Canary Wharf Group plc

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000 immediately.

If you have sold or otherwise transferred all your Shares, please send this document, together with the accompanying forms of proxy, form of election and reply paid envelope, as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. However, such documents should not be forwarded or transmitted in or into any jurisdiction in which such act would constitute a violation of the relevant laws in such jurisdiction.

Lazard is acting for Canary Wharf and no one else in connection with the Disposals and the Offer 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 and the Offer.

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 customers of Cazenove nor for providing advice in relation to the Offer.

Canary Wharf Group plc

Proposed disposal of properties situated at

5 Canada Square and 25 Canada Square,

Canary Wharf

and notice of

Extraordinary General Meeting

A letter from the Group’s Non-Executive Chairman, Sir Martin Jacomb, recommending that you vote in favour of the Disposals at the Extraordinary General Meeting appears on pages 3 to 5 of this document.

A notice convening the Extraordinary General Meeting, which is to be held on the 29th Floor at One Canada Square, Canary Wharf, London E14 5AB at 9:00 a.m. on Monday 22 December 2003, is set out at the end of this document.

Whether or not you intend to be present at the Extraordinary General Meeting, please complete and sign the form of proxy accompanying this document in accordance with the instructions printed on them and return them to the Group’s registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4BR (tel: 0870 162 3100), as soon as possible, and in any event not later than 48 hours before the Extraordinary General Meeting. The return of a completed form of proxy will not prevent you from attending the Extraordinary General Meeting and voting in person if you so wish and if you are entitled to do so.

TABLE OF CONTENTS

Page

Letter from Sir Martin Jacomb	3
Introduction	3
Background to the Disposals	3
Information on the Properties	4
Terms of the Disposals	4
Impact on Canary Wharf	4
Benefits to the Company of the Disposals	5
Extraordinary General Meeting	5
Action to be taken	5
Consent	5
Recommendation	5

Appendix

Unaudited pro forma statement of net assets of the Continuing Group	6
Notice of Extraordinary General Meeting	9
Definitions	10
Attending the Extraordinary General Meeting	12

Letter of recommendation from Sir Martin Jacomb – Non-Executive Chairman and Chairman of the Independent Committee

Registered office:
One Canada Square
Canary Wharf
London E14 5AB
(Registered in England under number 4191122)

Directors:
Sir Martin Jacomb (Chairman)*
George Iacobescu (Chief Executive Officer)
A. Peter Anderson II (Managing Director, Finance)
Paul Reichmann
Sir John Carter*
Christopher Jonas*
Michael Price*
Gerald Rothman*
Robert Speirs*
Andrew Tisch*
*Non-Executive and members of the Independent Committee

5 December 2003

To all Shareholders, the Warrantholder and participants in the Share Schemes

Dear Shareholder,

PROPOSED DISPOSAL OF PROPERTIES SITUATED AT 5 CANADA SQUARE, CANARY WHARF AND AT 25 CANADA SQUARE, CANARY WHARF

1. Introduction

The Board of Canary Wharf announced today that it had agreed the terms of the sale of two leasehold properties situated at 5 Canada Square and at 25 Canada Square, Canary Wharf (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”).

I am writing to you to explain the background to the Disposals and to describe the action you should now take. The Board recommends that you vote in favour of the resolution required to effect the Disposals at the Extraordinary General Meeting which will be held on the 29th Floor at One Canada Square, Canary Wharf, London E14 5AB at 10:00 a.m. on Monday 22 December 2003.

2. Background to the Disposals

The Independent Committee has received a series of approaches from parties interested in acquiring Canary Wharf, culminating in the recommended Offer by the consortium led by MSREF and Simon Glick (the “Consortium”) which was announced today. The Offer is 265 pence per share, comprising 220 pence per share in cash and 45 pence per share in the form of shares in Canary Wharf’s parent company. The Offer will be implemented by way of a scheme of arrangement.

Brascan Corporation and IPC Advisors Corporation have confirmed that they are considering making an offer for Canary Wharf. They have therefore been asked for their consent to the Disposals under Note 1 to Rule 21.1 of the City Code. Neither of them has given this consent. The consent of the Consortium is not required as the Offer will be conditional, inter alia, on completion of the Disposals although, 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, and since the consent of all the potential offerors to the Disposals has not been obtained, the Disposals are conditional upon the approval of Canary Wharf shareholders under Rule 21 of the Code.

3. Information on the Properties

Details of the properties are as follows:

Property	Principal Tenant	NIA⁽¹⁾ (sq ft)	MV⁽²⁾ (£m)	Rent⁽³⁾ (£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.

4. Terms of Disposals

To effect the Disposals, Canary Wharf has entered into a series of agreements (the “Property Sale Agreements”) for the sale of the leasehold interests in the Properties to wholly-owned subsidiaries of RBS.

Under the terms of the Property Sale Agreements, Canary Wharf will receive total consideration of £1,112 million payable in cash at completion. Further limited consideration may be received by Canary Wharf depending on the amount of capital allowances agreed by the purchasers with the Inland Revenue.

The obligations of the parties to complete the Property Sale Agreements are conditional on the approval of the Disposals by 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. RBS may also terminate the Property Sale Agreement relating to either property if that property is substantially damaged before completion. In addition, RBS may terminate the Property Sale Agreement relating to 5 Canada Square if 25 Canada Square is substantially damaged before completion.

Lazard will receive a fee of £3.5 million on completion of the Disposals. If the Disposals are completed but the Offer is unsuccessful, MSREF will receive a fee of £4.0 million, of which £3.0 million will be payable by Canary Wharf. If the Disposals are not completed, Canary Wharf will pay RBS a fee of £2.5 million but no fee, in relation to the Disposals, to Lazard or Morgan Stanley.

5. Impact on Canary Wharf

Part of the proceeds from the Disposals is required to repay approximately £901 million of floating rate notes issued by Canary Wharf Finance II plc in order to obtain the release of the Properties from the security arrangements to which they are currently subject.

As set out in the Appendix, 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. The Disposals are expected to reduce Canary Wharf’s Adjusted NNNAV by approximately £96.5 million. These estimates take into account swap breakage costs arising from repayment of the floating rate notes, the write-off of prior period financing costs deferred in accordance with FRS 4 and the write back of the rent free accruals recognised in accordance with UITF 28. The cash proceeds from the Disposals are expected to generate approximately £225.2 million of additional liquidity for Canary Wharf.

6. Benefits to the Company Disposals

For the Company, the benefits of the Disposals include the following:

–	the sale price is attractive given current market conditions;
–	the increase in net assets and Adjusted NAV, as described above;
–	the cash proceeds from the Disposals are expected 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.

If the Shareholders vote in favour of the Disposals, the Company will be obliged to complete the Disposals.

7. Extraordinary General Meeting

A notice convening the Extraordinary General Meeting to consider the ordinary resolution to approve the Disposals is set out on pages 9 of this document. The Extraordinary General Meeting will be held on the 29th Floor at One Canada Square, Canary Wharf, London E14 5AB at 9:00 a.m. on Monday 22 December 2003.

8. Action to be taken

Whether or not they intend to be present at the meeting, Shareholders are requested to complete and return the enclosed form of proxy for the Extraordinary General Meeting in accordance with the instructions printed on the form. Completed forms of proxy should be returned to the Group’s registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4BR, as soon as possible, and in any event not later than 48 hours before the time appointed for the Extraordinary General Meeting. The completion and return of a form of proxy will not prevent you from attending the Extraordinary General Meeting and voting in person if you so wish.

9. Consent

Lazard has given and not withdrawn its consent to the inclusion of the references to its name in this document in the form and content in which it appears.

10. 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.

Yours faithfully,

Sir Martin Jacomb
Non-Executive Chairman

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.

	Per Statutory Balance Sheet	Uplift in Property Values to Market Value	Property Values at Market Value	Disposals	Pro Forma

	£ million
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 provision	(47.9)		(47.9)⁽⁶⁾	(24.1)⁽¹³⁾	(72.0)
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 & Broadgate			(179.0)⁽⁸⁾		(179.0)
FRS 13 (net of tax)			(346.5)⁽⁹⁾	39.0 ⁽⁹⁾	(307.5)
Contingent Tax (pre EZA uplift)			(258.1)⁽¹⁰⁾	0.0 ⁽¹⁰⁾	(258.1)

NNNAV			1,231.7	71.1	1,302.8

Uplift in Market Value attributable to EZAs			525.0 ⁽¹¹⁾	(136.0)⁽¹¹⁾	389.0
FRS 19 – deferred tax provision			(84.9)⁽¹²⁾	(52.6)⁽¹³⁾	(137.5)
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:

	£ million

Sale of properties	1,112.0
Less: Prepayment of debt (net of cancellation of D Notes held by the Group)	(856.3)^(a)
Less: Breakage costs of hedging instruments	(27.0)^(b)
Less: Estimated fees	(3.5)^(c)
Add: Release of Coverage Reserve	– ^(d)

	225.2

(a) It is anticipated that the following classes of notes will be repaid:

Tranche	Repayment £ million

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 facilityagreement with Gibralter Holdings Limited, (the “DS5 Facility Provider”), whereby, inconsideration for the payment of a commitment fee, the DS5 Facility Provider made availableon 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 totalincrease 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 additionalvalue 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 £52.6 million 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 (11), 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.

NOTICE OF EXTRAORDINARY GENERAL MEETING CANARY WHARF GROUP PLC
(Registered No. 4191122)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Canary Wharf Group plc (the “Company”) will be held on the 29th Floor at One Canada Square, Canary Wharf, London E14 5AB at 9:00 a.m. on Monday 22 December 2003 for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution.

ORDINARY RESOLUTION

THAT the Disposals, on the terms set out in the Property Sale Agreements (as defined in the circular to shareholders of the Company dated 5 December 2003, of which this notice forms part), be and is hereby approved and the Directors of the Company (or a duly constituted committee thereof) be and hereby are authorised to waive, amend, vary or extend any of the terms of the Property Sale Agreements and any ancillary agreements and arrangements thereto as they think fit and to do all such things as they (or a committee) may consider to be necessary, expedient or appropriate to complete or to give effect to, or otherwise in connection with, such Disposals and any matters incidental to such Disposals.

Dated: 5 December 2003

Registered office                                                                                                                      By order of the Board
One Canada Square                                                                                                                             John Garwood
Canary Wharf                                                                                                                                              Secretary
London E14 5AB
Registered in England No. 4191122

Notes:

1. A member entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to