TIDM31PE
RNS Number : 9590J
Canary Wharf Finance II PLC
29 April 2022
CANARY WHARF FINANCE II PLC
29 APRIL 2022
PUBLICATION OF THE ANNUAL FINANCIAL REPORT FOR THE YEARED 31
DECEMBER 2021
Pursuant to sections 4.1 and 6.3.5 of the Disclosure and
Transparency Rules, the board of Canary Wharf Finance II plc is
pleased to announce the publication of its annual financial report
for the year ended 31 December 2021, which has been approved by the
board and signed on the date of this announcement and will shortly
be available from www.canarywharf.com/Investor Relations.
The information contained within this announcement does not
comprise statutory accounts within the meaning of the Companies Act
2006 and is provided in accordance with section 6.3.5(2)(b) of the
Disclosure and Transparency Rules.
In compliance with the Listing Rule 9.6.1, a copy of the 31
December 2021 annual financial report will be submitted to the UK
Listing Authority via the National Storage Mechanism and will
shortly be available to the public for inspection at
https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism.
Dated: 29 April 2022
Contact for queries:
J J Turner
Company Secretary
Canary Wharf Finance II plc
Telephone: 020 7418 2000
STRATEGIC REPORT
for the year ended 31 December 2021
The directors, in preparing this Strategic Report, have complied
with section 414C of the Companies Act 2006.
This Strategic Report has been prepared for the company and not
for the group of which it is a member and therefore focuses only on
matters which are significant to the company.
BUSINESS MODEL
The company is a wholly owned subsidiary of Canary Wharf Group
plc and its ultimate parent undertaking is Stork HoldCo LP.
The company is a finance vehicle that issues securities which
are backed by commercial mortgages over properties within the
Canary Wharf Estate. The company is engaged in the provision of
finance to the Canary Wharf Group, comprising Canary Wharf Group
plc and its subsidiaries ('the group'). All activities take place
within the United Kingdom.
BUSINESS REVIEW
Since early 2020, the UK economy has been significantly impacted
by the COVID-19 virus which has caused widespread disruption and
economic uncertainty. The return to lockdown in January 2021 and
the extension to the end of lockdown restrictions in July 2021
continued this uncertainty but the positive news around rollout of
vaccines and the recent removal of restrictions have improved the
outlook. The crisis had no material impact on the assets,
liabilities or performance of the company during the year.
At 31 December 2021, the company had GBP1,384,862,120 (2020 -
GBP1,414,187,321) of notes listed on the London Stock Exchange and
had lent the proceeds to a fellow subsidiary undertaking, CW
Lending II Limited ('the Borrower'), under a loan agreement ('the
Intercompany Loan Agreement'). The notes are secured on a pool of
properties at Canary Wharf, owned by fellow subsidiary
undertakings, and the rental income therefrom.
The securitisation has the benefit of an agreement with AIG
which covers the rent in the event of a default by the tenant of 33
Canada Square over the entire term of its lease. At 31 December
2021, AIG had posted GBP95,279,028 (2020 - GBP118,730,673) as cash
collateral in respect of this obligation.
The company also has the benefit of a GBP300.0m liquidity
facility provided by Lloyds Bank plc, under which drawings may be
made in the event of a cash flow shortage under the securitisation.
The liquidity facility matures on 22 October 2037.
The ratings of the notes are as follows:
Class Moody's Fitch S&P
A1 Aaa AAA A+
A3 Aaa AAA A+
A7 Aaa AAA A+
B Aa3 AA A+
B3 Aa3 AA A+
C2 A3 A A
D2 Baa3 BBB A--
KEY PERFORMANCE INDICATORS
The company has adopted the IFRS 9 measurement option and hence
the floating rate securitised notes are measured at fair value.
Changes in the fair value of derivative financial instruments are
recognised in the income statement.
2021 2020
GBP GBP
-------------- --------------
Securitised debt 1,384,862,120 1,414,187,321
Financing cost (before adjustment for fair value) 83,006,297 84,909,622
Total comprehensive income 65,225 71,060
Weighted average maturity of debt 10.8 years 11.6 years
Weighted average interest rate 6.1% 6.1%
STRATEGY & OBJECTIVES
Exposure Management
The mark to market positions of all the company's derivatives
are reported to the Group Treasurer on a monthly basis and to the
directors on a quarterly basis. The Group Treasurer monitors
hedging activity on an ongoing basis, in order to notify the
directors of any over hedging that may potentially occur and
proposals to deal with such events.
Hedging Instruments and Transaction Authorisation
Instruments that may be used for hedging interest rate exposure
include:
-- Interest rate swaps
-- Interest rate caps, collars
and floors
-- Gilt locks
No hedging activity is undertaken without explicit authority of
the board.
Transaction Accounting
All derivatives are required to be measured on balance sheet at
fair value (mark to market).
Credit Risk
The Group's policies restrict the counterparties with which
derivative transactions can be contracted and cash balances
deposited. This ensures that exposure is spread across a number of
approved financial institutions with high credit ratings.
All other debtors are receivable from other group
undertakings.
PRINCIPAL RISKS AND UNCERTAINTIES
The risks and uncertainties facing the business are monitored
through continuous assessment, regular formal reviews and
discussion at the Canary Wharf Group Investment Holdings plc audit
committee and board. Such discussion focuses on the risks
identified as part of the system of internal control which
highlights key risks faced by the Group and allocates specific day
to day monitoring and control responsibilities as appropriate. As a
member of Canary Wharf Group, the current key risks of the company
include ongoing impact of COVID-19, the cyclical nature of the
property market, departure from the EU, concentration risk,
financing risk, interest rate risk and policy and planning
risks.
The COVID--19 pandemic has had a significant impact on the UK
economy. Despite this, the Group has demonstrated the resilience of
its office rental income and during the year ended 31 December
2021, the Group collected over 99.0% of the office rents
billed.
Cyclical nature of the property market
The valuation of the Company and Group's assets are subject to
many other external economic and market factors. In recent years,
the London real estate market has had to cope with fluctuations in
demand caused by key events such as the 2008/2009 financial crisis,
uncertainty in the Eurozone and the implications of the UK's
withdrawal from the EU. The full impact of the Russian invasion of
Ukraine and sanctions imposed on Russia as a consequence and of the
coronavirus is not yet possible to predict. Any long term
continuation of the pandemic will however inevitably affect short
and medium term economic performance and confidence, with adverse
implications for the property market. The real estate market has to
date, however, been assisted by the depreciation of sterling since
the EU referendum and the continuing presence of overseas investors
attracted by the relative transparency of the real estate market in
London which is still viewed as both relatively stable and secure.
Previous Government announcements, in particular the changes to
stamp duty underpinned continuing demand in the residential market
and the value of the Group's development sites. Property valuations
for office properties let on long leases to tenants with good
covenants have remained relatively strong despite continuing
economic uncertainties which are unhelpful to confidence across the
wider real estate sector.
Concentration risk
The majority of the Group's real estate assets are currently
located on or adjacent to the Estate. Although a majority of
tenants have traditionally been linked to the financial services
industry, this proportion has now fallen to around only 50.0% of
tenants. Wherever possible steps are still taken to mitigate or
avoid material consequences arising from this concentration.
Although the focus of the Group has been on and around the
Estate where value can be added, the Group will also consider
opportunities elsewhere. The Group is involved as construction
manager and joint development manager in the joint venture with
Qatari Diar to redevelop the Shell Centre in London's South Bank.
The Group has also reviewed current consents for development to
react to changes in the market. This review has led to an increased
focus on the residential build to rent sector as reflected in the
composition of the master plan for the mixed use development at
Wood Wharf.
Financing risk
The broader economic cycle inevitably leads to movement in
inflation, interest rates and bond yields.
The company has issued debenture finance in sterling at both
fixed and floating rates and uses interest rate swaps to modify its
exposure to interest rate fluctuations. All of the company's
borrowings are fixed after taking account of interest rate hedges.
All borrowings are denominated in sterling and the Company has no
intention to borrow amounts in currencies other than sterling.
The company enters into derivative financial instruments solely
for the purposes of hedging its financial liabilities. No
derivatives are entered into for speculative purposes.
The company is not subject to externally imposed capital
requirements.
The company's securitisation is subject to a maximum loan minus
cash to value ('LMCTV') ratio covenant.
The maximum LMCTV ratio is 100.0% but there is also a cash trap
covenant of 50.0%. Based on the 31 December 2021 valuations of the
properties upon which the company's notes are secured, the LMCTV
ratio at the interest payment date in January 2022 was 43.5%. The
securitisation is not subject to a minimum interest coverage ratio.
A breach of financial covenants can be remedied by depositing
eligible investments (including cash).
CORPORATE RESPONSIBILITY
The Canary Wharf Group board retains overall responsibility for
the monitoring and implementation of the group's environmental
policy and is assisted by the group's Corporate Responsibility
Group which comprises senior executives of the group. A clear
governance process has been developed and implemented to enable the
Corporate Responsibility Group, and ultimately the board, to
identify, manage and respond to the environmental and social risks
and opportunities that may affect the group's operations.
The Corporate Responsibility Group is responsible for the
development and establishment of environmental management systems
throughout the group which has been developed to focus attention on
those objectives and targets where improvements and actions are
necessary to meet the monitoring and reporting process formally
adopted by the group. Identified environmental system managers have
responsibility for the implementation of the environmental
management systems throughout their respective business areas.
Employee environmental awareness is key to the success of the
environmental management systems and as a result is incorporated
into the staff induction programme with regular updates via inhouse
newsletters and presentations.
Sustainability pressures are coming from existing and
prospective tenants and occupiers, who are seeking more sustainable
operations. These expectations are met by the Group in the design
and construction of more sustainable buildings and by improving the
environmental performance of existing facilities through effective
retrofitting and facilities management. The Group aims to design,
build and manage central London's highest quality, best value and
most sustainable office, retail and residential buildings and
districts. In doing this, the Group works with all its stakeholders
to create and nurture vibrant, inclusive communities that meet
today's economic, environmental and social needs while anticipating
those of tomorrow for the benefit of the environment, tenants,
employees, the community and stakeholders. A 30 year local impact
report by The Centre for Economics and Business Research (CEBR)
commissioned by the Group has shown that Canary Wharf supports
54.0% of all jobs in Tower Hamlets, of which around 12,000 people
work in Canary Wharf. Since 1997, GBP3.0bn of business has been
generated for local businesses in East London through initiatives
supported by the Group.
Canary Wharf Group has maintained ISO 14001 accreditation since
early 2005 and environmental management has been an inherent part
of construction since 2002. During 2021, no member of the Group
incurred any fines or non monetary sanctions for non compliance
with any regulation or legislation related to sustainability
issues.
Canary Wharf Group is a founder member of the UK Green Building
Council (UKGBC), the Better Building Partnership (BBP) and the
Business Clean Air Taskforce (B-CAT). The Group has also signed the
BBP Climate Change Commitment, as well as The Climate Pledge,
joining Amazon and other companies in pledging to achieve net zero
carbon at least 10 years ahead of the Paris Agreement. Canary Wharf
Group targets the reduction of energy, water and resource use, and
the reuse and the recycling of waste where possible during the
design, construction and management of properties. The minimisation
of disruption and disturbance to the environment and local
community is targeted during the construction and management of
buildings. Canary Wharf Group is also committed to preventing and
monitoring pollution and to reducing any emissions which may have
an adverse impact on the environment and/or local community.
Canary Wharf Group endeavours to raise awareness and promote
effective management of sustainability, environmental and social
issues with staff, designers, suppliers and contractors and also
works with suppliers and contractors to establish effective
environmental supply chain management and to promote the
procurement of sustainable products and materials. In 2020, the
Group published its Net Zero Carbon Pathway, a roadmap for reaching
net zero carbon by 2030, 20 years ahead of the Paris Agreement. The
Group also published ambitious Science Based Targets (SBTs)
ratified by the Science Based Targets Initiative (SBTi). Progress
against both the Net Zero Carbon Pathway and SBTs will be published
in the annual Sustainability Report.
In 2021, the Group participated in GRESB and CDP Sustainability
Benchmarking schemes, receiving a GRESB 5 star rating, ranked first
in our peer group and a CDP score of B.
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2021
2021 2020
Note GBP GBP
------------- -------------
Administrative expenses (72,999) (14,007)
------------- -------------
OPERATING LOSS (72,999) (14,007)
Interest receivable from group companies 3 83,144,521 84,989,312
Bank interest receivable 3 - 5,377
Loan interest payable 4 (83,006,297) (84,909,622)
Hedge reserve recycling 4 (9,984,111) (9,948,337)
------------- -------------
LOSS BEFORE TAX (9,918,886) (9,877,277)
Tax on loss 6 - -
------------- -------------
LOSS FOR THE FINANCIAL YEAR (9,918,886) (9,877,277)
------------- -------------
OTHER COMPREHENSIVE INCOME FOR THE YEAR
Hedge reserve recycling 13 9,984,111 9,948,337
------------- -------------
OTHER COMPREHENSIVE INCOME FOR THE YEAR 9,984,111 9,948,337
------------- -------------
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 65,225 71,060
------------- -------------
The numbered notes 1 to 14 form part of these financial
statements.
STATEMENT OF FINANCIAL POSITION
as at 31 December 2021
2021 2020
Note GBP GBP
---------------- ----------------
CURRENT ASSETS
Debtors:
Amounts falling due after more than one year 7 1,592,708,302 1,677,350,801
Amounts falling due within one year 7 51,682,572 49,463,641
Cash at bank and in hand 3,720,537 3,601,415
---------------- ----------------
1,648,111,411 1,730,415,857
Creditors:
Amounts falling due within one year 8 (49,869,359) (47,596,531)
---------------- ----------------
NET CURRENT ASSETS 1,598,242,052 1,682,819,326
---------------- ----------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,598,242,052 1,682,819,326
Creditors:
Amounts falling due after more than one year 9 (1,592,708,302) (1,677,350,801)
---------------- ----------------
NET ASSETS 5,533,750 5,468,525
---------------- ----------------
CAPITAL AND RESERVES
Called up share capital 12 50,000 50,000
Hedging reserve 13 (137,072,876) (147,056,987)
Retained earnings 13 142,556,626 152,475,512
---------------- ----------------
5,533,750 5,468,525
---------------- ----------------
The numbered notes 1 to 14 form part of these financial
statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2021
Called up Hedging Retained Total
share capital reserve earnings equity
GBP GBP GBP GBP
------- -------------- ------------ ------------
At 1 January 2021 50,000 (147,056,987) 152,475,512 5,468,525
Loss for the year - - (9,918,886) (9,918,886)
Hedge reserve recycling (Note 13) - 9,948,111 - 9,984,111
------- -------------- ------------ ------------
TOTAL COMPREHENSIVE INCOME FOR THE YEAR - 9,984,111 (9,918,886) 65,225
------- -------------- ------------ ------------
AT 31 DECEMBER 2021 50,000 (137,072,876) 142,556,626 5,533,750
------- -------------- ------------ ------------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2020
Called up Hedging Retained Total
share capital reserve earnings equity
GBP GBP GBP GBP
------- -------------- ------------ ------------
At 1 January 2020 50,000 (157,005,324) 162,352,789 5,397,465
Loss for the year - - (9,877,277) (9,877,277)
Hedge reserve recycling - 9,948,337 - 9,948,337
------- -------------- ------------ ------------
TOTAL COMPREHENSIVE INCOME FOR THE YEAR - 9,948,337 (9,877,277) 71,060
------- -------------- ------------ ------------
AT 31 DECEMBER 2020 50,000 (147,056,987) 152,475,512 5,468,525
------- -------------- ------------ ------------
The notes numbered 1 to 14 form part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1. GENERAL INFORMATION
Canary Wharf Finance II plc is a public company limited by
shares incorporated in the UK under the Companies Act 2006 and
registered in England and Wales at One Canada Square, Canary Wharf,
London, E14 5AB.
The nature of the company's operations and its principal
activities are set out in the Strategic Report.
2. ACCOUNTING POLICIES
2.1 Basis of preparation of financial statements
This announcement does not constitute the company's statutory
accounts for the year ended 31 December 2021 but is derived from
those accounts. The statutory accounts for the year ended 31
December 2021 will be delivered to the Registrar of Companies
following the company's annual general meeting. The auditors have
reported on those accounts and their report was unqualified, did
not contain a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying the report and did
not contain statements under sections 498(2) or (3) of the
Companies Act 2006.
This announcement has been prepared on the basis of the
accounting policies set out in the company's financial statements
for the year ended 31 December 2021 which are prepared in
accordance with United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice, including FRS 102 "the
Financial Reporting Standard applicable in the United Kingdom and
Republic of Ireland").
2.2 Going concern
Having made the requisite enquiries and assessed the resources
at the disposal of the company, the directors have a reasonable
expectation that the company will have adequate resources to
continue its operation for the foreseeable future. Accordingly they
continue to adopt the going concern basis in preparing the
financial statements.
As set out in the Strategic Report, the Company has issued
securities which are backed by commercial mortgages over certain
properties within the Canary Wharf Estate. These properties are let
on long term leases to a diverse range of credit worthy
tenants.
The pandemic and resulting lockdown has had a minimal impact on
office rental income from existing tenants where approximately
99.0% of invoiced rent has been collected. The Directors do not
expect this to change in the foreseeable future.
The impact of the Covid-19 virus is disclosed in the Strategic
Report.
3. INTEREST RECEIVABLE AND SIMILAR INCOME
2021 2020
GBP GBP
Interest receivable from group companies 83,144,521 84,989,312
Bank interest receivable - 5,377
----------- -----------
83,144,521 84,994,689
----------- -----------
4. INTEREST PAYABLE AND SIMILAR CHARGES
2021 2020
GBP GBP
Interest payable on securitised debt
(Note 10) 83,006,297 84,909,622
Hedge reserve recycling 9,984,111 9,948,337
----------- -----------
92,990,408 94,857,959
----------- -----------
5. FAIR VALUE ADJUSTMENTS
2021 2020
GBP GBP
Derivative financial instruments (88,290,467) 45,779,026
Securitised debt 35,880,164 (16,975,307)
Loan to fellow subsidiary undertaking 52,410,303 (28,803,719)
------------- -------------
- -
------------- -------------
6. TAXATION
2021 2020
GBP GBP
---- -----
Current tax on profits for the year - -
----
TAXATION ON PROFIT ON ORDINARY ACTIVITIES - -
---- -----
FACTORS AFFECTING TAX CHARGE FOR THE YEAR
The tax assessed for the year is different to the standard rate
of corporation tax in the UK of 19.0% (2020 - 19.0%). The
differences are explained below:
2021 2020
GBP GBP
------------ ------------
(Loss)/profit on ordinary activities
before tax (9,918,886) (9,877,277)
------------ ------------
(Loss)profit on ordinary activities
multiplied by standard rate of corporation
tax in the UK of 19.0% (2020 - 19.0%) (1,884,588) (1,876,683)
EFFECTS OF:
Fair value movements not subject to
tax 1,896,981 1,890,184
Group relief (12,393) (13,501)
------------
TOTAL TAX CHARGE FOR THE YEAR - -
------------ ------------
FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
There were no factors that affected the tax charge for the year
which has been calculated on the profits on ordinary activities
before tax at the standard rate of corporation tax in the UK of
19.0% (2020 - 19.0%).
Enacted in the Finance Act 2021 is a provision for the main rate
of corporation tax to increase to 25.0% from 1 April 2023. The
impact of the new tax rate is not expected to be material to the
company.
7. DEBTORS
2021 2020
GBP GBP
-------------- --------------
DUE AFTER MORE THAN ONE YEAR
Loan to fellow subsidiary undertaking
due after more than one year 1,592,708,302 1,677,350,801
1,592,708,302 1,677,350,801
-------------- --------------
2021 2020
GBP GBP
----------- -----------
DUE WITHIN ONE YEAR
Other amounts owed to fellow subsidiaries 6,164,526 3,580,353
Loan to fellow subsidiary undertaking
due within one year 29,325,200 29,325,200
Accrued interest on loan to fellow
subsidiary undertaking 16,192,846 16,558,088
51,682,572 49,463,641
----------- -----------
2021 2020
GBP GBP
-------------- --------------
The loan to a fellow subsidiary undertaking
comprises:
At 1 January 1,706,676,001 1,710,200,552
Repaid in the year (29,325,200) (29,325,200)
Amortisation of issue premium (1,673,865) (1,769,231)
Movement in accrued financing expenses (1,233,131) (1,233,839)
Fair value adjustment (52,410,303) 28,803,719
At 31 December 1,622,033,502 1,706,676,001
-------------- --------------
Comprising:
2021 2020
GBP GBP
-------------- --------------
Loan to fellow subsidiary undertaking
due after more than one year 1,592,708,302 1,677,350,801
Loan to fellow subsidiary undertaking
due within one year 29,325,200 29,325,200
1,622,033,502 1,706,676,001
-------------- --------------
The fair value of the loans to group undertakings at 31 December
2021 was GBP1,832,728,937 (2020 - GBP1,969,316,124), calculated by
reference to the fair values of the Company's financial
liabilities. In the event that the company were to realise the fair
value of the securitised debt and the derivative financial
instruments, it would have the right to recoup its losses as a
repayment premium on its loans to CW Lending II Limited. As such,
the fair value of the loans to group undertakings is calculated to
be the sum of the fair value of the securitised debt and the fair
value of the derivative financial instruments.
The loan to the company's fellow subsidiary undertaking was made
in tranches, the principal terms of which are:
Effective 2021 2020
Class Interest interest Repayment GBPm GBPm
------ -------- --------- ------------------ ------- -------
By instalment 2009
A1 6.465% 6.151% - 2033 199.3 221.7
By instalment 2032
A3 5.962% 5.814% - 2037 400.0 400.0
A7 5.409% 5.298% January 2035 222.0 222.0
By instalment 2005
B 6.810% 6.409% - 2030 121.0 127.9
B3 5.593% 5.544% January 2035 77.9 77.9
C2 6.276% 6.059% January 2035 239.7 239.7
D2 7.071% 6.743% January 2035 125.0 125.0
------- -------
1,384.9 1,414.2
Unamortised premium 12.2 13.9
Accrued financing costs 16.1 17.3
1,413.2 1,445.4
------- -------
In January 2017, interest on the tranche A7 loan increased to
5.409% from 5.124% and interest on the tranche B3 loan increased to
5.593% from 5.173%.
The A7, B3 and C2 tranches of the intercompany loan are carried
at fair value. The A1, A3, B and D2 tranches are carried at
amortised cost. The total fair value of the intercompany loan was
GBP1,832,728,937.
The carrying value of financial assets represents the Company's
maximum exposure to credit risk.
The maturity profile of the Company's contracted undiscounted
cash flows is as follows:
2021 2020
GBP GBP
Within one year 113,903,719 115,602,313
In one to 2 years 111,658,671 113,903,740
In 2 to 5 years 318,450,975 329,421,776
In 5 to 10 years 532,805,858 569,539,291
In 10 to 20 years 1,236,955,793 1,300,950,484
At 31 December 2,313,775,016 2,429,417,604
-------------- --------------
2021 2020
GBP GBP
-------------- --------------
Comprising:
Principal repayments 1,384,862,120 1,414,187,320
Interest repayments 928,912,896 1,015,230,284
At 31 December 2,313,775,016 2,429,417,604
-------------- --------------
The above table contains undiscounted cash flows (including
interest) and therefore results in a higher balance than the
carrying values or fair values of the intercompany debt.
Other amounts owed by the group undertakings are interest free
and repayable on demand.
8. CREDITORS: Amounts falling due within one year
2021 2020
GBP GBP
Securitised debt (Note 10) 29,325,200 29,325,200
Trade creditors 11,978 -
Amounts owed to group undertakings 4,284,594 1,660,594
Accruals and deferred income 16,247,587 16,610,737
49,869,359 47,596,531
----------- -----------
Amount owed to the group undertakings are interest free and
repayable on demand.
9. CREDITORS: Amounts falling due after more than one year
2021 2020
GBP GBP
Securitised debt (Note 10) 1,286,124,454 1,282,476,486
Derivative financial instruments
(Note 11) 306,583,848 394,874,315
1,592,708,302 1,677,350,801
-------------- --------------
10. SECURITISED DEBT
The amounts at which borrowings are stated comprise:
2021 2019
GBP GBP
-------------- --------------
At 1 January 1,311,801,686 1,361,105,263
Repaid in the year (29,325,200) (29,325,200)
Amortisation of issue premium (1,673,865) (1,769,231)
Movement in accrued financing expenses (1,233,130) (1,233,839)
Fair value adjustment 35,880,164 (16,975,307)
At 31 December 1,315,449,655 1,311,801,686
-------------- --------------
2021 2020
GBP GBP
Payable within one year or on demand 29,325,200 29,325,200
Payable after more than one year 1,286,124,455 1,282,476,486
1,315,449,655 1,311,801,686
-------------- --------------
The company's securitised debt was issued in tranches, with
notes of classes A1, A3, A7, B, B3, C2 and D2 remaining
outstanding. The A1, A3 and B notes were issued at a premium which
is being amortised to the income statement over the life of the
relevant notes. At 31 December 2021 GBP12,224,268 (2020 -
GBP13,898,133) remained unamortised.
At 31 December 2021 there were accrued financing costs of
GBP16,111,292 (2020 - GBP17,344,422) relating to previous
contractual increases in margins.
The notes are secured on 6 properties at Canary Wharf, owned by
fellow subsidiary undertakings, and the rental income stream
therefrom.
The securitisation continues to have the benefit of an
arrangement with AIG which covers the rent in the event of a
default by the tenant of 33 Canada Square over the entire term of
the lease. At 31 December 2021, AIG had posted GBP95,279,028 as
cash collateral in respect of this obligation.
The company also has the benefit of a GBP300.0m liquidity
facility provided by Lloyds Bank plc, under which drawings may be
made in the event of a cash flow shortage under the
securitisation.
At 31 December 2021 the securitised debt comprised the
following:
Principal Fair value Effective
Tranche GBPm GBPm Interest interest Repayment
--------- ---------- ----------- --------- ---------- -------------------
By instalment 2009
A1 199.3 239.0 6.455% 6.151% - 2033
By instalment 2032
A3 400.0 554.5 5.952% 5.814% - 2037
A7 222.0 198.7 Floating 5.298% January 2035
By instalment 2005
B 121.0 149.7 6.800% 6.409% - 2030
B3 77.9 67.6 Floating 5.435% January 2035
C2 239.7 207.9 Floating 6.059% January 2035
D2 125.0 108.7 Floating 6.743% January 2035
1,384.9 1,526.1
---------- -----------
At 31 December 2020 the securitised debt comprised the
following:
Principal Fair value Effective
Tranche GBPm GBPm Interest interest Repayment
--------- ---------- ----------- --------- ---------- -------------------
By instalment 2009
A1 221.7 276.5 6.455% 6.149% - 2033
By instalment 2032
A3 400.0 586.1 5.952% 5.814% - 2037
A7 222.0 187.6 Floating 5.311% January 2035
By instalment 2005
B 127.9 163.5 6.800% 6.410% - 2030
B3 77.9 63.5 Floating 5.435% January 2035
C2 239.7 195.3 Floating 6.071% January 2035
D2 125.0 101.9 Floating 6.756% January 2035
1,414.2 1,574.4
---------- -----------
Interest on the A1 notes, A3 notes and B notes is fixed until
maturity. Interest on the floating notes is repriced every 3
months.
Interest on the floating rate notes is at 3 month LIBOR plus a
margin. The margins on the notes are:
A7 notes - 0.475% per annum; B3 notes - 0.7% per annum; C2 notes
- 1.375% per annum; and D2 notes - 2.1% per annum.
The floating rate notes are hedged by means of interest rate
swaps and the hedged rates plus the margins are: A7 notes -
5.3985%; B3 notes - 5.5825%; C2 notes - 6.2666%; and D2 notes -
7.0605%.
The effective interest rates include adjustments for the hedges
and the issue premium.
The floating rate notes are carried at FVTPL. The fixed rate
notes are carried at amortised cost. The total fair value of the
debt is GBP1,526,145,089. Of the carrying value of GBP1,315.4m,
GBP732.5m is carried at amortised cost and GBP582.9m is carried at
fair value.
The fair values of the sterling denominated notes have been
determined by reference to prices available on the markets on which
they are traded.
The maturity profile of the company's contracted undiscounted
cash flows is as follows:
2021 2020
GBP GBP
Within one year 84,777,917 82,952,422
In one to 2 years 87,806,123 81,019,851
In 2 to 5 years 244,386,033 234,041,879
In 5 to 10 years 401,696,450 420,336,390
In 10 to 20 years 1,151,654,368 1,176,109,117
At 31 December 1,970,320,891 1,994,459,659
-------------- --------------
2021 2020
GBP GBP
-------------- --------------
Comprising:
Principal repayments 1,384,862,120 1,414,187,320
Interest repayments 585,458,771 580,272,339
At 31 December 1,970,320,891 1,994,459,659
-------------- --------------
The above table contains undiscounted cash flows (including
interest) and therefore results in a higher balance than the
carrying values or fair values of the borrowings.
The weighted average maturity of the debentures at 31 December
2021 was 10.8 years (2020 - 11.6 years). The debentures may be
redeemed at the option of the company in an aggregate amount of not
less than GBP1.0m on any interest payment date subject to the
current rating of the debentures not being adversely affected and
certain other conditions affecting the amount to be redeemed.
After taking into account the interest rate hedging
arrangements, the weighted average interest rate of the company at
31 December 2021 was 6.1% (2020 - 6.1%).
Details of the derivative financial instruments are set out in
Note 11.
Details of the company's risk management policy are set out in
the Strategic Report.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The company uses interest rate swaps to hedge exposure to the
variability in cash flows on floating rate debt caused by movements
in market rates of interest. At 31 December 2021 the fair value of
these derivatives resulted in the recognition of a net liability of
GBP306,583,848 (2020 - GBP394,874,315).
The fair values of derivative financial instruments have been
determined by reference to market values provided by the relevant
counter party.
The terms of the derivative financial instruments correlate with
the terms of the financial instruments to which they relate.
Consequently the cash flows and effect on profit or loss are
expected to arise over the term of the financial instrument set out
above.
12. SHARE CAPITAL
2021 2020
GBP GBP
------- -------
Allotted, called up and fully paid
50,000 (2020 - 50,000) Ordinary shares
of GBP1.00 each 50,000 50,000
------- -------
13. RESERVES
Hedging Reserve
Prior to 1 July 2019, financial instruments were carried under
the measurement criteria of IAS 39. The B3 and C2 financial
instruments were designated as effective hedges of the
corresponding notes and carried at Fair Value through Other
Comprehensive Income. The hedging relationships were terminated on
1 July 2019 with the adoption of fair value accounting for the
floating rate securitised debt. The balance in the hedging reserve
is being amortised over the remaining life of the corresponding
notes.
Distributable reserves
The distributable reserves of the company differ from its
retained earnings as follows:
2021 2020
GBP GBP
Retained earnings 142,556,626 152,475,512
Hedging reserve (137,072,876) (147,056,987)
Distributable reserves 5,483,750 5,418,525
-------------- --------------
14. OTHER FINANCIAL COMMITMENTS
As at 31 December 2021 and 31 December 2020 the company had
given security over all its assets, including security expressed as
a first fixed charge over its bank accounts, to secure the notes
referred to in Note 10.
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