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LBT
LILII
LBT - Liberty International Plc - Interim report: half year ended 30 June 2007
LIBERTY INTERNATIONAL PLC
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILII
PRESS RELEASE
26 July 2007
LIBERTY INTERNATIONAL PLC
INTERIM REPORT FOR THE HALF YEAR ENDED 30 JUNE 2007
Attached is the interim report for the half year ended 30 June 2007:
Page
Highlights 3
Dividends 4
Summary of Investment and Development Properties 5
Chairman`s Statement and Review of Operations 8
Financial Review 14
Unaudited Financial Information 20
Glossary 32
Sir Robert Finch, Chairman of Liberty International, commented:
"The first six months of 2007 have again demonstrated the significant
underlying strength of Liberty International and its high quality business,
particularly our leading position in the regional shopping centre business. In
our opinion, prime regional shopping centres continue to be a very attractive
sector of the UK property market on a long-term view and are currently valued on
an extremely defensive basis when compared with other sectors.
We continue to have every confidence in the prospects for Liberty International
and in our ability to extend the group`s successful long-term track record".
This press release includes statements that are forward-looking in nature.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Liberty International PLC to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Any information contained in this press release on the price at
which shares or other securities in Liberty International PLC have been bought
or sold in the past, or on the yield on such shares or other securities, should
not be relied upon as a guide to future performance.
A conference call with analysts and investors will take place at 9.00 a.m. on
26th July 2007.
Enquiries:
Liberty International PLC:
Sir Robert Finch Chairman +44 (0)20 7960 1273
David Fischel Chief Executive +44 (0)20 7960 1207
Aidan Smith Finance Director +44 (0)20 7960 1210
Public relations:
UK: Michael Sandler, Hudson Sandler +44 (0)20 7796 4133
SA: Matthew Gregorowski, +44 (0)20 7457 2020
College Hill Associates
Nicholas Williams, +27 (0)11 447 3030
College Hill Associates
BACKGROUND ON LIBERTY INTERNATIONAL
LIBERTY INTERNATIONAL PLC is one of the UK`s largest listed property companies
and a constituent of the FTSE-100 Index of the UK`s leading listed companies.
Liberty International converted into a UK Real Estate Investment Trust (REIT) on
1 January 2007.
Liberty International owns 100 per cent of Capital Shopping Centres ("CSC"), the
premier UK regional shopping centre business, and of Capital & Counties, a
retail and commercial property investment and development company.
At 30 June 2007, Liberty International held GBP8.2 billion of total properties
of which UK regional shopping centres comprised 78 per cent and retail property
in aggregate 93 per cent. Assets of the group under control or joint control
amounted to GBP10.8 billion at that date. Shareholders` funds (diluted,
adjusted) amounted to GBP5.2 billion.
CAPITAL SHOPPING CENTRES has interests in 14 UK regional shopping centres
amounting to 12.4 million sq.ft. in aggregate including 8 of the UK`s top 21
regional shopping centres with a market value of GBP6.3 billion at 30 June 2007.
CSC`s largest centres are Lakeside, Thurrock; MetroCentre, Gateshead; Braehead,
Renfrew, Glasgow; The Harlequin, Watford; and Manchester Arndale. CSC has three
major development projects underway or with planning permission in Cardiff,
Oxford and Newcastle.
CAPITAL & COUNTIES held assets of GBP1.8 billion at 30 June 2007 amounting to
7.0 million sq.ft. in aggregate. Capital & Counties has around GBP650 million
invested in the Covent Garden area including the historic Covent Garden Market,
and around GBP300 million in Central London, primarily through the Great Capital
Partnership, a joint venture with Great Portland Estates plc.
Since 30 June 2007, Capital & Counties has acquired 50 per cent of EC&O Venues
(Earls Court and Olympia Group) for a sum that values the assets at
approximately GBP375 million. Capital & Counties has interests in the USA
amounting to around GBP350 million (2.4 million sq.ft.), predominantly
comprising retail assets in California, notably the 856,000 sq.ft. Serramonte
Shopping Centre, Daly City, San Francisco.
LIBERTY INTERNATIONAL PLC
INTERIM REPORT FOR THE HALF YEAR ENDED 30 JUNE 2007 - HIGHLIGHTS
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2007 2006 2006
Net rental income +7% GBP174m GBP162m
GBP341m
Profit before tax
(underlying*) +16% GBP67m GBP58m
GBP122m
Profit before tax GBP548m GBP491m
GBP903m
Profit for the period
attributable to equity
shareholders (note 1) GBP500m GBP352m
GBP1,564m
Gain on revaluation and
sale of investment
and development
properties GBP231m GBP258m
GBP587m
Total properties GBP8,172m GBP7,271m
GBP8,232m
Net debt GBP2,899m GBP2,859m
GBP3,063m
Net assets (diluted,
adjusted**) GBP5,226m GBP4,465m
GBP5,002m
Basic earnings per share 138.0p 104.7p 462.1p
Earnings per share
(adjusted**) +34% 18.8p 14.0p 33.9p
Dividend per ordinary
share +20% 16.5p 13.75p 31.0p
Basic net assets per
share 1429p 966p 1308p
Net assets per share
(diluted, adjusted**)*** +4% 1385p 1268p 1327p
Total return for the
period** 6% 8% 18%
Note 1 Year ended 31 December 2006 included GBP883 million (net) tax credit from
conversion to REIT status
* Before property trading, valuation and exceptional items
** See Glossary for definitions
*** Net assets per share (diluted, adjusted) would increase by 101p per share
at 30 June 2007 (31 December 2006 - 98p) to 1486p (31 December 2006 - 1425p) if
adjusted for notional acquisition costs
DIVIDENDS
The Directors of Liberty International PLC have proposed an interim dividend per
ordinary share (ISIN GB0006834344) of 16.5p (2006 - 13.75p) payable on 4
September 2007 (see salient dates below). This dividend will be paid totally as
a Property Income Distribution ("PID") and will be wholly subject to a 22%
withholding tax unless exemptions apply (please refer to the SPECIAL NOTE
below).
DATES
The following are the salient dates for the payment of the interim dividend:
Wednesday 1 August 2007 Sterling/Rand exchange rate struck
Monday 13 August 2007 Ordinary shares listed ex-dividend on the
JSE, Johannesburg
Wednesday 15 August 2007 Ordinary shares listed ex-dividend on the
London Stock Exchange
Friday 17 August 2007 Record date for interim dividend in London
and Johannesburg
Friday 17 August 2007 UK shareholders only: Last date for receipt
of Tax Exemption
Declaration forms to permit dividends to
be paid gross
Tuesday 4 September 2007 Dividend payment day for shareholders
(Note: Payment to ADR holders will be made
on 14 September 2007)
South African shareholders should note that, in accordance with the
requirements of STRATE, the last day to trade cum-dividend will be Friday 10
August 2007 and that no dematerialisation or rematerialisation of shares will be
possible from Monday 13 August to Friday 17 August 2007 inclusive.
No transfers between the UK and South African registers may take place from
Wednesday 1 August to Sunday 19 August 2007 inclusive.
SPECIAL NOTE:
UK shareholders: For those who are eligible for exemption from the 22%
withholding tax, an HM Revenue & Customs ("HMRC") Tax Exemption Declaration is
available for download from the "Investors" section of the Liberty
International website (www.liberty-international.co.uk) or from HMRC. Validly
completed forms must be received by the UK registrars, Capita Registrars, no
later than the Record Date, Friday 17 August 2007, otherwise the dividend will
be paid after deduction of tax.
South African and other non-UK shareholders: South African shareholders may
apply to HMRC after payment of the dividend for a refund of the difference
between the 22% withholding tax and the current UK/South African double
taxation treaty rate of 15%. Other non-UK shareholders may be able to make
similar claims. Refund application forms for all non-UK shareholders are
available for download from the "Investors" section of the Liberty
International website (www.liberty- international.co.uk) or from HMRC. Refunds
are not claimable from Liberty International, the South African Revenue Service
or other national authorities, only from the UK`s HMRC.
The above does not constitute advice and shareholders should seek their own
professional guidance. Liberty International does not accept liability for any
loss suffered arising from reliance on the above.
`
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES
Market value Revaluation surplus
31 30
December June
2006 2007
GBPm GBPm GBPm
Increase
UK regional shopping centres
Lakeside, Thurrock 1,298.6 1,339.7 37.3 2.9%
Braehead, Glasgow 746.1 752.7 6.6 0.9%
MetroCentre, Gateshead (60%) 615.0 658.7 27.2 4.3%
The Harlequin, Watford 523.6 535.9 12.3 2.4%
Victoria Centre, Nottingham 441.1 461.9 22.1 5.1%
Chapelfield, Norwich 354.0 351.2 4.8 1.4%
Cribbs Causeway, Bristol 311.6 313.5 2.2 0.7%
The Potteries, Stoke-on-Trent 307.5 307.5 (0.7) (0.2%)
The Chimes, Uxbridge 275.0 286.9 12.0 4.4%
The Glades, Bromley 269.5 276.6 6.0 2.1%
Eldon Square, Newcastle upon
Tyne 240.1 244.4 4.0 1.6%
Like-for-like income 5,382.1 5,529.0 133.8 2.5%
Arndale, Manchester 428.3 448.8 18.7 4.2%
St. David`s, Cardiff 104.3 104.7 0.5 0.5%
Xscape, Braehead 39.4 40.7 0.4 1.1%
Like-for-like capital 5,954.1 6,123.2 153.4 2.6%
Redevelopments and developments 193.2 215.8 (8.2) (3.7%)
Disposals (MetroCentre (40%)) 410.0 - -
Total UK regional shopping
centres 6,557.3 6,339.0 145.2 2.3%
UK non-shopping centre
properties
Like-for-like income 532.6 556.6 20.0 3.8%
Like-for-like other 467.9 486.6 12.2 2.6%
Like-for-like capital 1,000.5 1,043.2 32.2 3.2%
Acquisitions - 228.7 (1.2) (0.5%)
Redevelopments and developments 141.1 173.7 20.4 12.9%
Disposals 147.9 - -
Total UK non-shopping centre
properties 1,289.5 1,445.6 51.4 3.7%
US properties*
Like-for-like income 283.2 288.3 8.1 2.8%
Like-for-like other 70.3 74.5 4.9 7.3%
Like-for-like capital 353.5 362.8 13.0 3.7%
Disposals 5.7 - 0.1
Total US properties 359.2 362.8 13.1 3.8%
Total investment properties 8,206.0 8,147.4 209.7 2.6%
Net rental income
30 30
June June
2006 2007
GBPm GBPm Increase
UK regional shopping centres
Lakeside, Thurrock
Braehead, Glasgow
MetroCentre, Gateshead (60%)
The Harlequin, Watford
Victoria Centre, Nottingham
Chapelfield, Norwich
Cribbs Causeway, Bristol
The Potteries, Stoke-on-Trent
The Chimes, Uxbridge
The Glades, Bromley
Eldon Square, Newcastle upon Tyne
Like-for-like income 110.2 117.0 6.1%
Arndale, Manchester
St. David`s, Cardiff
Xscape, Braehead
Like-for-like capital 117.8 129.3 9.7%
Redevelopments and developments 2.7 2.0
Disposals (MetroCentre (40%)) 9.0 4.6
Total UK regional shopping centres 129.5 135.9 4.9%
UK non-shopping centre properties
Like-for-like income 11.7 10.9 (6.5%)
Like-for-like other 0.8 10.0
Like-for-like capital 12.5 20.9
Acquisitions - 1.6
Redevelopments and developments 1.4 2.1
Disposals 7.1 3.0
Total UK non-shopping centre
properties 21.0 27.6 31.4%
US properties*
Like-for-like income 9.4 8.1 (4.7%)
Like-for-like other 0.7 2.0
Like-for-like capital 10.1 10.1
Disposals 0.3 -
Total US properties 10.4 10.1
Total investment properties 160.9 173.6 7.6%
*Like-for-like % increases are in local currency
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued)
Property analysis by use and type
Market value
31 30
December June
2006 2007
GBPm GBPm
Regional shopping centres and other retail
UK regional shopping centres 6,557.3 6,339.0
UK other retail 781.6 941.8
US regional shopping centres 123.1 125.9
US other retail 134.2 132.9
Total regional shopping centres and other retail 7,596.2 7,539.6
Office
UK business space 507.9 503.8
US business space 67.9 69.9
Total office 575.8 573.7
Residential
US residential 34.0 34.1
Total investment properties 8,206.0 8,147.4
Revaluation
surplus
% of total
properties Increase
Regional shopping centres and other retail
UK regional shopping centres 77.8% 2.3%
UK other retail 11.6% 1.1%
US regional shopping centres 1.5% 2.3%
US other retail 1.6% 5.2%
Total regional shopping centres and other retail 92.5% 2.2%
Office
UK business space 6.2% 8.3%
US business space 0.9% 4.8%
Total office 7.1% 7.9%
Residential
US residential 0.4%
Total investment properties 100.0% 2.6%
Analysis of UK non-shopping centres and US properties by location and type
Market value
31 30
December June
2006 2007
GBPm GBPm
UK non-shopping centre properties
Capco Covent Garden 491.5 649.9
Capco Opportunities 276.1 316.8
Capco London (inc. Great Capital Partnership) 323.2 276.3
Capco Urban 198.7 202.6
Total UK non-shopping centre properties 1,289.5 1,445.6
US properties
US retail 257.3 258.8
US business space 67.9 69.9
US residential 34.0 34.1
Total US properties 359.2 362.8
1,648.7 1,808.4
Revaluation surplus
30
June
2007
GBPm Increase
UK non-shopping centre properties
Capco Covent Garden 6.8 1.1%
Capco Opportunities 30.2 10.6%
Capco London (inc. Great Capital Partnership) 14.6 5.5%
Capco Urban (0.2) (0.1%)
Total UK non-shopping centre properties 51.4 3.7%
US properties
US retail 9.5 3.8%
US business space 3.0 4.8%
US residential 0.6 1.9%
Total US properties 13.1 3.8%
64.5 3.7%
Net rental income
30 30
June June
2006 2007
GBPm GBPm
UK non-shopping centre properties
Capco Covent Garden 1.5 11.3
Capco Opportunities 7.9 5.9
Capco London (inc. Great Capital Partnership) 7.7 6.9
Capco Urban 3.9 3.5
Total UK non-shopping centre properties 21.0 27.6
US properties
US retail 8.4 7.4
US business space 2.0 2.1
US residential - 0.6
Total US properties 10.4 10.1
31.4 37.7
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued)
UK investment property valuation data
Market
value Nominal equivalent yield
30 June 31 30
2007 December June
GBPm 2006 2007
UK regional shopping centres
Lakeside, Thurrock 1,339.7 4.65% 4.55%
Braehead, Glasgow 752.7 4.81% 4.81%
MetroCentre, Gateshead 658.7 4.75% 4.62%
The Harlequin, Watford 535.9 4.75% 4.70%
Victoria Centre, Nottingham 461.9 4.95% 4.85%
Arndale, Manchester 448.8 4.96% 4.86%
Chapelfield, Norwich 351.2 5.00% 4.95%
Cribbs Causeway, Bristol 313.5 4.74% 4.72%
The Potteries, Stoke-on-Trent 307.5 5.00% 5.00%
The Chimes, Uxbridge 286.9 5.00% 4.90%
The Glades, Bromley 276.6 4.95% 4.95%
Eldon Square, Newcastle upon Tyne 244.4 5.20% 5.10%
St. David`s, Cardiff 104.7 5.00% 4.96%
Xscape, Braehead 40.7 6.04% 5.92%
Like-for-like capital 6,123.2 4.83% 4.77%
Other 215.8
Total UK regional shopping centres 6,339.0 4.83% 4.78%
UK non-shopping centre properties
Capco Covent Garden 507.8 4.56% 4.52%
Capco Opportunities 204.4 5.75% 5.59%
Capco Urban 166.4 5.15% 5.38%
Capco London 164.6 5.03% 5.07%
Like-for-like capital 1,043.2 4.96% 4.95%
Other 402.4
Total UK non-shopping centre properties 1,445.6 5.11% 4.93%
Passing Net rental
rent income ERV
30 June 30 June 30 June
2007 2007 2007
GBPm GBPm
GBPm
UK regional shopping centres
Lakeside, Thurrock
Braehead, Glasgow
MetroCentre, Gateshead
The Harlequin, Watford
Victoria Centre, Nottingham
Arndale, Manchester
Chapelfield, Norwich
Cribbs Causeway, Bristol
The Potteries, Stoke-on-Trent
The Chimes, Uxbridge
The Glades, Bromley
Eldon Square, Newcastle upon Tyne
St. David`s, Cardiff
Xscape, Braehead
Like-for-like capital 236.4 129.3 302.0
Other 4.3 6.6 5.1
Total UK regional shopping centres 240.7 135.9 307.1
UK non-shopping centre properties
Capco Covent Garden
Capco Opportunities
Capco Urban
Capco London
Like-for-like capital 43.4 20.9 61.1
Other 12.9 6.7 25.0
Total UK non-shopping centre properties 56.3 27.6 86.1
CHAIRMAN`S STATEMENT AND REVIEW OF OPERATIONS
Introduction
The first six months of 2007 have again demonstrated the significant underlying
strength of Liberty International and its high quality business, particularly
our leading position in the regional shopping centre business. In our opinion,
prime regional shopping centres continue to be a very attractive sector of the
UK property market on a long-term view and are currently valued on an extremely
defensive basis when compared with other sectors.
Our first half year as a UK Real Estate Investment Trust (REIT) has seen
substantial positive momentum throughout the business.
Financial results
The financial results for the six months ended 30 June 2007 compared with 2006
show underlying profit before tax increasing by 16 per cent to GBP67 million and
adjusted earnings per share increasing by 34 per cent to 18.8p per share. This
reflects underlying growth in net rental income and a low tax charge. The growth
in the like-for-like net rental income in our core UK regional shopping centre
business amounted to 6 per cent.
The Directors propose a 20 per cent increase in the interim dividend from
13.75p to 16.5p. This dividend will be paid entirely as a Property Income
Distribution (`PID`). Our intention is that any non-PID element of the year`s
dividend will be attached to the final dividend. Shareholders who believe they
may be entitled to a different withholding tax rate than the standard 22 per
cent which is applied to the PID or who may be able to reclaim some of the
withholding tax should read carefully the section on Dividends contained within
the Interim Report.
Liberty International has always pursued a progressive dividend policy
distributing substantially all of the group`s recurring income. We have shown
consistent growth over a long period from 4.5p in 1985 to 31.0p in 2006. This
progressive policy will continue under REIT status but additionally we expect
the 2007 dividend to include an extra increase out of the net tax savings from
conversion to a REIT.
Our net asset value per share (adjusted, diluted), the standard industry
measure, has increased by 6 per cent to 1385p after taking into account the
17.25p final dividend for 2006 paid in the period.
This headline figure is equivalent to 1486p per share, adding back GBP382
million of purchasers` costs deducted from valuations, a matter on which I
comment further below.
The valuation surplus for the six month period amounted to GBP231 million
(GBP156 million for the three months ended 31 March 2007).
UK regional shopping centres held by Capital Shopping Centres (`CSC`) increased
in value in the six months by 2.6 per cent (1.9 per cent in the three months to
31 March 2007) with a substantial proportion, 40 per cent of the increase,
derived from underlying rental growth. Our investment in these prime assets
amounted to GBP6.3 billion at 30 June 2007.
Capital & Counties, our non-UK shopping centre business, has changed
substantially over the last twelve months and grown through some significant
transactions from GBP1,057 million of investment properties at 30 June 2006 to
GBP1,808 million at 30 June 2007. We reported a healthy like-for-like valuation
surplus on these assets for the six month period of 3.2 per cent in the UK and
3.7 per cent in the US (1.6 per cent and 1.5 per cent respectively for the three
months ended 31 March 2007).
Overall equivalent yields, as determined by our valuers for our UK regional
shopping centres, were 4.77 per cent, effectively the same as 31 March 2007 and
6 basis points less than the 4.83 per cent used at 31 December 2006 while yields
on our UK non-shopping centre business were virtually unchanged at 4.95 per cent
(31 December 2006 - 4.96 per cent).
Our financial position is strong with a debt to assets ratio at 30 June 2007 of
36 per cent, GBP199 million of cash and GBP405 million of committed bank
facilities.
Our borrowings are almost entirely long-term, asset-specific and non-recourse to
the group. We have fixed our cost of debt for an average length of time of
nearly ten years with the fixed rates actually reducing over the hedging period.
Our underlying revenue results before valuation items are not therefore
sensitive to movements in short term UK interest rates such as any movement in
the base rate.
The base rate increased from 5.0 per cent at 31 December 2006 to 5.5 per cent at
30 June 2007. It is currently 5.75 per cent. However, the immediate impact of
rising interest rates is in fact substantially positive for our balance sheet.
We recorded a valuation surplus on the derivative financial instruments used to
fix long-term debt of GBP251 million for the six months (GBP109 million for the
three months ended 31 March 2007).
Overall, the mark-to-market of our debt and financial instruments at 30 June
2007 would add a further 13p before tax to our adjusted net asset value per
share.
Positive business momentum
We have moved decisively to take advantage of our new REIT status which enables
us to take asset management decisions without having to take account of tax on
capital gains. First, we introduced GIC Real Estate from Singapore, one of the
world`s leading global real estate investors, as a strategic 40 per cent partner
in MetroCentre, Gateshead, for a gross consideration of GBP426 million.
Secondly, we transferred GBP300 million of Central London properties into a
GBP460 million partnership with Great Portland Estates plc, pooling assets which
fitted together logically and realising nearly GBP70 million of cash from the
transaction.
We have progressed our important transformation of Capital & Counties
particularly in London where we now have strategic holdings in prime locations.
Our overall development programme amounts to around GBP900 million of which
GBP600 million is currently committed or with planning approval.
Capital Shopping Centres
The major St David`s, Cardiff mixed-use development is now on site,
construction has commenced on the third and largest phase of the redevelopment
and expansion of Eldon Square, Newcastle and the Westgate, Oxford project is
advancing rapidly, having received planning consent in March, with a view to
starting on site next year.
Each of these three developments is of the highest quality and has an
attractive risk profile, being well-anchored and extending an existing and
well-established prime retail location in a leading UK city with robust demand
from major retailers. Pre-lettings at both Newcastle and Cardiff are
progressing in line with expectations with good demand for well-configured
large fashion units.
Occupancy remained at a high level of 98.6 per cent in established UK regional
shopping centres, 97.9 per cent overall including recently completed
developments (31 December 2006 - 98.6 per cent and 97.7 per cent respectively).
In particular Manchester Arndale, where the major 550,000 sq. ft. Northern
Extension completed in Autumn 2006, is now 95 per cent committed by rental value
(94 per cent at 31 March 2007).
Demand continued to be robust in other use categories such as family dining and
during the first six months we have seen several new entrants to our centres. 51
tenancy changes took place in the period adding GBP3.5 million to annual net
rental income (first six months of 2006 - 33 units, GBP0.6 million uplift).
The remodelled pavilion at Lakeside, renamed The Boardwalk, successfully opened
in June comprising eleven restaurants overlooking Alexandra Lake together with a
refurbished state of the art Vue Cinema. Initial restaurant trading has been
above expectations as customers combine the advantage of longer shopping hours
and attractive dining facilities.
Through focussed management of our prime assets we continually strive to offer
shoppers the best all round experience - differentiating our product and
ensuring we have the shopping and leisure destinations of choice.
As we have often remarked before, CSC`s growth in net rental income is more
correlated with rent reviews, typically every five years in the UK, than with
short term fluctuations in retail sales. Our rent review programme continues to
progress satisfactorily with the bulk of rent reviews from earlier years now
settled and some 11 per cent of CSC`s income due for review this year.
The retail market continues to be highly competitive. However, the underlying
picture in UK retail remains positive, notwithstanding the rising interest rate
environment. Non-food retail sales have continued to strengthen in the UK in the
first six months with the twelve month rolling annual growth rate increasing
from 2.2 per cent at 31 December 2006 to 3.7 per cent at 30 June 2007 (Source:
ONS).
Capital & Counties - increasing our Central London presence
We are firm believers in the potential for London and its position as the
growth engine for the whole UK economy. The foundation of London`s prosperity is
its world-leading financial services industry but additionally London is reaping
substantial benefits from globalisation as its historical, cultural and
residential attractions are increasingly appreciated.
Twelve months ago, Capital & Counties held GBP1,057 million of investment
properties of which GBP397 million were in Central London. The business now has
GBP1,808 million of investment properties of which GBP926 million are in
London`s West End.
That total includes GBP650 million invested in the iconic and historic Covent
Garden estate at the heart of London`s West End. This destination attracts over
40 million customer visits per annum and we see substantial scope for value
adding initiatives to increase dwell time and spend through improving tenant mix
and other active asset management opportunities. In the first six months of
2007, we invested around a further GBP150 million in Covent Garden, in
particular acquiring prime retail units in the Royal Opera House block, all but
completing our ownership around the historic piazza.
We are committed to elevating the world-renowned Covent Garden to provide a
vibrant high quality destination for Londoners and visitors to the capital
while nurturing the unique characteristics familiar to residents. Initially we
are concentrating on improving the retail mix, diversity of dining, range of
entertainment activities, quality of direct estate management and focus of
marketing activities. In the medium term, we intend improving the public realm
including enhancing access to Covent Garden, celebrating the district`s heritage
and providing more interesting public spaces. In the longer term, we see
opportunities for refurbishing or redeveloping certain properties whilst
improving the quality of use of others. We are working closely with stakeholders
in Covent Garden and are making good progress with our strategic plan.
Our investment in Central London has been further augmented in the second half
of the year through a transaction announced just after the end of the period,
the acquisition of a half share in the GBP375 million Earls Court and Olympia
complexes, a globally-recognised landmark London venue.
Capco Covent Garden and Capco London are two of the operating platforms of
Capital and Counties formed as part of the company`s reorganisation at the
beginning of the year. In terms of Capital & Counties` other activities, Capco
Urban has won its first major mixed use development project in Canterbury and is
actively sourcing other opportunities. Capco Opportunities is making good
progress in upgrading its asset mix and Capco USA continues its steady growth in
California.
Strengths of Liberty International
The FTSE-350 Real Estate Index dropped 18.5 per cent in the six months ended 30
June 2007, while Liberty International`s share price dropped 18 per cent from
1396p to 1145p in the same period, indicating some measure of investor
uncertainty surrounding the property industry.
Strategies which may have been attractive to investors in recent years,
particularly debt-driven buying on yield considerations and reliance on yield
compression for capital appreciation, are less likely to be fruitful in a rising
interest rate environment or a more inflationary economic background.
In these changing times, the real strengths of Liberty International are likely
to emerge, including our focus, our proven ability to add value through
intensive management involvement, our experience of investing through the
property cycles and our financial track record. It would be helpful to set out
these strengths.
First, we are a highly specialised business focussed on quality retail
property, with a very strong market position in UK regional shopping centres,
which constitute 78 per cent of our overall investment properties, with retail
overall comprising 93 per cent:
- We are the UK`s market leader in prime regional shopping centres with 14
major centres including 8 of the UK`s top 21 centres. We have an attractive mix
of out-of-town and city centre assets. We have interests in four of the UK`s
eight out-of-town super-regional centres with a combined value of GBP3.1 billion
while in-town centres in prime city locations amount to GBP3.2 billion.
- We have an enviable geographic spread across the UK including major cities
such as Manchester, Glasgow, Newcastle, Nottingham and Cardiff as well as a
strong presence in the South East of England through four of our major shopping
centres, with an aggregate value of GBP2.4 billion, including our flagship
Lakeside, Thurrock.
- The scale of our business and our use of turnover-based rents produces strong
retailer relationships. Retailers appreciate that our centres provide first-rate
trading locations and have confidence they will continue to be maintained to the
highest standards. We encourage retailers to have flagship stores in our
centres, displaying their latest formats and continually refreshing their offer
to the shopping public.
- Our business has strong inflation-hedging characteristics as in the long run
our ability to deliver growth in net rental income is linked to the success of
retailers in our centres and the growth in their sales.
- Our pro-active management approach, particularly focussed on constantly
upgrading the retail mix, enables our centres to continually improve and
attract repeat visits from shoppers. Examples are the Boardwalk restaurant
development at Lakeside which opened in June introducing eleven new restaurants
overlooking the lake and substantially enhancing the attraction of the centre
late into the evening, while at The Glades, Bromley we are well underway with a
project to link major high street units into the centre increasing its overall
size.
- We have a strong shopping centre development capability. We have opened major
projects in 2004 (the Red Mall extension at MetroCentre), 2005 (Chapelfield,
Norwich) and 2006 (Manchester Arndale extension), in each year the largest
opening event in the UK regional shopping centre industry. Through our current
development programme we aim to continue the measured expansion of our business.
Secondly, on a relative basis, valuations of prime regional shopping centres
continue to be very defensive:
- Prime regional shopping centres are valued on an equivalent yield basis of
around 4.75 per cent which is more conservative than other prime asset classes
such as high street shops (4.0 per cent), retail parks (3.85 per cent), West End
offices (3.50 per cent) and City offices (4.25 per cent) (Source: CB Richard
Ellis).
- Prime regional shopping centres are very stable and resilient assets which
have provided consistent growth in net rental income and capital appreciation.
Their performance has shown substantially less volatility than other major UK
real estate asset classes. While in the property market euphoria of the last few
years, offices have outperformed retail and secondary retail has outperformed
prime, we are confident that the traditional strengths of our assets will soon
reassert themselves and deliver long-term outperformance as rising interest
rates make life more difficult for debt-driven buyers of assets and owners of
inferior properties. Our centres are well let on long leases to a wide spread of
tenants and we have consistently maintained high occupancy levels.
Thirdly, shareholders should fully appreciate the basis on which our net asset
value is prepared:
- Our balance sheet aggregates our individual assets at market value and
ignores important elements of value, such as the considerable management
expertise and experience within the group including a strong development
capability and the ability to handle large and complex transactions.
- The market values take no account of the additional portfolio value of our
assets which have been accumulated over a generation and could not now be
assembled individually on any sensible timescale.
- Furthermore, although shareholders buying our shares only pay stamp duty at
0.5 per cent on share transactions, the assumption contained within the
valuations is that our assets would be sold individually to purchasers who
would pay the full 4 per cent stamp duty land tax applicable to large property
transactions and other notional acquisition costs.
Adjusting for this factor would increase our net asset value by GBP382 million,
representing 101p per share over and above our published net asset value per
share figure of 1385p, producing a more realistic number for shareholders of
1486p.
Fourthly, through Capital & Counties, we have an excellent business which
complements our regional shopping centre activities, with:
- A substantial Central London presence, through the Great Capital Partnership
and our Covent Garden investment.
- An investment of scale in Covent Garden where the extent of our holdings is
such that we have a degree of management influence over the area akin to
ownership of a large shopping centre.
- A new and energetic management team assembled over the last twelve months
which is fully capable of taking on new challenges such as the Earls Court and
Olympia investment.
- An international capability, at present mostly through Capital & Counties USA
where we have GBP363 million of predominantly retail assets on the West Coast of
the USA and have delivered excellent returns to shareholders.
While our balance sheet shows total property assets of GBP8.2 billion, assets of
the group under control or joint control amounted to GBP10.8 billion at 30 June
2007, giving a fuller measure of the scale of our business.
Prospects
Prime shopping centres have provided exceptional returns to shareholders over
the last 15 years. We continue to have every confidence in the prospects for
Liberty International and in our ability to extend the group`s successful long-
term track record.
Sir Robert Finch
26 July 2007
FINANCIAL REVIEW
Liberty International recorded the following significant corporate transactions
in the first half of 2007:
- Formation of a strategic partnership with GIC Real Estate realising GBP426
million.
- Formation of The Great Capital Partnership, a GBP460 million joint venture
with Great Portland Estates.
- GBP128 million acquisition of the Royal Opera House retail units in Covent
Garden.
Details of these transactions are shown in the paragraph "Transactions in the
period" below.
The acquisition of a 50% interest in Earls Court and Olympia Group was
announced after the end of the period on 2 July 2007 and has not therefore been
reflected in the financial information contained within this report. Details are
set out in the paragraph `Post Period Transactions` below.
Results for the Half Year Ended 30 June 2007
The Income Statement for the half year shows continuing underlying growth with a
16 per cent increase in underlying profit before tax from GBP58 million to GBP67
million, and a 34 per cent increase in adjusted earnings per share reflecting in
addition the benefit of tax savings from conversion to REIT status. Like-for-
like net rental income in the group`s UK regional shopping centres increased by
6.1 per cent (3.8 per cent excluding a one-off GBP3 million surrender premium).
Like-for-like non- shopping centre net rental income fell by 6.5 per cent or
GBP0.8 million in the UK and by 4.7 per cent in the US reflecting planned
refurbishment activity, a lease expiry in the UK where the property has been
subsequently re-let and a small number of tenant failures. Good progress is
being made in securing new tenants or on sales where appropriate.
Gains on revaluation and sale of investment properties amounted to GBP231
million, including GBP21 million from disposals, of which GBP16 million came
from the partial disposal of MetroCentre, Gateshead.
Quarterly Underlying Profit Statement
A separate schedule showing the income statement for the quarter ended 30 June
2007 together with relevant comparative information is attached at the end of
this section of the report.
Valuations
Like-for-like gains on revaluation of investment properties are summarised as
follows:
Six months ended
30 June 2007 Quarter ended Year ended
31 March 31 December
2007 2006
- UK regional shopping
centres +2.6% +1.9% +7.9%
- UK non-shopping
centre properties +3.2% +1.6% +13.9%
- USA +3.7% +1.5% +5.8%
The related weighted average nominal equivalent yields were as follows:
As at As at As at
30 June 2007 31 March 2007 31 December 2006
UK regional shopping
centres 4.77% 4.78% 4.83%
UK non-shopping centre
properties 4.95% 5.00% 4.96%
Of the revaluation gain on UK regional shopping centres, 60 per cent is
estimated to have arisen as a result of yield shift and 40 per cent from
underlying rental growth.
Net Assets Per Share
Adjusted net assets per share increased from 1327p to 1385p, an increase of 5.7
per cent for the six month period after taking into account the final dividend
for 2006 of 17.25p paid in May 2007.
Financial Position
The group acquired GBP236 million of investment properties during the six month
period and expenditure on developments and other additions amounted to GBP71
million. Sales of investment property with a carrying value of GBP573 million at
31 December 2006 generated a surplus of GBP21 million for the period. Net debt
reduced by GBP164 million to GBP2,899 million at 30 June 2007.
The net proceeds of the transactions referred to above, combined with the GBP335
million of equity capital raised by way of a share placing in November 2006,
represent a substantial strengthening of the group`s financial position. Liberty
International`s financial ratios, including a debt to assets ratio of 36 per
cent (31 December 2006 - 36 per cent), remain robust.
Fair Value of Debt and Financial Instruments
Long-term interest rates continued to rise during the period, with the ten year
UK interest rate swap, a reasonable proxy for our fixed rate hedging strategy,
rising from 5.11 per cent at 31 December 2006 to 5.92 per cent at 30 June 2007.
We recorded a surplus of GBP251 million on revaluation of the derivative
financial instruments used to fix our long-term debt (31 March 2007 - GBP109
million).
The potential adjustment to net assets per share (diluted, adjusted) arising
from the fair value of the group`s debt and financial instruments in recent
years is shown below:
Fair value
Fair value adjustment
10 year adjustment (before tax)
GBPswap (before tax) pence per
% GBPm share
31 December 2005 4.51% (417.4) (119)p
31 December 2006 5.11% (240.2) (64)p
31 March 2007 5.35% (121.6) (32)p
30 June 2007 5.92% 47.1 13p
The group`s net borrowings at 30 June 2007 amounted to GBP2,899 million with
GBP549 million of fixed rate debt and the remainder largely fixed by way of
derivative financial instruments. The structure of the group`s hedging
instruments means that on the fixed element of our borrowings the group has a
declining interest rate profile (see table below):
Interest Rate Swap Summary
Notional Amount Average Rate
Effective afterGBPm %
1 Year 2,642 5.31
5 Years 2,818 5.10
10 Years 2,350 4.68
15 Years 2,025 4.57
20 Years 2,025 4.57
25 Years 1,550 4.38
Share Buy-backs
Liberty International has shareholder approval to buy-back on-market up to 10
per cent of its shares. Although the current share price is a discount to
published net asset value, we would expect only to use the buy-back power very
selectively given the scale of our development programme and the long-term time
horizon required to bring major shopping centre projects to fruition.
Transactions in the Period
- Strategic partnership with GIC Real Estate realising GBP426 million.
Our wholly owned subsidiary, Capital Shopping Centres (``CSC``), entered into an
agreement with GIC Real Estate (``GIC RE``) for GIC RE to acquire a 40 per cent
share in CSC`s interest in the MetroCentre, Gateshead for a gross consideration
of GBP426 million. GIC RE is the real estate investment arm of the Government of
Singapore Investment Corporation and one of the world`s leading global real
estate investors. CSC continues to manage the MetroCentre. The transaction,
which completed during the second quarter, releases capital to enable Liberty
International to continue to expand its overall business.
- Formation of a GBP460 million Central London joint venture with Great Portland
Estates.
Our wholly owned subsidiary, Capital and Counties, announced the formation of
The Great Capital Partnership, a 50:50 joint venture with Great Portland
Estates plc (``GPE``), to own, manage and develop a number of Central London
properties and to broaden both parties` exposure in Central London. The Great
Capital Partnership had a starting value of around GBP460 million, with Capital
& Counties contributing GBP299 million of investment properties and GPE
contributing GBP162 million and making a balancing payment of GBP68 million in
cash to Capital & Counties. The transaction completed during the second quarter.
GPE is responsible for day-to-day asset management of the partnership
properties. This relationship with GPE will enable us to increase our
involvement in London in partnership with a first class team.
- GBP128 million acquisition of the Royal Opera House retail units in Covent
Garden.
In the first quarter Capital and Counties acquired the retail element of the
Royal Opera House block in London`s Covent Garden for GBP128 million increasing
the aggregate value of our interests in Covent Garden, together with other
acquisitions in the period, to GBP650 million. This purchase is of strategic
importance to our long-term plans for Covent Garden. The retail units in the
Royal Opera House block are amongst the most prime in Covent Garden and the
acquisition expands our ownership to encompass the northern side of the Market
and James Street which serves as the "front door" to the Covent Garden Market
itself.
Post-Period Transactions
- Acquisition of a 50 per cent interest in EC&O Venues (Earls Court and Olympia
Group)
Capital & Counties has acquired a 50 per cent interest in EC&O for a sum that
values the assets at approximately GBP375-380 million. The consideration for the
50 per cent interest is approximately GBP54 million taking into account all
assets, debt and other liabilities of the business. The partnership will own and
manage Earls Court and Olympia Exhibition Centres in West London and the
Brewery, Chiswell Street, London EC2, with the aim of establishing the venues as
landmark leisure destinations, centred around the core businesses of
exhibitions, conferences and special events whilst exploring opportunities to
intensify use. The interest in EC&O is expected to be accounted for as a
subsidiary in the group accounts with the results, assets and liabilities fully
consolidated in the group`s accounts.
Development Programme
Details of the principal development projects underway or with planning
permission are set out in the table below:
Cost to
Development Status complete
GBP80m
Eldon Square, Newcastle (60% interest)
Phase one - restaurants and 22,000 sq. ft. retail. Completed in
October 2006.
Phase two - bus station and 48,000 sq. ft. retail. Bus station
completed February
2007.
Retail on site;
expected opening
Spring 2008.
Phase three - 410,000 sq. ft. retail extension On site July 2007.
including 175,000 sq. ft. Debenhams department Expected opening
store. Spring 2010.
St David`s, Cardiff GBP191m
967,500 sq. ft. extension. On site. Expected
Joint venture with Land Securities Group PLC. opening Autumn 2009.
Westgate Centre, Oxford GBP156m
750,000 sq. ft. refurbishment and extension. Detailed planning
Joint venture with LaSalle Investment permission granted
Management. March 2007. CPO inquiry
date awaited.
Expected start on
site 2008.
Expected opening 2011.
Other developments - CSC GBP58m
Other developments - Capital and Counties GBP115m
Total developments underway or with planning consent GBP600m
26 July 2007
UNDERLYING PROFIT STATEMENT (unaudited)
Quarter Quarter Six months Six months
ended ended ended ended
30 June 31 March 30 June 30 June
2007 2007 2007 2006
GBPm GBPm GBPm
GBPm
UK shopping centres 64.1 71.8 135.9 129.5
Other commercial
properties 18.2 19.5 37.7 32.2
Net rental income 82.3 91.3 173.6 161.7
Other income/(expense) (0.1) 0.4 0.3 (0.4)
82.2 91.7 173.9 161.3
Administration expenses (9.6) (7.4) (17.0) (15.2)
Operating profit
(underlying)* 72.6 84.3 156.9 146.1
Interest payable (43.2) (49.7) (92.9) (90.7)
Interest receivable 2.1 1.3 3.4 2.9
Net finance costs
(underlying)* (41.1) (48.4) (89.5) (87.8)
Profit before tax
(underlying)* 31.5 35.9 67.4 58.3
Tax on profit
(underlying) 0.6 (0.5) 0.1 (12.1)
Profit for the period
(underlying)* 32.1 35.4 67.5 46.2
Adjusted earnings per
share 9.0p 9.8p 18.8p 14.0p
Profit before tax
(underlying)* 31.5 35.9 67.4 58.3
Property trading profits 0.7 - 0.7 0.7
Gains on revaluation and
sale of investment
properties 74.5 156.3 230.8 258.0
Movement in fair value
of derivative financial
instruments 142.0 109.2 251.2 175.5
Exceptional finance costs 6.4 (8.3) (1.9) (2.0)
Profit before tax 255.1 293.1 548.2 490.5
Tax (28.3) (20.4) (48.7) (138.4)
Profit for the period
attributable to equity
shareholders 226.8 272.7 499.5 352.1
* before property trading, valuation and exceptional items
Independent review report to Liberty International PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprises the consolidated interim
balance sheet as at 30 June 2007 and the related consolidated interim statements
of income, cash flows and statement of recognised income and expense for the six
months then ended and related notes. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors` responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with the basis set out in
Note 1.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, 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.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.
PricewaterhouseCoopers LLP
Chartered Accountants
London
26 July 2007
Notes:
(a) The maintenance and integrity of the Liberty International PLC website is
the responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
CONSOLIDATED INCOME STATEMENT (unaudited)
For the six months ended 30 June 2007
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Notes GBPm GBPm
GBPm
Revenue 2 262.4 246.8 562.8
Rental income 254.9 244.2 493.1
Rental expenses (81.3) (82.5) (152.5)
Net rental income 2 173.6 161.7 340.6
Other income 1.0 0.3 34.8
Gain on revaluation and
sale of investment
and development
properties 3 230.8 258.0 586.5
405.4 420.0 961.9
Administration expenses (17.0) (15.2) (34.2)
Operating profit 388.4 404.8 927.7
Interest payable 4 (92.9) (90.7) (190.0)
Interest receivable 3.4 2.9 3.9
Exceptional finance
costs 4 (1.9) (2.0) (2.0)
Change in fair value of
derivative financial
instruments 251.2 175.5 163.5
Net finance costs 159.8 85.7 (24.6)
Profit before tax 548.2 490.5 903.1
Taxation 5 (48.7) (138.4) 661.0
Profit for the period
attributable to
equity shareholders 499.5 352.1 1,564.1
Ordinary dividends -
paid and proposed 59.7 46.3 108.7
- pence per share 16.5p 13.75p 31.0p
Basic earnings per share 13 138.0p 104.7p 462.1p
Diluted earnings per
share 13 133.0p 101.0p 444.0p
Adjusted earnings per share are shown in note 13.
CONSOLIDATED BALANCE SHEET (unaudited)
As at 30 June 2007
As at As at As at
30 June 31 December 30 June
2007 2006 2006
Notes GBPm GBPm
GBPm
Non-current assets
Investment and
development properties 7 8,124.8 8,187.1 7,125.1
Plant and equipment 0.9 0.9 0.7
Investments 23.5 - -
Trade and other
receivables 9 221.6 81.4 61.0
Current assets 8,370.8 8,269.4 7,186.8
Trading properties 8 46.8 45.2 146.4
Trade and other
receivables 9 128.8 113.8 70.7
Investments - - 14.0
Cash and cash equivalents 199.4 321.8 117.7
375.0 480.8 348.8
Total assets 8,745.8 8,750.2 7,535.6
Current liabilities
Trade and other payables (263.4) (319.5) (186.4)
Tax liabilities (1.4) (2.1) (17.1)
Borrowings, including
finance leases 10 (167.9) (43.5) (64.8)
Derivative financial
instruments (5.5) (4.6) (13.1)
Non-current liabilities (438.2) (369.7) (281.4)
Borrowings, including
finance leases 10 (2,930.7) (3,341.3) (2,911.7)
Derivative financial
instruments (7.6) (128.9) (94.2)
Deferred tax provision 5 (85.0) (40.8) (981.1)
Other provisions (4.8) (4.9) (7.7)
Other payables (108.3) (132.2) (10.5)
Total liabilities (3,136.4) (3,648.1) (4,005.2)
(3,574.6) (4,017.8) (4,286.6)
Net assets 5,171.2 4,732.4 3,249.0
Equity
Called up share capital
and reserves 14 5,171.2 4,732.4 3,249.0
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (unaudited)
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
GBPm GBPm
GBPm
Profit for the period 499.5 352.1 1,564.1
Actuarial gains on defined
benefit pension schemes - - 0.7
Surplus on revaluation of
development properties - 17.0 -
Tax on items taken directly to equity - (5.1) (4.9)
Net exchange translation
differences and other movements (0.4) (2.2) (4.6)
Total recognised income and
expense for the period 499.1 361.8 1,555.3
A summary of changes in group equity is shown in note 14.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
GBPm GBPm
GBPm
Cash flows from operating
activities
Operating profit 388.4 404.8 927.7
Adjustments for non-cash items:
Unrealised net revaluation gains
on investment properties (209.7) (234.6) (558.5)
Unrealised gains on transfer of
trading properties - - (33.1)
Profit on sale of investment
properties (21.1) (23.4) (28.0)
Depreciation and amortisation - 0.2 0.2
Amortisation of lease incentives
and other direct costs 1.5 (0.1) 10.3
Cash flows from operations before
changes in working capital 159.1 146.9 318.6
Change in trade and other
receivables (22.3) 5.5 (10.9)
Change in trading properties (14.5) 8.4 9.7
Change in current asset
investments (23.5) (11.0) 3.0
Change in trade and other payables (74.0) 4.7 (0.5)
Cash generated from operations 24.8 154.5 319.9
Interest paid (81.5) (113.7) (198.6)
Interest received 3.6 1.9 2.9
Tax paid - (8.4) (6.6)
Cash flows from operating
activities (53.1) 34.3 117.6
Cash flows from investing activities
Purchase and development of
properties (229.3) (66.1) (653.9)
Sale of property 287.3 126.0 127.3
Cash flows from investing
activities 58.0 59.9 (526.6)
Cash flows from financing
activities
Issue and repurchase of shares 2.1 5.3 341.4
Borrowings drawn 130.0 471.0 902.0
Borrowings repaid (197.0) (472.4) (486.0)
Equity dividends paid (62.4) (51.2) (97.4)
Cash flows from financing
activities (127.3) (47.3) 660.0
Net (decrease)/increase in cash
and cash equivalents (122.4) 46.9 251.0
Cash and cash equivalents at 1
January 321.8 70.8 70.8
Cash and cash equivalents at
closing 199.4 117.7 321.8
NOTES TO THE ACCOUNTS (unaudited)
1 Basis of preparation
The Interim Report is unaudited and does not constitute statutory accounts
within the meaning of s240 of the Companies Act 1985. The statutory accounts for
2006, which were prepared in accordance with International Financial Reporting
Standards, as endorsed by the European Union ("IFRS"), and with those parts of
the Companies Act 1985 applicable to companies reporting under IFRS, have been
delivered to the Registrar of Companies. The auditors` opinion on these accounts
was unqualified and did not contain a statement made under s237(2) or s237(3) of
the Companies Act 1985.
The financial information comprises the consolidated balance sheets as at 30
June 2007, 30 June 2006 and 31 December 2006 and related consolidated
statements of income, cash flow and recognised income and expense and the
related notes for the periods then ended hereinafter referred to as "financial
information".
The financial information has been prepared in accordance with the Listing
Rules of the Financial Services Authority and the principal accounting policies
set out on pages 42 and 43 of the Annual Report 2006 dated 28 February 2007
which is available on the company`s website (www.liberty-international.co.uk).
It has been prepared under the historical cost convention as modified by the
revaluation of properties, available for sale investments and financial assets
and liabilities held for trading.
2 Segmental analysis
Six months ended 30 June 2007
UK Other
shopping commercial Other Group
centres properties activities total
GBPm GBPm GBPm
GBPm
Revenue 199.8 62.4 0.2 262.4
Rental income 199.8 55.1 - 254.9
Rental expense (63.9) (17.4) - (81.3)
Net rental income 135.9 37.7 - 173.6
Property trading profits - 0.7 - 0.7
Other income - 0.1 0.2 0.3
Gain on revaluation and
sale of investment
and development properties 165.9 64.9 - 230.8
Segment result 301.8 103.4 0.2 405.4
Six months ended 30 June 2006
UK Other
shopping commercial Other Group
centres properties activities total
GBPm GBPm GBPm
GBPm
Revenue 200.4 46.4 - 246.8
Rental income 199.3 44.9 - 244.2
Rental expense (69.8) (12.7) - (82.5)
Net rental income 129.5 32.2 - 161.7
Property trading profits 0.3 0.4 - 0.7
Other income - 0.2 (0.6) (0.4)
Gain on revaluation and
sale of investment
and development properties 163.5 94.5 - 258.0
Segment result 293.3 127.3 (0.6) 420.0
Year ended 31 December 2006
UK Other
shopping commercial Other Group
centres properties activities total
GBPm GBPm GBPm
GBPm
Revenue 421.1 139.2 2.5 562.8
Rental income 387.9 105.2 - 493.1
Rental expense (115.9) (36.6) - (152.5)
Net rental income 272.0 68.6 - 340.6
Property trading
(losses)/profits (0.8) 32.6 1.0 32.8
Other income - 0.5 1.5 2.0
Gain on revaluation and
sale of investment
and development
properties 470.7 115.8 - 586.5
Segment result 741.9 217.5 2.5 961.9
NOTES TO THE ACCOUNTS (continued)
3 Gain on revaluation and sale of investment and development properties
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
GBPm GBPm
GBPm
Gain on revaluation of investment
and development properties 209.7 234.6 558.5
Gain on sale of investment
properties 21.1 23.4 28.0
Income statement gain on
revaluation and sale of
investment and development
properties 230.8 258.0 586.5
4 Finance costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
GBPm GBPm
GBPm
Gross interest payable - recurring 99.4 95.2 198.6
Interest capitalised on
developments (6.5) (4.5) (8.6)
Interest payable 92.9 90.7 190.0
Issue costs written off on
redemption of loans 1.9 2.0 2.0
Exceptional finance costs 1.9 2.0 2.0
5 Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
GBPm GBPm
GBPm
Current tax on profits excluding
exceptional
tems and property disposals 0.9 17.3 29.6
Deferred tax:
On investment and development
properties 2.9 72.5 (848.1)
On derivative financial
instruments 44.1 53.0 51.2
On other temporary differences (1.0) (5.2) (17.6)
Deferred tax on profits excluding
exceptional items and property
disposals 46.0 120.3 (814.5)
Tax on profits excluding
exceptional items and property
disposals 46.9 137.6 (784.9)
REIT entry charge 1.8 - 154.3
Exceptional current tax - - (32.2)
Tax on exceptional items and
property disposals:
- current tax - 0.8 1.8
Exceptional tax and tax on
exceptional items and property
disposals - 0.8 (30.4)
Taxation 48.7 138.4 (661.0)
NOTES TO THE ACCOUNTS (continued)
5 Taxation continued
Under IAS 12 (Income Taxes), provision is made for the deferred tax liability
associated with the revaluation of investment properties at the corporate tax
rate expected to apply to the group at the time of use. For those properties
qualifying as REIT properties the relevant tax rate will be 0 per cent, for
other UK properties the relevant tax rate will be 28 per cent (following the
substantial enactment on 26 June 2007 of tax law to reduce the UK corporation
tax rate from 30 per cent to 28 per cent) and for overseas properties the
relevant tax rate will be the prevailing corporate tax rate in that country.
The deferred tax provision on the revaluation of investment properties
calculated under IAS 12 is GBP33.8m at 30 June 2007 (31 December 2006 - GBP32.1
million, 30 June 2006 - GBP893.5 million). This IAS 12 calculation does not
reflect the expected amount of tax that would be payable if the assets were
sold. The group estimates that calculated on a disposal basis the liability is
GBP52.9m at 30 June 2007 (31 December 2006 - GBP49.1 million, 30 June 2006 -
GBP671.4m). If upon sale the group retained all the capital allowances, which is
within the control of the group, the deferred tax provision in respect of
capital allowances of GBP31.2m may also be released, and further capital
allowances of GBP25.1m may be available to reduce the amount of tax payable on
sale.
Where gains such as revaluation of development properties and other assets and
actuarial movements on pension funds are dealt with in reserves, any deferred
tax is also dealt with in reserves.
Movements in the provision for deferred tax
As at As at
31 December Recognised Recognised 30 June
2006 in income in equity 2007
GBPm GBPm GBPm
GBPm
Revaluation of
investment and
development
properties 32.1 2.2 (0.5) 33.8
Capital allowances 31.8 0.7 (1.3) 31.2
Derivative financial
instruments (32.2) 44.1 - 11.9
Other temporary
differences 9.1 (1.0) - 8.1
Net deferred tax
provision 40.8 46.0 (1.8) 85.0
6 Dividends
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
GBPm GBPm
GBPm
Ordinary shares
62.4 51.1 51.1
Prior period final dividend paid
of 17.25p per share (2006 - 15.25p)
Interim dividend paid of 13.75p
per share - - 46.3
Dividends paid 62.4 51.1 97.4
Proposed dividend of 16.5p per
share (30 June 2006 - 13.75p, 31
December
2006 - 17.25p) 59.7 46.3 62.4
NOTES TO THE ACCOUNTS (continued)
7 Investment and development properties
UK Other
shopping commercial
centres properties Total
GBPm GBPm
GBPm
At 31 December 2006 6,542.8 1,644.3 8,187.1
Additions 54.7 252.5 307.2
Disposals (419.1) (154.1) (573.2)
Foreign exchange fluctuations - (6.0) (6.0)
Surplus on valuation 145.2 64.5 209.7
At 30 June 2007 6,323.6 1,801.2 8,124.8
The group`s interests in investment and development properties were valued as at
30 June 2007 and 31 December 2006 by independent external valuers in
accordance with the Appraisal and Valuation Manual of RICS, on the basis of
market value. Market value represents the figure that would appear in a
hypothetical contract of sale between a willing buyer and a willing seller.
As at As at As at
30 June 31 December 30 June
2007 2006 2006
GBPm GBPm
GBPm
Balance sheet carrying value of
investment and development properties 8,124.8 8,187.1 7,125.1
Adjustment in respect of head leases
and incentives 22.6 18.9 1.2
Market Value of investment and
development properties 8,147.4 8,206.0 7,126.3
8 Trading properties
The estimated replacement cost of trading properties based on market value
amounted to GBP51.0 million (31 December 2006 - GBP49.9 million, 30 June 2006 -
GBP188.8 million).
9 Trade and other receivables
As at As at As at
30 June 31 December 30 June
2007 2006 2006
GBPm GBPm
GBPm
Amounts falling due within one year:
Rents receivable 23.7 26.1 18.1
Derivative financial instruments 7.4 7.0 2.7
Other receivables 49.7 42.3 10.7
Prepayments and accrued income 48.0 38.4 39.2
128.8 113.8 70.7
Amounts falling due after more than one
year:
Derivative financial instruments 153.0 14.0 -
Other receivables 12.5 12.2 12.6
Prepayments and accrued income 56.1 55.2 48.4
221.6 81.4 61.0
NOTES TO THE ACCOUNTS (continued)
10 Borrowings, including finance leases
As at As at As at
30 June 31 December 30 June
2007 2006 2006
GBPm GBPm
GBPm
Amounts falling due within one year:
Secured borrowings
Bank loans and overdrafts 139.6 12.9 36.3
21.7 24.2 21.8
Commercial mortgage backed securities
("CMBS") notes
Finance lease obligations 6.6 6.4 6.7
Amounts falling due within one year 167.9 43.5 64.8
Amounts falling due after more than one
year:
Secured borrowings - non recourse
CMBS notes 2015 911.4 1,124.1 1,133.3
CMBS notes 2011 637.4 639.7 544.9
Bank loans 2016 511.0 512.9 460.1
Bank loan 2014 - 175.6 177.3
Bank loans 2013 251.1 251.0 -
2,310.9 2,703.3 2,315.6
Other secured borrowings
Debentures 2027 (30 June 2006 - 2021
and 2027) 225.9 225.8 230.0
Other loans 180.9 189.5 144.3
2,717.7 3,118.6 2,689.9
Unsecured borrowings
CSC bonds 2013 26.6 26.5 26.6
CSC bonds 2009 31.2 41.3 41.2
2,775.5 3,186.4 2,757.7
GBP111.3 million 3.95% convertible bonds
due 2010 110.4 108.7 107.0
Finance lease obligations 44.8 46.2 47.0
Amounts falling due after more than one
year 2,930.7 3,341.3 2,911.7
Total borrowings, including finance
leases 3,098.6 3,384.8 2,976.5
Cash and cash equivalents (199.4) (321.8) (117.7)
Net borrowings 2,899.2 3,063.0 2,858.8
NOTES TO THE ACCOUNTS (continued)
11 Fair values of financial instruments
As at 30 June 2007
Balance
sheet value Fair value
GBPm GBPm
Debentures and other fixed rate loans
Sterling
C&C 5.562% debenture 2027 225.9 327.5
C&C 9.875% debenture 2027 - -
C&C 11.25% debenture 2021 - -
CSC 6.875% unsecured bonds 2013 26.6 26.6
CSC 5.75% unsecured bonds 2009 31.2 31.7
US dollars
Fixed rate loans 155.3 153.4
439.0 539.2
Floating rate and other loans 2,549.2 2,549.2
2,988.2 3,088.4
Convertible bonds - fixed rate 110.4 160.3
Total borrowings 3,098.6 3,248.7
As at 31 December 2006
Balance
sheet value Fair value
GBPm GBPm
Debentures and other fixed rate loans
Sterling
C&C 5.562% debenture 2027 225.8 348.8
C&C 9.875% debenture 2027 - -
C&C 11.25% debenture 2021 - -
CSC 6.875% unsecured bonds 2013 26.5 25.4
CSC 5.75% unsecured bonds 2009 41.3 42.0
US dollars
Fixed rate loans 164.0 169.1
457.6 585.3
Floating rate and other loans 2,818.5 2,818.5
3,276.1 3,403.8
Convertible bonds - fixed rate 108.7 195.4
Total borrowings 3,384.8 3,599.2
As at 30 June 2006
Balance
sheet value Fair value
GBPm GBPm
Debentures and other fixed rate loans
Sterling
C&C 5.562% debenture 2027 - -
C&C 9.875% debenture 2027 150.0 225.2
C&C 11.25% debenture 2021 80.0 124.1
CSC 6.875% unsecured bonds 2013 26.6 25.0
CSC 5.75% unsecured bonds 2009 41.2 41.2
US dollars
Fixed rate loans 147.1 145.6
444.9 561.1
Floating rate and other loans 2,424.6 2,424.6
2,869.5 2,985.7
Convertible bonds - fixed rate 107.0 150.9
Total borrowings 2,976.5 3,136.6
All other financial assets and liabilities included in the balance sheet are
stated at fair values.
Derivative financial instruments
As at As at As at
30 June 31 December 30 June
2007 2006 2006
GBPm GBPm
GBPm
Non current assets (note 9) 153.0 14.0 -
Current assets (note 9) 7.4 7.0 2.7
Current liabilities (5.5) (4.6) (13.1)
Non-current liabilities (7.6) (128.9) (94.2)
147.3 (112.5) (104.6)
Interest rate swaps
Notional principal Average contracted rate
30 June 31 December 30 June 31 December
2007 2006 2007 2006
GBPm GBPm % %
Effective after:
1 year 2,642 3,055 5.31 5.31
5 years 2,818 3,153 5.10 5.16
10 years 2,350 2,075 4.68 4.75
15 years 2,025 1,750 4.57 4.63
20 years 2,025 1,750 4.57 4.63
25 years 1,550 1,275 4.38 4.43
12 Capital commitments
At 30 June 2007, the group was contractually committed to GBP354.0 million of
future expenditure for the purchase, construction, development and enhancement
of investment property (31 December 2006 - GBP127.0 million, 30 June 2006 -
GBP51.0 million).
NOTES TO THE ACCOUNTS (continued)
13 Per share details
(a) Earnings per share
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Number Number Number
millions millions millions
Weighted average ordinary shares
in issue for calculation of basic
earnings per share 361.9 336.2 338.5
Weighted average ordinary shares
to be issued on conversion of
bonds and under employee incentive
arrangements 14.8 15.1 15.0
Weighted average ordinary shares
in issue for calculation of
diluted earnings per share 376.7 351.3 353.5
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
GBPm GBPm
GBPm
Earnings used for calculation of
basic earnings per share 499.5 352.1 1,564.1
Reduction in interest charge from
conversion of bonds, net of tax 2.8 2.6 5.3
Earnings used for calculation of
diluted earnings per share 502.3 354.7 1,569.4
Basic earnings per share (pence) 138.0p 104.7p 462.1p
Diluted earnings per share (pence) 133.0p 101.0p 444.0p
Earnings used for calculation of
basic earnings per share 499.5 352.1 1,564.1
Add back exceptional finance costs 1.9 2.0 2.0
Add back REIT entry charge 1.8 - 154.3
Add back/(less) other exceptional tax 0.8 (30.4)
Less gain on revaluation and sale
of investment and development
properties (230.8) (258.0) (586.5)
Less fair value movement on
derivative financial instruments (251.2) (175.5) (163.5)
Add back/(less) deferred tax in
respect of investment and
development properties 2.2 71.4 (787.2)
Add back deferred tax in respect
of derivative financial
instruments 44.1 53.0 51.2
Add back/(less) deferred tax on
capital allowances 0.7 1.1 (60.9)
Less gain on transfer of trading
property to investment
properties, net of tax - - (28.5)
Earnings used for calculation of
adjusted earnings per share 68.2 46.9 114.6
Adjusted earnings per share (pence) 18.8p 14.0p 33.9p
Earnings used for calculation of
adjusted earnings per share 68.2 46.9 114.6
Reduction in interest charge from
conversion of bonds, net of tax 2.8 2.6 5.3
Earnings used for calculation of
adjusted, diluted earnings per share 71.0 49.5 119.9
Adjusted, diluted earnings per
share (pence) 18.8p 14.1p 33.9p
NOTES TO THE ACCOUNTS (continued)
13 Per share details (continued
(b) Net assets
As at As at As at
30 June 31 December 30 June
2007 2006 2006
GBPm GBPm
GBPm
Basic net asset value 5,171.2 4,732.4 3,249.0
Fair value of derivative financial
instruments (net of tax) (135.4) 80.4 75.1
Deferred tax on revaluation surpluses 33.8 32.1 893.5
Deferred tax on capital allowances 31.2 31.8 96.7
Unrecognised surplus on trading
properties (net of tax) 3.2 4.7 29.7
5,104.0 4,881.4 4,344.0
Effect of dilution:
On conversion of bonds 110.4 108.7 107.0
On exercise of options 11.8 12.3 14.0
Diluted, adjusted net asset value 5,226.2 5,002.4 4,465.0
(c) Shares in issue
As at As at As at
30 June 31 December 30 June
2007 2006 2006
Number Number Number
millions millions millions
Shares in issue, excluding those held
by ESOP trust and treated as
cancelled 362.0 361.7 336.4
Effect of dilution:
On conversion of bonds 13.9 13.9 13.9
On exercise of options 1.4 1.5 1.9
Diluted shares in issue 377.3 377.1 352.2
(d) Convertible debt
3.95 per cent convertible bonds due 2010 At 30 June 2007, 31 December 2006 and
30 June 2006 3.95 per cent convertible bonds with a nominal value of
GBP111.3 million were in issue.
The holders of the 3.95 per cent bonds have the option to convert their bonds
into ordinary shares at any time on or up to 23 September 2010 at 800p per
ordinary share. The 3.95 per cent bonds may be redeemed at par at the company`s
option after 14 October 2008.
14 Summary of changes in equity
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
GBPm GBPm
GBPm
Opening shareholders` equity 4,732.4 2,933.1 2,933.1
Issue of shares 2.6 6.2 342.4
Cancellation of shares (0.5) (0.9) (1.0)
4,734.5 2,938.4 3,274.5
Total recognised income and
expense for the period 499.1 361.8 1,555.3
5,233.6 3,300.2 4,829.8
Dividends paid (62.4) (0.9) (97.4)
Closing shareholders` equity 5,171.2 3,249.0 4,732.4
GLOSSARY
Earnings per share (adjusted): Earnings per share adjusted for valuation and
exceptional items and their tax effect, in accordance with UK property industry
practice (for calculation, see note 13).
ERV (Estimated Rental Value): The external valuers` estimates of the group`s
share of the current annual market rent of all lettable space.
Like-for-like income: The category of investment properties which have been
owned throughout both periods without significant capital expenditure in either
period, so both income and capital can be compared on a like-for-like basis.
Like-for-like capital: The category of investment properties which includes
like-for-like income properties, plus those which have been owned throughout the
current period but not the whole of the prior period, without significant
capital expenditure in the current period, so capital values but not income can
be compared on a like-for-like basis.
Net assets (diluted, adjusted): Net assets adjusted for deferred tax in respect
of revaluation surpluses and capital allowances, fair value movements on
interest rate hedges, and valuation surpluses on trading properties net of tax,
in accordance with UK property industry practice (for calculation, see note
13).
Net rental income: The group`s share of net rents receivable as shown in the
Income Statement.
Nominal equivalent yield: Effective annual yield to a purchaser from the assets
individually at market value after taking account of notional acquisition costs
but assuming rent is receivable annually in arrears rather than reflecting the
actual rental cash flows.
Passing rent: The group`s share of contracted annual rents receivable at the
balance sheet date.
This takes no account of accounting adjustments made in respect of rent free
periods or tenant incentives, the reclassification of certain lease payments as
finance charges or any irrecoverable costs and expenses, and does not include
excess turnover rent, additional rent in respect of unsettled rent reviews or
sundry income such as from car parks etc.
Total return: Percentage increase in net assets per share (diluted, adjusted)
after adding back dividends and, to December 2006, the REIT conversion charge.
Date: 26/07/2007 08:00:07 Produced by the JSE SENS Department.
