31PE Canary 6.455%33

CANARY WHARF FINANCE II PLC

9 SEPTEMBER 2024

PUBLICATION OF THE HALF YEARLY FINANCIAL REPORT FOR THE 6 MONTHS ENDED 30 JUNE 2024

Pursuant to sections 4.2 and 6.3.5 of the Disclosure and Transparency Rules, the board of Canary Wharf Finance II plc ("the Company") is pleased to announce the publication of its half yearly financial report for the 6 months ended 30 June 2024, which will shortly be available from https:group.canarywharf.com/about-us/investors/canary-wharf-finance-ii-plc.

The information contained within this announcement, which was approved by the board of directors on 9 September 2024, does not comprise statutory accounts within the meaning of the Companies Act 2006 and is provided in accordance with section 6.3.5 of the Disclosure and Transparency Rules.

In compliance with the Listing Rule 9.6.1, a copy of the 30 June 2024 half yearly financial report will be submitted to the UK Listing Authority via the National Storage Mechanism and will shortly be available to the public for inspection at www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism.

Dated: 9 September 2024

Contact for queries:

J J Turner

Company Secretary

Canary Wharf Finance II plc

Telephone: 020 7418 2000

INTERIM MANAGEMENT STATEMENT

This interim management statement relates to the 6 months ended 30 June 2024 and contains information that covers the period from 1 January 2024 to 9 September 2024, the date of publication of this interim management statement.

BUSINESS REVIEW

The company is a subsidiary of Canary Wharf Group plc, Canary Wharf Group Investment Holdings plc, and its ultimate parent undertaking Stork Holdco LP, an entity registered in Bermuda.

The company is a finance vehicle that issues securities which are backed by commercial mortgages over properties within the Canary Wharf Estate.  The company is engaged in the provision of finance to the Canary Wharf Group, comprising Canary Wharf Group Investment Holdings, and the wider group subsidiaries.  The Group owns, manages and develops the Canary Wharf Estate (the 'Estate') in East London.  All activities take place within the United Kingdom.  The company plans to continue trading in the same manner for the foreseeable future.

At 30 June 2024, the nominal value of the loan notes held by the company and listed on the London Stock Exchange was £1,050,744,441 (31 December 2023 - £1,326,211,720).  This movement includes the additional early repayment of the A1 and A3 notes on 22nd January 2024.  The company had lent the proceeds to a fellow subsidiary undertaking, CW Lending II Limited ('the Borrower') under a loan agreement ('the Intercompany Loan Agreement').  The notes are secured on a pool of properties at Canary Wharf, owned by fellow subsidiary undertakings, and the rental income therefrom.

Going Concern

Having made the requisite enquiries and assessed the resources at the disposal of the company, the directors have a reasonable expectation that the company will have adequate resources to continue its operation for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Results for the period

As shown in the company's Income Statement, the company's loss after tax for the 6 month period was £5,086,693 (period ended 30 June 2023 - loss of £4,959,754).

This loss included hedge reserve recycling recognised in the Income Statement of £5,042,960 (period ended 30 June 2023 - £5,024,076).  Including the hedge reserve recycling impact in other comprehensive income the loss for the period was £43,733 (period ended 30 June 2023 - profit of £64,322).

The balance sheet shows the company's financial position at the period end and indicates that net assets were £5,687,065 (31 December 2023 - £5,730,798).

The weighted average maturity of the company's securitised debt is 9.20 years (31 December 2023 - 7.69 years).  This increase is due to the partial early repayment of the A1 and A3 notes on 22^nd January 2024.  The weighted average interest rate of the securitised debt is 6.0% (31 December 2023 - 6.1%).

In the opinion of the Board, these Financial Statements enable shareholders to make an informed assessment of the results and activities of the company for the period ended 30 June 2024.

PRINCIPAL RISKS AND UNCERTAINTIES

The company faces several principal risks and uncertainties that could significantly impact its business model and financial performance, primarily centred around market and financing risks.

Market Risk

Market risk is a key risk, as the ability of the company with the support of group companies to meet debt obligations relies on generating sufficient rental income.  In recent years, businesses have re-evaluated their office space requirements considering remote working trends and changing business models, leading to a decrease in demand for traditional office spaces.  Despite this, the office assets that fund the company's securitisation have maintained a high occupancy rate in recent years with credit worthy tenants and the company continue to secure new deals including an extension with Morgan Stanley until at least 2038.  To further navigate these challenges, a proactive approach is adopted in managing our property portfolio.  This involves closely monitoring market trends, identifying emerging demand patterns, and adapting our properties to meet evolving tenant demands.  Additionally, fostering strong tenant relationships, offering flexible leasing terms, and enhancing the amenities and services within our office buildings and estate helps to differentiate our properties in a competitive market environment.

Financing Risk

Financing risk is another risk given the company has issued debenture finance in sterling at both floating and fixed rates of interest.  The broader economic cycle inevitably leads to movements in inflation, interest rates and bond yields, which can lead to fluctuations in interest payments.  To manage this risk, the company uses derivative financial instruments in the form of interest rate swaps to manage its exposure to interest rate fluctuations and does not enter into these arrangements for speculative purposes.  All of the company's borrowings are fixed after taking account of interest rate hedges.  All borrowings are denominated in sterling and the company has no intention to borrow amounts in currencies other than sterling.

The company is not subject to externally imposed capital requirements, however the company's securitisation is subject to a maximum loan minus cash to value ('LMCTV') ratio covenant.  The maximum LMCTV ratio is 100.0%.  Based on the 30 June 2024 valuations of the properties upon which the company's notes are secured, the LMCTV ratio at the interest payment date in July 2024 was 49.99%.  The securitisation is not subject to a minimum interest coverage ratio.  A breach of certain financial covenants can be remedied by depositing eligible investments (including cash).

DIRECTOR'S RESPONSIBILITY STATEMENT

The board of directors, comprising Sheikh Khalifa Al-Thani, Theodor Berklayd, Shoaib Z Khan, Katy J Kingston (alternate director to Shoaib Z Khan), and Rebecca J Worthington, confirms to the best of its knowledge that:

STATEMENT OF COMPREHENSIVE INCOME

for the 6 months ended 30 June 2024

  OTHER COMPREHENSIVE INCOME

The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial Report.

STATEMENT OF FINANCIAL POSITION

as at 30 June 2024

The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial Report.

STATEMENT OF CHANGES IN EQUITY

for the 6 months ended 30 June 2024

The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial Report.

NOTES TO THE INTERIM REPORT

for the 6 months ended 30 June 2024

1.           ACCOUNTING POLICIES

             The year end statutory accounts have been prepared in accordance with Financial Reporting Standard (FRS) 102 "The Financial Report Standard applicable in the UK and Republic of Ireland".  Accordingly, this condensed set of financial statements has been prepared in accordance with FRS 104 "Interim Financial Reporting".

            The accounting policies applied in the preparation of this Interim Report are consistent with those that will be adopted in the statutory accounts for the year ending 31 December 2024.  The full accounting policies of the company, set out in the 2023 statutory accounts, have been applied in preparing this Interim Report.

             The financial information relating to the 6 months ended 30 June 2024 and 30 June 2023 is unaudited.

         A copy of the statutory accounts for the year ended 31 December 2023 has been delivered to the Registrar of Companies.  The auditor's report on those accounts was not qualified, did not contain any reference to any matters which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

              In accordance with FRS 102, the company will be exempt from presentation of a cash flow statement in its next annual financial statements as it will be included in the consolidated financial statements of Canary Wharf Group Investing Holdings plc, and accordingly the company has taken an equivalent exemption in preparing these condensed interim financial statements.

2.           INTEREST RECEIVABLE AND SIMILAR INCOME

3.           INTEREST PAYABLE AND SIMILAR CHARGES

             Included within interest payable on securitised debt is £828,773 (June 2023 - £752,507) amortisation of issue premium.  The hedge reserve recycling relates to the release of accumulated historic fair value movements on derivative financial instruments that were part of an effective cash flow hedge.

Fair value adjustments

4.           TAXATION

5.           DEBTORS

The loan to a fellow subsidiary undertaking comprises:

The loans to a fellow subsidiary undertaking bear fixed rates of interest between 5.41% and 7.07% and are repayable in instalments between 2005 and 2037. 

Other amounts owed by Group companies are non-interest bearing and repayable on demand.

The A7, B3 C2 and D2 tranches of the intercompany loan are carried at fair value.  The A1, A3 and B tranches are carried at amortised cost (see Note 7).  The total fair value of the loans to fellow subsidiary undertakings at 30 June 2024 was £917,656,018 (31 December 2023 - £1,230,385,065), calculated by reference to the fair values of the company's financial liabilities.  In the event that the company were to realise the fair value of the securitised debt and the derivative financial instruments, it would have the right to recoup its losses as a repayment premium on its loans to CW Lending II Limited.  As such, the fair value of the loans to Group undertakings is calculated to be the sum of the fair value of the securitised debt and the fair value of the derivative financial instruments.  The carrying value of financial assets represents the company's maximum exposure to credit risk. 

6.           CREDITORS: Amounts falling due within one year

Amounts owed to group undertakings are interest free and repayable on demand.

7.           CREDITORS: Amounts falling after more than one year

The amounts at which borrowings are stated comprise:

The principal terms of the company's borrowings are:

The class A1, A3 and B notes were issued at a premium which is being amortised to the income statement on a straight line basis over the life of the relevant notes.  At 30 June 2024, £8,567,432 (31 December 2023 - £9,444,793) remained unamortised.

The notes are secured on 5 properties at Canary Wharf, owned by fellow subsidiary undertakings, and the rental income stream therefrom.  The 6 properties are 1 Canada Square, 33 Canada Square, 20 Bank Street, 40 Bank Street and 20 Cabot Square/10 South Colonnade.

The company uses interest rate swaps to hedge exposure to the variability in cash flows on floating rate debt caused by movements in market rates of interest.  The hedged rates of the floating notes, including the margins, are between 5.40% and 7.06%.

The floating rate notes are carried at fair value through profit or loss.  The fixed rate notes are carried at amortised cost.  The total fair value of the securitised debt at 30 June 2024 was £917,656,018 (31 December 2023 - £1,146,842,110).  The fair values of the sterling denominated notes have been determined by reference to prices available on the market on which they are traded. 

At 30 June 2024, the fair value of the interest rate derivatives resulted in the recognition of a liability of £42,920,305 (31 December 2023 - £83,542,955).  The fair values of the derivative financial instruments have been determined by reference to the market values provided by a third party valuer. 

The securitisation continues to have the benefit of an arrangement with AIG which covers the rent in the event of a default by the tenant of 33 Canada Square over the entire term of the lease.  At 30 June 2024, AIG had posted £42,939,690 as cash collateral in respect of this obligation.

The company also has the benefit of a £300.0m liquidity facility provided by Lloyds Bank plc, under which drawings may be made in the event of a cash flow shortage under the securitisation.  The liquidity facility matures on 22 October 2037 and at 30 June 2024 remains undrawn.

8.           CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS

As at 30 June 2024 and 31 December 2023, the company had given security over all its assets, including security expressed as a first fixed charge over its bank accounts, to secure the notes referred to in Note 7.

9.           CONTROLLING PARTY

               The company's immediate parent undertaking is Canary Wharf Finance Holdings Limited.

             As at 30 June 2024, the smallest group of which the company is a member and for which group financial statements   are drawn up is the consolidated financial statements of Canary Wharf Group Investment Holdings plc.  Copies of the   financial statements may be obtained from the Company Secretary, One Canada Square, Canary Wharf, London E14   5AB.

        The largest group of which the company is a member for which group financial statements are drawn up is the consolidated financial statements of Stork Holdco LP, an entity registered in Bermuda and the ultimate parent undertaking and controlling party.  Stork Holdco LP is registered at 73 Front Street, 5th Floor, Hamilton, HM12, Bermuda.

          Stork Holdco LP is controlled as to 50.0% by Brookfield Property Partners LP and as to 50.0% by Qatar Investment  Authority.