| Thu 26 Feb 2009, 9:22 | | LBT - Liberty International Plc - Preliminary Results For The Year Ended 31 |
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LBT
LILII
LBT - Liberty International Plc - Preliminary Results For The Year Ended 31
December 2008
LIBERTY INTERNATIONAL PLC
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILI
26 February 2009
LIBERTY INTERNATIONAL PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
Attached are the preliminary results for the year ended 31 December 2008:
Highlights
- Summary of Investment and Development Properties
- Chairman`s Statement
- Operating and Financial Review
- Unaudited Financial Information
Patrick Burgess, Chairman of Liberty International, commented:
"While 2009 will undoubtedly be a further difficult year for the UK economy and
property industry, Liberty International has a high quality and defensive UK
regional shopping centre and retail property business, including 9 of the top
30 UK centres and prime central London sites such as Covent Garden. Though not
immune from market stresses, relatively our properties have performed well
since the downturn which began over eighteen months ago in June 2007.
We have already taken a number of steps, including over GBP1 billion of asset
sales since we became a UK REIT in January 2007, and intend to take further
action to improve our liquidity and financial strength, including potential
further asset sales and new capital raising. Our predominantly non-recourse and
asset-specific debt structure provides considerable financial and timing
flexibility.
We look forward to positioning the group for market recovery in due course, and
believe retail, and thereby prime retail property, is likely to be at the
forefront of such recovery."
A presentation to analysts and investors will take place at The Butchers` Hall,
87 Bartholomew Close, London, EC1A 7EB at 9.30am on 26 February 2009. The
presentation will also be available to international analysts and investors
through a live audio call and webcast.
The presentation will be available on the group`s website
www.liberty-international.co.uk.
This announcement contains "forward-looking statements" regarding the belief or
current expectations of Liberty International PLC, its directors and other
members of its senior management about Liberty International PLC`s businesses,
financial performance and results of operations. Generally, words such as, but
not limited to, "may", "could", "will", "expect", "intend", "estimate",
"anticipate", "believe", "plan", "seek", "continue" or similar expressions
identify forward-looking statements. These forward- looking statements are not
guarantees of future performance. Rather, they are based on current views and
assumptions and involve known and unknown risks, uncertainties and other
factors, many of which are outside the control of Liberty International PLC and
are difficult to predict, that may cause actual results, performance or
developments to differ materially from any future results, performance or
developments expressed or implied by the forward-looking statements. These
forward-looking statements speak only as at the date of this announcement.
Except as required by applicable law, Liberty International PLC expressly
disclaims any obligation to update or revise any forward-looking statements
contained herein to reflect any change in Liberty International PLC`s
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
Any information contained in this announcement 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.
Enquiries:
Liberty International PLC:
Patrick Burgess Chairman +44 (0)20 7960 1273
David Fischel Chief Executive +44 (0)20 7960 1207
Ian Durant Finance Director +44 (0)20 7960 1210
Public relations:
UK: Michael Sandler, Hudson Sandler +44 (0)20 7796 4133
SA: Nicholas Williams, +27 (0)11 447 3030
College Hill Associates
BACKGROUND ON LIBERTY INTERNATIONAL
LIBERTY INTERNATIONAL PLC is the UK`s third largest listed property company 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 31 December 2008, Liberty International owned GBP7.1 billion of properties
of which UK regional shopping centres comprised 70 per cent and retail property
in aggregate 85 per cent. Adjusted, diluted shareholders` funds amounted to
GBP2.8 billion. Assets of the group under control or joint control amounted to
GBP9.3 billion at that date.
CAPITAL SHOPPING CENTRES has interests in 14 UK regional shopping centres
amounting to 12.7 million sq.ft. in aggregate including 9 of the UK`s top 30
regional shopping centres with a market value of GBP5.0 billion at 31 December
2008. CSC`s largest centres are Lakeside, Thurrock; MetroCentre, Gateshead;
Braehead, Renfrew, Glasgow; The Harlequin, Watford; and Manchester Arndale. CSC
has a 50 per cent share in the extension of St David`s, Cardiff, which is due
to complete in Autumn 2009.
CAPITAL & COUNTIES held assets of GBP2.1 billion at 31 December 2008, amounting
to 7.4 million sq.ft. in aggregate, of which GBP1,434 million was invested in
Central London. Capital & Counties had GBP590 million invested in the Covent
Garden area including the historic Covent Garden Market, and a further GBP275
million in London`s West End, primarily through the Great Capital Partnership,
a joint venture with Great Portland Estates plc. Capital & Counties owns 50 per
cent of the Earls Court and Olympia Group and of the Empress State building in
Earls Court amounting to aggregate assets of GBP569 million. In addition,
Capital & Counties has interests in the USA amounting to GBP486 million (2.6
million sq.ft.), predominantly comprising retail assets in California,
including the 856,000 sq.ft. Serramonte Shopping Centre, Daly City, San
Francisco.
LIBERTY INTERNATIONAL PLC
HIGHLIGHTS
Year Year
ended ended
31 December 31 December
2008 2007
Net rental income GBP384m GBP374m
Profit before tax (underlying)* GBP103m GBP128m
Deficit on revaluation and sale of investment
and development property GBP(2,057)m GBP(279)m
Change in fair value of derivative financial
instruments GBP(665)m GBP27m
Loss before tax GBP(2,662)m GBP(125)m
Total properties GBP7,108m GBP8,666m
Net external debt ** GBP4,100m GBP3,625m
Net assets (diluted, adjusted) GBP2,798m GBP4,757m
Adjusted earnings per share 29.0p 36.0p
Dividend per share 16.5p 34.1p
Net assets per share (diluted, adjusted)*** 745p 1264p
* Before property trading, valuation and exceptional items
** Net external debt excludes the GBP120.3 million (31 December 2007 -
GBP43.0 million) compound financial instrument relating to the 40 per cent
third party interest in MetroCentre (see note 16).
*** Net assets per share (diluted, adjusted) would increase by 85p per share to
830p at 31 December 2008 (31 December 2007 - by 104p to 1368p) if adjusted for
notional acquisition costs amounting to GBP320 million (31 December 2007 -
GBP390 million).
HIGHLIGHTS OF THE YEAR ENDED 31 DECEMBER 2008
Net rental income increased by 2.5 per cent to GBP383.5 million (31 December
2007 - GBP374.3 million)
Occupancy levels at Capital Shopping Centres` (`CSC`) UK regional shopping
centres 98.7 per cent at 31 December 2008 - 93.6 per cent (30 September 2008 -
97.9 per cent) adjusted for units affected by administrations and not yet
re-let or under offer. Taking account of space in advanced re-letting
negotiations, the percentage would be 95.4 per cent. These figures have not
materially changed since 31 December 2008 as relettings have broadly matched a
further 1.3 per cent by rent of tenants going into administration in 2009
Underlying profit before valuation items and tax reduced from GBP127.7
million to GBP103.3 million, particularly impacted by an GBP11.9 million (4.4
per cent) reduction in CSC like-for-like net rental income, primarily as a
result of bad debt provisions and associated lease incentive write-offs, and
one-off reorganisation expenses of GBP11.6 million
Income Statement reflects loss before tax for the year of GBP2,662 million
after including GBP2,051 million deficit on property revaluations and GBP665
million deficit on valuation of derivative financial instruments
Overall valuation fall for the year of 22.5 per cent (11.8 per cent for three
months ended 31 December 2008), primarily reflecting increased valuation yields
Substantial out-performance since 30 June 2007 of IPD UK monthly property
index capital value falls
- Six months ended 31 December 2007 - 6.1 per cent (IPD - 11.7 per cent)
- Year ended 31 December 2008 - 22.5 per cent (IPD - 27.1 per cent)
ERV growth of CSC shopping centres contributed a positive 1.2 per cent to the
valuation outcome for the year
Other CSC key operating measures
- Estimated footfall from the twelve completed centres of 229 million customer
visits (2007 - 225 million), with 2009 also showing growth in the year to date
- Only 2 per cent of rental income due to expire in 2009 and 3 per cent in 2010
- 244 tenancy changes in 2008 involving GBP19.1 million of new passing rent
- 97 per cent of December quarter rent demands (Q1 2009 income) now collected
excluding tenants in administration
Continuation of programme of disposals of non-core assets with GBP200 million
realised in 2008 (2007 - GBP340 million)
- A further GBP160 million of non-core assets and CMBS investment sales
currently exchanged or under offer
Target reduction in administrative expenses from GBP63 million in 2008 to
GBP45 million for 2009 reflecting cost saving measures undertaken in 2008
Debt to assets ratio 58 per cent; over 90 per cent of debt is asset-specific
and non-recourse, providing considerable financial flexibility and limited
cross-default exposure; GBP291 million cash and undrawn committed facilities;
no significant debt maturities until GBP79 million convertible bond matures in
second half of 2010
Total return for the year* of minus 38.4 per cent with net asset value per
share (diluted, adjusted) reduced from 1264p to 745p
In light of prevailing market conditions, 2008 dividend restricted to 16.5p
per share interim dividend already paid which exceeds minimum PID requirement
of 12.8p per share
Further asset sales and new capital raising under consideration. Amendments
since year end to key terms of GBP360 million corporate bank facilities,
conditional on raising GBP350 million of additional equity. Given current
market conditions, the Board`s intention would be to raise a greater sum
through a combination of asset disposals and new capital
* Dividend income and change in net asset value per share (diluted, adjusted)
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES
UK investment property valuation data
Market
value
31 Nominal equivalent yield
December 31 31
2008 December December
GBPm 2007 2008
UK regional shopping centres
Lakeside, Thurrock 971.0 4.90% 6.45%
MetroCentre, Gateshead (including Retail
Park) 837.6 5.03% 6.58%
Braehead, Glasgow 562.9 5.02% 6.59%
The Harlequin, Watford 378.9 4.95% 6.60%
Victoria Centre, Nottingham 350.7 5.00% 6.55%
Arndale, Manchester 305.8 5.13% 6.61%
Chapelfield, Norwich 247.6 5.20% 6.75%
Cribbs Causeway, Bristol 224.9 5.06% 6.62%
The Potteries, Stoke-on-Trent 210.9 5.50% 7.30%
Eldon Square, Newcastle upon Tyne 223.4 5.25% 6.91%
The Chimes, Uxbridge 204.7 5.35% 6.95%
The Glades, Bromley 194.5 5.40% 7.15%
St. David`s, Cardiff 71.0 5.26% 6.88%
Xscape, Braehead 31.4 6.21% 8.00%
Like-for-like capital 4,815.3 5.08% 6.67%
Other 194.3
Total UK regional shopping centres 5,009.6
UK non-shopping centre properties
Capco Covent Garden 572.7 4.63% 5.16%
Capco London GCP 257.9 5.68% 6.33%
Capco Opportunities 95.0 6.03% 8.60%
925.6 5.09% 5.84%
Capco Earls Court 348.5
Like-for-like-capital 1,274.1
Capco Earls Court - Acquisitions (inc.
Empress State) 220.4
Other 122.8
Total UK non-shopping centre properties 1,617.3
Initial
yield
31
December
2008
UK regional shopping centres
Lakeside, Thurrock 6.00%
MetroCentre, Gateshead (including Retail Park) 6.10%
Braehead, Glasgow 5.28%
The Harlequin, Watford 5.79%
Victoria Centre, Nottingham 5.99%
Arndale, Manchester 6.25%
Chapelfield, Norwich 6.36%
Cribbs Causeway, Bristol 5.68%
The Potteries, Stoke-on-Trent 6.75%
Eldon Square, Newcastle upon Tyne 4.86%
The Chimes, Uxbridge 6.86%
The Glades, Bromley 6.14%
St. David`s, Cardiff 6.49%
Xscape, Braehead 5.65%
Like-for-like capital 5.96%
Other
Total UK regional shopping centres
UK non-shopping centre properties
Capco Covent Garden 4.79%
Capco London GCP 5.58%
Capco Opportunities 8.82%
Capco Earls Court 5.42%
Like-for-like-capital
Capco Earls Court - Acquisitions (inc. Empress State)
Other
Total UK non-shopping centre properties
Glossary
ERV (Estimated Rental Value)
The external valuers` estimates of the group`s share of the current annual
market rent of all lettable space net of any non-recoverable charges, before
bad debt provision and adjustments required by International Accounting
Standards regarding tenant lease incentives.
Initial Yield
Annualised net rents on investment properties expressed as a percentage of the
market value.
Like-for-like capital and 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 rental income
The group`s share of net rents receivable as shown in the Income Statement,
having taken due account of non-recoverable charges, bad debt provisions and
adjustments to comply with International Accounting Standards regarding tenant
lease incentives.
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.
Property analysis by use and type
Market value
31 December 31 December
2007 2008 % of total
GBPm GBPm properties
Regional shopping centres
and other retail
UK regional shopping centres 6,481.1 5,009.6 70.4%
UK other retail 807.7 665.0 9.4%
US regional shopping centres 138.6 173.9 2.4%
US other retail 130.0 169.4 2.4%
Total regional shopping
centres and other retail 7,557.4 6,017.9 84.6%
Office
UK business space 583.8 584.4 8.2%
US business space 78.6 104.2 1.5%
Total office 662.4 688.6 9.7%
Exhibition
UK Exhibition 381.4 367.9 5.2%
Residential
US residential 33.7 38.4 0.5%
Total investment properties 8,634.9 7,112.8 100.0%
Revaluation
Deficit
Net
Passing rental
rent ERV income
GBPm GBPm GBPm Decrease
Regional shopping centres
and other retail
UK regional shopping centres 278.6 364.4 280.8 (25.4)%
UK other retail 31.7 42.2 25.4 (15.8)%
US regional shopping centres 10.9 13.9 7.8 (10.7)%
US other retail 11.1 11.7 6.6 (7.8)%
Total regional shopping
centres and other retail 332.3 432.2 320.6 (23.6)%
Office
UK business space 32.1 44.7 28.0 (19.4)%
US business space 7.5 8.2 5.0 (6.4)%
Total office 39.6 52.9 33.0 (17.7)%
Exhibition
UK Exhibition - - 28.6 (10.9)%
Residential
US residential 1.2 1.2 1.3 (14.2)%
Total investment properties 373.1 486.3 383.5 (22.5)%
Investment property like-for-like income and revaluation analysis
Market value
31 31
December December
2007 2008
GBPm GBPm
UK regional shopping centres
Like-for-like capital and income 5,916.8 4,544.3
Other 335.0 271.0
Like-for-like capital 6,251.8 4,815.3
Redevelopments and developments 229.3 194.3
Total UK regional shopping
centres 6,481.1 5,009.6
UK non-shopping centre
properties
Like-for-like capital and income 591.2 489.3
Like-for-like capital only 870.5 784.8
Like-for-like capital 1,461.7 1,274.1
Acquisitions - 229.0
Redevelopments and developments 115.8 114.2
Disposals 195.5 -
Total UK non-shopping centre
properties 1,773.0 1,617.3
US properties*
Like-for-like capital and income 373.8 477.3
Like-for-like capital only 7.0 8.6
Total US properties 380.8 485.9
Total investment properties 8,634.9 7,112.8
Revaluation deficit
GBPm Decrease
UK regional shopping centres
Like-for-like capital and income (1,422.5) (23.9)%
Other (91.2) (27.2)%
Like-for-like capital (1,513.7) (24.0)%
Redevelopments and developments (178.9) (48.0)%
Total UK regional shopping
centres (1,692.6) (25.4)%
UK non-shopping centre
properties
Like-for-like capital and income (106.3) (18.0)%
Like-for-like capital only (135.6) (14.7)%
Like-for-like capital (241.9) (16.0)%
Acquisitions (29.1) (11.3)%
Redevelopments and developments (40.1) (25.5)%
Disposals -
Total UK non-shopping centre
properties (311.1) (16.1)%
US properties*
Like-for-like capital and income (46.6) (9.1)%
Like-for-like capital only (0.8) (8.1)%
Total US properties (47.4) (9.1)%
Total investment properties (2,051.1) (22.5)%
Net rental income
31 31
December December
2007 2008
Increase/
GBPm GBPm (Decrease)
UK regional shopping centres
Like-for-like capital and income 273.5 261.7 (4.3)%
Other 11.6 14.9
Like-for-like capital 285.1 276.6 (3.0)%
Redevelopments and developments 3.7 4.2
Total UK regional shopping
centres 288.8 280.8 (2.8)%
UK non-shopping centre
properties
Like-for-like capital and income 24.1 20.9 (13.3)%
Like-for-like capital only 23.4 51.6
Like-for-like capital 47.5 72.5
Acquisitions - 5.6
Redevelopments and developments 1.6 1.3
Disposals 17.0 2.6
Total UK non-shopping centre
properties 66.1 82.0 24.1%
US properties*
Like-for-like capital and income 19.4 20.4 (1.3)%
Like-for-like capital only - 0.3
Total US properties 19.4 20.7 5.6%
Total investment properties 374.3 383.5 2.5%
*Like-for-like percentage changes are in local currency
Analysis of UK non-shopping centres and US properties by location and type
Market value
31 31
December December
2007 2008
GBPm GBPm
UK non-shopping centre properties
Capco Covent Garden 688.9 590.3
Capco Earls Court 381.4 568.9
Capco GCP 328.6 275.4
Total Capco London 1,398.9 1,434.6
Capco Opportunities 374.1 182.7
Total UK non-shopping centre properties 1,773.0 1,617.3
Capco USA
Retail 268.6 343.3
Business space 78.6 104.2
Residential 33.6 38.4
Total Capco USA 380.8 485.9
2,153.8 2,103.2
Revaluation deficit
31
December
2008
GBPm Decrease
UK non-shopping centre properties
Capco Covent Garden (107.9) (15.4)%
Capco Earls Court (66.3) (10.4)%
Capco GCP (71.0) (20.2)%
Total Capco London (245.2) (14.5)%
Capco Opportunities (65.5) (27.2)%
Total UK non-shopping centre properties (310.7) (16.1)%
Capco USA
Retail (34.1) (9.3)%
Business space (6.9) (6.4)%
Residential (6.4) (14.2)%
Total Capco USA (47.4) (9.1)%
(358.1) (14.6)%
Net rental income
31 31
December December
2007 2008
GBPm GBPm
UK non-shopping centre properties
Capco Covent Garden 24.1 23.4
Capco Earls Court 10.1 33.3
Capco GCP 13.2 14.0
Total Capco London 47.4 70.7
Capco Opportunities 18.7 11.3
Total UK non-shopping centre properties 66.1 82.0
Capco USA
Retail 14.1 14.4
Business space 4.2 5.0
Residential 1.1 1.3
Total Capco USA 19.4 20.7
85.5 102.7
CHAIRMAN`S STATEMENT
2008 has been a year that the UK property industry would like to forget, but no
doubt its unremitting gloom will be long remembered. In the last quarter, an
already uncertain market dropped further following the crisis in the banking
sector. While Liberty International`s high quality assets are resilient, with
prime regional shopping centres amounting to 70 per cent of the total and
retail property 85 per cent overall, we are not immune to market stresses.
One manifestation of these difficult conditions has been our share price, which
dropped in the year, mostly in the last quarter, from 1077p to 478p and further
since the year end to 328p on 25 February 2009
The reduction in net asset value per share for the year from 1264p to 745p is,
evidently, disappointing, though it reflects market conditions. In fact our
assets are holding up relatively well - a tribute to their calibre and focal
position in their communities. The results and activities for the year are set
out in detail in the attached Operating and Financial Review.
Early steps
Some two years ago at the end of 2006, we raised over GBP300 million of equity
by a share placing at 1350p per share to finance the rare opportunity to
acquire a large block of prime Central London assets, the Covent Garden Estate.
During 2007, we disposed of some non-core properties, at very satisfactory
prices, and brought an investment partner into 40 per cent of our MetroCentre
interest, enabling us to finance the Earls Court and Olympia acquisition which
holds great promise for the future.
In 2008, we have disposed of further non-core properties, cut back capital
expenditure and, at a non-recurring expense, reduced our ongoing cost base.
Including a further GBP160 million currently exchanged or under offer,
aggregate asset sales since the end of 2006 now exceed the GBP1 billion mark
and have been an important component in managing our financial position.
Current measures
At the end of 2008, after the savage fall in property valuations, our debt to
asset ratio, which has been around the 40 per cent mark for the last decade,
increased to 58 per cent, higher than we would like but not unmanageable.
The primary focus of the Board has, perforce, shifted from growth to
reinforcing the financial strength of the Company. In the light of falling
values and dislocation in the financing markets, we have concluded that
additional measures are necessary including potential further asset sales and
new capital raising.
Our predominately non-recourse debt structure, with over 90 per cent of our
debt asset specific and non-recourse, provides a great deal of financial
flexibility enabling the group to address issues on an asset by asset basis,
with very limited cross-default exposure.
In terms of the residual corporate debt, we appreciate the support shown by our
lending bankers who have since the year end agreed important changes to the
terms of our GBP360 million corporate bank facilities, including extending
overall maturity into 2011.
These changes are contingent on the group raising not less than GBP350 million
of additional equity. Given current market conditions, the Board`s intention
would be to raise a greater sum through a combination of asset disposals and
new capital.
Valuations
The dramatic fall in property values in 2008 has been of record proportions:
the IPD monthly index of capital values has fallen 36 per cent since 30 June
2007 and the market has anticipated further falls.
In a business with a long time frame, investors and managers need to keep a
sense of proportion. The valuations which we are required to obtain from third
party professional valuers as at the date when we report our figures are only
estimates of a possible sale price at a particular time. In a thin market they
necessarily contain a greater than normal element of subjective judgement but
also reflect general market sentiment, which in current circumstances may be
expected to compound their negative aspects.
Real estate has an enduring character but one of its driving factors is the
income yield. The current gap between property income yields and the return
available on cash is unprecedentedly wide. This should attract investors back
into the market when liquidity returns. We have always focussed on quality and
once conditions ameliorate we look forward to a strong recovery.
Going forward
Liberty International intends to continue to be the holder of prime assets;
with a shopping centre management team that is regarded as a leader in its
field (and in the past, much of our growth has come from active management and
redevelopment); with a team of senior executives very experienced in dealing in
volatile markets; and with special interest situations such as the Covent
Garden Estate and the Earls Court and Olympia sites. The opportunities in our
London estate bode well for the group. Much of the strength and potential is
inherent in existing assets which contain numerous active management and
development opportunities.
We aim to be well positioned to withstand the difficulties that may arise in
the short term while maintaining Liberty International`s prospects in the
medium and longer term. Within the business, we shall continue to conserve
resources, strengthen our balance sheet, exert a continuing downward control on
costs and hold ourselves ready to benefit when the market recovers in due
course. We believe retail and consequently prime retail property should be at
the forefront of such recovery.
Dividends and dividend policy
Given financial market conditions and the debt contractionary environment, we
believe it to be in shareholders` best interests to restrict the dividend for
2008 to the 16.5p interim dividend already paid which exceeds the expected
minimum required under UK REIT legislation of 12.8p per share, an amount well
below the 29.0p adjusted earnings for the year because of capital allowances
from our development programme and capitalised interest. This decision has been
a particularly difficult one as we have had a long track record of steady
dividend growth from 4.5p per share in 1985 to 34.1p per share in 2007. In
respect of 2009, the Board would also seek to maintain, subject to available
resources, the intended dividend for 2009 at the level of 16.5p per share or
the minimum PID requirement if greater. This decision, as well as the dividend
policy for future years, will be kept under review.
Executive remuneration
In respect of the financial year 2008, the executive directors have declined
any bonus other than (in two cases) the amount to which the company was already
committed as part of joining arrangements. Also, except for one contractual
entitlement, no salary increases have been requested by or granted to executive
directors.
To ensure the company benefits from appropriately motivated executives, we
intend to grant some options to executive directors and other senior staff in
due course. Such options will not be exercisable unless suitable performance
conditions are met, and then only after at least 3 years.
Prospects
Perception and its travelling companion, momentum, are always the drivers of
sentiment, but these things turn. We believe we have been taking and will
continue to take important steps to position the company to benefit from a
recovery in economic and market conditions.
I must end by thanking my fellow directors and our very busy and committed
staff for their continuing support and their enthusiasm as they go about the
company`s business.
Patrick Burgess
Chairman
26 February 2009
OPERATING AND FINANCIAL REVIEW
OPERATING REVIEW
Results for the year
The outcome for 2008 should be considered in the context of the markedly more
adverse UK financial and economic background. The results are dominated by the
GBP2,051 million deficit on revaluation of investment properties, an overall
reduction of 22.5 per cent, with GBP969 million, an 11.8 per cent reduction,
recorded in the last quarter of the year. This revaluation result has driven
the fall in net assets per share (adjusted, diluted) from 1264p to 745p.
Underlying profit before valuation items reduced from GBP127.7 million (36.0p
per share) to GBP103.3 million (29.0p per share). Two main factors caused the
reduction, an GBP11.9 million fall (4.4 per cent) in like-for-like income from
Capital Shopping Centres (`CSC`) mostly through tenants going into
administration and GBP11.6 million of one-off internal reorganisation expenses.
Total investment properties have reduced from GBP8.7 billion to GBP7.1 billion.
An important measure of our financial position, the debt to assets ratio, which
has been around and mostly just below the 40 per cent mark for the last decade,
increased substantially to 58 per cent.
Full details of the financial results for the year and comments on the group`s
financial position are contained in the accompanying Financial Review.
External background
External factors which had begun to impact on the group in the second half of
2007 became substantially more negative in 2008, particularly in the last
quarter:
The availability of credit for UK property companies dwindled rapidly
following turmoil in the banking sector, with credit spreads rising markedly.
Market values for UK commercial property fell steeply with the benchmark IPD
monthly index indicating a 27 per cent reduction in capital values in 2008 (15
per cent in the last quarter).
The UK economy moved into technical recession with the third quarter showing
a 0.6 per cent fall in GDP and the final quarter a 1.5 per cent fall.
Consumer confidence indices fell to record low levels driven by fears of
rising unemployment.
Retail tenant failures increased during 2008, most notably in December 2008,
and in early 2009.
Our response
We have responded to the changing environment in a number of ways, in
particular:
Prioritising cash management and capital structure for example through the
revised dividend policy announced with these preliminary results, and around
the year end, the early conversion into ordinary shares of GBP19 million of
convertible bonds, with a further conversion of GBP13 million since the year
end.
Reducing capital expenditure and deferring projects other than where already
committed, for example putting the Westgate, Oxford shopping centre
redevelopment on hold.
Reducing administrative expenses, particularly by lowering headcount
especially in the development area. In order to achieve these reductions, some
additional costs have been incurred in 2008, with the benefits to emerge in
2009 and beyond. We are targeting a reduction in administrative expenses for
2009 to GBP45 million, including the operational expenses of the Earls Court &
Olympia exhibition business, compared with GBP63 million in 2008.
Continuing our programme of disposals of non-core assets, a further GBP200
million of assets were sold in 2008 at a small deficit of GBP6 million to book
value at the end of 2007. This follows GBP340 million of asset sales in 2007 at
GBP37 million above 2006 year end book values and in early 2007 we achieved a
40 per cent reduction in CSC`s interest in MetroCentre, Gateshead, which valued
the 40 per cent property interest at GBP426 million. MetroCentre is still fully
consolidated because of the group`s residual 60 per cent interest and exercise
of control. Additionally, we have a further GBP160 million of sales,
including CMBS investments, currently exchanged or under offer.
Refining our strategic focus in recognition of the reduced availability of
long term finance. We view the UK regional shopping centre business of Capital
Shopping Centres (`CSC`) and the central London activities of Capital &
Counties, particularly Covent Garden and Earls Court, as the key components for
the future long term success of the business.
Engaging with our corporate lending bankers to stabilise the financial
position of the company by amending key lending conditions, thereby reducing
the risks of any covenant breach.
Property valuations
The extent to which commercial property valuations have been under pressure
from the severe restriction on credit availability and the reduced appetite for
risk has been well documented. The end of June 2007 marked the turning point
and 2008, especially the last quarter, saw a fall of record proportions.
In this difficult environment where absolute returns have been extremely
unattractive, one consolation is that we have at least significantly
outperformed the benchmark IPD monthly index with our Central London and USA
assets in particular demonstrating notable resilience:
Three Year Eighteen
months ended 31 ended months
December 31 December ended
31 December
2008 2008 2008
UK regional shopping centres -13.8% -25.4% -30.2%
UK non-shopping centre
properties -7.2% -16.1% -19.0%
USA -7.1% -9.1% -6.6%
Total Group -11.8% -22.5% -27.2%
IPD monthly index (all
property) -15.3% -27.1% -35.6%
In 2008, the direction of interest rates and property yields diverged markedly.
Especially in the last quarter of the year, interest rates moved rapidly
downwards, with the 10 year interest rate swap declining in the year from 5 per
cent to 3.45 per cent, while property yields moved sharply upwards. The change
in valuation yields in respect of our UK assets was as follows:
Nominal equivalent yield (per cent)
31 December 30 September 31 December 30 June
2008 2008 2007 2007
UK regional
shopping centres 6.67 5.86 5.08 4.77
UK non-shopping
centre properties 5.84 5.42 5.09 4.95
Estimated rental values (`ERV`) used by the valuers held up well in 2008, with
the ERV of CSC`s regional shopping centres contributing a positive 1.2 per cent
to the valuation outcome for the year. We expect ERV to come under pressure in
2009 reflecting the more difficult retail trading and letting market
conditions.
Shopping centre development valuations suffered particularly severely as the
full impact of higher yields, anticipated longer letting periods and lower
overall rental income was absorbed into the site value or carrying value of the
partially completed projects. St David`s 2, Cardiff incurred a revaluation
deficit of GBP125 million, reducing the carrying value of the development to
GBP90 million. Westgate, Oxford incurred a GBP39 million deficit largely as a
result of abortive costs as we put the development project on hold, with the
centre in its present state valued at GBP65 million.
It is widely anticipated that there will be further reductions in UK commercial
property capital values in 2009, reflected by the discount to reported
historical net asset values at which the share prices of UK-listed real estate
companies currently trade, and the current pricing of derivative contracts
linked to the forward performance of the IPD Index.
Capital Shopping Centres
(Market value of assets GBP5,010 million, 70 per cent of group total)
CSC is the market leader in prime UK regional shopping centres and has always
focused on retail assets of the highest quality, with our ownership including 9
of the UK`s top 30 regional shopping centres. The benefit of this approach
becomes most obvious in more difficult periods, with occupancy at high levels
as described below and our assets performing well operationally compared with
retail assets of lower quality.
CSC`s prime regional centres aim to provide variety, diversity and volume of
shops in a single location containing the most attractive flagship and
department stores, offering the best services and providing a safe, stress-free
and rewarding experience.
Our retailer tenant mix is diverse. The top 20 tenants account for 38 per cent
of CSC`s rent roll with the top 3 (Arcadia, Boots and Next) accounting for 11
per cent. National or international multiple retailers represent over 90 per
cent of the rent roll.
The winning retailer formats in 2008 were value brands and trusted names with a
strong complementary on-line presence. 2008 saw the disappearance of several
high street names such as Woolworths, The Pier and Zavvi together with a number
of smaller and independent retailers.
Key indicators of performance were as follows:
- Estimated footfall at CSC`s centres in 2008 has shown considerable
resilience, with our 12 completed centres recording an increase to 229 million
customer visits compared with 225 million the previous year. Encouragingly, the
last nine weeks of 2008 showed stronger growth than the year as a whole and
growth has continued with increased footfall year-on-year to date in 2009.
- Retail sales year on year in 2008 excluding food according to national
statistics (ONS) were positive for the year as a whole at 0.9 per cent growth,
although the second half saw a slowdown. Based on the figures we receive from
tenants at CSC`s centres, trading at our centres in 2008 is estimated to have
generally reflected the national trend, excluding those centres affected by new
development.
- Occupancy levels at year end remained high at 98.7 per cent. However the
final quarter in particular saw a number of additional retailer failures, 15 of
which affected CSC`s portfolio involving 59 units out of CSC`s 2028 units in
aggregate (9 months to 30 September 2008 - 31 tenants, 78 units).
The impact of these tenant failures in terms of bad debt and lease incentive
write-offs within CSC`s like-for-like rental income has been as follows:
9 months
Year ended ended Year ended
31 December 30 September 31 December
2008 2008 2007
GBPm GBPm GBPm
Bad and doubtful debts (8.2) (7.2) (4.7)
Lease incentive write-offs (9.3) (3.0) -
(17.5) (10.2) (4.7)
The resultant reduced occupancy level, adjusted for units affected by
administrations still to be re-let, was 93.6 per cent at 31 December 2008
(compared with 97.9 per cent at 30 September 2008). 1.8 per cent of income is
currently in advanced re-letting negotiation and, if successfully secured,
would increase occupancy to 95.4 per cent. These figures have not changed
materially since 31 December 2008 as re-lettings have broadly matched a further
1.3 per cent by rent of tenants going into administration
The continued health of our retail tenant base is of overriding importance to
our long term success. We are dealing proactively with tenant issues which have
emerged in 2008 and will undoubtedly continue to be a factor in 2009 given
difficult trading conditions for retailers.
Letting activity has been a focus of 2008 as we managed for occupancy in
order to underpin the attractiveness of our shopping centres. We have made 244
tenancy changes involving GBP19.1 million of new annual passing rent, with over
60 per cent of the income generated related to long term lettings which
produced additional annual rental income of GBP4.1 million per annum. These
tenancy changes in the year included 94 long term lettings, 76 short term
lettings, 55 lettings by our commercialisation business, CSC Enterprises, and
19 turnover-only transactions.
Short term lettings have generally been agreed below previous rental levels,
but are an important part of the overall strategy to manage for occupancy
maintaining attractiveness of the centres and minimising exposure to void
costs.
Rent review settlements have continued to be agreed in line with our
expectations, with 15 per cent of CSC`s income due for rent review during 2008
primarily at Cribbs Causeway.
In 2009, 18 per cent of CSC`s rental income is due for review, primarily the
second cycle of rent reviews at Braehead, Renfrew, Glasgow, falling in
September.
During 2010 and 2011, 56 per cent of income is due for review split equally at
28 per cent each year.
In 2010, the first cycle of rent reviews at Norwich falls due together with the
fourth cycle at Lakeside. Rent review strategies for regional shopping centres
are commenced well in advance of the rent review date.
CSC`s lease expiry profile is robust with only 2 and 3 per cent of rent
expiring in 2009 and 2010 respectively. The first major round of lease expiries
is at MetroCentre in 2011 which management are already addressing pro-actively.
Excluding tenants in administration, 97 per cent of the December quarter
rent, the first quarter income for 2009, has now been collected with the
balance largely relating to a small number of payment plans granted on the
grounds of proven hardship.
Our focus on improvements to customer service and amenities has continued.
During 2008 new centre websites were completed and a mystery shopper programme
introduced together with benchmarking of our centre management operations.
Asset and centre management initiatives are ongoing at our completed centres
to continually respond to both our retailer and shopper aspirations. We have
numerous value adding development opportunities which can be undertaken when
market conditions are appropriate.
Notable active management initiatives in 2008 have been as follows
- Upgrade of the leisure and dining facilities in the Yellow and Blue Quadrants
at MetroCentre, Gateshead
- A new 36,000 sq.ft. flagship store for New Look at Braehead, Renfrew, Glasgow
and intended relocation of Sainsbury`s to the adjoining retail park
- Retail park refurbishment and food court remodelling at Cribbs Causeway
- Completion of two projects at Eldon Square, Newcastle with the third and
largest project, Eldon Square South, due to complete in Spring 2010, increasing
the overall size of the centre to 1.3 million sq.ft. The new mall, St Andrew`s
Way, is 73 per cent let by income, 83 per cent by area
- Remodelling of Bromley High Street units to provide 50,600 sq.ft. of new
space at The Glades.
CSC`s largest development project, St David`s, Cardiff, a joint venture with
Land Securities, is on programme to complete in Autumn this year. The project
will extend the existing St. David`s centre by 967,500 sq.ft. to 1.4 million
sq.ft overall. Overall around 125 new shops and restaurants are being developed
which, when added to the existing centre, will enlarge St. David`s into one of
the UK`s largest city centre retail schemes.
We are confident of the future prospects for the enlarged St. David`s centre
with the existing centre already attracting 22 million customer visits each
year.
Cardiff is expected to rise to 8th place in the UK retail rankings on
completion of the St. David`s development which has already attracted several
new retailers to Wales.
The new library was handed over to Cardiff Council on schedule in December and
John Lewis is currently fitting out its store.
Cardiff will be its largest store outside London.
51 per cent of the area and 40 per cent of anticipated rental income is
currently either exchanged or in solicitors` hands. A further 10 per cent by
income is in contractual negotiation or at heads of terms stage.
In 2008 a significant number of new shopping centres opened during the year
adding over 10 million square feet of retail space, generally well let. In
2009, only a small number of large retail schemes are due to open including St
David`s Cardiff. Following this, supply will be curtailed sharply, as the
current economic environment has halted many projects in the pipeline.
However, we anticipate the letting market to continue to be challenging in 2009
as retailers approach expansion with caution.
Schedule 4 sets out details of asset management initiatives at CSC`s individual
completed regional shopping centres, together with data on operating
performance, CSC`s major developments and CSC`s rent review and lease expiry
profile.
Capital & Counties
(GBP2.1 billion of investment properties, 30 per cent of group total, and
GBP129 million of investments)
Capital & Counties is principally engaged in non-shopping centre investments
focussed on Central London. It also manages the development and international
activities of Liberty International and Capital Shopping Centres. Capital &
Counties is arranged into large business units comprising Capco London
(GBP1,434 million), Capco International (GBP580 million) and Capco
Opportunities (GBP218 million).
In a challenging environment, we made firm progress across our business units.
The strong performance on a relative basis validates the strategy of focussing
on prime assets and disposal of non-core properties. Conditions will remain
difficult in the immediate future but we believe that the steps taken over the
last two years to realign Capital & Counties will enable the business to
outperform the general market and once conditions stabilise each business unit
has a defined objective and a promising future.
Disposals of non-core assets in 2008 of GBP202 million resulted in a small
deficit of GBP6 million to end 2007 market values. In addition to this around
GBP136 million of investment property sales are currently exchanged or under
offer.
Capco London
(GBP1,434 million investment properties, 20 per cent of group total)
Capco Covent Garden
(GBP590 million investment properties, 8 per cent of group total)
Our enhancement strategy has gained support from key stakeholders and our
vision to position Covent Garden as a world class district has been welcomed by
target retail brands.
Tenant engineering has commenced in earnest and we expect to welcome high
quality retailers into the established mix. In 2008 we introduced 8 new
retailers to the estate. Selective enhancement and refurbishment work commenced
with planning applications made, most notably for Bedford Chambers which is
contracted to a major global retailer.
Marketing and rebranding drove visitor numbers of approximately 43 million with
average dwell time of 2.75 hours.
At the year end, portfolio occupancy was strong at 97 per cent by rental value
and the capital value of the estate held up relatively well, recording a 15.4
per cent revaluation deficit.
Great Capital Partnership (GCP)
(GBP275 million investment properties, 4 per cent of group total)
GCP undertook a major property swap with the Crown Estate in 2008 involving
580,000 sq.ft. of space in Central London with an aggregate value as at 31
December 2007 of GBP358 million. In addition, the partnership made 4
acquisitions, our share amounting to GBP9 million. Capital values reduced by
20.2 per cent during the year. Although headline rents in the West End will
undoubtedly come under pressure, the GCP portfolio with an average rent of
GBP36 psf is considered reversionary and its strategic focus on prime
properties with added value potential should prove beneficial. At 31 December
2008 portfolio occupancy was 86 per cent by rental value with 6 per cent under
refurbishment.
Earls Court & Olympia
(GBP569 million investment properties, 8 per cent of group total)
The underlying exhibition business, EC&O Venues, performed very soundly in 2008
with turnover increased from GBP61.0 million to GBP62.2 million and EBITDA
before exceptional items increased from GBP18.2 million to GBP20.4 million.
Forward bookings for 2009 are currently running at levels not far short of
2008.
We have made good progress with our longer term plans and are in the process of
documenting a vision agreement with adjacent landowners for a major integrated
mixed use development around Earls Court.
During the second half of 2008, we acquired a 50 per cent interest in the
Empress State building for a cash consideration of GBP33.1 million. The total
value of our interest in the new partnership was GBP113 million, with the
balance being funded by an asset-specific, non-recourse loan. As required by
IAS 27 "Consolidated and Separate Financial Statements", this acquisition has
been fully consolidated with the 50 per cent third party share adjusted through
minority interest. This 470,000 sq.ft. 30 storey building is strategic to our
plans at Earls Court and benefits from an index-linked lease with 11 years
remaining to a government tenant, the Metropolitan Police.
In valuation terms, the Earls Court investment performed creditably with a 10.4
per cent reduction in capital value.
International - USA
(GBP486 million investment properties, 7 per cent of group total)
Our portfolio in California remained robust in terms of both income and value.
Net property income for the year remained stable with a small reduction in
like-for-like income of 1.3 per cent. As at 31 December 2008, the occupancy
level was 94 per cent.
Turnover at our retail properties in Q4 was slightly weaker than in previous
years with the retail and office leasing markets softening in line with the
fall in economic activity. Overall the number of tenant failures was relatively
small with 4 tenants occupying 11,000 sq.ft. (0.5 per cent of the portfolio)
going into administration. 3,800 sq.ft. of this retail space was relet in
December.
The Serramonte Centre continues to trade well with net rental income ahead of
budget at $14.7 million. With the introduction of a visitor counting system at
the end of 2007, we are able to report customer numbers for the first time this
year of 8.9 million.
An aggressive programme of cost saving initiatives was initiated in the second
half of the year, for example the development division was disbanded. This
should reduce 2009 operating overheads substantially compared with 2008.
International - other
(Investments of GBP95 million)
In China our relationship is developing well with Harvest Capital and China
Resources. Our first co-investment in Harvest Capital`s fund CR1 is showing a
surplus. In India, our joint venture Prozone Liberty, in which we have a 25 per
cent interest, is working on four major shopping centre projects with the first
in Aurangabad due for completion in 2010.
Capco Opportunities
(Investment properties of GBP183 million, 3 per cent of group total, and
investments of GBP35 million)
We continue to sell the remaining legacy assets with a reduction in investment
properties in the year from GBP374 million to GBP183 million and net rental
income reduced from GBP18.7 million to GBP11.3 million.
Dividends
Liberty International became a UK Real Estate Investment Trust ("REIT") on 1
January 2007.
Under UK REIT regulations, the group is required to distribute a minimum
PID amounting to not less than 90 per cent of the taxable profits of its
UK property rental business.
As a result of capital allowances and capitalised interest relating to the
group`s development activities, the required minimum PID is substantially less
than reported underlying earnings. In respect of 2008, the group will restrict
the dividend to the 16.5 pence per share interim dividend already paid which
exceeds the expected minimum Property Income Distribution ("PID") requirement
for 2008 of 12.8 pence per share.
In the light of prevailing market conditions where cash conservation and debt
reduction are a priority, the Board believes it to be in the best interests of
shareholders not to pay a final dividend in respect of the 2008 financial year
as the minimum PID requirement has already been met.
The Board would also seek to maintain, subject to available resources, the
intended dividend for 2009, at the level of 16.5 pence per share or the
minimum PID requirement if greater. This decision, as well as the dividend
policy for future years, will be kept under review.
Interim management statements
Since conversion to a REIT in January 2007, Liberty International has provided
full quarterly reports with property valuations.
Feedback from market participants has however indicated a preference for
interim management statements rather than full quarterly reports for the first
and third quarters and we have concluded that the additional detail in the full
quarterly reports relative to the information available from an interim
management statement does not justify the extra time, effort and expense in
their preparation and analysis.
Therefore, with effect from the first quarter of 2009, we intend to publish
interim management statements rather than full quarterly reports for the first
and third quarters of the year. Full reports with property valuations will be
prepared at the half year and year end.
Extraordinary General Meeting
It is expected on the basis of these preliminary results that when the group`s
financial statements are audited and sent to shareholders in advance of the
Annual General Meeting ("AGM"), the existing borrowing limit in the Articles of
Association of 1.5 times adjusted capital and reserves will be exceeded. This
will be almost entirely as a result of the revaluation of the group`s
properties. An extraordinary general meeting will be called to amend this limit
in advance of the AGM and a notice will be sent to shareholders shortly. The
proposed amendment will be to suspend the borrowing limit until the company`s
AGM in 2011 given the likely future volatility in market valuations and to
reinstate the limit thereafter at 2 times adjusted capital and reserves,
subject to review at the time of the 2011 AGM.
Corporate Responsibility
Our corporate responsibility policies, covering a wide range of environmental
and community engagement initiatives, are directly tied to the needs of the
business.
We aim to manage and minimise our impact on the environment. We are delighted
that, for the first time, 2008 saw a greater volume (42 per cent) of waste
generated by our shopping centres being recycled as opposed to being sent to
landfill (37 per cent). We also recorded a 7 per cent reduction in our carbon
footprint across CSC managed shopping centres.
As long-term investors, it is vital that despite tougher economic conditions we
continue to engage fully with the communities who sustain and support our
business. In general, we focus on supporting youth, education and the
prevention of crime in the neighbourhoods surrounding our assets.
In 2008, centre management teams contributed over 4,500 hours to community
related projects. As an example, The Breakthrough Apprenticeships initiative
based at The Victoria Centre, Nottingham, working with the charity Catch22, has
seen 19 young people from troubled local communities taking their first steps
onto the employment ladder. Carefully developed programmes such as this are
important as our prime shopping centres and other major assets are focal points
of the wider community.
Regional shopping centres have an enormous economic multiplier effect across
their community. For example, we estimate some 50,000 people are employed at
our shopping centres. The development of the St David`s Shopping Centre in
Cardiff is currently providing employment for some 1300 people, many local to
the area.
The strength of our commitment is demonstrated by inclusion in a number of
social reporting indices including FTSE4Good, Business in the Community Top 100
Companies, and the Johannesburg Stock Exchange SRI Index.
Prospects
2009 will undoubtedly be a further difficult year for the UK economy and the
property industry.
However, a combination of important factors which should be positive for a
recovery are in place but have yet to take effect. In particular, the fall in
sterling, lower prices for fuel and commodities, and Government-induced
measures such as lower interest rates, the recapitalisation of the banking
sector and the reduction in VAT from 17.5 per cent to 15 per cent should in
aggregate be beneficial.
Furthermore, while the retail failures in 2008 and early 2009 will have a
negative impact on our net rental income for 2009, the process of eliminating
less successful retailers which accelerates when market conditions are more
difficult is ultimately a healthy one. The remaining retailers should benefit
from reduced competition and in due course along with new entrants to the
sector will look to expand to fill the available space, particularly in quality
locations such as we possess. We anticipate that retail is likely to be at the
forefront of economic recovery in the UK and, given the key advantage of our
close working relationship with the UK`s major retailers, Liberty International
should be an early beneficiary.
Positives for Liberty International are:
The quality of our underlying assets including:
- 14 prime UK regional shopping centres with 9 of the top 30 in the UK,
including 4 of the 8 out-of-town regional centres in the UK; Lakeside,
Thurrock; MetroCentre, Gateshead; Cribbs Causeway, Bristol; and Braehead,
Renfrew, Glasgow.
- The Covent Garden Estate where we have consolidated a substantial block in
the heart of London`s West End, with good prospects for the tourist component
of the customer base as sterling weakness increases London`s attraction to
overseas visitors.
- Earls Court & Olympia, a sound operational business with major medium to long
term development prospects from the Earls Court site.
A predominately non-recourse debt structure with over 90 per cent of the
group`s debt being asset specific and non-recourse with no major debt
refinancings until the Lakeside CMBS in 2011.
A sharp reduction in the retail supply pipeline in the UK, with projects
which have not already started unlikely to be open for some years, given the
timescales involved in bringing major shopping centre projects to fruition. The
prime quality, scarcity value and strong competitive position of our UK
regional shopping centre assets is therefore unlikely to be substantially
further challenged for a sustained period, which bodes well for the long term
performance of our assets and their recovery potential when conditions improve.
The modest size in relation to the company as a whole and high quality of our
development programme, in particular the St David`s Cardiff development at the
heart of one of the UK`s major cities which has excellent long term prospects
notwithstanding the near term letting challenges.
Limited exposure to the more difficult retail sectors in the UK, namely bulky
goods, big ticket items and the household goods sector.
Occupancy levels at our regional shopping centres which, while lower than we
may have been accustomed to in recent years, are likely to significantly exceed
levels at more secondary assets, thereby increasing the relative attraction of
our centres.
Increased footfall at our centres to date in 2009 compared with 2008
indicating stronger performance from prime centres compared with secondary
assets in these more difficult conditions.
Limited lease expiries in 2009 and 2010 with most of our rental income for
these two years contractually committed.
Asset values now stated at substantially more defensive levels following the
falls in the second half of 2007 and in 2008.
A committed management team who have experienced previous recessionary cycles.
Ample opportunities within our existing assets for active management and
development projects when market and financial conditions permit.
Important objectives for 2009 include
To maintain occupancy levels at our existing assets and secure development
lettings in a difficult letting market where, until a measure of confidence
returns to financial markets and the general UK economy, further retailer
failures must be anticipated.
To conserve cash resources and strengthen the financial position of the
company in the face of possible further falls in asset values, while
progressing active management and development initiatives for launch when
market conditions are more suitable.
To position the group for market recovery in due course with retail, and
thereby prime retail property, likely in our view to be at the forefront of
such recovery.
FINANCIAL REVIEW
Results for the year ended 31 December 2008
The results for the year ended 31 December 2008 reflect a deteriorating retail
environment, a rapid fall in property values and a sharp decline in interest
rates. The first of these impacted the underlying profit before tax, which fell
by 19.1 per cent from GBP127.7 million to GBP103.3 million, and adjusted
earnings per share which fell by 19.4 per cent to 29.0p. Mark-to-market
accounting on property values and interest rate swaps, generated significant
non-cash charges to the income statement.
Income statement and earnings per share
The reduction in underlying profit is illustrated as follows:
(Graph omitted. Please refer to RNS announcement released on 26/02/09 via the
London Stock Exchange, or to the preliminary announcement as published on the
Liberty International website, www.liberty-international.co.uk, or available
from the Company on request)
Net rental income for the group increased by 2.5 per cent to GBP383.5 million.
CSC`s bad debts, the write off of lease incentive assets and consequent rise in
irrecoverable costs contributed to the reduction in CSC`s net rental income of
GBP8.0 million to GBP280.8 million.
Capital and Counties net rental income increased by GBP17.2 million reflecting
the full year contribution of Earls Court and Olympia (GBP28.6 million in 2008,
GBP10.1 million in 2007) and Empress State (GBP4.6 million in 2008, GBPnil in
2007), partially offset by the impact of disposals. Like for like income was
also impacted by planned vacancy and marketing costs at Covent Garden.
Administration expenses in 2008 increased by GBP18.0 million to GBP63.2
million. This includes the GBP10.0 million operating overhead of Earls Court
and Olympia (2007 - GBP5.1 million). The remaining increase included a number
of one-off costs associated with restructuring and advisory projects as
follows:
GBPm
Re-organisation costs, including redundancy 5.6
IT outsourcing costs 4.0
One-off projects 2.0
11.6
The re-organisation costs were incurred in a number of business areas, and will
reduce costs in areas particularly affected by the current economic
environment. The one-off projects costs were related to advice on the debt and
capital structure of the group.
Net finance costs increased by GBP16.7 million reflecting increased debt
arising from a net cash outflow. Net external debt increased by GBP474.6
million during 2008, as set out below.
Balance sheet
2008 2007
GBPm GBPm
Investment and development and trading properties 7,107.7 8,666.5
Investments 128.6 51.0
Net external debt (4,099.5) (3,624.9)
Other assets and liabilities (1,151.0) (383.7)
Net assets 1,985.8 4,708.9
Minority interest (27.8) (201.9)
Attributable to equity shareholders 1,958.0 4,507.0
Fair value of derivative financial instruments 659.0 57.7
Other adjustments 78.1 71.5
Adjusted net assets 2,695.1 4,636.2
Effect of dilution 102.8 121.0
Net assets (diluted, adjusted) 2,797.9 4,757.2
The reduction in properties during 2008 is due to the revaluation deficit of
GBP2,051 million, partially offset by capital expenditure of GBP566 million.
During 2008 additional investments were made overseas and in third party CMBS
notes.
The substantial increase in other assets and liabilities is due to the GBP717
million increase in the fair value provision for financial derivatives,
principally interest rate swaps as a consequence of the sharp reduction in UK
interest rates in the final quarter of 2008. The interest rate swap fair value
provision of GBP659 million is added-back to arrive at adjusted net assets.
Adjusted net assets per share
(Graph omitted. Please refer to RNS announcement released on 26/02/09 via the
London Stock Exchange, or to the preliminary announcement as published on the
Liberty International website, www.liberty-international.co.uk, or available
from the Company on request)
Adjusted net assets per share declined by 41.0 per cent in 2008 to 745 pence
at 31 December 2008. The property valuation decline of 557 pence was the most
significant factor in the reduction in adjusted net assets per share. The other
non-operating reduction of 13 pence includes the goodwill impairment charges
related to Earls Court (GBP13.4 million) and Covent Garden restaurants (GBP21.6
million). The positive movement arising from minority interest is principally
due to the minorities` share of the property valuation decline.
Cash flow
The group cash flow below shows a net outflow of GBP334.5 million in 2008.
The net outflow reflects the net investment in property assets during 2008.
The table below illustrates that cash from operations has increased from 2007,
reflecting the absence of adverse working capital flows in the previous year.
Working capital movements generated a small positive cash flow in 2008.
The major components of the GBP400.9 million expenditure on property
developments and investments are the expenditure on the group`s major
developments at Cardiff (GBP76.4 million) and Oxford (GBP27.6 million), the
purchase of Empress State (GBP33.1 million) and investments (GBP89.0 million).
2008 2007
GBPm GBPm
Recurring cashflow from operations 131.2 57.3
Property development/investments (400.9) (694.7)
Sale of property/investments 106.6 411.2
REIT entry charge (48.4) (15.6)
Dividends (123.0) (122.1)
Cashflow before financing (334.5) (363.9)
Financial position
The vast majority, over 90 per cent, of the group`s debt has been arranged on a
non-recourse, asset-specific basis. This structure permits the group a higher
degree of financial flexibility in dealing with individual property issues than
a financing structure based on a single group-wide borrowing facility.
In addition to the non-recourse debt, the group has a corporate revolving
credit facility of GBP360 million, which can be utilised to fund development
and investment opportunities before they reach the stage that they can support
their own financing arrangements.
Net external debt increased from GBP3,625 million at 31 December 2007 to
GBP4,100 million at 31 December 2008. At this date the debt to assets ratio was
58 per cent (31 December 2007 - 42 per cent). The group had cash and available
facilities of GBP291 million and was in compliance with all of its corporate
and non-recourse asset-specific loan covenants.
Group debt ratios were as follows:
31 December 31 December
2008 2007
Debt to assets 58% 42%
Secured debt to secured assets 63% 53%
Net unsecured debt to unsecured assets 21% 3%
Interest cover 145% 165%
Weighted average debt maturity 5.8 years 6.7 years
Weighted average cost of debt 6.0% 6.0%
Proportion of net debt with interest rate hedged 100% 100%
Debt structure and maturity
(Graph omitted. Please refer to RNS announcement released on 26/02/09 via the
London Stock Exchange, or to the preliminary announcement as published on the
Liberty International website, www.liberty-international.co.uk, or available
from the Company on request)
GBP322 million was drawn from existing facilities; GBP180m on the secured loan
on the Victoria Centre, Nottingham and GBP140 million from the group`s
unsecured bank loans. During the year, two new facilities were put in place
secured on the assets of joint ventures. Our share of the loan secured on the
Great Capital Partnership assets was GBP112 million with a further GBP79
million secured on our share of the Empress State partnership. GBP79 million of
partner related finance further increased the debt total.
Cash balances of the group fell from GBP188 million at 31 December 2007 to
GBP71 million at 31 December 2008, resulting in a GBP118 million increase in
net debt.
The purchase of GBP111 million of CMBS notes linked to our loans at Lakeside,
MetroCentre, Watford and Braehead helped to offset new borrowings and GBP158
million of debt outstanding at 31 December 2007 was repaid. Other movements
were the conversion of bonds to equity, reducing debt by GBP19 million and an
increase in debt of GBP59 million on the currency translation of US dollar
debt.
(Graph omitted. Please refer to RNS announcement released on 26/02/09 via the
London Stock Exchange, or to the preliminary announcement as published on the
Liberty International website, www.liberty-international.co.uk, or available
from the Company on request)
There are no significant debt repayments due in 2009. The largest element of
the 2009 repayments are GBP48 million loan amortisation of non-recourse secured
debt and the maturity of GBP32 million of unsecured bonds in March 2009.
In 2010, GBP196 million of debt falls due for repayment including GBP79 million
convertible bond (GBP92 million at 31 December 2008 less GBP13 million
converted in January 2009). The first significant maturity of secured debt, the
Lakeside Shopping Centre, occurs in July 2011. A detailed breakdown of the
group`s debt maturity is shown at the end of the Financial Review in Schedule
2.
Financial Covenants
The group has financial covenants that apply to GBP3.1 billion of secured
non-recourse debt. The two main covenants are Loan to Value (LTV) and Interest
Cover (IC). The actual requirements vary and are specific to each loan. At 31
December 2008 GBP886 million of non-recourse loans had no loan to value
requirement. At 31 December 2008 and for all covenant test dates to 25 February
2009 the group is fully compliant in all financial covenant tests certified to
lenders. Full details are shown in Schedule 3.
There are loan to value and interest cover tests that apply to the group`s
GBP517 million of joint venture borrowing. These are tested quarterly and at 31
December 2008 all tests were met.
There are four financial covenant tests that apply to the GBP360 million of
unsecured term and revolving credit bank loans to Liberty International PLC.
These are net worth, interest cover, borrowings to net worth and a secured
borrowings to net worth test. These are tested semi-annually on a number of the
group`s companies, the Borrower Group, and at 31 December 2008, the latest
certifiable date, all tests were satisfied.
There is a minimum capital cover and interest cover condition applicable to the
GBP231 million mortgage debenture tested semi- annually at 30 June and 31
December. At 31 December 2008 both tests were satisfied.
Compliance with financial covenants is constantly monitored. In the case of
CMBS related debt and non-recourse bank loans, a potential breach would be
discussed with lenders. This could result in a re-negotiation or possible
waiving of the covenant. Actual covenant breaches can be rectified by a number
of remedies such as additional security, temporary cash deposit or partial
repayment before an event of default occurs.
The table below illustrates the cash that could be required to partially repay
certain non-recourse loans in order to remain within covenant limits, for a
range of falls in property valuations from the 31 December 2008 valuations. In
certain circumstances, the group has assumed that a potential breach would be
remedied through granting the lender additional security rather than partial
loan repayment.
Fall in property LTV cash cure
values from requirement in non-
31 December 2008 recourse facilities
% GBPm
5 2
10 29
15 73
20 137
25 233
Fair value of debt and financial instruments
During the first half of 2008 interest rates gradually increased with 10 year
sterling swap rates rising from around 5 per cent to peak at 5.75 per cent in
June. In the third quarter of 2008, long term interest rates receded towards
levels at the start of the year. As markets responded to the crisis in the
banking sector and the resultant government support for banks, a rapid downward
shift in market interest rates emerged. The 10 year sterling swap rate at the
end of September 2008 stood at approximately 5 per cent and fell to end the
year at 3.45 per cent, a decline of 1.55 per cent.
At 31 December 2008 the group`s net debt was fixed by interest rate swap
contracts in accordance with the group`s policy and lender requirements to
eliminate substantially all short term risk and a proportion of medium to
longer term risk as set out in the table below in respect of changes in
interest rates. Whilst interest rate swaps offer protection from higher
interest rates and provide a high degree of predictability on future cashflows,
they provide no opportunity to gain when interest rates fall. Furthermore, the
movement on the revaluation of derivative financial instruments affects the
group`s income statement. For the year ended 31 December 2008 the group
recorded a deficit in the Income Statement of GBP665 million on the change in
the value of financial instruments. Almost all of this movement was recorded in
the last quarter of 2008 in line with the decline in interest rates.
A shift up or down in the yield curve has a great impact on the mark-to-market
valuation of long dated interest rate swaps. At 31 December 2008 a movement of
0.1 per cent in the yield curve would affect the fair value of the group`s
derivative financial instruments by approximately plus or minus GBP5 million.
At 23 February 2009, the fair value provision of derivative financial
instruments is recorded at GBP588 million, an improvement of GBP201 million
since the year end.
As at 31 December 2008 the value of derivative financial instruments recorded
on the balance sheet is GBP789 million. This total includes all derivatives
entered into by the group to hedge its currency and interest rate risk
exposures. Should market rates remain unaltered from their level recorded at 31
December 2008 the following chart illustrates how the value would decline over
time.
(Graph omitted. Please refer to RNS announcement released on 26/02/09 via the
London Stock Exchange, or to the preliminary announcement as published on the
Liberty International website, www.liberty-international.co.uk, or available
from the Company on request)
The fair value of the group`s floating rate liabilities is not included in the
adjustment to net assets per share. Whilst it is difficult to market value many
of these bank loans, debt relating to the issuance of commercial mortgage
backed securities (`CMBS`) can be traded and valued. The group`s CMBS related
debt which amounted to GBP1,563 million at 31 December 2008 and shown on the
balance sheet at amortised cost, had a market value of GBP1,116 million. The
GBP447 million discount is equivalent to 122 pence per share.
Interest rates
The group`s current net debt total is fully hedged through a combination of
fixed rate debt and interest rate swaps. The following interest rate swap
summary table highlights a lower applicable swap rate as contracts mature with
the average rate falling from 5.28 per cent to 4.40 per cent. The current
market rates for interest rate swaps are substantially lower than the group`s
current average and therefore the group could expect to benefit from lower
rates as new contracts are entered into.
Average
Interest rate swap summary Net amount rate
In effect after: GBPm %
1 year 3,595 5.28
2 years 3,575 5.27
5 years 3,184 5.16
10 years 2,425 4.69
15 years 2,100 4.58
20 years 2,100 4.58
25 years 1,625 4.40
Financing and treasury activities
Two new debt transactions were completed in 2008:
Great Capital Partnership (a joint venture with Great Portland Estates)
completed a GBP225 million five year loan (group share GBP112 million) in March
2008.
Empress State Partnership (a joint venture with Land Securities) completed a
GBP159 million five year loan in August 2008.
Two other notable changes to group debt occurred during the year. First, in
early 2008, the group purchased, at a discount to par, GBP111 million nominal
of CMBS. The notes purchased relate to the non-recourse debt of certain CSC`s
properties and profit of GBP13.1 million was included in other finance income.
The group currently holds GBP221 million CMBS relating to CSC assets, held on
the balance sheet as a deduction from the group`s debt, at par value. Secondly,
in the last quarter of the year, GBP19 million nominal value of the 3.95 per
cent convertible bonds converted into 2,375,000 new ordinary Liberty
International PLC shares. Investors converted their bonds in exchange for the
ordinary shares and an aggregate cash payment of GBP2.3 million. At 31 December
2008, GBP92 million of the convertible bonds remain outstanding. In early
January 2009, a further GBP13 million of the bonds were converted on a similar
basis such that GBP79 million of the bonds remain outstanding.
Transactions during the year
The principal acquisition during the year was a 50 per cent interest in the
Empress State building, which is strategic to the group`s plans at Earls Court.
The 50 per cent interest was acquired for a cash consideration of GBP33.1
million. The total of our interest in the new partnership was GBP113 million,
with the balance being funded by an asset-specific, non-recourse loan. This
acquisition has been fully consolidated, the 50 per cent third party share has
been adjusted through minority interest, in accordance with IAS 27
"Consolidated and Separate Financial Statements". This treatment is due to the
existence of an option, exercisable at the group`s request, to acquire the
remaining 50 per cent interest. If the group does not exercise the option,
which expires in August 2009, a deemed disposal will take place. This will be a
non-cash transaction and will result in the property being accounted for on a
proportional, 50 per cent, rather than full consolidation basis.
Major property developments and other capital investments
During the year, the group has invested GBP182 million on major developments,
principally St David`s 2, our joint venture with Land Securities in Cardiff,
and Westgate, Oxford. Other significant extensions and refurbishments are
underway at two existing centres Eldon Square, Newcastle and MetroCentre,
Gateshead. Details of construction and letting progress are outlined in the
operating review.
The market value of the group`s interest in St David`s 2 has been significantly
reduced in the year, particularly in the last quarter, resulting in a GBP125
million deficit for 2008 as a whole. As with CSC`s existing centres, this is
largely due to yield shift - a 75 basis points movement in the nominal
equivalent yield since 30 September 2008, 150 basis points since 31 December
2007, to 6.50 per cent. In addition, the expected rental value has been
reduced from GBP19.5 million at 30 September 2008 to GBP17.3 million at 31
December 2008.
In mid 2008 the group announced that the proposed redevelopment in Oxford had
been put on hold. In December 2008, under the terms of the joint venture
arrangement, the partner exercised its right to sell its interest in the centre
to CSC for GBP40 million. This balance is included in other payables at 31
December 2008 and was settled in February 2009.
Along with further overseas investments, the group has an aggregate commitment
to capital projects of GBP299 million. These commitments will be funded by the
group`s cash and available facilities of GBP291 million and the proceeds of
asset sales, with GBP160 million of sales currently exchanged or under offer.
Market Market
value at value at
31 Expenditure 31
Dec 2007 2008 Dec 2008
GBPm GBPm GBPm
Major developments
St David`s 2, Cardiff 139 76 90
Westgate, Oxford 36 68 65
Other CSC developments 54 - 39
194
Broad Gate, Leeds 42 33 65 #
Other C&C UK developments 74 5 49
114
Other capital investments
Eldon Square, Newcastle (60%
interest) * 18 *
MetroCentre yellow quadrant
(54% interest) * 7 *
Other CSC commitments
Other C&C UK commitments
C&C overseas investments 47 41 94
Further
Revaluation committed
year ended expenditure
31 31 Expected
Dec 2008 Dec 2008 rent
GBPm GBPm GBPm
Major developments
St David`s 2, Cardiff (125) 134 17
Westgate, Oxford (39) - n/a
Other CSC developments (15) - n/a
(179)
Broad Gate, Leeds (10) 9 6
Other C&C UK developments (30) 3 n/a
(40)
Other capital investments
Eldon Square, Newcastle (60%
interest) * 33 6
MetroCentre yellow quadrant
(54% interest) * 16 3
Other CSC commitments 33 n/a
Other C&C UK commitments 10 n/a
C&C overseas investments 6** 61 n/a
299
# Contracted disposal for GBP69 million in 2009 not yet reflected in the
financial statements.
* Market value and revaluation movement included in aggregate with existing
centre.
** Revaluation is largely foreign exchange translation.
Taxation
The group became a UK REIT on 1 January 2007 and has since then benefited from
the tax savings that being a REIT provides. The financial benefits to date have
amounted to GBP145 million, comprising net rental income and capital gains
sheltered from UK tax.
To retain its REIT status, the group is required to comply with a number of
obligations, which it has continued to do throughout 2008.
REIT entry charge payments of GBP48 million were made in 2008. To date GBP64
million has been paid, with GBP105 million remaining to be settled in
instalments to 2011. The minimum PID for 2008 is estimated to be 12.8 pence per
share, which is lower than the adjusted EPS principally as a result of capital
allowances and capitalised interest. Since the minimum PID for 2008 has been
covered by the 16.5 pence per share interim dividend, there is no requirement
to make any further dividend payments to meet the group`s PID obligation for
2008.
Income and gains from the non-REIT qualifying parts of the group continue to be
subject to taxation, with a net tax credit of GBP85.6 million in 2008. A GBP7.0
million current tax credit arises principally from releases in respect of prior
years. A GBP82.2 million deferred tax credit arises principally in respect of
fair value deficits arising on property valuations and derivative financial
instruments in the non-REIT qualifying parts of the group.
Principal financial risks
The significant financial risks the group faces have been considered and
policies have been implemented to best deal with each risk. The four most
significant financial risks are considered to be liquidity risk, interest rate
risk, foreign exchange risk and credit risk. These are discussed below.
Liquidity risk
Liquidity risk is managed to ensure that the group is able to meet future
payment obligations when financial liabilities fall due. Liquidity analysis is
conducted to ensure that sufficient headroom is available to meet the group`s
operational requirements and committed investments. The group treasury policy
also includes maintaining adequate cash and marketable securities, as well as
maintaining adequate committed facilities.
A key factor in ensuring existing facilities remain available to the group is
the borrowing entities` ability to meet the relevant facilities` financial
covenants. The group has a process to constantly monitor both current and
projected compliance with the financial covenants. A detailed analysis of the
group`s financial covenant position is included in Schedule 3.
The group`s policy is to seek to optimise its exposure to liquidity risk by
balancing its exposure to interest risk and to refinancing risk.
In effect the group seeks to borrow for as long as possible at the lowest
acceptable cost.
The group regularly reviews the maturity profile of its financial liabilities
and seeks to avoid bunching of maturities through the regular replacement of
facilities and by using a selection of maturity dates. Re-financing risk may be
reduced by re-borrowing prior to the contracted maturity date, effectively
switching liquidity risk for market risk. This is subject to credit facilities
being available
Interest rate risk
Interest rate risk comprises of both cash flow and fair value risks:
Cash flow interest risk is the risk that the future cash flows of a financial
instrument will fluctuate due to changes in market interest rates. Fair value
risk is the risk that the fair value of financial instruments will fluctuate as
a result of changes in market interest rates.
The group`s interest rate risk arises from long-term borrowings, borrowings
issued at variable rates expose the group to cash flow interest rate risk,
whereas borrowings issued at fixed interest rates expose the group to fair
value interest rate risk.
Bank debt is typically at floating rates linked to LIBOR for the relevant
currency. Bond debt and other capital market debt is generally at fixed rates.
The group`s secured borrowings` facilities include requirements to enter into
interest rate swaps, which have the economic effect of converting borrowings
from floating to fixed rates. The group`s policy on borrowings which do not
contain such requirements is also to eliminate substantially all near term
exposure to interest rate fluctuations in order to establish certainty over
cash flows by using floating to fixed interest rate swaps. As a consequence,
the group is exposed to market price risk in respect of the fair value of its
fixed rate derivative financial instruments. This policy can result in
significant non-cash movements in the group`s income statement.
Foreign exchange risk
Foreign exchange risk arises when future commercial transactions or recognised
assets or liabilities are denominated in a functional currency other than
Sterling. The consolidated balance sheet is affected by exchange differences
between Sterling and US dollars which is the functional currency of one of the
group`s subsidiaries. The group also holds overseas investments where Sterling
is not the functional currency.
The group`s policy is to manage near term foreign exchange risk through
entering into cross-currency interest rate swaps and forward foreign exchange
contracts. The investment in overseas subsidiary is accounted for as a hedge of
a net investment in a foreign operation. Longer term foreign exchange risk is
mitigated through financing with borrowings in the functional currency of the
foreign operation.
Credit risk
Credit risk arises primarily from trade receivables, derivative contracts, cash
and cash equivalents and finance leases. Credit risk from trade receivables is
minimised by the review process conducted for potential tenants, in certain
circumstances deposits or guarantors are obtained for certain tenants. The
group considers that there are no significant concentrations of credit risk due
to the diversification of the tenant base.
The amounts of trade receivables presented in the balance sheet are net of
allowances for doubtful receivables. Due to the nature of tenants being managed
individually by asset managers, it is group policy to calculate any impairment
specifically on each contract.
The credit risk in liquid funds and derivative financial instruments is limited
because amounts are spread between a number of institutions and the group`s
policy is to deal with those counterparties with stronger credit ratings
assigned by international credit rating agencies.
26 February 2009
Schedule 1
UNDERLYING PROFIT STATEMENT (unaudited)
For the year ended 31 December 2008
Quarter Quarter Quarter
ended ended ended
31 December 30 September 30 June
2008 2008 2008
GBPm GBPm GBPm
UK shopping centres 73.8 66.9 65.6
Other commercial properties 28.4 20.2 24.3
Net rental income 102.2 87.1 89.9
Other (expense)/income (0.1) (0.2) (0.1)
102.1 86.9 89.8
Administration expenses (18.2) (16.8) (13.7)
Operating profit (underlying)* 83.9 70.1 76.1
Interest payable (59.6) (55.3) (57.0)
Interest receivable and other
finance 3.2 (0.6) 5.0
income
Other finance (costs)/income (2.0) 6.5 -
Net finance costs (underlying)* (58.4) (49.4) (52.0)
Profit before tax (underlying)* 25.5 20.7 24.1
Property trading profits/(losses) 0.1 (0.7) -
Write down of trading property (3.3) (2.5) -
Tax on adjusted profit 6.8 (0.6) (2.0)
Minority interests 3.2 5.5 (2.3)
Earnings used for calculation of
adjusted earnings per share 32.3 22.4 19.8
Adjusted earnings per share 8.9p 6.2p 5.5p
Quarter Year Year
ended ended ended
31 March 31 December 31
December
2008 2008 2007
GBPm GBPm GBPm
UK shopping centres 74.5 280.8 288.8
Other commercial properties 29.8 102.7 85.5
Net rental income 104.3 383.5 374.3
Other (expense)/income 0.6 0.2 (0.9)
104.9 383.7 373.4
Administration expenses (14.5) (63.2) (45.2)
Operating profit (underlying)* 90.4 320.5 328.2
Interest payable (58.4) (230.3) (209.3)
Interest receivable and other finance 1.0 8.6 8.8
income
Other finance (costs)/income - 4.5 -
Net finance costs (underlying)* (57.4) (217.2) (200.5)
Profit before tax (underlying)* 33.0 103.3 127.7
Property trading profits/(losses) 0.9 0.3 2.9
Write down of trading property - (5.8) -
Tax on adjusted profit (0.5) 3.7 (2.2)
Minority interests (3.0) 3.4 1.9
Earnings used for calculation of
adjusted earnings per share 30.4 104.9 130.3
Adjusted earnings per share 8.4p 29.0p 36.0p
* before property trading and valuation items
Schedule 2
Maturity profile of non-recourse secured debt
Total
Principal Principal externally
amortisation at maturity held debt
GBPm GBPm GBPm
Maturity profile
2009 48 8 56
2010 51 13 64
2011 58 581 639
2012 55 239 294
2013 53 516 569
2014 46 27 73
2015 29 962 991
2016 7 803 810
2017 - 118 118
2027 - 231 231
Net secured debt* - 63% of
market value of secured assets
of GBP6,059 million(1) 347 3,498 3,845
Internally owned CMBS 221
Gross Secured debt* 4,066
* The debt figures represent actual debt repayments and excludes the
unamortised transaction costs that are included in financial statements.
(1) includes investment and development properties and trading properties.
Maturity profile of unsecured debt with recourse to Liberty International PLC
Revolving
Unsecured Convertible credit
bonds bonds facilities
GBPm GBPm GBPm
Maturity profile
2009 32 - -
2010 - 92 40
2011 - - 50
2012 - - -
2013 27 - -
Unsecured debt 59 92 90
Cash and cash equivalents
Net unsecured debt - 21% of market value of unsecured assets of
GBP1,054 million (1)
Term-
loan/ Total
other debt
GBPm GBPm
Maturity profile
2009 2 34
2010 - 132
2011 - 50
2012 50 50
2013 - 27
Unsecured debt 52 293
Cash and cash equivalents (71)
Net unsecured debt - 21% of market value of unsecured
assets of
GBP1,054 million (1) 222
(1) includes investment and development properties and trading properties.
Unsecured revolving credit facilities
Undrawn at
Total 31 December
facility 2008
GBPm GBPm
Maturity profile
210 170
2010 100 50
2011 310 220
Facilities mature in December in the year of maturity, with the exception of a
GBP50 million facility that matures in June 2011.
Schedule 3
FINANCIAL COVENANTS
Financial covenants on non-recourse debt excluding joint ventures
Loan LTV
Maturity GBPm covenant
Lakeside (2) (6) 2011 633.7 90% (6)
MetroCentre (2) 2015 569.5 90%
Braehead (2) 2015 384.7 N/A
Harlequin (2) 2015 288.6 N/A
Nottingham 2016 300.0 90%
Covent Garden (3) 2013 252.5 75%
Chapelfield 2016 212.6 N/A
Uxbridge 2016 169.4 85%
Bromley 2016 151.9 85%
C&C No 9 (3) 2017 118.0 70%
Total 3,080.9
LTV Interest cover Interest cover
actual (1) covenant actual (1) (5)
Lakeside (2) (6) 65% 120% 148%
MetroCentre (2) 72% 120% 139%
Braehead (2) N/A 120% 143%
Harlequin (2) N/A 120% 123%
Nottingham 85% 110% 162%
Covent Garden (3) 68% 110% 125%
Chapelfield N/A 110% 114%
Uxbridge 83% 110% 144%
Bromley 78% 110% 121%
C&C No 9 (3) 57% 100% 149%
Total
Financial covenants on joint venture non-recourse debt
Loan LTV LTV
Maturity GBPm covenant actual (1)
EC& O Venues (4) 2012 222.3 75% 69%
Empress State (4) 2013 158.0 N/A N/A
GCP 2013 112.5 70% 43%
Xscape 2014 24.5 85% 78%
Total 517.3
Interest cover Interest cover
covenant actual (1) (5)
EC& O Venues (4) 140% 192 %
Empress State (4) 110% 124 %
GCP 120% 188 %
Xscape 120% 137 %
Total
Notes:
(1) Based on latest certified figures to the lenders covers the period 31
December 2008 to 31 January 2009.
(2) Amounts drawn on Lakeside, MetroCentre, Braehead and Harlequin reflect the
gross debt position without deduction of CMBS notes held by other Liberty
International group companies
(3) Two separate loans on Covent Garden properties
(4) 100% of debt shown but Liberty International group ownership 50%
(5) Calculated in accordance with the loan agreement
(6) LTV covenant reduces to 80% from January 2010
Financial covenants on corporate unsecured facilities at 31 December 2008*
Net worth Interest cover Interest cover Borrowings/
covenant** Actual covenant actual net worth**
GBP1,511m
GBP1,200m 125% 134% 100%
GBP850m*** 120%*** 110%***
Secured
Net worth borrowings/
covenant** Actual net worth** Actual
GBP1,200m 56% 50% 37%
GBP850m*** N/A***
* Calculated on GBP360m of facilities of which GBP140m drawn
** Tested on the Borrower group which excludes, at the group`s election,
specific subsidiaries with non-recourse finance
*** Amended covenants, agreed with lenders since 31 December 2008 conditional
on raising not less than GBP350 million of new equity. The overall maturity has
been extended to June 2011.
C&C Mortgage Debenture PLC at 31 December 2008
Loan Capital cover
Maturity GBPm covenant
C&C 2027 231.4 167%
Capital cover Interest cover Interest cover
actual covenant actual
C&C 187% 100% 110%
The debenture is currently secured on the group`s interests in The Potteries,
Stoke-on-Trent and Eldon Square, Newcastle upon Tyne shopping centres. Should
the loan to value or income test be breached C&C (the issuer) has 3 months from
the date of delivery of the valuation or the latest certificate to the Trustee
to make good any deficiency. C&C may withdraw property secured on the debenture
by paying a sum of money or through the substitution of alternative property
provided that the loan to value and income tests are satisfied immediately
following a substitution.
There are currently no financial covenant tests on $318 million (GBP221 million
equivalent) of borrowings entered into by the group`s US subsidiary.
Schedule 4
Details of the performance of individual completed regional shopping centres
and developments
Completed shopping centres
Lakeside, Thurrock
(Market value GBP971 million, 14 per cent of group total)
Footfall and estimated retail sales were both positive on the previous year.
Occupancy at 31 December 2008 was 98.6 per cent, 94.7 per cent adjusted for
tenancies in administration.
19 units were affected by administrations in the year, 10 of which have been
relet or assigned.
MetroCentre, Gateshead (excluding Retail Park)
(Market Value GBP790 million, 11 per cent of group total)
Footfall was marginally down on 2007 as the centre was undergoing development
works in the Yellow and Blue Quadrants. Estimated retail sales were also
marginally below the previous year for the same reason.
Occupancy at 31 December 2008 was 99.3 per cent, 93.2 per cent adjusted for
tenancies in administration.
18 units were affected by administrations in the year, 5 of which have been
relet or assigned.
Works commenced on site to upgrade the leisure and dining facilities in both
the Yellow and Blue Quadrants. The project will open in phases between Spring
2009 and Autumn 2010 and will include 8 new restaurants, a new Odeon cinema and
family entertainment centre. 70 per cent of the anticipated income from the
upgrade is either exchanged or in solicitors` hands, equating to 81 per cent by
area.
Braehead, Renfrew, Glasgow
(Market value GBP563 million, 8 per cent of group total)
Footfall and total estimated retail sales in 2008 were impacted, as
anticipated, by the opening of the nearby retail development at Silverburn.
From similar experience elsewhere in the UK, we expect this impact to reduce in
2009 and growth to resume thereafter.
Occupancy at 31 December 2008 was 99.3 per cent, 94.6 per cent adjusted for
tenancies in administration.
9 units were affected by administrations, 2 of which have been relet.
A new 36,000 sq.ft. flagship store for New Look opened prior to Christmas
trading and planning consent was granted to relocate Sainsbury`s from the
shopping centre to our adjacent retail park.
Active negotiations are taking place for the reletting of the Sainsbury`s store
in the shopping centre.
The Harlequin, Watford
(Market value GBP379 million, 5 per cent of group total)
New retail development openings within The Harlequin`s catchment area have as
anticipated had a limited impact on footfall and sales.
Whilst there are no true voids, Watford had 12 units affected by
administrations during the period, 3 of which have been relet, reducing
occupancy from 100 per cent to 92.0 per cent.
Victoria Centre, Nottingham
(Market value GBP351 million, 5 per cent of group total)
Footfall and estimated retail sales were down slightly on 2007, in part due to
repair works to the car park.
Nottingham continues to hold firm as a strong retail destination despite recent
development at Derby and Leicester.
Occupancy at year end was 100 per cent, 92.4 per cent adjusted for tenancies in
administration. 12 units were affected by administrations, 2 of which have been
relet.
Manchester Arndale
(Market value GBP306 million, 4 per cent of group total)
As the full benefits are realised of the Northern Extension, the final phase of
which opened in December 2006, both footfall and estimated retail sales are
substantially up on the prior year.
Tenant mix engineering has continued and 32 further lettings were contracted in
the year throughout the centre.
Occupancy at year end was 96.8 per cent, 93.4 per cent including tenancies in
administration.
14 units were affected by administration, 7 of which have been relet.
Our adjoining interest in New Cathedral Street continues to trade well with 100
per cent occupancy at year end.
Cribbs Causeway, Bristol properties (including The Mall and retail park)
(Market Value GBP225million, 3 per cent of group total)
The initial impact of the Cabot Circus development opening in Bristol city
centre in Autumn 2008, has been similar to our experiences from other major UK
cities such as Newcastle, with an initial negative impact on footfall and sales
at The Mall in the last quarter of 2008. However we fully expect this impact to
reduce over time with no long term negative implications for the prospects of
the centre.
The Mall and retail park each had one true void at 31 December 2008, with
occupancy at 96.9 per cent.
9 units were affected by administrations (one of which has been relet) reducing
occupancy levels to 91.9 per cent.
The final phase of the retail park refurbishment has commenced and at The Mall
the first phase of the food court remodelling has successfully opened with the
final works due to complete in Spring 2009. Eight new restaurants will be added
to the centre and 73 per cent of the total anticipated income is exchanged or
in solicitors` hands.
Eldon Square, Newcastle
(Market value GBP223 million, 3 per cent of group total)
Footfall was up on 2007 and estimated retail sales virtually on a par with the
previous year.
Occupancy at 31 December 2008 was 98.1 per cent, 90.8 per cent adjusted for
tenancies in administration.
11 units were affected by administrations during the year, 3 of which have been
relet.
Two of our three schemes to improve and extend the centre to a total of 1.3
million sq.ft. are now completed. Eldon Square West, 22,000 sq.ft. of retail
and restaurant space overlooking Old Eldon Square opened in 2006 and Eldon
Square North, renamed St George`s Way, comprising a new state of the art bus
station and 48,000 sq.ft. of additional retail space opened in May 2008. 75 per
cent of the anticipated income from St George`s Way is committed or in
solicitors` hands equating to 88 per cent by area.
Progress has been made on site on the third and largest of the schemes, Eldon
Square South, to be named St Andrew`s Way, which will provide 410,000 sq.ft. of
retail space including a 175,000 sq.ft. department store which is on programme
to be handed over to Debenhams for fitting out in Spring 2009. The project is
due to complete in February 2010. 73 per cent of the anticipated income from St
Andrew`s Way is exchanged or in solicitors` hands, equating to 83 per cent by
area.
Chapelfield, Norwich
(Market value GBP248m, 3 per cent of group total)
Chapelfield which opened in Autumn 2005 has now firmly established itself as a
central part of the City Centre with consumer shopping patterns responding to
the high quality tenant mix and shopper facilities.
Both footfall and estimated retail sales have seen positive year on year
growth.
At 31 December 2008, occupancy was 99.8 per cent, 95.5 per cent adjusted for
tenancies in administration. 9 units were affected by administrations, 2 of
which have been relet.
The Potteries, Hanley, Stoke-on-Trent
(Market value GBP211m, 3 per cent of group total)
Both footfall and estimated retail sales saw positive growth in 2008.
With 2 true voids at year end, 12 units in the centre were affected by
administrations, 5 of which have been relet.
The Chimes, Uxbridge
(Market value GBP205 million, 3 per cent of the group total)
Footfall and estimated retail sales declined moderately in the year, as two new
retail developments opened within the catchment.
However, Uxbridge`s occupancy at year end was 100 per cent, 97.1 per cent
adjusted for tenancies in administration. 4 units were affected by
administration, 2 of which have subsequently been relet.
The Glades, Bromley
(Market value GBP195 million, 3 per cent of the group total)
The Glades experienced positive footfall and estimated retail sales in line
with the previous year.
Occupancy at year end was 99.1 per cent, 93.6 per cent adjusted for tenancies
in administration. 8 units were affected by administrations, 1 of which has
been relet.
The remodelling of various High Street investment properties to provide 50,600
sq.ft. of new retail space opened for trade in May including new stores for
H&M, Mango and Body Shop. 93 per cent of income is committed.
Development Projects
St David`s Centre, Cardiff
(Market value of St David`s 1 GBP71 million, development value of St David`s 2
GBP90 million, 2 per cent of the group total).
Our retail led development in Cardiff with our joint venture partner Land
Securities is on programme to complete in Autumn this year. The project will
extend the existing St. David`s centre by 967,500 sq.ft. to 1.4 million sq.ft
overall. Overall around 125 new shops and restaurants are being developed
which, when added to the existing centre, will enlarge St. David`s into one of
the UK`s largest city centre retail schemes.
We are confident of the future prospects for the enlarged St. David`s centre
with the existing centre already attracting 22 million customer visits each
year.
Cardiff is expected to rise to 8th place in the UK retail rankings on
completion of the St. David`s development which has already attracted several
new retailers to Wales.
The new library was handed over to Cardiff Council on schedule in December and
John Lewis is currently fitting out its store.
Cardiff will be its largest store outside London.
51 per cent of the area and 40 per cent of anticipated rental income is
currently either exchanged or in solicitors` hands. A further 10 per cent by
income is in contractual negotiation or at heads of terms stage.
In 2008 a significant number of new shopping centres opened during the year
adding over 10 million square feet of retail space, generally well let. In
2009, only a small number of large retail schemes are due to open including St
David`s Cardiff. Following this, supply will be curtailed sharply, as the
current economic environment has halted many projects in the pipeline.
However, we anticipate the letting market to continue to be challenging in 2009
as retailers approach expansion with caution.
Westgate Centre, Oxford
(Market value GBP65 million, 1 per cent of group total)
Whilst we are positive about the long term prospects for Oxford as a retail
destination, current market conditions do not meet our criteria for an
immediate redevelopment of the Westgate Centre.
We therefore took the decision in 2008 to put the major redevelopment of this
centre on hold, with the results for the year reflecting the impact of
writing-off abortive development costs.
In terms of the arrangements with our joint venture partner, we have acquired
their residual interest, with completion of the purchase having taken place on
13 February 2009.
With the site now under one ownership, in CSC`s control, we have greater
flexibility in analysing future development options.
In the meantime, we have full control of management with considerable asset
management opportunities to increase centre attractiveness and income.
Rent reviews and lease expiries
The table below shows details of CSC`s rent review and lease expiry profile.
2008 2009 2010
% % %
Rent reviews
Percentage of total retail units 16 17 25
Percentage of CSC rental income 15 18 28
2011 2012 2013
% % %
Rent reviews
Percentage of total retail units 26 20 12
Percentage of CSC rental income 28 16 10
2009 2010 2011 2012
% % % %
Lease expiries
Percentage of total retail units 5 5 9 9
Percentage of CSC rental income 2 3 10 6
2014 2019
to to After
2013 2018 2023 2023
% % % %
Lease expiries
Percentage of total retail units 8 45 13 6
Percentage of CSC rental income 8 46 15 10
Consolidated income statement (unaudited)
for the year ended 31 December 2008
Year Year
ended ended
31 December 31 December
2008 2007
Notes GBPm GBPm
Revenue 2 618.2 574.6
Rental income 607.4 546.7
Rental expenses (223.9) (172.4)
Net rental income 2 383.5 374.3
Other income 0.5 2.0
Deficit on revaluation and sale of
investment and development property 3 (2,057.0) (279.1)
Profit on sale of subsidiary 0.8 -
Write down of trading property (5.8) -
(1,678.0) 97.2
Administration expenses (63.2) (45.2)
Impairment of goodwill (35.0) -
Operating (loss)/profit (1,776.2) 52.0
Interest payable 4 (230.3) (209.3)
Interest receivable 8.6 8.8
Other finance income/(costs) 4 0.9 (3.3)
Change in fair value of derivative
financial instruments (665.1) 27.0
Net finance costs (885.9) (176.8)
Loss before tax (2,662.1) (124.8)
Current tax 7.0 (2.7)
Deferred tax 82.2 (23.8)
REIT entry charge (3.6) (3.9)
Taxation 5 85.6 (30.4)
Loss for the year (2,576.5) (155.2)
Loss attributable to minority
interests 125.2 50.2
Loss for the year attributable to
equity shareholders (2,451.3) (105.0)
Basic loss per share 15 (678.1)p (29.0)p
Diluted loss per share 15 (651.1)p (26.6)p
Adjusted earnings per share are shown in note 15.
Consolidated balance sheet (unaudited)
as at 31 December 2008
Restated
As at as at
31 December 31 December
2008 2007
Notes GBPm GBPm
Non-current assets
Goodwill - 26.6
Investment and development property 7 7,074.4 8,622.8
Plant and equipment 1.3 1.2
Investments 96.3 25.2
Investments in associate companies 32.3 25.8
Trade and other receivables 9 95.6 78.5
7,299.9 8,780.1
Current assets
Trading property 8 33.3 43.7
Derivative financial instruments 13 29.6 25.4
Trade and other receivables 9 97.2 134.9
Cash and cash equivalents 70.9 188.4
231.0 392.4
Total assets 7,530.9 9,172.5
Current liabilities
Trade and other payables 10 (364.9) (341.7)
Tax liabilities (1.9) (5.7)
Borrowings, including finance leases 11 (95.2) (152.3)
Derivative financial instruments 13 (818.5) (97.8)
(1,280.5) (597.5)
Non-current liabilities
Borrowings, including finance leases 11 (4,195.5) (3,704.0)
Deferred tax provision 5 - (73.7)
Other provisions (7.3) (1.4)
Other payables (61.8) (87.0)
(4,264.6) (3,866.1)
Total liabilities (5,545.1) (4,463.6)
Net assets 1,985.8 4,708.9
Equity
Called up ordinary share capital 182.6 181.4
Share premium account 993.4 975.6
Treasury shares (10.8) (9.6)
Convertible bond reserve 7.6 9.1
Other non-distributable reserves 287.3 275.4
Retained earnings 497.9 3,075.1
Attributable to equity shareholders 16 1,958.0 4,507.0
Minority interests 16 27.8 201.9
Total equity 16 1,985.8 4,708.9
Basic net assets per share 15 538p 1246p
Diluted, adjusted net assets per share 15 745p 1264p
Consolidated statement of recognised
income and expense (unaudited)
for the year ended 31 December 2008
Year Year
ended ended
31 December 31 December
2008 2007
Note GBPm GBPm
Loss for the year as per the
consolidated income statement before
minority interest (2,576.5) (155.2)
Other recognised income and expense
in the year
Actuarial losses on defined benefit
pension schemes (8.1) (2.0)
Tax on items taken directly to equity 7.6 0.5
Gain on revaluation of investments,
net exchange translation
differences and other movements 3.9 6.4
Net loss recognised in equity due to
minority interests (0.5) (0.7)
Net gain recognised in equity 2.9 4.2
Total recognised expense for the year (2,573.6) (151.0)
Total recognised expense attributable
to minority interests 16(b) 125.7 50.9
Total recognised expense for the year
attributable to equity
shareholders 16(a) (2,447.9) (100.1)
A summary of changes in group equity is shown in note 16.
Consolidated statement of cash flows (unaudited)
for the year ended 31 December 2008
Year Restated
ended year ended
31 December 31 December
2008 2007
Note GBPm GBPm
Cash generated from operations 12 362.4 266.8
Interest paid (241.6) (222.0)
Interest received 8.6 9.8
Taxation 1.8 2.7
REIT entry charge paid (48.4) (15.6)
Cash flows from operating activities 82.8 41.7
Cash flows from investing activities
Purchase and development of property (270.6) (575.5)
Sale of property 101.6 219.2
Sale of partial interest in property - 192.0
Purchase of subsidiary companies (41.3) (80.0)
Sale of subsidiary companies 5.0 -
Purchase of non-current investments (86.2) (17.7)
Purchase of associate companies (2.8) (21.5)
Cash flows from investing activities (294.3) (283.5)
Cash flows from financing activities
Partnership equity introduced 6.5 48.0
Acquisition of own shares (1.3) (3.1)
Borrowings drawn 439.0 382.6
Borrowings repaid (230.8) (197.0)
Equity dividends paid (123.0) (122.1)
Cash flows from financing activities 90.4 108.4
Effect of exchange rate changes on
cash and cash equivalents 3.6 -
Net decrease in cash and cash
equivalents (117.5) (133.4)
Cash and cash equivalents at beginning
of year 188.4 321.8
Cash and cash equivalents at end of
year 70.9 188.4
Notes (unaudited)
1 Basis of preparation
The Preliminary report is unaudited and does not constitute statutory accounts
within the meaning of Section 240 of the Companies Act 1985. The statutory
accounts for the year ended 2007 have been delivered to the Registrar of
Companies. The auditors` opinion on these accounts was unqualified and did not
contain a statement made under Section 237 (2) or Section 237 (3) of the
Companies Act 1985. The accounting policies set out in pages 26 and 27 of the
2007 Annual Report have been consistently applied in the preparation of this
financial information.
The financial information has been prepared in accordance with International
Financial Reporting Standards, as adopted by the European Union ("IFRS"), IFRIC
interpretations and with those parts of the Companies Act 1985 applicable to
companies reporting under IFRS. 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.
Going concern basis
The Directors have prepared cash flow forecasts which indicate that the Group
has adequate resources to continue in operational existence for the foreseeable
future. In preparing these forecasts the directors have taken into account the
following key business risks and uncertainties:
- conclusion of considerations of capital raising alternatives announced on
19th February 2009
the impact that the reduced liquidity in capital markets will have on the
Group`s non-core asset disposal programme
potential breaches of certain loan financial covenants if there are continued
reductions in property valuations.
Having taken into account these risks and uncertainties the Directors have
concluded, based on the cash flow forecasts, that it is appropriate to prepare
the Preliminary report on a going concern basis.
Restatement of the prior year comparatives
Cash payments to acquire property, plant and equipment, intangibles and other
long-term assets are presented as investing activities in the cash flow
statement in accordance with IAS 7 Cash Flow Statements. The prior year cash
flows have been restated to provide appropriate comparison. This has resulted
in restatement of GBP39.2 million for the year to 31 December 2007 from `Change
in cash generated from operations` to `Change in cash flows from financing
activities`. There is no impact on the balance sheet, income statement or basic
and diluted earnings per share for the year ended 31 December 2007 as a result
of this reclassification. Purchase of associate companies and purchase of
non-current investments are shown separately on the face of the cash flow
statement whereas previously they were aggregated together as change in current
asset investments.
On 25 March 2007 the group sold 40 per cent of its interest in MetroCentre,
Gateshead to EuroCore Property Limited. The MetroCentre Partnership was
constituted by three partners CSC MetroCentre Limited, MetroCentre (GP) Limited
(both subsidiaries of Liberty International PLC and EuroCore Property
Limited (a GIC Real Estate company). Partners` capital and loan contributions
made by subsidiaries of Liberty International PLC resulted in the group`s
ownership proportion being 60 per cent of the Partnership. This, together with
the group`s ability to govern the financial and operating policies of the
general partner, established the Partnership as a subsidiary of the group.
In the financial statements for the year ended 31 December 2007 the net
proceeds received from the sale of partial interest in the MetroCentre
Partnership were split between liability and minority interest components on
the balance sheet but were included within sale of property within the cash
flow statement. The prior year cash flows have been restated to reallocate the
sale of property accordingly. This has resulted in restatement for the year to
31 December 2007 of GBP192.0 million from sale of property to sale of partial
interest in property and GBP48.0 million from sale of property to partnership
equity introduced. There is no impact on the balance sheet, income statement or
basic and diluted earnings per share for the year ended 31 December 2007 as a
result of this reclassification. Sale of partial interest in property is shown
separately on the face of the cash flow statement whereas previously this had
been aggregated with sale of property.
1 Basis of preparation (continued)
The overall impact on the net assets of the group is GBPnil, however, the
impact on the individual lines is as follows:
2007
GBPm
Cash flow statement
Change in current asset investments to cash flow from investing
activities 39.2
Change in cash generated from operations 39.2
Change in cash flows from operating activities 39.2
Decrease sale of property (240.0)
Creation of sale of partial interest in property 192.0
Creation of purchase of associate companies (21.5)
Creation of purchase of non-current investments (17.7)
Change in cash flows from investing activities (87.2)
Increase in partnership equity introduced 48.0
Change in cash flows from financing activities 48.0
2 Segmental analysis
2008
UK Other
shopping commercial
centres properties Exhibition
GBPm GBPm GBPm
Revenue 423.6 119.0 62.8
Rental income including service
charge and other income 417.7 114.2 62.8
Service charge costs and other
operating costs (113.4) (40.9) (34.2)
Head lease costs (23.5) (0.8) -
Rent payable and other outgoings (136.9) (41.7) (34.2)
Net rental income 280.8 72.5 28.6
Property trading profits 0.3 - -
Other income - 0.1 -
Deficit on revaluation and sale of
investment and development
property (1,693.5) (301.7) (61.8)
Profit on sale of subsidiary - 0.8 -
Write down of trading property - (5.8) -
Segment result (1,412.4) (234.1) (33.2)
2008
Other Group
activities total
GBPm GBPm
Revenue 12.8 618.2
Rental income including service charge and other
income 12.7 607.4
Service charge costs and other operating costs (11.1) (199.6)
Head lease costs - (24.3)
Rent payable and other outgoings (11.1) (223.9)
Net rental income 1.6 383.5
Property trading profits - 0.3
Other income 0.1 0.2
Deficit on revaluation and sale of investment and
development
property - (2,057.0)
Profit on sale of subsidiary - 0.8
Write down of trading property - (5.8)
Segment result 1.7 (1,678.0)
2007
UK Other
shopping commercial
centres properties Exhibition
GBPm GBPm GBPm
Revenue 424.8 126.3 24.7
Rental income including service
charge and other income 411.7 110.3 24.7
Service charge costs and other
operating costs (100.6) (31.8) (14.6)
Head lease costs (22.3) (3.1) -
Rent payable and other outgoings (122.9) (34.9) (14.6)
Net rental income 288.8 75.4 10.1
Property trading profits 1.5 1.4 -
Other income - 0.3 -
Deficit on revaluation and sale of
investment and development
property (284.5) 0.6 4.8
Segment result 5.8 77.7 14.9
2007
Other Group
activities total
GBPm GBPm
Revenue (1.2) 574.6
Rental income including service charge and other
income - 546.7
Service charge costs and other operating costs - (147.0)
Head lease costs - (25.4)
Rent payable and other outgoings - (172.4)
Net rental income - 374.3
Property trading profits - 2.9
Other income (1.2) (0.9)
Deficit on revaluation and sale of investment and
development
property - (279.1)
Segment result (1.2) 97.2
3 Deficit on revaluation and sale of investment and development property
2008 2007
GBPm GBPm
Deficit on revaluation of investment and development
property (2,051.1) (316.5)
(Deficit)/gain on sale of investment property (5.9) 37.4
Deficit on revaluation and sale of investment and
development property (2,057.0) (279.1)
4 Finance costs
2008 2007
GBPm GBPm
Gross interest payable - recurring 248.8 224.4
Interest capitalised on developments (18.5) (15.1)
Total interest payable 230.3 209.3
Interest payable to partner (5.7) (3.0)
External interest payable 224.6 206.3
Costs of termination of financial instruments 6.6 2.0
Profit on repurchase of CMBS notes (13.1) -
MetroCentre amortisation of compound financial
instrument 2.0 -
Exceptional finance costs:
- inducement payments on conversion of 3.95%
convertible bond 3.6 -
- issue costs written off on redemption of loans - 1.3
Other finance (income)/costs (0.9) 3.3
5 Taxation
REIT entry
Current Deferred charge
GBPm GBPm GBPm
Tax on non-exceptional items (6.5) 2.8 -
Tax on exceptional items and property
disposals (0.5) - -
Other exceptional tax - - 3.6
Valuation items:
Investment and development property - (25.5) -
Derivative financial instruments - (59.5) -
(7.0) (82.2) 3.6
REIT entry
2008 2007
GBPm GBPm
Tax on non-exceptional items (3.7) 2.2
Tax on exceptional items and property disposals (0.5) -
Other exceptional tax 3.6 3.9
Valuation items:
Investment and development property (25.5) 8.7
Derivative financial instruments (59.5) 15.6
(85.6) 30.4
Taxation (credit)/charge for the financial year
2008 2007
GBPm GBPm
Current UK corporation tax at 28.5% (2007 - 30%) on profits 0.7 6.0
Prior year items - UK corporation tax (8.1) (3.4)
(7.4) 2.6
Overseas taxation (including GBP0.5 million (2007- GBP0.7
million) of prior year items) 0.9 0.1
Current tax on profits excluding exceptional items and
property disposals (6.5) 2.7
Deferred tax:
On investment and development property (25.5) 8.7
On derivative financial instruments (59.5) 15.6
On other temporary differences 2.8 (0.5)
Deferred tax on profits excluding exceptional items and
property disposals (82.2) 23.8
Tax (credit)/charge excluding exceptional items and
property disposals (88.7) 26.5
REIT entry charge 3.6 3.9
Tax credit on exceptional items and property disposals (0.5) -
Total tax (credit)/charge (85.6) 30.4
5 Taxation (continued)
Factors affecting the tax (credit)/charge for the year
The tax assessed for the period is lower than the standard rate of corporation
tax in the UK (28.5 per cent). The differences are explained below:
2008 2007
GBPm GBPm
Loss before tax (2,662.1) (124.8)
Loss on ordinary activities multiplied by the
standard rate in the UK of 28.5% (2007 - 30%) (758.7) (37.4)
UK capital allowances not reversing on sale (5.9) (8.2)
Disposals of properties and investments 16.6 1.0
Prior year corporation tax items (7.6) (2.7)
Prior year deferred tax items (0.4) 2.5
Expenses disallowed, net of capitalised interest (3.4) (3.2)
REIT exemption - corporation tax (19.9) (31.7)
REIT exemption - deferred tax 644.5 108.1
REIT exemption - entry charge 3.6 3.9
Utilisation of losses brought forward (0.1) (1.0)
Overseas taxation (0.2) 0.8
Unprovided deferred tax 46.0 -
Reduction in tax rate (0.1) (1.7)
Total tax (credit)/charge (85.6) 30.4
Tax items that are taken directly to equity are shown in the statement of
recognised income and expense.
Under IAS 12 (Income Taxes), provision is made for the deferred tax assets and
liabilities 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
UK 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 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 GBP18.3 million at 31 December 2008 (31 December
2007 - GBP35.8 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 GBP65.5 million
at 31 December 2008 (31 December 2007 - GBP86.8 million). 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 GBP57.6
million may also be released. Where gains such as revaluation of development
properties, 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
Revaluation Derivative
of investment Capital financial
properties allowances instruments
GBPm GBPm GBPm
Provided deferred tax
provision:
At 1 January 2007 32.1 31.8 (32.2)
Recognised in income 4.2 4.5 15.6
Recognised in equity (0.5) (1.3) -
Acquisition of subsidiaries - 14.9 1.9
At 31 December 2007 35.8 49.9 (14.7)
Recognised in income (21.9) (3.6) (59.5)
Recognised in equity 9.4 11.9 (5.2)
Sale of subsidiaries (5.0) (0.6) -
At 31 December 2008 18.3 57.6 (79.4)
Unrecognised deferred tax
asset:
At 1 January 2007 and 31
December 2007 - - -
Income statement items 2.9 - 37.4
At 31 December 2008 2.9 - 37.4
Other
temporary
differences Total
GBPm GBPm
Provided deferred tax provision:
At 1 January 2007 9.1 40.8
Recognised in income (0.5) 23.8
Recognised in equity (0.7) (2.5)
Acquisition of subsidiaries (5.2) 11.6
At 31 December 2007 2.7 73.7
Recognised in income 2.8 (82.2)
Recognised in equity (2.0) 14.1
Sale of subsidiaries - (5.6)
At 31 December 2008 3.5 -
Unrecognised deferred tax asset:
At 1 January 2007 and 31 December 2007 - -
Income statement items 5.7 46.0
At 31 December 2008 5.7 46.0
In accordance with the requirements of IAS12 (Income T)axes, the deferred
tax asset has not been recognised in the group financial statements due to
uncertainty on the level of profits that will be available in the non-REIT
businesses in future periods.
6 Dividends
2008 2007
GBPm GBPm
Ordinary shares
Prior period final dividend paid of 17.6p per share (2007 -
17.25p) 63.5 62.4
Interim dividend paid of 16.5p per share (2007 - 16.5p) 59.5 59.7
Dividends paid 123.0 122.1
Proposed dividend of nil per share (2007 - 17.6p) - 63.6
7 Investment and development property
UK Other
shopping commercial
centres properties Total
GBPm GBPm GBPm
At 1 January 2008 6,466.0 2,156.8 8,622.8
Additions 207.9 358.0 565.9
Transfers from trading properties 4.9 - 4.9
Disposals (3.4) (202.4) (205.8)
Foreign exchange fluctuations - 137.7 137.7
Deficit on valuation (1,692.7) (358.4) (2,051.1)
At 31 December 2008 4,982.7 2,091.7 7,074.4
UK Other
shopping commercial
centres properties Total
GBPm GBPm GBPm
At 1 January 2007 6,542.8 1,644.3 8,187.1
Additions 226.8 835.0 1,061.8
Disposals (14.2) (289.2) (303.4)
- (6.2) (6.2)
Foreign exchange fluctuations
Deficit on valuation (289.4) (27.1) (316.5)
At 31 December 2007 6,466.0 2,156.8 8,622.8
As at As at
31 December 31 December
2008 2007
GBPm GBPm
Balance sheet carrying value of investment and
development property 7,074.4 8,622.8
Adjustment in respect of tenant incentives 88.9 69.3
Adjustment in respect of head leases (50.5) (57.2)
Market value of investment and development
property 7,112.8 8,634.9
The group`s interests in investment and development properties were valued as
at 31 December 2008 by independent external valuers in accordance with the
Royal Institute of Chartered Surveyors (RICS) Valuation Standards 6th Edition,
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.
8 Trading property
The estimated replacement cost of trading properties based on market value
amounted to GBP33.9 million (31 December 2007 - GBP46.1 million).
9 Trade and other receivables
Restated
2008 2007
GBPm GBPm
Amounts falling due within one year
Rents receivable 16.0 27.3
Other receivables 37.2 60.4
Prepayments and accrued income 44.0 47.2
97.2 134.9
Amounts falling due after more than one year
Other receivables 33.4 17.9
Prepayments and accrued income 62.2 60.6
95.6 78.5
10 Trade and other payables
2008 2007
GBPm GBPm
Amounts falling due within one year
Rents received in advance 105.2 104.0
Accruals and deferred income 156.0 113.7
Other payables 57.9 55.7
Other taxes and social security 45.8 68.3
11 Borrowings, including finance leases
Restated
2008 2007
GBPm GBPm
Amounts falling due within one year
Secured borrowings - non recourse
Bank loans 21.4 118.8
Commercial mortgage backed securities ("CMBS") notes 34.3 27.4
55.7 146.2
Unsecured borrowings
Bank overdraft 1.9 -
CSC bonds 2009 31.5 -
Borrowings excluding finance leases 89.1 146.2
Finance lease obligations 6.1 6.1
Amounts falling due within one year 95.2 152.3
Amounts falling due after more than one year
Secured borrowings - non recourse
CMBS notes 2011 483.4 533.7
CMBS notes 2015 1,038.4 1,131.4
Bank loan 2011 100.0 100.0
Bank loan 2012 217.2 207.9
Bank loans 2013 737.2 406.1
Bank loan 2014 24.5 27.4
Bank loans 2016 827.6 652.2
Bank loan 2017 117.3 117.2
3,545.6 3,175.9
Other secured borrowings
Debentures 2027 226.3 226.1
3,771.9 3,402.0
Unsecured borrowings
CSC bonds 2013 26.6 26.6
CSC bonds 2009 - 31.4
Other bank loans 140.0 38.6
3,938.5 3,498.6
3.95% convertible bonds due 2010 92.3 111.3
Borrowings excluding finance leases and MetroCentre
compound financial instrument 4,030.8 3,609.9
MetroCentre compound financial instrument 120.3 43.0
Finance lease obligations 44.4 51.1
164.7 94.1
Amounts falling due after more than one year 4,195.5 3,704.0
Total borrowings, including finance leases 4,290.7 3,856.3
Cash and cash equivalents (70.9) (188.4)
Net borrowings 4,219.8 3,667.9
Deduct:
- MetroCentre compound financial instrument (120.3) (43.0)
Net external debt 4,099.5 3,624.9
12 Cash generated from operations
Restated
Year Year
ended ended
31 December 31 December
2008 2007
Notes GBPm GBPm
Loss before tax (2,662.1) (124.8)
Adjustments for:
Deficit on revaluation of investment
and development property 3 2,051.1 316.5
Deficit/(gain) on sale of investment
property 3 5.9 (37.4)
Profit on sale of subsidiary (0.8) -
Write down of trading property 5.8 -
Depreciation 0.3 0.3
Amortisation of lease incentives and
other direct costs 15.0 (1.6)
Impairment of goodwill 35.0 -
Interest payable 4 230.3 209.3
Interest receivable (8.6) (8.8)
Other finance (income)/costs 4 (0.9) 3.3
Change in fair value of derivative
financial instruments 665.1 (27.0)
Changes in working capital
Change in trading properties 5.9 8.5
Change in trade and other receivables 22.1 (6.4)
Change in trade and other payables (1.7) (65.1)
Cash generated from operations 362.4 266.8
13 Fair values of financial instruments
As at 31 December 2008
Balance
sheet value Fair value
GBPm GBPm
Debentures and other fixed rate loans
Sterling
C&C 5.562% debenture 2027 226.3 313.1
CSC 6.875% unsecured bonds 2013 26.6 23.5
CSC 5.75% unsecured bonds 2009 31.5 32.2
US dollars
Fixed rate loans 221.4 219.1
505.8 587.9
Convertible bonds - fixed rate 92.3 60.2
As at 31 December 2007
Balance
sheet value Fair value
GBPm GBPm
Debentures and other fixed rate loans
Sterling
C&C 5.562% debenture 2027 226.1 342.0
CSC 6.875% unsecured bonds 2013 26.6 26.2
CSC 5.75% unsecured bonds 2009 31.4 31.5
US dollars
Fixed rate loans 161.0 160.6
445.1 560.3
Convertible bonds - fixed rate 111.3 152.7
The adjustment in respect of the above, after credit for tax relief, to the
diluted net assets per share (which does not require adjustment for the fair
value of convertible bonds) would amount to 15p per share (2007 - 21p).
Derivative financial instruments
2008 2007
GBPm GBPm
Current assets 29.6 25.4
Current liabilities (818.5) (97.8)
(788.9) (72.4)
14 Capital commitments
At 31 December 2008, the group was contractually committed to GBP238.8 million
(2007 - GBP317.0 million) of future expenditure for the purchase, construction,
development and enhancement of investment property and GBP60.5 million in
respect of overseas investments (2007 - GBPnil).
Of the GBP238.8 million committed in respect of the group`s UK investments,
GBP190.1 million is committed 2009 expenditure.
15 Per share details
(a) (Loss)/earnings per share
2008 2007
million million
Weighted average ordinary shares in issue for
calculation of basic (loss)/earnings per share 361.5 361.7
Weighted average ordinary shares to be issued on
conversion of bonds and under employee incentive
arrangements 14.5 14.7
Weighted average ordinary shares in issue for
calculation of diluted (loss)/earnings per share 376.0 376.4
2008 2007
GBPm GBPm
Loss used for calculation of basic loss per share (2,451.3) (105.0)
Reduction in interest charge from conversion of
bonds, net of tax 3.1 5.0
Loss used for calculation of diluted loss per share (2,448.2) (100.0)
Basic loss per share (pence) (678.1)p (29.0)p
Diluted loss per share (pence) (651.1)p (26.6)p
Loss used for calculation of basic loss per share (2,451.3) (105.0)
Add back deficit on revaluation and sale of
investment and development property 2,057.0 279.1
Less profit on sale of subsidiary (0.8) -
Add back impairment of goodwill 35.0 -
Add back other finance costs 3.6 3.3
Add back/(less) change in fair value of derivative
financial instruments 665.1 (27.0)
(Less)/add back deferred tax in respect of investment
and development property (22.4) 4.2
(Less)/add back deferred tax in respect of derivative
financial instruments (59.5) 15.6
(Less)/add back deferred tax on capital allowances (3.6) 4.5
Add back REIT entry charge 3.6 3.9
Less amounts above due from minority interests (121.8) (48.3)
Earnings used for calculation of adjusted earnings
per share 104.9 130.3
Adjusted earnings per share (pence) 29.0p 36.0p
Earnings used for calculation of adjusted earnings
per share 104.9 130.3
Reduction in interest charge from conversion of
bonds, net of tax 3.1 5.0
Earnings used for calculation of adjusted, diluted
earnings per share 108.0 135.3
Adjusted, diluted earnings per share (pence) 28.7p 35.9p
(b) Net assets
2008 2007
GBPm GBPm
Basic net asset value used for calculation of basic net
assets per share 1,958.0 4,507.0
Fair value of derivative financial instruments (net of
tax) 659.0 57.7
Deferred tax on revaluation surpluses 18.3 35.8
Deferred tax on capital allowances 57.7 49.9
Unrecognised surplus on trading properties (net of tax) 0.6 1.7
Minority interests on the above (46.9) (15.9)
Add back minority interest recoverable balance not
recognised 48.4 -
Adjusted net asset value 2,695.1 4,636.2
Effect of dilution:
On conversion of bonds 92.3 111.3
On exercise of options 10.5 9.7
Diluted, adjusted net asset value used for calculation
of diluted, adjusted net assets per share 2,797.9 4,757.2
Basic net assets per share (pence) 538p 1246p
Diluted, adjusted net assets per share (pence) 745p 1264p
15 Per share details (continued)
(c) Shares in issue
2008 2007
GBPm GBPm
Shares in issue, excluding treasury shares and shares held
by ESOP trust and treated as cancelled 363.7 361.5
Effect of dilution:
On conversion of bonds 11.5 13.9
On exercise of options 0.5 1.0
Diluted, adjusted, number of shares 375.7 376.4
(d) Convertible debt
3.95 per cent convertible bonds due 2010
At 31 December 2008 3.95 per cent convertible bonds with a nominal value of
GBP92.3 million were in issue (2007 - GBP111.3 million).
During 2008, holders of GBP19.0 million of bonds converted their bonds into
ordinary shares. At 31 December 2008 holders of a further GBP13.0 million had
agreed to convert their bonds into ordinary shares in January 2009. Liberty
International PLC made payments of GBP3.6 million, which have been treated as
an exceptional finance cost, to holders of GBP30.0 million of the bonds in
exchange for the bond holders converting their bonds to ordinary shares.
The holders of the remaining 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.
16 Summary of changes in equity
2008 2007
GBPm GBPm
(a) Equity shareholders
Opening equity shareholders` funds 4,507.0 4,732.4
Issue of shares 19.0 -
Disposal of own shares 2.6 4.7
Acquisition of own shares (3.8) (7.9)
4,524.8 4,729.2
Total recognised expense for the year (2,447.9) (100.1)
2,076.9 4,629.1
Preferred dividend received 4.1 -
Dividends paid (123.0) (122.1)
Closing equity shareholders` funds 1,958.0 4,507.0
(b) Minority interests
Opening minority interests 201.9 -
Additions 33.7 252.8
Disposals (2.7) -
Compound financial instrument (75.3) -
Preferred dividend relating to Earls Court acquisition (4.1) -
153.5 252.8
Total recognised expense for the year (125.7) (50.9)
Closing minority interests 27.8 201.9
Total equity 1,985.8 4,708.9
The proceeds from the investment by a third party of a 40 per cent interest in
the MetroCentre Partnership in 2007 are required under IFRS to be allocated
between debt and minority interest. The amount included in debt at 31 December
2008 is GBP120.3 million (31 December 2007 - GBP43.0 million). The balance of
the proceeds is included in minority interest. The movement in the amount
allocated as debt from 31 December 2007 is due to a refined valuation
methodology.
Date: 26/02/2009 09:22:24 Produced by the JSE SENS Department.
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