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LBT
LILII
LBT - Liberty International Plc - Annual financial report
LIBERTY INTERNATIONAL PLC
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILI I
29 April 2009
Liberty International PLC (the "Company")
ANNUAL FINANCIAL REPORT
Liberty International PLC has today published its Annual Report for the year
ended 31 December 2009 ("Annual Report"). The Annual Report is available for
download at www.liberty-international.co.uk.
In addition, attention is drawn to the Company`s interim management statement
which was published on 27 April 2009.
Two copies of the Annual Report have been submitted to the Financial Services
Authority, and will shortly be available for inspection at the Financial
Services Authority`s Document Viewing Facility, which is situated at:
The Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS
Telephone: 020 7066 8333
In accordance with DTR 6.3.5, the following information is extracted from
the Annual Report and should be read in conjunction with Liberty International
PLC`s Preliminary Results for the year ended 31 December 2008 which were
released on 26 February 2009. Together these constitute the material required by
DTR
6.3.5 to be communicated to the media in unedited full text through a Regulatory
Information Service.
Chairman`s statement
The following is the text of my statement, published with the Company`s
Preliminary Results on 26 February 2009:
"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 focused 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 three 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."
Since the end of February 2009, the Company has made significant progress
on a number of fronts. We have improved CSC`s overall occupancy rate, despite
further retailer failures in the first quarter of 2009, at some cost in terms of
rental levels achieved on re-lettings but many, deliberately, on a short-term
basis; we have achieved further disposals of non-core assets in excess of GBP200
million, of which net GBP150 million has been realised in cash in the year to
date; we have increased cash and committed facilities to GBP313 million at 31
March 2009 (31 December 2008 - GBP291 million) while expenditure in the period
has reduced capital commitments on property developments from GBP238 million to
GBP195 million and we have launched a firm placing and placing and open offer to
raise equity capital, as set out in the separate announcements issued on 27 and
28 April 2009.
Greater detail on all of these aspects, and on current trading, is set out in a
first quarter Interim Management Statement issued on 27 April 2009.
We remain cautious about the economic outlook generally, but confident on the
strengths and skills of our core operations, opportunities for which are already
apparent.
Patrick Burgess
Chairman
28 April 2009
i) Management Report
The Preliminary Results contained a fair review of the Company`s business,
however the following extract from the Annual Report sets out part of that
review updated to reflect material events since the date of the Preliminary
Results and to include certain additional disclosures:
Operating Review
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 GBP11.8 million fall (4.3 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.
Additional commentary on the group`s performance in 2008 is provided in the 2008
Annual Results presentation, available for download from www.liberty-
international.co.uk.
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 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 GBP203 million of sales, including
CMBS investments, concluded, 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 Eighteen
months ended Year ended months ended
31 December 31 December 31 December
2008 2008 2008
UK regional shopping -13.8% -25.4% -30.2%
centres
UK non-shopping centre -7.2% -16.1% -19.0%
properties
USA -7.1% -9.1% --6.6%
Total group -11.8% -22.5% -27.2%
IPD monthly index (all -15.3% -27.1% -35.6%
property)
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 30 31 December 30 June
December September
2008 2008 2007 2007
UK regional shopping 6.67 5.86 5.08 4.77
centres
UK non-shopping centre 5.84 5.42 5.09 4.95
properties
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.
We commissioned our external valuers to perform property valuations at 31 March
2009 for the purpose of the capital raising. The results of the valuations
indicate that the underlying like-for-like reduction in the market value of
investment and development properties since 31 December 2008 amounted to 8.0
per cent for CSC`s completed UK regional shopping centres and 8.5 per cent
overall (deficit GBP0.6billion). Despite the further reduction in valuation,
the group`s portfolio continues to outperform the benchmark IPD monthly index
which fell by 8.9 per cent in the first quarter of 2009 (retail property - minus
9.6 per cent).
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
nine 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 online 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
(nine 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:
Year Nine months Year
ended ended ended
31 30 31
December September 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 relet, was 93.6 per cent at 31 December 2008
(compared with 97.9 per cent at 30 September 2008).
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 in the year to 31 December 2008, 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 turnoveronly 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.
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.
- 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 eighth 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.
57 per cent of the area and 47 per cent of anticipated rental income is
currently either exchanged or in solicitors` hands.
In 2008 a significant number of new shopping centres opened during the year
adding over 10 million sq. ft. 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
focused 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 focusing
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.
* 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 eight 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 four
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.
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 four 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 Property Income Distribution ("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 16.5p per share interim dividend already paid which exceeds
the expected minimum PID requirement for 2008 of 12.8p 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 required 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 16.5p per share or the minimum PID
requirement if greater. The dividend policy for future years will be kept under
review.
Interim management statements
Since becoming 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
Due almost entirely as a result of the downward revaluation of the Group`s
properties, these financial statements indicate that the borrowing limit in the
Articles of Association of 1.5 times adjusted capital and reserves has been
exceeded. Furthermore, the uncertain environment for market valuations of
property is likely to cause the borrowing limit to remain exceeded in the near
term. At an Extraordinary General Meeting held on 1 April 2009, shareholders
approved a resolution to suspend the borrowing limit until the company`s AGM in
2011 and to reinstate the limit thereafter at two 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 1,300 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.
Additional information on our commitment to Corporate Responsibility is
contained in the Corporate Responsibility summary of the Annual Report. Our full
Corporate Responsibility Report 2008 is at www.liberty-international.co.uk/cr.
Employees
Our employees are central to the success of our business and the delivery of a
high quality service for our shoppers and occupiers. We have a comprehensive set
of policies that embody our approach to our employees and establish the
framework for the high standards of behaviour and values that we expect. Further
information on our employees is contained in the annual report and in the
Corporate Responsibility Report 2008 which is available at www.liberty-
international.co.uk. The website also carries current corporate and staff
policies.
Contractual arrangements
Various companies within the Liberty International group have contractual
arrangements with a large number of third parties including tenants, joint
venture partners, service providers and construction companies. The Directors do
not consider that disclosure of the terms of any particular contractual
arrangement is necessary to provide an understanding of the development,
performance or position of the group`s business.
Key risks and uncertainties
As described in the Corporate Governance Report in the Annual Report, the Board
has established a system for identifying, evaluating and managing the key risks
facing the group. A summary of these key risks and uncertainties is given and
additional commentary on the principal financial risks is provided in the
Financial Review.
Key performance indicators
The performance of the business is monitored through a number of Key Performance
Indicators (KPI`s) including both financial and non-financial measures. These
are included in the appropriate section of these financial statements with
commentary discussing performance. Certain KPI`s can be found in the Highlights
section in the Annual Report. This Operating review contains details of our
property portfolio and operational performance and the Financial review in the
Annual Report contains a variety of financial KPI`s.
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 nine of the top 30 in the UK,
including four of the eight 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.
In furtherance of these objectives, the group announced on 28 April 2009 a
Capital Raising of GBP592 million net of estimated expenses of GBP28 million
through a Firm Placing and Placing and Open Offer which will improve the Group`s
debt to assets and interest cover ratios, augment the Group`s cash resources,
extend its debt maturity profile and increase the Group`s financial flexibility.
The proceeds from the Capital Raising will immediately reduce the Group`s
overall net debt position.
Directors` responsibility statement
We confirm to the best of our knowledge:
(a) the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company and the undertakings
included in the consolidation taken as a whole; and
(b) the Chairman`s statement, the Operating review, the Financial review, the
Key risks and uncertainties and the Directors` report include a fair review of
the development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face.
Signed on behalf of the Board on
28 April 2009
David Fischel
Chief Executive
Ian Durant
Finance Director
ii) Key Risks and Uncertainties
The key risks and uncertainties facing the group are as set out in the table
below which is reproduced from the Annual Report:
Risk Description Impact Mitigation
Financing
Liquidity Reduced Insufficient Efficient
availability funds to treasury
meet management
requirements and strict
credit
control
Property Property Impact on Regular
values values covenants monitoring of
decrease LTV; covenant
headroom
maintained;
regular
market
valuations;
focus on
quality
assets;
regular
portfolio
reviews
identifying
properties
for
disposal.
Economic Reduction in Impact on Internal
downturn rental covenants Group limits
on
income debts to
assets and
interest rate
ratios
Interest cover Interest rates Lack of Hedging to
fluctuate certainty establish
over
interest long-term
costs certainty.
REIT Breach REIT Tax penalty Regular
conditions or be forced monitoring of
to leave the compliance and
REIT
regime tolerances.
Joint Ventures Reliance on JV Partners Agreements in
partners` under perform place
performance or provide and regular
and incorrect contact
reporting information with partners.
Asset Management
Tenants Tenant failure Financial Regular
loss reporting and
modelling of
covenant
cover; credit
control.
Voids Increased Financial Policy of
voids, failure loss active tenant.
to let mix management
developments
Reputation
Responsibility Failure of Impact on Annual audits
for visitors Health & reputation or carried
to shopping Safety potential out by external
centres criminal/civi
l
proceedings consultants.
Health &.
Safety policies
in place
Disaster/Nationa Effect of Impact on Security team
l natural footfall and training
disaster/
Security terrorist retailer and procedures
terrorist strike strike; income; in
adverse
publicity shopping
centres.
Implementation
of
NATSCO
recommendations
.
Security and
Health &
Safety policies
and
procedures in
shopping
centres/offices
. Terrorist
insurance is in
place.
People/HR
Staff Key staff Loss of key Succession
members of Planning;
the performance
management evaluation;
team
could impact training and
adversely
on the development;
Group`s incentive
success
reward
Developments
Time Planning Securing Policy of
planning sustainable
consent development and
regeneration of
for
developments
brownfield
sites.
Constructive
dialogue
with planning
authorities.
Cost and letting Construction Returns Approval
risk cost reduced by process based
overrun, low increased on detailed
occupancy costs or project costs;
delay
levels in securing regular
tenants. monitoring and
forecasting of
project
costs and
rental income;
and fixed cost
contracts.
Investment/Strategic risks
Strategic Diversificatio Invest in new Retaining and
n areas of
property use appointing
and experienced
geographical management
location
teams/overseas
representatives
.
Securing local
partners
to oversee
investment
but retaining a
measure
of influence.
iii) Audited Financial Statements
The preliminary results contained a condensed set of financial statements for
the year ended 31 December 2008, however additional note disclosures are
contained below in unedited full text from the company`s annual report
1 Accounting convention and basis of preparation
These financial statements have 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. The Directors have taken advantage of the
exemption offered by Section 230 of the Companies Act not to present a separate
income statement for the parent company.
The financial statements have been prepared under the historical cost convention
as modified by the revaluation of properties, available-for-sale investments,
financial assets and liabilities held for trading. A summary of the more
important group accounting policies is set out below.
The group`s business activities have been affected by the markedly more
adverse UK financial and economic background. A description of the impact and
the factors likely to affect the group`s future development, performance and
position are set out in the Chairman`s statement and the Operating review.
The financial position of the group, its cash flows, debt structure, borrowing
facilities and principal financial risks are described in the Financial Review
in the Annual Report. In addition note 27 to the financial statements in the
Annual Report includes the group`s financial risk management objectives; details
of its financial instruments and hedging activities; its exposures to liquidity
risk and details of its capital structure.
In response to the more negative economic background the group has re-negotiated
its main corporate loan facility and announced an underwritten capital raising
of GBP620 million, subject to shareholder approval at an Extraordinary General
Meeting on 22 May 2009. As a consequence of these actions, the directors believe
that the group is well placed to manage its business risks despite the current
uncertain economic outlook.
The directors have therefore concluded, based on cash flow projections taking
account of the factors listed above, that there is a reasonable expectation that
the company and the group have adequate resources to continue in operational
existence for the foreseeable future and have therefore prepared the financial
statements on a going concern basis.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management`s best
knowledge of the amount, event or actions, actual results ultimately may differ
from those estimates. Where such judgements are made they are included within
the
accounting policies below.
Standards and guidelines relevant to the group that were in issue at the date
of approval of the financial statements but not yet effective for the current
accounting period were: IFRS 3 (amendment), `Business Combinations`,
effective for annual periods beginning on or after 1 July 2009.
IFRS 8, `Operating Segments`, effective for accounting periods beginning on or
after 1 January 2009.
IAS 23 (Revised) `Borrowing Costs`, effective for accounting periods beginning
on or after 1 January 2009.
IAS 27 (amendment), `Consolidated and Separate Financial Statements`, effective
for accounting periods beginning on or after 1 January 2009.
IAS 39 (amendment), `Financial Instruments: Recognition and Measurement`,
effective for accounting periods beginning on or after 1 January 2009.
These pronouncements, when applied, are not expected to have a material impact
on the financial statements, but will result in changes to presentation or
disclosure.
The assessment of new standards, amendments and interpretations issued but not
effective, not included above are not anticipated to have a material impact on
the financial statements.
During 2008, the following accounting standards and guidance were adopted by the
group:
IAS 1 (amendment), `Presentation of Financial Statements`, effective for annual
periods beginning on 1 January 2009, but adopted early.
IAS 16 (amendment) `Property, Plant and Equipment`, and IAS 40 (amendment)
`Investment Property` effective for annual periods beginning on 1 January 2009,
but adopted early.
These pronouncements either had no impact on the financial statements or
resulted in changes to presentation and disclosure only.
2 Segmental analysis
For management purposes the group is organised into operating divisions, of
which the two largest are UK shopping centres and other commercial properties.
Unallocated expenses are costs incurred centrally which are neither directly or
reasonably attributable to individual segments.
(a) Business 2008
segments
UK Other
shopping commercial Other Group
centres properties Exhibition activities total
GBPm GBPm GBPm GBPm GBPm
Revenue 423.6 119.0 62.8 12.8 618.2
Rent receivable 338.8 98.8 62.8 - 500.4
Service charge 57.8 13.8 - - 71.6
income
Other rental income 21.1 1.6 - 12.7 35.4
417.7 114.2 62.8 12.7 607.4
Rent payable (23.5) (0.8) - - (24.3)
Service charge and
other non-
recoverable
costs (113.4) (40.9) (34.2) (11.1) (199.6)
Net rental income 280.8 72.5 28.6 1.6 383.5
Property trading 0.3 - - - 0.3
profits
Other income - 0.1 - 0.1 0.2
Deficit on
revaluation and sale
of
investment and (1,693.5) (301.7) (61.8) - (2,057.0)
development property
Profit on sale of - 0.8 - - 0.8
subsidiary
Write down of - (5.8) - - (5.8)
trading property
Impairment of - - (8.4) (26.6) (35.0)
goodwill
Segment result (1,412.4) (234.1) (33.2) 1.7 (1,713.0)
Unallocated (63.2)
administration costs
Operating loss (1,776.2)
Total assets* 5,149.9 1,918.8 381.0 81.2 7,530.9
Total liabilities* (3,539.0) (1,333.9) (278.0) (394.2) (5,545.1)
Net 1,610.9 584.9 103.0 (313.0) 1,985.8
assets/(liabilities)
Other segment items:
Capital expenditure 208.0 326.4 31.6 - 566.0
Depreciation - 0.3 - - 0.3
* Total assets and total liabilities exclude loans between group companies.
2007
UK Other
shopping commercial Other Group
centres properties Exhibition activities total
GBPm GBPm GBPm GBPm GBPm
Revenue 424.8 126.3 24.7 (1.2) 574.6
Rent receivable 334.8 98.8 24.7 - 458.3
Service charge 57.6 9.3 - - 66.9
income
Other rental 19.3 2.2 - - 21.5
income
411.7 110.3 24.7 - 546.7
Rent payable (22.3) (3.1) - - (25.4)
Service charge (100.6) (31.8) (14.6) - (147.0)
and other non-
recoverable costs
Net rental income 288.8 75.4 10.1 - 374.3
Property trading 1.5 1.4 - - 2.9
profits
Other - 0.3 - (1.2) (0.9)
income/(expenses)
(Deficit)/gain on
revaluation and
sale of
investment and (284.5) 0.6 4.8 - (279.1)
development
property
Segment result 5.8 77.7 14.9 (1.2) 97.2
Total assets 6,692.0 1,905.5 417.9 157.1 9,172.5
Total liabilities (3,108.6) (1,106.5) (282.5) 34.0 (4,463.6)
Net assets 3,583.4 799.0 135.4 191.1 4,708.9
Other segment
items:
Capital 226.8 458.4 376.6 - 1,061.8
expenditure
Depreciation - 0.3 - - 0.3
(b) Geographical Revenue Total assets Capital
segments expenditure
2008 2007 2008 2007 2008 2007
GBPm GBPm GBPm GBPm GBPm GBPm
United Kingdom 571.8 534.0 7,009.4 8,756.4 559.8 1,049.5
United States 46.4 40.6 521.5 416.1 6.2 12.3
618.2 574.6 7,530.9 9,172.5 566.0 1,061.8
3 Business combinations
Empress State Limited Partnership
On 19 August 2008, the group acquired a 50 per cent interest in the
Empress State Limited Partnership which owns and manages, through its general
partner, the Empress State Building in West London. This 470,000 sq.ft., 30
storey building is strategic to the group`s plans at Earls Court and benefits
from an index linked lease to the Metropolitan Police with 11 years still
remaining.In accordance with IAS 27, `Consolidated and Separate Financial
Statements`, this acquisition has been fully consolidated as the group holds
an option to purchase the remaining 50 per cent partnership interest at any
point until August 2009. As a consequence the group controls the business as
it has the power to govern the financial and operating policies so as to obtain
the benefits from its activities. The third party partnership share has
therefore been accounted for through minority interest, which represents
the portion of profit and loss and net assets which is not held by the group.
This business contributed net revenues of GBP4.7 million, and a net loss of
GBP36.2 million after charging a deficit on revaluation of investment and
development property of 21.2 million. Had the acquisition occurred on 1
January 2008 the group net revenue would have been GBP7.7 million higher and
the group net loss would have been GBP14.9 million lower, after charging a
deficit on revaluation of investment and development property of GBP5.9
million.These amounts have been calculated by adjusting the results of the
subsidiaries to reflect the group`s accounting policies.
Purchase consideration: GBPm
Cash paid 31.9
Non-recourse, asset specific loan 79.5
Rent apportionment 0.6
Direct costs relating to acquisition 1.2
Total purchase consideration 113.
2
Fair value of assets acquired (113
.2)
Goodwill -
The assets and liabilities arising from the acquisition are as follows:
Total
Acquire
e`s
carryin
g
Fair value
value
GBPm GBPm
Non-current assets
Investment and development property 222.2 222.2
Net assets 222.2 222.2
Minority interests (109.0)
Net assets acquired 113.2
4 Disposal of subsidiaries
Capital Enterprise Centres (Jersey) Limited
The group disposed of its 70 per cent interest in Capital Enterprise Centres
(Jersey) Limited during the period for a consideration of GBP8.2 million in cash
and loan notes. This gave rise to a GBP0.8 million profit on disposal. The net
assets of Capital Enterprise Centres (Jersey) Limited at the date of disposal
were as follows:
Total
Carrying Fair
value value
GBPm GBPm
Non-current assets
Investment and development property 64.8 64.8
Plant and equipment 0.6 0.6
Trade and other receivables 3.0 3.0
Borrowings (39.1) (39.1)
Tax liabilities (5.6) (5.6)
Trade and other payables (14.7) (14.7)
Net assets 9.0 9.0
Minority interests (2.7)
Net assets disposed 6.3
Other costs 1.1
Profit on disposal 0.8
Total consideration 8.2
Satisfied by:
Cash 5.0
Loan notes * 3.2
8.2
* Loan notes are interest bearing and repayable on 28 April 2011
5 Goodwill
2008 2007
GBPm GBPm
At 1 January 26.6 -
Additions 8.4 26.6
Impairment (35.0) -
At 31 December - 26.6
Following an impairment test, required under IAS 36, the goodwill arising on the
acquisition of the Covent Garden Restaurants group and the Earls Court & Olympia
group has been written off in full. As a result, a charge of GBP35.0 million has
been made to the income statement in the year; GBP26.6 million relates to the
impairment of goodwill brought forward on 1 January 2008 and GBP8.4 million to
acquisition costs and deferred consideration payments incurred in the current
period being fully impaired. In respect of the Covent Garden Restaurants group,
which was acquired for their investment properties, with the intention of a
change in use, the impairment is due to an assessment of value in use with a
negligible time value of money given the advanced state of the plans to
reconfigure the buildings in which they are located. These plans are, however,
subject to commercial agreement. The charge arising on the Earls Court & Olympia
group has arisen due to the carrying value of the cash generating unit exceeding
the recoverable amount (fair value) at 31 December 2008.
6 Finance costs
2008 2007
GBPm GBPm
Interest payable
On bank overdrafts and loans 239.0 211.8
On convertible debt 4.4 6.9
On obligations under finance leases 5.4 5.7
Gross interest payable - recurring 248.8 224.4
Interest capitalised on developments (18.5) (15.1)
Total interest payable 230.3 209.3
Costs of termination of financial instruments 6.6 2.0
Profit on repurchase of CMBS notes (13.1) -
MetroCentre amortisation of compound financial 2.0 -
instrument
Exceptional finance costs:
- Payments on conversion of 3.95% 3.6 -
convertible bond
- Issue costs written off on redemption of - 1.3
loans
Other finance (income)/costs (0.9) 3.3
Interest is capitalised, before tax relief, on the basis of the average rate
of interest paid of 6.25 per cent (2007 - 6.25 per cent) on the relevant debt,
applied to the cost of developments during the year.
7 Taxation
Taxation (credit)/charge for the financial year
2008 2007
GBPm GBPm
Current UK corporation tax at 28.5% (2007 - 30%) 0.7 6.0
on profits
Prior year items - UK corporation tax (8.1) (3.4)
(7.4) 2.6
Overseas taxation (including GBP0.5 million 0.9 0.1
(2007- GBP0.7 million) of prior year items)
Current tax on profits excluding exceptional (6.5) 2.7
items and property disposals
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 (82.2) 23.8
items and property disposals
Tax (credit)/charge excluding exceptional items (88.7) 26.5
and property disposals
REIT entry charge 3.6 3.9
Tax credit on exceptional items and property (0.5) -
disposals
Total tax (credit)/charge (85.6) 30.4
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. The differences are explained below:
2008 2007
GBPm GBPm
Loss before tax (2,662 (124.8
.1) )
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 following cut in corporate (0.1) (1.7)
tax rate
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.
8 Dividends
2008 2007
GBPm GBPm
Ordinary shares
Prior period final dividend paid of 17.6p per 63.5 62.4
share (2007 - 17.25p)
Interim dividend paid of 16.5p per share (2007 - 59.5 59.7
16.5p)
Dividends paid 123.0 122.1
Proposed dividend of nil per share (2007 - - 63.6
17.6p)
9 Investment and development property
Leasehold
over 50
Freehold years Total
GBPm GBPm GBPm
At 1 January 2007 4,699.4 3,487.7 8,187.1
Additions 424.9 636.9 1,061.8
Disposals (157.4) (146.0) (303.4)
Foreign exchange fluctuations (6.2) - (6.2)
Deficit on valuation (155.4) (161.1) (316.5)
At 31 December 2007 4,805.3 3,817.5 8,622.8
Reclassification (180.0) 180.0 -
Additions from acquisition and 101.4 242.3 343.7
subsequent expenditure
Additions from acquisition of 222.2 - 222.2
subsidiary companies
Transfers from trading 4.9 - 4.9
properties
Disposal of subsidiaries (45.3) (19.5) (64.8)
Other disposals (98.5) (42.5) (141.0)
Foreign exchange fluctuations 137.7 - 137.7
Deficit on valuation (945.9) (1,105.2) (2,051.1)
At 31 December 2008 4,001.8 3,072.6 7,074.4
As at As at
31 31
December December
2008 2007
GBPm GBPm
Balance sheet carrying value of investment 7,074.4 8,622.8
and development property
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 7,112.8 8,634.9
property
Geographical analysis: As at As at
31 31
December December
2008 2007
GBPm GBPm
United Kingdom 6,600.7 8,245.5
United States 473.7 377.3
Total 7,074.4 8,622.8
Included within investment and development properties is GBP18.5 million (31
December 2007 - GBP13.8 million) of interest capitalised on developments and
redevelopments in progress.
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.
The main assumptions underlying the valuations are in relation to market rent,
taking into account forecast growth rates and yields based on known transactions
for similar properties and likely incentives offered to tenants.
There are certain restrictions on the realisability of investment property when
a credit facility is in place. In most circumstances the group can realise up to
50% without restriction providing the group continues to manage the asset.
Realising an amount in excess of this would trigger a change of control and
mandatory repayment of the facility.
10 Trading property
2008 2007
GBPm GBPm
Undeveloped sites 29.4 36.7
Completed properties 3.9 7.0
33.3 43.7
The estimated replacement cost of trading properties based on market value
amounted to GBP33.8 million (31 December 2007 - GBP46.1 million).
11 Trade and other receivables
Restat
ed
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
Included within prepayments and accrued income are tenant lease incentives of
GBP88.9 million (2007 - GBP69.3 million).
13 Borrowings
2008
Carrying Fixed Floating Fair
value Secured Unsecured rate rate value
GBPm GBPm GBPm GBPm GBPm GBPm
Amounts
falling due
within one
year:
Bank loans 23.3 21.4 1.9 5.4 17.9 23.3
and
overdrafts
Commercial
mortgage
backed
securities
("CMBS") 34.3 34.3 - - 34.3 24.6
notes
CSC bonds 31.5 - 31.5 31.5 - 32.2
2009
Borrowings, 89.1 55.7 33.4 36.9 52.2 80.1
excluding
finance
leases
Finance 6.1 6.1 - 6.1 - 6.1
lease
obligations
Amounts 95.2 61.8 33.4 43.0 52.2 86.2
falling due
within one
year
Amounts
falling due
after more
than one
year:
CMBS notes 483.4 483.4 - - 483.4 387.2
2011
CMBS notes 1,038.4 1,038.4 - - 1,038.4 703.9
2015
Bank loan 100.0 100.0 - - 100.0 100.0
2011
Bank loan 217.2 217.2 - - 217.2 217.2
2012
Bank loans 737.2 737.2 - 218.0 519.2 738.3
2013
Bank loan 24.5 24.5 - - 24.5 24.5
2014
Bank loans 827.6 827.6 - - 827.6 827.6
2016
Bank loan 117.3 117.3 - - 117.3 117.3
2017
Debentures 226.3 226.3 - 226.3 - 313.1
2027
CSC bonds 26.6 - 26.6 26.6 - 23.5
2013
Other loans 140.0 - 140.0 - 140.0 140.0
3.95% 92.3 - 92.3 92.3 - 60.2
convertible
bonds due
2010
Borrowings
excluding
finance
leases and
MetroCentre
compound
financial
instrument 4,030.8 3,771.9 258.9 563.2 3,467.6 3,652.8
MetroCentre
compound
financial
instrument 120.3 - 120.3 - 120.3 120.3
Finance 44.4 44.4 - 44.4 - 44.4
lease
obligations
Amounts
falling due
after more
than one
year 4,195.5 3,816.3 379.2 607.6 3,587.9 3,817.5
Total 4,290.7 3,878.1 412.6 650.6 3,640.1 3,903.7
borrowings
Cash and (70.9)
cash
equivalents
Net debt 4,219.8
Net external debt (adjusted for MetroCentre compound financial instrument)
at 31 December 2008 was GBP4,099.5 million.
The group substantially eliminates its exposure to floating rate debt.
13 Borrowings (continued)
2007
Carrying Fixed Floating Fair
value Secured Unsecured rate rate value
GBPm GBPm GBPm GBPm GBPm GBPm
Amounts
falling due
within one
year:
Bank loans 118.8 118.8 - 6.1 112.7 118.8
and
overdrafts
Commercial
mortgage
backed
securities
("CMBS") 27.4 27.4 - - 27.4 27.4
notes
Borrowings, 146.2 146.2 - 6.1 140.1 146.2
excluding
finance
leases
Finance 6.1 6.1 - 6.1 - 6.1
lease
obligations
Amounts 152.3 152.3 - 12.2 140.1 152.3
falling due
within one
year
Amounts
falling due
after more
than one
year:
CMBS notes 533.7 533.7 - - 533.7 533.7
2011
CMBS notes 1,131.4 1,131.4 - - 1,131.4 1,131.4
2015
Bank loan 100.0 100.0 - - 100.0 100.0
2011
Bank loan 207.9 207.9 - - 207.9 207.9
2012
Bank loans 406.1 406.1 - 154.9 251.2 406.1
2013
Bank loan 27.4 27.4 - - 27.4 27.4
2014
Bank loans 652.2 652.2 - - 652.2 652.2
2016
Bank loan 117.2 117.2 - - 117.2 117.2
2017
Debentures 226.1 226.1 - 226.1 - 342.0
2027
CSC bonds 31.4 - 31.4 31.4 - 31.5
2009
CSC bonds 26.6 - 26.6 26.6 - 26.2
2013
Other loans 38.6 - 38.6 38.6 - 38.2
3.95% 111.3 - 111.3 111.3 - 152.7
convertible
bonds due
2010
Borrowings
excluding
finance
leases and
MetroCentre
compound
financial
instrument 3,609.9 3,402.0 207.9 588.9 3,021.0 3,766.5
MetroCentre
compound
financial
instrument 43.0 - 43.0 - 43.0 43.0
Finance 51.1 51.1 - 51.1 - 51.1
lease
obligations
Amounts
falling due
after more
than one
year 3,704.0 3,453.1 250.9 640.0 3,064.0 3,860.6
Total 3,856.3 3,605.4 250.9 652.2 3,204.1 4,012.9
borrowings
Cash and (188.4)
cash
equivalents
Net debt 3,667.9
Net external debt (adjusted for MetroCentre compound financial instrument)
at 31 December 2007 was GBP3,624.9 million.
The group substantially eliminates its exposure to floating rate debt.
The market value of assets pledged as collateral against borrowings is
GBP6,059.0 million.
The fair values of financial assets and liabilities have been established using
the market value, where available. For those instruments without a market value,
a discounted cash flow approach has been used. If the fair values of the group
net borrowings were used the increase, after credit for tax relief, to the net
diluted net assets per share (which does not require adjustment for the fair
value of convertible bonds) would amount to 68p (2007 - decrease 21p) per share.
2008 2007
The maturity profile of gross debt (excluding GBPm GBPm
finance leases) is as follows:
Wholly repayable within one year 89.1 146.2
Wholly repayable in more than one year but not 191.1 78.9
more than two years
Wholly repayable in more than two years but not 1,622.3 1,112.1
more than five years
Wholly repayable in more than five years 2,337.7 2,461.9
4,240.2 3,799.1
Certain borrowing agreements contain financial and other conditions that, if
contravened, could alter the repayment profile. Treasury management includes
assessing future operational and capital funding requirements and assessing the
optimal use of funds generated through operations or external borrowings.
13 Borrowings (continued)
The group has various undrawn committed borrowing facilities. The facilities
available at 31 December in respect of which all conditions precedent had been
met were as follows:
2008 2007
GBPm GBPm
Expiring in one to two years 170.0 -
Expiring in more than two years 50.0 540.0
These undrawn facilities are available at floating rates based on LIBOR plus
applicable margin.
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. Of the GBP238.8 million
committed, GBP190.1 million is committed 2009 expenditure.
The group`s share of joint venture commitments included above at 31 December
2008 was GBP134.0 million (2007 - GBP190 million).
15 Contingent liabilities
The group`s joint venture with Land Securities, the St. David`s Limited
Partnership, currently makes annual rental payments of approximately GBP2.5
million per annum in respect of land to be used for car parking space. If this
arrangement were to cease, the partnership would be liable to make a payment of
approximately GBP58 million to compulsorily purchase the land, 50 per cent,
which represents the group`s interest in the partnership, may have to be funded
by the group.
As at 31 December 2008, the Group has a contingent commitment to provide a
future investment of GBP60.5 million into the Harvest Capital Second Fund. The
conditions include a decision by the fund manager to make an investment
decision. The Group has two representatives on the board of the fund manager.
There were no contingent liabilities of which the Directors were aware at 31
December 2007.
16 (Loss)/earnings per share
2008 2007
million million
Weighted average ordinary shares in issue 362.9 362.8
Weighted average ordinary shares held as treasury (1.4) (1.1)
shares and by ESOP
Weighted average ordinary shares in issue for 361.5 361.7
calculation of basic (loss)/earnings per share
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 376.0 376.4
calculation of diluted (loss)/earnings per share
2008 2007
GBPm GBPm
Loss used for calculation of basic earnings per (2,451.3) (105.0)
share
Reduction in interest charge from conversion of 3.1 5.0
bonds, net of tax
Loss used for calculation of diluted earnings per (2,448.2) (100.0)
share
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 earnings per (2,451.3) (105.0)
share
Add back deficit on revaluation and sale of 2,057.0 279.1
investment and development property
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 665.1 (27.0)
financial instruments
(Less)/add back deferred tax in respect of (22.4) 4.2
investment and development property
(Less)/add back deferred tax in respect of (59.5) 15.6
derivative financial instruments
(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 104.9 130.3
per share
Adjusted earnings per share (pence) 29.0p 36.0p
Earnings used for calculation of adjusted earnings 104.9 130.3
per share
Reduction in interest charge from conversion of 3.1 5.0
bonds, net of tax
Earnings used for calculation of adjusted, diluted 108.0 135.3
earnings per share
Adjusted, diluted earnings per share (pence) 28.7p 35.9p
17 Share capital and share premium
2008 2007
GBPm GBPm
Authorised
500,000,000 ordinary shares of 50p each 250.0 250.0
Share Share
capital premium
GBPm GBPm
Issued and fully paid
At 31 December 2007 - 362,772,673 ordinary 181.4 975.6
shares of 50p each
Shares issued 1.2 17.8
At 31 December 2008 - 365,147,798 ordinary 182.6 993.4
shares of 50p each
During 2008, the company issued 2.4 million shares on the conversion of 3.95 per
cent convertible bonds.
Full details of the rights and obligations attaching to the ordinary shares are
contained in the company`s Articles of Association. These rights include an
entitlement to receive the company`s report and accounts, to attend and speak at
General Meetings of the Company, to appoint proxies and to exercise voting
rights. Holders of ordinary shares may also receive dividends and may receive a
share of the company`s assets on the company`s liquidation. There are no
restrictions on the transfer of the ordinary shares.
At 24 April 2009, the company had an unexpired authority to repurchase shares up
to a maximum of 35,857,267 shares with a nominal value of GBP17.9 million, and
the Directors had an unexpired authority to allot up to a maximum of 90,518,168
shares with a nominal value of GBP45.3 million.
Included within the issued share capital as at 31 December 2008 are 364,327
ordinary shares (2007 - 570,180) held by the Trustee of the Employee Share
Ownership Plan ("ESOP") which is operated by the company. The nominal value of
these shares is GBP0.2 million (2007 - GBP0.3 million).
18 Treasury shares and Employee Share Ownership Plan (ESOP)
During the year the company purchased a total of 350,000 shares (0.1 per cent
of issued share capital) with a nominal value of GBP0.2 million for an aggregate
consideration of GBP3.0 million with a view to increasing net asset value per
share. These shares are held as treasury shares.
The cost of shares in Liberty International PLC purchased in the market and
held by the Trustee of the Employee Share Ownership Plan (ESOP) operated by
the company is also accounted for as treasury shares.
The purpose of the ESOP is to acquire and hold shares which will be transferred
to employees in the future under the group`s employee incentive arrangements.
Dividends of GBP0.2 million (2007 - GBP0.3 million) have been waived by
agreement.
2008 2007
Shares 2008 Shares 2007
million GBPm million GBPm
At 1 January 1.3 (9.6) 1.1 (6.4)
Acquired in the year 0.4 (3.8) 0.8 (7.9)
Disposed of on exercise of (0.3) 2.6 (0.6) 4.7
options
At 31 December 1.4 (10.8) 1.3 (9.6)
19 Related party transactions
Transactions between the company and its subsidiaries, which are related
parties, have been eliminated on consolidation for the group.
Significant transactions between the parent company and its subsidiaries are
shown below:
2008 2007
Subsidiary Nature of GBPm GBPm
transaction
Libtai Holdings Dividend 7.1 30.5
(Jersey) Limited
Liberty Dividend 9.9 42.7
International
Holdings Limited
Conduit Insurance Dividend 7.6 33.0
Holdings Limited
C&C Properties UK Dividend - 66.1
Ltd
Re-charges 1.5 -
Capital & Counties
Australia
(Holdings) Limited Dividend - 0.6
Capital & Counties Dividend 82.0 -
Debenture PLC *
Greenhaven
Industrial
Properties
Limited Dividend 1.0 5.0
Capital Shopping Dividend 73.4 387.4
Centres PLC
Re-charges 4.0 4.2
* Dividend declared in 2007 was repaid
2008 2007
Key management* compensation GBPm GBPm
Salaries and short-term employee 6.0 5.5
benefits
Pensions and other post-employment 0.7 0.5
benefits
Share-based payment 0.4 2.3
Other long-term payments 0.2 0.9
Termination 1.7 -
9.0 9.2
* Key management comprises the Directors of Liberty International and
those employees who have been designed as persons discharging managerial
responsibility.
20 Events after the balance sheet date
On 28 April 2009, the company announced a proposed capital raise of GBP620
million, before expenses, through a fully underwritten Firm Placing and a
Placing and Open Offer. The proposed Capital Raise is subject to ratification
at an Extraordinary General Meeting to be held on 22 May 2009.
The Firm Placing will be of 104,839,061 new ordinary shares at a price of 310p
per new ordinary share. The Placing and Open Offer will be of 95,161,642 new
ordinary shares at a price of 310p per new ordinary share.
The company intends to utilise the net proceeds of GBP592 million to reduce the
Group`s net indebtedness.
The pro forma balance sheet at 31 December 2008 is shown below, based on the
assumption that the Capital Raise proceeds.
We commissioned our external valuers to perform property valuations at 31 March
2009 for the purpose of the Capital Raise.
The unaudited proforma statement of net assets is based on the audited
consolidated balance sheet of the Group as at 31 December 2008, as adjusted to
illustrate the effect of the revaluation of the Group`s investment properties as
at 31 March 2009 and the Capital Raise as if those events had been completed on
31 December 2008. No account is taken of any results or other activity since 31
December 2008.
20 Events after the balance sheet date (continued)
(Audited) (Unaudited) (Unaudited) (Unaudited)
Consolidated Proceeds of
net assets the Firm Pro forma
of the Property Placing and consolidated
Group at valuation Open Offer, net assets
at
31 December 31 March net of 31 December
2008 2009 (1) expenses 2008
Assets
Investments 7,074.4 (600.9) 6,473.5
and
development
properties
Cash and cash 70.9 592.0 662.9
equivalents
Trade and 192.8 192.8
other
payables
Investments 128.6 128.6
Other assets 64.2 64.2
Total assets 7,530.9 (600.9) 592.0 7,522.0
Liabilities
Borrowings 4,290.7 4,290.7
Trade and 426.7 426.7
other
payables
Derivative 818.5 818.5
financial
instruments
Other 9.2 9.2
liabilities
Total 5,545.1 - - 5,545.1
liabilities
Net assets 1,985.8 (600.9) 592.0 1,976.9
Minority (27.8) 14.6 - (13.2)
interests
Equity 1,958.0 (586.3) 592.0 1,963.7
shareholders`
funds
NAV per share 745p 493p
(diluted,
adjusted)
Debt to 58% 54%
assets
(1) The market value of the group`s investment and development properties has
been updated to reflect movements in valuation to 31 March 2009. The Directors
estimate that after taking into account capital expenditure, asset sales and
currency movements, the underlying like-for-like reduction in the value of
investment and development properties since 31 December 2009 amounted to 8.0
per cent for CSC completed UK regional shopping centres and 8.5 per cent
overall, indicating continued out performance of IPD which fell by 8.9 per cent
for the equivalent period.
21 General information
The company is a public limited company incorporated in England and Wales and
domiciled in the UK. The address of its registered office is 40 Broadway,
London SW1H 0BT.
The company has its primary listing on the London Stock Exchange. The company
has a secondary listing on the JSE, South Africa.
Susan Folger
Company Secretary
020 7887 7073
Sponsor
Merrill Lynch South Africa (Pty) Limited
Date: 29/04/2009 10:05:02 Produced by the JSE SENS Department.
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