Disposal
05 Dezembro 2003 - 3:15PM
UK Regulatory
RNS Number:9540S
Canary Wharf Group PLC
05 December 2003
FOR IMMEDIATE RELEASE
5 December 2003
CANARY WHARF GROUP PLC
#1.1 BILLION PROPERTY TRANSACTION
Introduction
The Board of Canary Wharf Group plc ("Canary Wharf") announces that it has
agreed the terms of the sale of two leasehold properties situated at 5 Canada
Square and at 25 Canada Square (the "Properties") to wholly-owned subsidiaries
of The Royal Bank of Scotland plc ("RBS") for consideration of #1,112 million
payable in cash upon completion (the "Disposals").
The Independent Committee has received a series of approaches from parties
interested in acquiring the Company culminating in the recommended offer by the
consortium led by MSREF and Simon Glick (the "Consortium") which was announced
today (the "Offer"). The Offer will be conditional, inter alia, on completion
of the Disposals. The Disposals can still be completed even if the Offer is not
successful. Since Canary Wharf is in an offer period for the purposes of the
City Code on Takeovers and Mergers (the "City Code"), the Disposals are
conditional upon the approval of Canary Wharf shareholders under Rule 21 of the
City Code.
The Properties
Details of the Properties to be sold are as follows:
PROPERTY PRINCIPAL NIA(1) MV(2) RENT(3)
TENANT (SQ FT) (#M) (#M)
25 Canada Square Citigroup 1,223,474 690 44.9
5 Canada Square Credit Suisse First Boston 515,080 327 19.7
Total 1,738,554 1,017 64.6
Notes: 1. Net internal area
2. Market value as at 30 June 2003
3. Net annual rents receivable
The market value of the properties stated above excludes any value for capital
allowances available to purchasers.
Benefits of the Disposals for Canary Wharf
The benefits of the Disposals for the Company on a standalone basis include the
following:
- the sale price is attractive given current market conditions;
- as shown in the appendix to this announcement, the Disposals are
expected to increase Canary Wharf's net assets by approximately #8.0 million,
Adjusted NAV by approximately #32.1 million, and NNNAV by approximately #71.1
million, although Canary Wharf's Adjusted NNNAV is expected to be reduced by
approximately #96.5 million;
- the cash proceeds from the Disposals are expected initially to
generate approximately #225.2 million of additional liquidity for Canary Wharf
(excluding the potential release of the #50 million Coverage Reserve established
at the time of the securitisation tap issue in October 2002);
- following the associated debt repayment, NAV gearing will fall
from approximately 183 per cent. as at 30 June 2003 to approximately 128 per
cent. on a pro forma basis, with reduced amortisation payable by Canary Wharf
Finance II plc.
Conditions
The Disposals are conditional on the approval of Canary Wharf's shareholders on
or before 29 December 2003. In addition, completion of the Disposals is
conditional on Canary Wharf procuring the release of the Properties from certain
security arrangements to which they are currently subject. RBS may terminate if
completion does not occur on or before 31 December 2003 or if the Properties are
substantially damaged before completion.
Extraordinary General Meeting
An extraordinary general meeting of Canary Wharf shareholders to consider an
ordinary resolution to approve the Disposals will be convened for Monday 22
December 2003. A circular to shareholders and notice convening that meeting is
being despatched today.
Recommendation
The Independent Directors, having been so advised by Lazard and Cazenove,
believe that the Disposals are in the best interests of the Company and its
shareholders taken as a whole. In providing advice to the Independent
Directors, Lazard and Cazenove have taken into account the Directors' commercial
assessments.
The Independent Directors unanimously recommend that you vote in favour of the
resolution to approve the Disposals at the Extraordinary General Meeting, as
they intend to do in respect of their own beneficial shareholdings.
Enquiries
Lazard Tel: +44 20 7187 2000
William Rucker
Maxwell James
Cazenove Tel: +44 20 7588 2828
Duncan Hunter
Richard Cotton
Brunswick Tel: +44 20 7404 5959
James Bradley
Fiona Laffan
Lazard & Co., Limited ("Lazard") is acting for Canary Wharf and no one else in
connection with the Disposals and will not be responsible to anyone other than
Canary Wharf for providing the protections afforded to clients of Lazard nor for
providing advice in relation to the Disposals.
Cazenove & Co. Ltd ("Cazenove") is acting as Rule 3 adviser to the Independent
Committee of Canary Wharf and no one else in connection with the Offer and will
not be responsible to anyone other than the Independent Committee of Canary
Wharf for providing the protections afforded to clients of Cazenove nor for
providing advice in relation to the Offer.
Unaudited pro forma statement of net assets of the Continuing Group
The unaudited pro forma statement of Canary Wharf's net asset values set out
below has been prepared solely to illustrate the effect of the transaction on
Canary Wharf's net asset values as if the transaction had taken place at 30 June
2003.
The information, which is produced for illustrative purposes only, by its very
nature may not give a true picture of, and is not necessarily indicative of the
results and financial position of the Group which would have been reported if
the transaction had taken place on 30 June 2003.
# million Per Uplift in Property Disposals Pro Forma
Statutory Property Values at
Values to Market
Balance Market Value
Sheet Value
Total Property 5,315.8 (1) 448.0 (2) 5,763.8 (1,017.0) 4,746.8
Securitisation I (590.0) (590.0) (590.0)
Securitisation II (3,027.0) (3,027.0) 856.3 (3) (2,170.7)
Other Debt (1,093.0) (1,093.0) (12.2) (4) (1,105.2)
Unrestricted Cash 276.8 276.8 225.2 (5) 502.0
Restricted Cash 752.3 752.3 - 752.3
FRS 19 - deferred tax (47.9) (47.9) (6) (24.1) (13) (72.0)
provision
Other Net Assets (67.6) (67.6) (20.2) (7) (87.8)
NAV incl. FRS 19 1,519.4 448.0 1,967.4 8.0 1,975.4
Add-back of FRS 19 47.9 (6) 24.1 (13) 72.0
Adjusted NAV 2,015.3 32.1 2,047.4
UITF 28 - Aldersgate & (179.0) (8) (179.0)
Broadgate
FRS 13 (net of tax) (346.5) (9) 39.0 (9) (307.5)
Contingent Tax (pre EZA (258.1) (10) 0.0 (10) (258.1)
uplift)
NNNAV 1,231.7 71.1 1,302.8
Uplift in market value attributable to 525.0 (11) (136.0) (11) 389.0
EZAs
FRS 19 - deferred tax (84.9) (12) (52.6) (13) (137.5)
provision
Contingent Tax on EZA uplift (147.4) (14) 21.0 (14) (126.4)
NNNAV adjusted for EZAs 1,524.4 (96.5) 1,427.9
NAV p.s. (p) 344 6 350
NNNAV p.s. (p) 211 12 223
NNNAV p.s. adj. for EZAs (p) 261 (17) 244
Net Debt (3,680.9) 1,069.3 (2,611.6)
Notes:
The unaudited pro forma statement of net assets is based on the published annual
report and financial statements of Canary Wharf to which the following
adjustments have been made:
(1) Total property comprises (i) investment properties stated at 30 June
2003 Market Value derived in accordance with the Appraisal and Valuation Manual
published by the Royal Institution of Chartered Surveyors ("Market Value")
(excluding any uplift for the benefit of EZAs), net of an adjustment of #47.7
million required by Urgent Issues Task Force Abstract 28 (Operating Lease
Incentives) ("UITF 28") in respect of tenant incentives attributable to such
properties, (ii) properties under construction stated at cost and (iii)
properties held for development stated at cost. The Market Value of 25 Canada
Square at 30 June 2003 was #690 million and the Market Value of 5 Canada Square
at that date was #327 million.
(2) Uplift in carrying value of properties under construction and properties
held for development to Market Value in existing state.
(3) Repayment of #901.3 million of floating rate notes less the D Notes of
#45 million currently held by Canary Wharf. The quantum and class of notes to be
repaid is subject to the consent of the Trustee and affirmation of the rating of
the remaining notes by the rating agencies.
(4) The Group's debt instruments are stated net of financing costs and such
costs are charged to the profit and loss account over the term of the debt
instruments at a constant rate based on the carrying amount of the debt. To the
extent that debt instruments are repaid early, the unamortised financing costs
attributable to that debt must be written off to the profit and loss account.
(5) The Disposals are expected initially to generate additional liquidity
for the Group of #225.2 million, excluding the potential release of #50 million
from the Coverage Reserve. The expected initial proceeds are calculated as
follows:
#m
Sale of properties 1,112.0
Less: Prepayment of debt (net of cancellation of D Notes held by (856.3) (a)
the Group)
Less: Breakage costs of hedging instruments (27.0) (b)
Less: Estimated fees (3.5) (c)
Add: Potential release of Coverage Reserve - (d)
283.2
(a) It is anticipated that the following classes of notes will be repaid:
Repayment
Tranche #m
A2 100.8
A4 90.0
A5 (part) 95.5
A6 325.0
R1 125.0
R2 60.0
B1 60.0
856.3
D notes held by the Group 45.0
Total 901.3
(b) The estimated breakage costs referred to above have been based on
mid-market quotes as at close of business on 26 November 2003. The costs
include any premium payable on redemption of the notes. The actual amount of
breakage costs will depend on the market price of the hedges on the date of
completion of the transaction. The amount of breakage costs also includes the
fee payable in respect of the facility referred to in (e) below.
(c) Estimated fees payable to Canary Wharf's advisers in connection
with the Disposals.
(d) Subject to the consent of the Trustee and the rating agencies, it
is anticipated that as a result of repaying the A6, R1 and R2 notes, security
over the #50 million Coverage Reserve established as a result of the tap issue
in October 2002 will be released. However, this has not been assumed in the pro
forma statement of the net assets.
(e) In connection with the securitisation of 25 Canada Square, the
group entered into a facility agreement with Gibralter Holdings Limited (the
"DS5 Facility Provider"), whereby, in consideration for the payment of a
commitment fee, the DS5 Facility Provider made available on an interest free
basis a loan facility drawable in circumstances where in respect of 25 Canada
Square there is a default in the payment of rent. As a result of the proposed
sale of 25 Canada Square and its withdrawal from the securitisation, it is
proposed that the benefit of the facility be transferred to 33 Canada Square,
another property leased to Citigroup, in consideration for the payment of a fee.
This fee is taken in the estimated breakage costs referred to in (b) above.
(6) Deferred tax arises from timing differences between the recognition of
gains and losses for accounts purposes and their recognition in the Group's
corporation tax return. In accordance with Financial Reporting Standard 19
(Deferred Tax) ("FRS 19") the Group has recognised a deferred tax provision in
respect of timing differences that have originated but not reversed at the
balance sheet date. These timing differences originate when transactions or
events that result in an obligation to pay more or less tax in the future have
occurred on or before the balance sheet date. As permitted by FRS 19, deferred
tax is calculated on a discounted basis to reflect the time value of money over
the period between the balance sheet date and the dates on which it is estimated
that the underlying timing differences will reverse or, where the timing
differences are not expected to reverse beforehand, a period not exceeding 50
years. At 30 June 2003, the Group recognised a deferred tax provision of #47.9
million. This provision reflects, inter alia, the clawback of EZAs already
claimed in respect of certain properties which would arise in the event of the
disposal of those properties.
In arriving at Adjusted NAV, the provision for deferred tax recognised
in accordance with FRS 19 has been added back. FRS 19 requires, inter alia,
provision to be made for deferred tax on capital allowances claimed
notwithstanding that the related tax would not become payable unless the related
properties were disposed of. In contrast, no provision is required for the tax
which would become payable on the profits which would be realised if the Group
were to dispose of its properties at their Market Value. This inconsistency in
the accounting standard has therefore been reversed in calculating the adjusted
net asset value per share. No element of the deferred tax provision recognised
at 30 June 2003 related to either 5 Canada Square or 25 Canada Square.
(7) In accordance with UITF 28, the rental income receivable under a lease
is allocated to periods evenly over the lease term, or, if earlier, to the
period to the first open market rent review. The effect of this policy is to
recognise rental income during rent free periods, which adjustment then reverses
from the date of rent commencement. The rent free adjustment in respect of 5
Canada Square and 25 Canada Square at 30 June 2003 was #20.2 million and this
balance must be written off to the profit and loss account upon sale of the
properties.
(8) At 30 June 2003, the Group recognised a provision of #123.5 million in
respect of the estimated liability relating to vacant leasehold property assumed
from Clifford Chance in connection with its lease of 10 Upper Bank Street. At
that date the Group also accrued #28.2 million and provided a further #27.3
million in respect of certain liabilities to Lehman Brothers in connection with
its lease of 25-30 Bank Street. These amounts, totalling #179.0 million, are
treated as lease incentives and accounted for in accordance with UITF 28.
Accordingly #179.0 million was included in prepayments at 30 June 2003 which
will be amortised through the profit and loss account over the period to the
first open market review on, as applicable, 10 Upper Bank Street and 25-30 Bank
Street. UITF 28 requires that, upon completion of these two properties (which
has occurred since 30 June 2003) and their revaluation to Market Value, the
valuation should be reduced for these incentives.
(9) At 30 June 2003, the adjustment required by Financial Reporting Standard
13 (Derivatives and Other Financial Instruments) ("FRS 13") in order to mark the
Group's financial instruments to market was #495.2 million, or #346.5 million
net of tax. The adjustment has been shown on a post tax basis as the loss
arising on redemption of debt at above nominal values could be offset against
taxable profits.
Of the amount of #346.5 million, #39.6 million is attributable to the
swaps and notes which will be closed out as a result of repaying #901.3 million
of notes in connection with the proposed transaction.
(10) The figure of #258.1 million represents the contingent tax which would be
payable upon disposal of the Group's properties at their Market Value at 30 June
2003, excluding any value attributable to EZAs. The disposal of 5 Canada Square
and 25 Canada Square at their EZA-exclusive values does not reduce this
contingent tax liability because the profit arising on the sale of these
properties may be fully sheltered by the Group's tax losses. As such, although
the contingent profits are reduced as a result of the sale of these properties,
the losses that may be used to shelter these lower contingent profits are
reduced by the same amount.
(11) The Group has received an assessment from its valuers that the increase
in Market Value attributable to EZAs at 30 June 2003 was #525.0 million. This
increase represents the valuers' assessment of the additional amount that a
third party purchaser would pay for a property recognising that a third party
purchaser would pay more for a building that attracts EZAs than for a building
that does not. Of the increase in Market Value of #525.0 million, #136.0
million in total is attributable to 5 Canada Square and 25 Canada Square.
It should be noted that the assessment of the value of EZAs above,
based on the sale of properties as at 30 June 2003, is not a suitable measure of
their worth to the Group on an on-going basis. For example, the 100% initial
allowance which maximises the value of the EZAs in a sale to a third party is
only available on the first sale within two years of the building being
occupied. If an intra-group transfer of the property is made to allow the Group
to claim the EZAs, a claim for either the initial allowance or for writing down
allowances at the rate of up to 25% of the qualifying expenditure will be made
as required in future accounting periods. After this first intra-group sale,
the value of the EZAs to a third party will fall considerably as a third party
would then only be able to claim writing down allowances at a rate of
approximately 4% per annum thereafter. Of the total increase in value of #525.0
million, approximately #475 million is attributable to EZAs on buildings in
respect of which a purchaser could claim the 100% initial allowance.
Accordingly, the disclosed amount of additional value attributable to EZAs will
reduce over the next couple of years as buildings are transferred within the
Group in order to preserve the entitlement of the Group to claim accelerated
rates of writing down allowances.
(12) A sale of the properties at their Market Value with the benefit of EZAs
would trigger a clawback of EZAs previously claimed on those properties.
Deferred tax has been provided in the Group's balance sheet at 30 June 2003 in
relation to EZAs already claimed but this provision has been discounted to
recognise that any clawback would under normal circumstances take place in the
future. If all properties are deemed to be sold at 30 June 2003 the clawback
would be triggered immediately and the liability would become the undiscounted
amount. This would increase the discounted liability of #47.9 million by #37.0
million to #84.9 million at 30 June 2003.
(13) In order to shelter the profit realised on disposal of 5 Canada Square
and 25 Canada Square it will be necessary to claim EZAs to cover the element of
that profit which cannot be sheltered by losses. A deferred tax provision would
need to be recognised in respect of the EZAs claimed and it has been estimated
by the company that the provision required would be #24.1 million on a
discounted basis or #52.6m undiscounted.
(14) If the properties were sold at a value of #525 million above their Market
Value, i.e. at their Market Value inclusive of EZAs, the contingent tax
liability would increase accordingly. The Group has calculated that on a basis
consistent with the calculation of the #258.1 million referred to in (10), after
allowing for utilisation of capital losses, the contingent tax liability as at
30 June 2003 based on the Market Values inclusive of EZAs would be #147.4
million higher, i.e. #405.5 million in total. Alternatively put, the uplift in
value attributable to EZAs would fall from #525.0 million to approximately #378
million after taking account of the resulting increase in the related tax
liability.
Of the amount of additional contingent tax arising due to the EZA
uplift, #21.0 million relates to 5 Canada Square and 25 Canada Square.
This information is provided by RNS
The company news service from the London Stock Exchange
END
DISBRBDDBBGGGXU