on 30 August 2012, the Company entered into an interest swap which serves to fix the 3 month LIBOR element of the coupon to 1.01% until August 2017 and, including the margin of 7.75% p.a., fixes the coupon on the Preference Shares at 8.76% p.a..
The Preference Shares may be redeemed at the Company's option after 15 February 2015 and will otherwise become redeemable on 30 August 2017. The Company may delay redemption by a further 1 or 2 years from the redemption date in consideration for an annual payment equivalent to 0.5% of the nominal amount in issue. As a result of the terms and conditions of the Preference Shares, such shares are classified as borrowings and the Condensed Consolidated Income Statement includes a charge to profit in respect of the coupon payable.
The amounts at which borrowings are stated, including share capital reclassified as debt, comprise:
Wood Wharf Other Non
Securitised loan secured Construction Total equity
debt notes loans loan borrowings shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ----------- --------- ------------- ------------ -------- --------
1 January 2013 2,625.2 67.0 1,229.2 - 3,921.4 272.9 4,194.3
Drawndown - - - 59.9 59.9 - 59.9
Effective interest
rate adjustment (1.6) - 0.5 (6.7) (7.8) 0.8 (7.0)
Accrued finance
charges 2.7 0.6 (0.1) 0.3 3.5 12.0 15.5
Repaid in period (32.6) - (4.8) - (37.4) (17.7) (55.1)
Movements in fair
value of derivatives (66.1) - (48.8) (0.4) (115.3) (4.5) (119.8)
30 June 2013 2,527.6 67.6 1,176.0 53.1 3,824.3 263.5 4,087.8
------------ ----------- --------- ------------- ------------ -------- --------
Payable within
one year or on
demand 85.6 8.8 17.4 0.4 112.2 0.3 112.5
Payable in more
than one year 2,221.8 58.8 970.7 53.1 3,304.4 265.4 3,569.8
Derivatives classified
as:
- non current
assets - - (0.5) (0.4) (0.9) (2.2) (3.1)
- non current
liabilities 220.2 - 188.4 - 408.6 - 408.6
2,527.6 67.6 1,176.0 53.1 3,824.3 263.5 4,087.8
------------ ----------- --------- ------------- ------------ -------- --------
All the borrowings of Canary Wharf Group are secured against designated property interests of Canary Wharf Group.
(1) At 30 June 2013, the following notes issued by CWF II, a subsidiary of Canary Wharf Group, were outstanding:
Principal
Class GBPm Interest Repayment
------- ---------- --------- -------------------
By instalment from
A1 1,012.5 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 179.7 6.800% 2005 to 2030
B3 104.0 Floating In 2035
C2 275.0 Floating In 2035
D2 125.0 Floating In 2035
2,318.2
----------
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 the 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% 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 margin 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 30 June 2013, carrying the interest rates stated: GBP1,012.5m of A1 Notes - 6.455%; GBP400.0m of A3 Notes - 5.952% and GBP179.7m of B Notes - 6.800%.
The principal amount of the Notes in issue at 30 June 2013 was GBP2,318.2m or GBP2,198.5m excluding the Notes repurchased. The Notes are secured on certain property interests of Canary Wharf Group and the rental income stream therefrom.
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 GBP244.2m 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 commitment fee for the provision of this facility increased from 0.487% p.a. to 0.888% p.a. from July 2013.
(2) 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 loan is repayable in June 2016.
(3) Canary Wharf Group has a GBP350.0m loan facility secured against Canary Wharf Group's principal retail properties and car parking interests.
The loan facility carries interest at 3 month LIBOR plus a margin of 2.75%. An interest rate swap has been put in place at a rate of 0.5425% which, together with the margin of 2.75%, fixes the effective interest rate under the loan at 3.2925%. The loan is repayable in December 2014.
(4) 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 the first half of 2013, GBP4.8m of loan principal was repaid in accordance with the loan agreement reducing the principal at 30 June 2013 to GBP549.9m.
(5) 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. The first drawdown was made in January 2013 and at 30 June 2013 GBP59.9m had been drawndown under the facility. 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.
A forward starting interest rate swap was entered into in October 2012 at a rate of 1.017%, which fixes the interest rate payable under the loan. The fixed rate payable during the construction phase, including the 300 bps margin, is 4.017%. The termination date under the swap is in December 2016. Upfront fees of GBP4.2m were incurred on entering into the facility and a commitment fee of 150 bps p.a. is payable on the undrawn facility. At 31 December 2012, total fees of GBP7.2m had been incurred which were included within debtors due within one year. The fees have been transferred from debtors following the first drawdown and are being amortised over the life of the loan.
(6) In January 2012, Canary Wharf Group acquired CRT's 50.0% interest in Wood Wharf. The consideration for the acquisition was GBP52.4m which comprised an upfront payment of GBP4.4m and loan notes with a repayment profile as follows: 30 September 2012 - GBP8.25m (redeemed); 30 September 2013 - GBP8.25m; 30 September 2014 - GBP15.5m and 30 September 2015 - GBP16.0m. Interest is payable on the loan notes at a rate of 6.3%.
(7) Prior to the acquisition of Wood Wharf, the joint venture entities entered into a non recourse loan facility of GBP5.2m. The loan carries an interest rate of LIBOR plus a margin of 2.5% and the final maturity is in December 2013. The balance owing on the loan at 30 June 2013 was GBP4.6m.
The joint venture entities had also issued discounted loan notes with an outstanding value at 30 June 2013 of GBP27.7m to fund the acquisition of certain parts of Wood Wharf. Interest on the discounted loan notes is payable at 3 month LIBOR plus 1.0% p.a. and at 30 June 2013 the notes in issue were as follows:
Nominal Interest trigger
In issue Discount value date
GBP GBP GBP
----------- --------- ----------- -----------------
6 February
'A' loan notes 8,659,498 - 8,659,498 2006
6 February
'B' loan notes 7,640,000 - 7,640,000 2009
6 February
'C' loan notes 6,890,000 - 6,890,000 2013
6 February
'D' loan notes 4,041,868 489,382 4,531,250 2016
27,231,366 489,382 27,720,748
=========== ========= ===========
The loan notes are fully cash collateralised and are due for repayment in February 2021. If the holder of the loan notes serves a redemption notice before the repayment date then the loan note repayment date is 12 months from the date of the notice so long as that date does not fall due before the interest trigger date. GBP360,000 of the 'C' loan notes were repaid in the period.
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 principal facilities are as follows:
(i) CWF II securitisation, encompassing 7 investment properties representing 65.3% of the investment property portfolio by value. The principal amount outstanding at 30 June 2013 was GBP2,318.2m or GBP2,198.5m excluding the repurchased Notes.
Maximum LMCTV ratio of 100.0%. Based on the valuations at 30 June 2013, the LMCTV ratio at the interest payment date in July 2013 would have been 68.5%.
Canary Wharf Group has the ability to remedy a breach of covenant by depositing eligible investments (including cash). The securitisation has no minimum ICR covenant. The final maturity date of the securitisation is 2035, subject to earlier amortisation on certain classes of Notes.
(ii) Loan of GBP555.2m secured against One Churchill Place, representing 15.7% of the investment property portfolio by value.
This facility is not subject to any LTV or ICR covenants and has a maturity of 2034, subject to amortisation over the term.
(iii) Loan of GBP350.0m secured against the principal retail and infrastructure parking properties of Canary Wharf Group, representing 16.1% of the investment property portfolio by value.
Maximum LTV ratio of 70.0%. Based on the valuations at 30 June 2013 the LTV was 44.0%.
The ICR covenant is 120.0% and the covenant was satisfied throughout the period. Canary Wharf Group has the ability to remedy any potential breach of covenant by depositing cash. The loan is repayable in December 2014.
(iv) Loan of GBP92.3m secured against 50 Bank Street representing 2.9% of the investment property by value.
Maximum LTV ratio of 75.0%, for the first 3 years of loan, reducing to 72.5% thereafter. Based on the valuations at 30 June 2013 the LTV was 63.7%.
The minimum ICR covenant is 150.0%. The covenant was satisfied throughout the period. The facility repayment date is 7 June 2016.
(v) Construction loan facility of GBP190.0m secured against 25 Churchill Place.
Maximum LTV ratio of 65.0%, based on the projected valuation at completion, and maximum loan to cost ratio of 65.0%. These covenants were satisfied throughout the period.
Hedge accounting
The Group uses interest rate swaps 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 30 June 2013 the fair value of these derivatives resulted in the recognition of a net liability of GBP405.5m (31 December 2012 - GBP525.3m). None of the Group's interest rate swaps qualify for hedge accounting at either 30 June 2013 or 31 December 2012.
Comparison of market values and carrying amounts
30 June 2013 31 December 2012
Market Carrying Market Carrying
value amount Difference value amount Difference
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------- ----------- ---------- ---------- -----------
Securitisations (2,415.9) (2,307.4) (108.5) (2,521.2) (2,338.9) (182.3)
Wood Wharf loans (67.6) (67.6) - (67.0) (67.0) -
Secured loans (989.6) (988.1) (1.5) (994.4) (992.5) (1.9)
Construction loan (53.5) (53.5) - - - -
Non equity shares (265.7) (265.7) - (270.6) (270.6) -
(3,792.3) (3,682.3) (110.0) (3,853.2) (3,669.0) (184.2)
Other financial
liabilities:
- interest rate
derivative assets 3.1 3.1 - - - -
- interest rate
derivative liabilities (408.6) (408.6) - (525.3) (525.3) -
Cash and monetary
deposits 620.9 620.9 - 752.0 752.0 -
(3,576.9) (3,466.9) (110.0) (3,626.5) (3,442.3) (184.2)
---------- ---------- ----------- ---------- ---------- -----------
13. OTHER NON CURRENT LIABILITIES
Wood Wharf Wood Wharf
ground
deferred rent
consideration obligation Total
GBPm GBPm GBPm
-------------- ----------- ------
1 January 2013 8.5 57.4 65.9
Accrued finance charges - 2.9 2.9
Repaid in period - (1.8) (1.8)
30 June 2013 8.5 58.5 67.0
-------------- ----------- ------
Prior to Canary Wharf Group's acquisition of Wood Wharf, the joint venture entities entered into a put and call option agreement with UBS UK Properties Limited to acquire 2 Harbour Quay, Wood Wharf. The consideration ranges from GBP10.25m to GBP10.75m depending on the exercise date of the option, which is anytime between 25 December 2014 and 25 December 2017. During that time the joint venture entities have the right to acquire the building and UBS have the right, on giving notice, to require the purchase of the building on 25 December 2016 or 25 December 2017.
As part of the agreement, initial payments of GBP2.5m have been made and a further GBP1.0m was paid on 1 July 2013. Further annual payments of GBP1.0m are required in order to retain the option to purchase. If the option is exercised by either party, the initial payments and the subsequent annual payments will be deducted from the consideration. At 30 June 2013, the deferred consideration payable to UBS was carried at GBP8.5m including related fees.
In January 2012, Canary Wharf Group acquired the remaining 50.0% effective interest in Wood Wharf from CRT for a total consideration of GBP52.4m. In conjunction with the acquisition, CRT granted a new 250 year lease of the site subject to a ground rental payment to CRT 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 net present value of the minimum contracted ground rents payable under the terms of the 250 year lease, discounted at the rate inherent in the lease, was estimated at GBP55.0m at the date of inception of the lease.
14. PROVISIONS
Provisions have been made in respect of the lease commitments:
Total
GBPm
------
1 January 2013 7.6
Utilisation of provision (1.5)
Changes in assumptions 0.3
Discount unwind 0.3
30 June 2013 6.7
------
In connection with the sale of 5 Churchill Place in January 2010, Canary Wharf Group agreed to pay rents and other costs incurred on 2 unlet floors for a period of 5 years from the date of sale. At 30 June 2013, this provision had reduced to GBP4.7m discounted at 5.8% (31 December 2012 - GBP5.5m discounted at 6.2%) with the movement reflecting a combination of utilisation, changes in potential future letting assumptions and the discount unwind.
In connection with the sale of certain properties during 2005, Canary Wharf Group agreed to provide rental support and a provision in respect of these commitments was recognised at the date of disposal. The remaining provision at 30 June 2013 was GBP2.0m calculated on the basis of a discount rate of 5.8% (31 December 2012 - GBP2.0m discounted at 6.2%).
15. NOTES TO THE CASH FLOW STATEMENT
Reconciliation of profit on ordinary activities before tax to cash generated from operations.
Unaudited Unaudited
Audited Six months Six months
Year ended ended ended
31 December 30 June 30 June
2012 2013 2012
GBPm GBPm GBPm
------------- ------------ ------------
201.5 Profit before tax 263.8 102.2
Non cash movements
(215.7) Net revaluation movements (145.8) (95.4)
- Refurbishment costs 6.0 -
Share of profit after
tax of associates and
(3.6) joint ventures (3.9) (1.1)
Spreading of tenant incentives,
committed rent increases
1.0 and letting fees 4.0 0.7
4.4 Share allocation adjustment 2.4 0.8
0.1 Depreciation - -
(213.8) (137.3) (95.0)
(12.3) 126.5 7.2
Changes to working capital
and other cash movements
239.9 Net financing costs (11.5) 112.3
Utilisation and other
(2.4) movements in provisions (1.1) (1.1)
(30.4) Increase in receivables (16.0) (4.4)
45.7 Increase in payables 4.8 49.4
Proceeds from construction
4.9 contracts 2.1 1.1
Construction contract
(5.6) expenditure (2.9) (0.3)
239.8 Cash generated by operations 101.9 164.2
2.6 Income tax repayment 3.9 5.3
Net cash from operating
242.4 activities 105.8 169.5
------------- ------------ ------------
16. CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
Commitments of Canary Wharf Group for future expenditure are:
30 June 31 December
2013 2012
GBPm GBPm
-------- ------------
Construction projects 168.6 244.7
Joint ventures 34.1 45.6
202.7 290.3
-------- ------------
The commitments for future expenditure relate to work on development projects where construction was committed at 30 June 2013 and are stated gross of any external funding arrangements. Any costs accrued or provided for in the Condensed Consolidated Balance Sheet at 30 June 2013 have been excluded.
Canary Wharf Group has assessed that its funding commitments in relation to Crossrail have been satisfied. However, there remains a contingent liability in the event that the total cost of the station exceeds the original total anticipated cost of GBP500.0m.
17. SHARE BASED PAYMENTS
The Trust holds Ordinary Shares which may be used to satisfy 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.
In December 2010 Canary Wharf Group allocated 2,165,000 shares to certain directors and senior employees who may elect to have the shares released to them at any time between 30 June 2011 and 31 December 2013, subject to any dealing restrictions. When the recipient elects to redeem their respective share allocations by selling all or part of the allocation on the open market, Canary Wharf Group may elect instead to pay the equivalent amount in cash which results in those share allocations being released back into the Trust to be available for any future allocations.
A further 1,350,000 shares were allocated in 2012. Of these shares, 450,000 became available to be released to the recipients of the allocation on 30 June 2012 and 450,000 shares were released on 30 June 2013. The remaining 450,000 shares may be released on 30 June 2014.
A further 3,125,000 shares were allocated in 2013. Of these shares, 1,041,667 became available to be released to the beneficiaries of the allocation on 30 June 2013 and a further 1,041,667 shares become available to be released on 30 June 2014. The remaining 1,041,666 shares may be released on 30 June 2015.
No shares were released to employees during the 6 months ended 30 June 2013.
The cost to the Group of the latest share allocation has been calculated by reference to the market value of Songbird Shares at the grant date of GBP1.40 per share. The cost of the allocation attributable to the 6 months ended 30 June 2013, totalling GBP2.4m, has been charged to the same expense category as the employment costs of the relevant employee and taken to the Consolidated Income Statement and classified within administrative expenses.
During the 6 month period to 30 June 2013, the Group acquired an additional 3,107,911 Songbird shares at an aggregate cost of GBP4.5m including fees.
At 30 June 2013 the Trust held 15,283,427 Songbird Shares including 4,475,000 Songbird Shares which have been allocated to employees but not yet released.
18. EVENTS AFTER THE BALANCE SHEET DATE
On 22 July 2013, Canary Wharf Group announced it had acquired a 999 year leasehold interest in 15 Westferry Circus, a 171,000 sq ft building on the Estate. As consideration for the building, Canary Wharf Group paid approximately GBP128.0m, funded by a GBP128.0m loan with Metlife, and has taken a novation of an existing senior swap which had an estimated out of the money position of GBP11.4m. The equity provided for the transaction was limited to purchase costs (including SDLT) of approximately GBP6.0m.
Defined term Definition
20 Fenchurch Street A 690,000 sq ft building under construction in the City of London
20 FSLP 20 Fenchurch Street Limited Partnership
AIG American International Group, Inc
AIM Alternative Investment Market of the London Stock Exchange
Ballymore Ballymore Properties Limited
Board Board of directors of the Company
bps Basis points
Canary Wharf See Estate below
Canary Wharf Group Canary Wharf Group plc and its subsidiaries
CBRE CB Richard Ellis Limited, Surveyors and Valuers
Company Songbird Estates plc
CRL Crossrail Limited
CRT Canal and River Trust (formerly British Waterways Board)
Cushman Cushman & Wakefield, Real Estate Consultants
CWF II Canary Wharf Finance II plc
EMA European Medicines Agency
Estate Canary Wharf Estate including Heron Quays West, Newfoundland, Park Place, Riverside South
and North Quay
EU European Union
Fintech Financial technology
GLA Greater London Authority
Group The Company, its wholly owned subsidiaries and Canary Wharf Group
IAS International Accounting Standards
IAS 1 International Accounting Standard 1, Presentation of Items in Other Comprehensive Income
IAS 19 International Accounting Standard 19 (revised 2011), Employee Benefits
ICR Interest Cover Ratio
IFRIC 15 International Financial Reporting Interpretations Committee 15, Agreements for the Construction
of Real Estate
IFRS International Financial Reporting Standards
IFRS 7 International Financial Reporting Standard 7, Financial Instruments Disclosures
IFRS 13 International Financial Reporting Standard 13, Fair Value Measurement
J.P. Morgan J.P. Morgan Chase & Co
Land Securities Land Securities Group plc
LIBOR London Interbank Offered Rate
LMCTV Loan Minus Cash to Value
London Plan Mayor of London Planning document published by the Greater London Authority
Look Through LTV Loan to Value ratio of the Group including the Preference Shares
LTV Loan to Value
m Million
NAV Net Asset Value
NIA Net Internal Area
NNNAV Triple Net Asset Value
Notes Notes of Canary Wharf Group's securitisation
Ordinary Shares Ordinary Shares of 10p each
Preference Shares Preference shares of GBP1.00 each
psf per sq ft
Qatari Diar Qatari Diar Real Estate Investment Company
Savills Savills Commercial Limited, Chartered Surveyors
SDLT Stamp Duty Land Tax
Secretary of State Secretary of State for Communities and Local Government
Section 106 Section 106 of the Town and Country Planning Act 1990
SFL Songbird Finance Limited
Share Buyback Acquisition of 24,539,346 Ordinary Shares in late 2012 and early 2013
Shell Shell International Limited
Shell Centre Shell's headquarters on the South Bank, London
Songbird The Company and its wholly owned subsidiaries
sq ft Square feet/square foot
Treasury Shares Ordinary 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
Wood Wharf 7.0m sq ft (gross) mixed use site adjacent to the Estate
This information is provided by RNS
The company news service from the London Stock Exchange
END
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