The directors present their report and audited company and consolidated financial statements for Ark Estates 2 Limited ("the company") and its subsidiaries (together "the group") for the year ended 30 June 2024.
The results for the year are set out on page 8.
The results for the year and the financial position at the year end were considered satisfactory by the directors.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend (2023: nil).
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
In accordance with the company's articles, a resolution proposing that PricewaterhouseCoopers CI LLP be reappointed as auditor of the group will be put at a General Meeting.
This report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.
Independent auditors’ report to the members of Ark Estates 2 Limited
Report on the audit of the financial statements
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our audit approach
Context
The group is an English group limited by shares. The group's principal activities are the ownership, development and leasing of data centres in the United Kingdom financed principally by the issuance of loan notes listed on The International Stock Exchange (“TISE”). In the prior year the group’s principal activities were financed by shareholder loans. These shareholder loans were converted to the TISE listed loan notes on 19 March 2024.
Overview
Audit scope
We conducted our audit work in Jersey and the United Kingdom and tailored the scope of our audit taking into account the type of asset within the group, the accounting processes and controls, and the industry in which the group operates.
We conducted our audit of the financial statements based on information provided by management.
Key audit matters
Valuation of Investment Property (group)
Materiality
Overall group materiality: £6.32 million based on 1% of Total Assets (2023: £10.85 million based on 3% of Total Assets).
Overall company materiality: £903k based on 1% of Total Assets (2023: £3.05 million based on 3% of Total Assets).
Performance materiality: £4.74 million (2023: £8.14 million) (group) and £677k (2023: £2.29 million) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
As a result of the group issuing loan notes on The International Stock Exchange (“TISE”), key audit matters have been included for the first time this year.
This is not a complete list of all risks identified by our audit.
Key audit matter | How our audit addressed the key audit matter |
Valuation of Investment Property as at 30 June 2024 (group) |
|
Please refer to note 1.6 and 9 to the financial statements.
The group owns both standing and development investment property which are carried at fair value through profit or loss. The valuation of investment property is inherently subjective due to, among other factors, the individual nature of the investment property, its location, stage of development and expected future rental income. The valuation of the group’s investment property was carried out by an independent professional valuer ("management’s expert") who performed their work in accordance with the latest version of the RICS Valuation – Global Professional Standards (known as the “Red Book”) current as at the valuation date. In determining the investment property's valuation for standing investment property, management’s expert has considered property specific current information such as tenancy agreements and rental income earned from the property. Assumptions are then applied in relation to capitalisation rates, current market rent and growth, based on available market data, and recent transactions to arrive at a range of valuation outcomes, from which they derive a point estimate. In determining the valuation of the investment property under development, management’s expert takes into account property specific current information such as planning permission, the stage of development and committed costs to complete the development. Assumptions are then applied in relation to capitalisation rates, current market rent and growth (based on available market data and transactions), variable costs of the development, developer’s profit on cost and purchaser’s costs at the Gross Development Value (GDV) / Net Development Value (NDV) and residual land value levels to arrive at a range of valuation outcomes, from which they derive a point estimate. The directors have scrutinised and then adopted management’s expert values for the investment property for financial reporting purposes. | Understood and evaluated the controls and appropriateness of accounting policy in place in respect of investment property valuations and management’s engagement with management’s expert and the scope of their work; Obtained and read management’s expert report on the valuation of the group’s investment property as at the year end; Assessed management expert’s qualification, expertise and independence; Confirmed that management’s expert report was prepared in accordance with professional valuation standards and suitable for use in determining the fair value of investment properties as at 30 June 2024; Engaged our auditors expert to support our critique and challenge of the work performed and assumptions used by management’s expert. In particular, the valuation assumptions used by management's expert were compared to recent comparable market activity and industry indices and significant movements in the valuation were challenged; and Assessed the appropriateness of disclosures made within the group’s financial statements. Based on the audit work detailed above we have nothing to report to those charged with governance. |
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate.
We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined the principal risks were related to posting of inappropriate journal entries to increase revenue, and management bias in accounting estimates and judgemental areas of the financial statements such as valuation of investment property. We engaged our own internal auditor's expert to review the valuation of investment property as at 30 June 2024. Our findings are documented in the Key Audit Matter "Valuation of investment property".
The audit was led, directed and controlled by PricewaterhouseCoopers CI LLP and all audit work for material items within the financial statements was performed in Jersey and the United Kingdom.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the group’s and company’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of climate risk. Our procedures did not identify any material impact as a result of climate risk on the group’s and company’s financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Financial statements - group | Financial statements - company |
Overall materiality | £6.32 million (2023: £10.85 million). | £903k (2023: £3.05 million). |
How we determined it | 1% of Total Assets (2023: 3% of Total Assets) | 1% of Total Assets (2023: 3% of Total Assets) |
Rationale for benchmark applied | We believe total assets to be the appropriate basis for determining materiality since this is a key consideration for members of the company when assessing financial performance. It is also a generally accepted measure used for companies in this industry. | We believe total assets to be the appropriate basis for determining materiality since this is a key consideration for members of the company when assessing financial performance. It is also a generally accepted measure used for companies in this industry. |
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £3.62 million and £287k. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2023: 75%) of overall materiality, amounting to £4.74 million (2023: £8.14 million) for the group financial statements and £677k (2023: £2.29 million) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with those charged with governance that we would report to them misstatements identified during our audit above £632k (group audit) (2023: £1,085k) and 90.3k (company audit) (2023: 305k) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern basis of accounting included:
Discussing and critically examining management's assessment of the group and company's ability to continue as a going concern. This included evaluating the nature of the group and company’s operations, the assumptions made, and the time frame covered by the assessment;
Inquiring about any events or conditions beyond the assessment period that might significantly undermine the group and company’s ability to continue as a going concern;
Assessing the group and company’s ability to meet its commitments by issuing unsecured loan notes on TISE or drawing down on undrawn bank loan facilities when funding is required; and
Reviewing the cash flow forecasts prepared by the directors which include relevant downside sensitivities.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the company's ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Directors' report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below.
Directors' report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Directors' report for the year ended 30 June 2024 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Directors' report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we considered the principal risks of non-compliance with laws and regulations, including those that have a direct impact on the preparation of the financial statements such as the Companies Act 2006, and the extent to which non-compliance might have a material effect on the financial statements. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue and the potential for management bias in accounting estimates and key judgements impacting the financial statements such as valuation of investment property. Audit procedures performed by the engagement team included:
enquiring with the management of the group and the directors as to any actual or suspected instances of fraud or non-compliance with laws and regulations;
checking the minutes of meetings of the board of directors for matters relevant to the audit;
testing the disclosures made in the financial statements, as well as in the Directors' report, for compliance with the requirements of the Companies Act 2006;
procedures relating to the valuation of investment property described in the related Key Audit Matter;
performing audit procedures to incorporate unpredictability around the nature, timing and extent of our testing;
identifying and testing journal entries considered to be of higher fraud risk; and
evaluating the business rationale for any significant or unusual transactions identified as being outside the normal course of business.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not obtained all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or
certain disclosures of directors’ remuneration specified by law are not made; or
the company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Entitlement to exemptions
Under the Companies Act 2006 we are required to report to you if, in our opinion, the directors were not entitled to: prepare financial statements in accordance with the small companies regime; and take advantage of the small companies exemption from preparing a strategic report. We have no exceptions to report arising from this responsibility.
The notes on pages 11 to 21 form part of these financial statements.
The notes on pages 11 to 21 form part of these financial statements.
The notes on pages 11 to 21 form part of these financial statements.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £7,700,025 (2023 - £19,241,194 loss).
These financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies regime and in accordance with the provisions of FRS 102 1A - small entities.
Ark Estates 2 Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Spring Park, Westwells Road, Hawthorn, Corsham, Wiltshire, SN13 9GB.
The group consists of Ark Estates 2 Limited and all of its subsidiaries disclosed in note 10.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006 as applicable to companies subject to the small companies regime. The disclosure requirements of section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, modified to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.
The consolidated financial statements incorporate the financial statements of the company and its subsidiary undertakings, which were prepared to 30 June 2024, using the principles of merger accounting. Where there has been a group reorganisation within the ultimate parent company group the directors will adopt merger accounting when all the conditions of merger accounting have been satisfied. Intra-group transactions, balances and results are eliminated fully on consolidation. Uniform accounting policies have been used across the group.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
The directors have prepared the financial statements on a going concern basis.
At 30 June 2024 the group had net current liabilities of £28,901,675 (2023: £27,362,939). As disclosed in Note 15, by issuing unsecured loan notes on The International Stock Exchange ("TISE") to a related party when funding is required, the group has access to liquidity and sufficient undrawn group finance facilities to be able to meet all liabilities and commitments as they fall due. At 30 June 2024 the group also has access to undrawn amounts of £7,080,000 from its £170m bank loan facility, which has since been fully drawn down. In addition to this, the group obtained a bank loan facility of £200m on 20 August 2024 of which £39m has been drawn down at the date of approving these financial statements, and a bank loan facility of £200m on 22 October 2024 of which £44.5m has been drawn down at the date of approving these financial statements. One of the group's property is now income-generating and the directors have prepared cash flow forecasts which include relevant downside sensitivities and demonstrate that the company and group has access to sufficient liquidity to sustain its operations for a period of at least 12 months from the date of approval of these consolidated financial statements.
The directors are therefore satisfied that the group has sufficient group finance facilities and support from the ultimate parent at their disposal to meet working capital requirements, finance the capital commitments disclosed in Note 19 and meet other obligations and commitments as they fall due.
Property income is the total amount receivable by the group from the rental of its investment property during the period, excluding VAT.
Property expenses includes those costs directly attributable to the maintenance, security, running and fit out of the group's data centres. Costs are recognised in the period to which they relate, exclusive of VAT.
Interests in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in comprehensive income or expense.
A subsidiary is an entity controlled by the company. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include trade and other debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Basic financial liabilities, including creditors, listed loan notes and loans from fellow group companies, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method. Listed loan notes represent unsecured, unsubordinated fixed rate funding loan notes issued by the group to fund the principal activities. These are initially recognised at amounts drawn and subsequently measured at amounts drawn plus interest less payments made.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. Judgements, estimates and assumptions have been made in relation to the valuation of the company's investment property (see note 9). The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
There were no employees during the year (2023: none).
No directors' remuneration was paid in either the current year or prior year. The directors are remunerated by other group undertakings for which no allocations are made to the company.
Investment property represents the data centre campus known as Union Park which consists of 4 blocks. The investment property has been revalued as at 30 June 2024 at fair value by the directors with reference to market-based evidence and expected future cash flows derived from the assets. An independent professional valuation of Union Park was carried out by a RICS qualified valuer as at 30 June 2024 and this was taken into consideration in the directors' assessment of the fair value. The valuation methodology used to establish the value of the investment property includes a number of key assumptions. These include, but are not limited to; occupancy rates, contracted and uncontracted income forecasts, operational costs, capital replacement costs, planning permission, the stage of development, committed costs to complete the development, discount rates and exit yields.
On 10 July 2023 the company transferred investment property to Ark UP3 Limited at its fair value of £16,654,031 and investment property to Ark UP4 Limited at its fair value of £20,685,160. The fair value of the investment property at the transfer date was determined by the independent professional valuation of Union Park carried out by a RICS qualified valuer as at 30 June 2023 as the directors did not consider the value of the investment property at 10 July 2023 to have significantly changed since that valuation.
During the year the company acquired 13,064,016 additional shares in UP1 Holdings Limited for £13,064,016, 8,170,686 additional shares in UP2 Holdings Limited for £8,170,686, 485,066 additional shares in UP3 Holdings Limited for £485,066 and 159,265 additional shares in UP4 Holdings Limited for £159,265 in settlement of intercompany debt (see note 15).
As at 30 June 2024 the company owned 100% of the issued share capital of UP1 Holdings Limited, UP2 Holdings Limited, UP3 Holdings Limited and UP4 Holdings Limited, all of which were incorporated in England and Wales and have the principal activity of holding companies. UP1 Holdings Limited owns 100% of the issued share capital of Ark UP1 Limited, UP2 Holdings Limited owns 100% of the issued share capital of Ark UP2 Limited, UP3 Holdings Limited owns 100% of the issued share capital of Ark UP3 Limited and UP4 Holdings Limited owns 100% of the issued share capital of Ark UP4 Limited. The principal activity of Ark UP1 Limited, Ark UP2 Limited, Ark UP3 Limited and Ark UP4 Limited is that of the ownership, development and leasing of data centres.
Amounts owed by group undertakings are unsecured, have no fixed date of repayment and are repayable on demand.
Amounts owed to group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
Bank loans
As at 30 June 2024 Ark UP1 Limited had drawn down £162,920,000 (2023: £nil) of its £170m bank loan facility. The bank loan is repayable in quarterly instalments starting 5 November 2024, with full repayment on 21 July 2028. Interest is payable on a quarterly basis at a rate of SONIA plus 2.75% until 29 August 2024 and at a rate of SONIA plus 2.25% thereafter. The assets of Ark UP1 Limited are pledged as security against the loan.
The loan covenants associated with the bank loan facility are calculated based on the financial results of the company. Full compliance with all covenants was achieved both during the financial year ended 30 June 2024 as well as throughout the post balance sheet period to the date of approval and issuance of these financial statements. Financial forecasts indicate that all covenants will be complied with throughout the period to 21 July 2028, being the term and maturity date of the loan facility.
Ark UP1 Limited uses financial derivatives to manage interest rate risk associated with the bank loan. At 30 June 2024 fixed floating swaps were in place which effectively capped interest at 4.839% on £27,153,333, 5.038% on £27,153,333, 4.8264% on £54,306,667 and 5.02% on £54,306,667 of the balance.
Amounts owed to related undertakings
Amounts owed to related undertakings are owed to subsidiaries of Ark Capital Partners I LP Inc., the ultimate parent of Ark Estates 2 Limited. The amounts owed at 30 June 2023 were repayable on 30 September 2025 and interest was payable at a rate of 5.9% per annum. On 31 December 2023 54,567,168 ordinary shares of £1 each were issued at par in exchange for a decrease in amounts owed to related undertakings (see note 18). On 19 March 2024 the amount owed to related undertakings was converted into unsecured loan notes due 31 December 2038 listed on TISE. Interest is payable on the loan notes at a fixed rate of 9.1% per annum and is converted into unsecured loan notes on a quarterly basis. During the year £1,029,196 (2023: £Nil) of interest was capitalised by the company and £11,055,818 (2023: £Nil) of interest was capitalised by the group.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
No deferred tax has been recognised at 30 June 2024 or 30 June 2023 in relation to carried forward losses or capital allowances. This is due to the uncertainty and judgement associated with both the estimation of the financial value, as well as uncertainty around the timing of when such assets would be utilised.
On 31 December 2023 54,567,168 ordinary shares of £1 each were issued at par in exchange for a decrease in amounts owed to related undertakings (see note 15).
Amounts contracted for but not provided in the financial statements:
On 20 August 2024 Ark UP2 Limited obtained a bank loan facility of £200m of which £39m has been drawn down. The bank loan is repayable on 20 August 2029 and interest is payable on a quarterly basis at a rate of SONIA plus 2.75%.
On 22 October 2024 Ark UP3 Limited obtained a bank loan facility of £200m of which £44.5m has been drawn down. The bank loan is repayable on 22 October 2029 and interest is payable on a quarterly basis at a rate of SONIA plus 2.75%.
There have been no other post balance sheet events requiring disclosure in the notes to the financial statements.