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Liberty International Plc - Interim Results For The Six Months Ended 30 June
2003
Liberty International Plc
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILII
16 July 2003
LIBERTY INTERNATIONAL PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2003
Enquiries
Liberty International PLC
Donald Gordon, Chairman +44 20 7960 1201
David Fischel, Chief Executive +44 20 7960 1207
Aidan Smith, Finance Director +44 20 7960 1210
Public Relations
UK
Michael Sandler, Hudson Sandler +44 20 7796 4133
SA
Matthew Gregorowski, College Hill, UK +44 20 7457 2020
Nicholas Williams, College Hill, SA +27 11 447 3030
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 owns 100 per cent of Capital Shopping Centres ("CSC"),
the leading UK regional shopping centre business with six of its centres in
the UK"s top fifteen, and Capital & Counties, a commercial and retail property
investment and development company.
Donald Gordon, Chairman of Liberty International, commented:
"Liberty International has delivered an impressively strong performance in the
first six months of 2003 with encouraging growth in underlying net property
investment income and a 29 per cent increase in earnings per share before
exceptional items, underlining the quality and resilience of our predominantly
regional shopping centre and retail based business.
Indicative of the resources and asset strength of the group, we have absorbed
within the six month period to 30 June 2003 the full impact relevant to our
property portfolio of the revised valuation basis introduced by the Royal
Institution of Chartered Surveyors (RICS) on 1 May 2003.
In fact, Liberty International"s net asset value at 30 June 2003 has increased
to a record 866p per share on the new valuation basis compared with the
equivalent starting position of 798p at 31 December 2002. Overall investment
property valuations have effectively increased in the six month period by some
GBP203 million (4.8 per cent) with a 6.2 per cent increase in the market value
of our UK regional shopping centres, which continue to be a highly regarded
asset class with considerable scarcity value.
Liberty International"s uniquely strong and stable business platform, the
quality of our development projects and the group"s powerful financial
resources provide for the successful and tightly controlled expansion of our
future activities.
We are confident of our ability to continue to deliver outstanding long term
performance for investors and shareholders."
16 July 2003
Highlights of the Interim Results for the six months ended 30 June 2003
Profit and Loss Account
* Profit before taxation increased by 24 per cent to GBP62.7 million (30
June 2002 GBP50.5 million), including exceptional profits of GBP9.5
million (30 June 2002 GBP12.6 million)
* Profit before taxation and exceptional items increased by 40 per cent to
GBP53.2 million (30 June 2002 GBP37.9 million), mainly reflecting growth
in net property investment income and the impact of raising GBP157.5
million of additional equity in November 2002 (9.9 per cent of Liberty
International"s then issued share capital)
* Net property investment income including joint ventures increased by 13
per cent to GBP121.8 million (30 June 2002 GBP108.1 million) with an
underlying increase of 5.3 per cent on a like-for-like basis
* Earnings per share before exceptional items (adjusted to exclude the
impact of deferred tax on capital allowances) increased by 29 per cent to
14.0p (30 June 2002 10.82p)
* Basic earnings per share (including exceptional profits) of 15.1p (30 June
2002 12.96p)
* Interim dividend increased by 4.4 per cent from 11.25p per share to 11.75p
per share
Balance Sheet
* Total investment properties of GBP4.56 billion at 30 June 2003, including
GBP4.47 billion of completed investment properties at market values and
GBP96 million of developments at cost. UK regional shopping centres
comprise 81 per cent and retail properties in aggregate comprise 90 per
cent of the total portfolio.
* In line with the revised RICS Appraisal and Valuation Standards (formerly
the RICS Appraisal and Valuation Manual) which became effective from 1 May
2003, Market Value (formerly Open Market Value) represents the figure that
would appear in a hypothetical contract of sale between a willing buyer
and a willing seller at the valuation date. Market Value is estimated
without regard to costs of sale or purchase and thus, unlike previous
valuations, the values reported as at 30 June 2003 do not include notional
purchasers" costs. As at 31 December 2002, the Open Market Value of
investment properties included GBP208 million of notional purchasers"
costs, in effect to reflect theoretical replacement value. Full details
are set out in the Summary of Investment Property Valuations (page 6)
which includes a reconciliation to the interim financial statements.
* Revaluation surplus on a consistent like-for-like basis of GBP203 million
on completed investment properties for six month period ended 30 June 2003
Market Value Revaluation
30 June 2003 Surplus/(Deficit)
GBPm GBPm
- UK regional shopping centres 3,613 206.1 6.2%
- US shopping centres and other 158 3.9 2.5%
retail
- Other UK retail 126 4.9 4.0%
- UK mixed use 205 (0.6) (0.3%)
- UK offices 325 (12.0) (3.6%)
- US other commercial 40 0.9 2.3%
4,467 203.2 4.8%
* Net asset value per share (diluted) increased to a record 866p at 30 June
2003, after providing for 11.75p interim dividend, compared with an
equivalent 798p at 31 December 2002. (Actual published net asset value per
share at 31 December 2002 of 862p included GBP208 million of purchasers"
costs).
* Shareholders" funds of GBP2.69 billion at 30 June 2003
* Aggregate net borrowings of GBP1.93 billion (31 December 2002 GBP1.89
billion) and debt to assets ratio unchanged at 40 per cent.
Developments
* Committed development programme of approximately GBP500 million, including
the new MetroCentre Red Quadrant (GBP85 million) and Chapelfield, Norwich
(GBP275 million), of which GBP96 million has been spent to date.
* On completion of the extension in 2004, MetroCentre, Gateshead, (90%
owned, with the balance held by the Church Commissioners) will at 1.8
million sq.ft. be Europe"s largest covered shopping centre.
* Positive letting progress with 68 per cent of anticipated rents committed
or under offer at the MetroCentre extension and over 60 per cent at
Chapelfield, Norwich.
* Further potential developments over the next five years of around GBP600
million, including Cardiff, Oxford and the major extension and enhancement
of Eldon Square, Newcastle.
Financing
* Committed GBP210 million 10 year non-recourse bank facility recently
arranged on 100 per cent owned Victoria Centre, Nottingham, as yet undrawn
* Aggregate committed and undrawn long term bank facilities amount to GBP705
million at 30 June 2003
DIVIDENDS
The Directors announce an increased interim ordinary dividend of 11.75p per
share (2002 11.25p per share) payable on 16 September 2003 to shareholders on
both UK and South African registers on the record date of 22 August 2003.
The Sterling/Rand exchange rate to determine the payment to be made to
shareholders on the South African register will be established on 7 August
2003. The shares will be shown as ex- dividend on the JSE Securities Exchange
South Africa on 18 August 2003 and on the London Stock Exchange on 20 August
2003. The share registers will be closed for transfers between the UK and
South African registers from 7 until 22 August 2003 inclusive.
For this dividend payment, South African shareholders should note that the
last day to trade cum dividend is 15 August 2003, and that share certificates
may not be dematerialised or rematerialised between Monday, 18 and Friday, 22
August 2003
inclusive.
SUMMARY OF INVESTMENT PROPERTY VALUATIONS
30 June 2003
Like-for-like
True Revaluation
equivalent Market surplus/
yield # value (deficit)
% % GBP"m GBP"m %
Lakeside, Thurrock 5.69 (5.74) 967.0 *66.2 7.4
MetroCentre, Gateshead 5.69 (6.00) 735.0 24.3 3.4
Braehead, Glasgow 6.20 (6.27) 503.5 *68.5 15.7
Other M25 Centres 5.88 (6.21) 802.5 17.5 2.2
Other UK Centres 6.53 (6.80) 521.0 *29.6 6.0
Other properties 7.70 (8.01) 84.1 - -
UK Regional Shopping
Centres 5.97 (6.18) 3,613.1 206.1 6.2
US Regional Shopping
Centres and other retail 158.4 3.9 2.5
UK other commercial
property:
Other UK
retail properties 7.84 (8.11) 126.3 4.9 4.0
UK mixed use properties 7.44 (7.85) 204.6 (0.6) (0.3)
UK office properties 8.87 (9.34) 324.7 (12.0) (3.6)
US other commercial
properties 40.2 0.9 2.3
4,467.3 203.2 4.8
UK Regional Shopping
Centre developments 78.7
Other developments 17.3
4,563.3
Investment in UK Prime -
Total investment properties 4,563.3
Held through joint ventures (138.4)
Group investment
properties (note 6) 4,424.9
31 December 2002
Open True
market Purchasers" equivalent
value costs= yield#
GBP"m GBP"m %
Lakeside, Thurrock 938.0 (42.5) 5.91
MetroCentre, Gateshead 744.0 (33.7) 5.91
Braehead, Glasgow 453.0 (21.6) 6.05
Other M25 Centres 826.3 (42.0) 5.99
Other UK Centres 518.9 (28.2) 6.63
Other properties 87.0 (4.8) 7.89
UK Regional Shopping
Centres 3,567.2 (172.8) 6.10
US Regional Shopping
Centres and other retail 147.2 -
UK other commercial
property:
Other UK
retail properties 128.3 (7.0) 7.98
UK mixed use properties 215.9 (11.6) 7.64
UK office properties 349.1 (16.7) 8.86
US other commercial
properties 40.2 -
4,447.9 (208.1)
UK Regional Shopping
Centre developments 59.8
Other developments 19.8
4,527.5
Investment in UK Prime 12.6
Total investment properties 4,540.1
Held through joint ventures (143.8)
Group investment
properties (note 6) 4,396.3
# True equivalent yield used in valuations represents the theoretical yield
to a purchaser after taking account of the associated acquisition costs.
The figure in brackets represents the yield foregone by Liberty
International shareholders if the asset were to be sold at the market
value.
Equivalent yield is the yield assuming all future reversions are
reviewed to the discounted estimated rental value.
Nominal yields are calculated on the assumption that rent is
receivable annually in arrears. Leases generally provide for rent
to be paid quarterly in advance. True equivalent yield reflects
the value attributable to this advance receipt of income.
@ The like-for-like revaluation surplus makes adjustment for the change in
estimation technique, described in note 6 of the interim results, by
eliminating the purchasers" costs relating to the 31 December 2002 open
market value in order to calculate the resulting surplus or deficit on a
consistent basis.
= Purchasers" costs relating to 31 December 2002 open market value.
* 30 June 2003 market value includes the benefit of the relief, introduced
in 2003, from stamp duty land tax which is available on certain assets
until 31 December 2006.
Reconciliation of revaluation deficit shown in note 6 of the interim results
and like-for-like valuation surplus shown above:
GBP"m
Revaluation deficit for the six months
ended 30 June 2003 (Note 6) (7.0)
Add Group"s share of increase in valuation
of joint ventures 2.1
(4.9)
Exclude purchasers" costs relating to 31 December 2002
open market value 208.1
Like-for-like revaluation surplus for the six months
ended 30 June 2003 (above) 203.2
Chairman"s Statement 2003 Interim Results
Introduction
Liberty International has delivered an impressively strong performance in the
first six months of 2003 in difficult and uncertain economic conditions,
underlining the quality and resilience of our predominantly regional shopping
centre and retail based business.
Headline profit before taxation increased by 24 per cent from GBP50.5 million
to GBP62.7 million, including exceptional profits of GBP9.5 million (30 June
2002 - GBP12.6 million) primarily resulting from the early termination of long
dated interest rate swaps entered into at very favourable rates during 2001.
Profit before taxation and exceptional items increased by a substantial 40 per
cent from GBP37.9 million to GBP53.2 million, mainly reflecting growth in net
property investment income and the impact of raising GBP157.5 million of
additional equity in November 2002 (9.9 per cent of Liberty International"s
then issued share capital).
Earnings per share before exceptional items (adjusted to exclude the impact of
deferred tax on capital allowances) increased by 29 per cent from 10.82p to
14.0p.
In line with the revised RICS Appraisal and Valuation Standards (formerly the
RICS Appraisal and Valuation Manual) which became a requirement from 1 May
2003, Market Value (formerly Open Market Value) represents the figure that
would appear in a hypothetical contract of sale between a willing buyer and a
willing seller at the valuation date. Market Value is estimated without regard
to costs of sale or purchase and thus, unlike previous valuations, the values
reported as at 30 June 2003 do not include notional purchasers" costs.
As at 31 December 2002, the Open Market Value of investment properties
included GBP208 million of notional purchasers" costs, in effect to reflect
theoretical replacement value. Full details are set out in the Summary of
Investment Property Valuations included in the Interim Results announcement.
On the new and more conservative basis, net asset value at 30 June 2003
amounted to a record 866p per share against a comparable starting position of
798p at 31 December 2002, an 8.5 per cent increase, driven by a strong uplift
of 6.2 per cent in the valuations of our prime UK regional shopping centre
assets which continue to be a scarce, highly regarded and sought after asset
class.
Our financial position remains extremely sound with shareholders" funds of
GBP2.7 billion and a debt to assets ratio unchanged at 40 per cent. Unutilised
committed long term bank facilities amounted to GBP705 million at 30 June
2003. We therefore have both the capital and the resources to continue our
successful and tightly controlled business expansion.
Liberty International has a substantial and promising development programme,
an integral component of delivering long term and sustainable above-average
growth for shareholders.
Direct capital expenditure in the period amounted to GBP44 million. Our
committed development programme, including expenditure to date of GBP96
million, is estimated to amount to around GBP500 million, while the pipeline
of other projects on which we are engaged, but not yet fully committed, could
amount to around GBP600 million over the next five years.
In addition, in the first half of 2003 we invested a further GBP27 million in
Great Portland Estates plc, a specialist London West End property business,
increasing our interest from 19.4 per cent to 25.5 per cent, valued at GBP120
million at 30 June 2003.
Financial Markets
After below trend growth in UK GDP of 1.7 per cent in 2002, the first quarter
of 2003 saw even lower levels of GDP growth at a negligible 0.1 per cent
compared with the previous quarter.
While this represents an unexciting overall economic environment, a greater
degree of confidence, albeit fragile and of questionable sustainability, has
returned to financial markets in 2003, with most major world stockmarkets
rallying surprisingly strongly after a dismal first quarter and closing on 30
June 2003 above their year end levels.
The interest rate environment has remained relatively neutral for property
markets. UK base rate marginally reduced in the first half of 2003 from 4.0
per cent to 3.75 per cent, notably higher than most other leading world
economies but representing a relatively low level of real interest rates,
given that UK inflation, as measured by the retail price index, remains around
the 3 per cent level. The 10 year UK gilt yield, a more relevant benchmark for
long term assets such as property, was 4.16 per cent on 30 June 2003, compared
with 4.37 per cent at 31 December 2002. Since 30 June, base rate has reduced
further to 3.5 per cent.
With investors increasingly focussing their attention on yield as real returns
on cash and bonds have diminished, UK property has maintained its investment
attraction, particularly the retail sector with its stable cash flow
characteristics compared with the distinctly more cyclical office sector.
Market Values as at 30 June 2003
I referred earlier to the change of valuation methodology regarding notional
purchasers" costs.
For the six months ended 30 June 2003, this effectively reduced the starting
position by an aggregate amount of GBP208 million, equivalent to 64 pence per
Liberty International share.
On a consistent like-for-like basis, the aggregate revaluation surplus for the
six month period amounted to GBP203 million (4.8 per cent) increasing our
completed investment property valuations to GBP4.47 billion, and effectively
absorbing the impact of the change in valuation basis within the first six
months of the current year, highly indicative of the strength and resilience
of the group"s investment portfolio.
Our UK regional shopping centre portfolio produced a revaluation surplus on a
like-for-like basis of GBP206 million (6.2 per cent) bringing the aggregate
open market value to GBP3.61 billion. A number of factors contributed to the
surplus; first, approximately GBP77 million from a fractional downward shift
in the yields applied by the valuers to our major assets, reflecting scarcity
value, investment demand and the lower interest rate environment; secondly,
approximately GBP65 million from underlying growth in estimated rental values,
particularly at Braehead, Glasgow; and thirdly, approximately GBP64 million
from lower assumptions than at 31 December 2002 on purchasers" costs,
particularly as four of our major assets fall in regeneration areas qualifying
for relief from the 4 per cent stamp duty land tax on transactions, a relief
currently limited to the period to 31 December 2006.
Overall valuations on Capital & Counties" UK commercial and retail investment
properties reduced by 1.2 per cent on a comparable basis to GBP656 million at
30 June 2003, with wide divergences between different asset classes as
experienced in 2002. Central London values fell by 3.5 per cent. Offices
around the M25 and in the South East dropped in value by 0.8 per cent, with an
increase in value related to the new lettings at Uxbridge almost outweighing
falls elsewhere. The properties outside London, mainly retail, rose in value
by 3.7 per cent, whilst offices in Birmingham and Bath rose in value by some
0.5 per cent.
The valuations of the United States" investment properties increased by 2.5
per cent to GBP198 million.
Valuation Yields
Shareholders of Liberty International should appreciate that, because they are
holding their investment indirectly through shares in a listed property
company, their shares would on disposal be acquired by a purchaser who would
effectively only be paying 0.5 per cent stamp duty and brokerage, applicable
to share transactions, rather than the full purchasers" costs of replacing the
assets individually in the property market. As well as showing the `True
Equivalent Yield", which by long-established convention in the property
industry is the yield obtained by the purchaser after taking account of his
direct acquisition costs, the Summary of Investment Property Valuations also
details the yield which would be foregone by Liberty International on the
basis of a theoretical disposal at the balance sheet value, the latter being
the more relevant ongoing yield attributable to shareholders. The property
industry convention focussing on the purchaser"s yield is of limited use in
the absence of information on the assumptions regarding purchasers" costs.
We continue to contend that valuation yields averaging around 6 per cent and
well in excess of current gilt yields and other major investment classes
including equities are exceptionally cautious for growth assets such as our
major regional shopping centres which are truly long term growth assets and,
in the case of Liberty International, unlikely to be disposed of for many
decades. In respect of our other UK property assets, both commercial and
retail, the valuation yields averaging around 8.2 per cent, almost double the
10 year gilt yield of 4.16 per cent at 30 June 2003, are even more defensive,
albeit reflecting strong negative sentiment in office markets where rental
values have admittedly been under considerable pressure.
The substantial investor appetite currently in evidence for quality UK
property is hardly surprising, when property yields are compared with yields
available on alternative asset classes such as bonds or equities, and augurs
well for the continued health of the UK property investment market within a
stable economic environment.
Financial Management
During the first half of 2003, we have continued our approach of arranging
long term asset specific non-recourse financing linked to the group"s major
assets. A GBP210 million 10 year facility has recently been arranged with a
syndicate of four leading international banks secured on the Victoria Centre,
Nottingham, following the increase late in 2002 of our interest in this prime
asset to 100 per cent. The bank facility contains considerable flexibility
particularly in terms of the timing of the initial drawdown.
Committed and undrawn long term non-recourse facilities amounted in aggregate
to GBP455 million at 30 June 2003, well in excess of our current contracted
capital expenditure, with a further GBP250 million of committed long term
unsecured bank facilities also available to the group.
Dividends
The Directors have approved an interim ordinary dividend of 11.75p per share
(2002 11.25p per share) payable on 16 September 2003. The increase is in line
with our policy of progressive dividend growth and an interim dividend
amounting to approximately half the previous year"s annual dividend (2002 -
23.75p per share).
UK Regional Shopping Centres
Growth in property investment income
The first six months of 2003 have provided a clear demonstration of the
quality of our business conducted through Capital Shopping Centres, the UK"s
largest regional shopping centre business, operating on a national scale and
concentrating on the UK"s leading and most successful centres. Property
investment income from UK regional shopping centres grew overall by 13 per
cent from GBP79.1 million for the first half of 2002 to GBP89.3 million
(including joint ventures) in 2003 which, after excluding acquisitions and
developments, represents a like-for-like increase of some 5.4 per cent.
This positive result was achieved through our continuous focus on providing
the best possible comparison shopping experience to the UK public, by
attracting the UK"s leading retailers to our geographically widespread range
of centres and providing the appropriate space for such retailers to trade out
of flagship stores.
Trading performance and headline rental levels
During the first five months of 2003, retail sales in the UK have continued to
show positive growth in comparison with the prior year at 2.4 per cent for
non-food sales according to the Office for National Statistics. The growth
rate has steadily slowed over the last year matching the UK"s more sluggish
economic performance.
Our more recently opened centres, Braehead, Glasgow, and The Chimes, Uxbridge,
have continued to show powerful year on year growth in retailer sales figures,
and, at Braehead, the exceptional trading performance since opening in 1999 is
now producing strong growth in rental levels as we approach the 2004 rent
review cycle. Reflecting the less buoyant national statistics for retail
sales, growth has overall at our other centres been somewhat less robust.
However, the resilience of our centres and their continuing attraction to
prime retailers is exemplified by the fact that voids at the centres remain
exceedingly low with only 16 shop units temporarily vacant at the half year
(approximately 1% of the total) compared with 15 at the 2002 year end.
Furthermore, through our active management of tenant mix, we have changed
retailers in 30 units during the first half of 2003, increasing in aggregate
the rent payable for these units from GBP2.9 million to GBP4.3 million,
demonstrating the strong demand for prime units in an increasingly supply
constrained UK regional shopping centre market.
While we monitor retail sales growth continually as an indicator of our
centres" relative performance, our property investment income result is more
closely correlated to the overall performance of the centres over longer time
periods. Detailed management of the rent review cycle is fundamental to
achieving overall rental growth. Given the scale of CSC"s operations, the five
yearly rent reviews which are typically incorporated in CSC"s shopping centre
leases are now spread reasonably evenly across the years. We have continued to
make good progress on dealing with outstanding rent reviews.
In addition, evidence of improvement in headline rental levels is now emerging
at some of our centres, notably Braehead, Glasgow.
Developments at existing centres
Good progress has been made at Lakeside, Thurrock on the programme to
refurbish and modernise the shopping centre which started on site in January
this year and should bring major benefits to our flagship centre. The project
includes the installation of new lifts and additional escalators, new floors
and ceilings and improved customer facilities. Alongside our improvements,
many retailers are now planning to refit their shops to coincide with
completion of the refurbishment works. After a pause for the peak trading
months of the Christmas period, we aim to complete the programme in July 2004.
The 371,000 sq.ft. scheme to expand MetroCentre, Gateshead, to provide a new
department store for Debenhams, 28 additional shop units and a 1,100 space car
park at a cost of GBP85 million is well advanced and on target for opening in
Autumn 2004. The scheme, which will restore MetroCentre"s position as Europe"s
largest covered shopping centre at 1.8 million sq.ft., will significantly add
to the retail offer on both trading levels. Retailers are showing strong
interest in the shop units and 85 per cent of the space is now committed or
under offer, representing 68 per cent of expected future rents.
At Braehead, Glasgow, following Renfrewshire Council"s resolution to give
outline planning consent for mixed use development on the Phase 2 land of 145
acres, we continue to progress the proposed leisure scheme under a joint
venture with Capital & Regional plc for an Xscape Snowdome. The other main
uses are residential and business space and, subject to market conditions, we
anticipate sales of land commencing next year.
Our discussions continue positively with Newcastle City Council concerning the
redevelopment of the southern end and other parts of Eldon Square. The centre
was first opened in 1976, has always traded extremely successfully and ranks
as one of the UK"s leading inner city regional shopping centres. The time has
now arrived for major enhancements to the centre to improve its long term
prospects. The proposals include a restructuring of the headlease arrangements
and potentially an increased participation by CSC.
Progress on new projects
Construction work began in January 2003 at the Chapelfield Shopping Centre in
Norwich, Norfolk where, under agreements entered into with the developer, Lend
Lease Europe, CSC will become the owner on completion. Completion is targeted
for Autumn 2005. At the end of June, Lend Lease reported 53 per cent of the
space was let and a further 24 per cent was under offer or terms had been
agreed, representing over 60 per cent of anticipated income.
The centre, anchored by House of Fraser, will be the leading shopping centre
in East Anglia when completed.
In Cardiff, the County Council has resolved to grant planning consent for the
proposals by the St David"s Partnership, a joint venture between Land
Securities PLC and CSC, to enlarge the St David"s Shopping Centre with a major
retail led mixed use extension of approximately 715,000 sq.ft. The proposals
have now been submitted to the Welsh Assembly for its approval.
We continue to pursue proposals to expand, upgrade and improve the Westgate
Centre in Oxford under a joint venture with LaSalle Investment Management.
Notwithstanding our successful legal challenge this year against the Secretary
of State"s decision to overturn his Inspector"s recommendation to grant
consent following the Public Inquiry held in November 2001, we have decided to
withdraw that planning application, in order to make a fresh planning
application for an improved scheme. We can thereby better provide for the
requirements of the John Lewis Partnership, with whom we are now in
discussions about a full-line department store, and at the same time take into
account design and townscape issues raised at the 2001 Public Inquiry. We
expect the revised scheme should bring even greater benefits to Oxford than
the original planning application endorsed by the Oxford City Council in 2000.
Capital & Counties
The Capital & Counties business is responsible for the performance of the
group"s assets other than UK regional shopping centres, amounting to GBP656
million of completed investment properties in the UK and GBP198 million in the
USA. Retail assets represent half of the overall GBP854 million of completed
investment properties. Other activities include development properties of
GBP17 million, trading properties of GBP33 million and a GBP59 million
investment in the Edinburgh Property Portfolio, where Capital & Counties is
the asset manager.
United Kingdom
Activity levels in the UK have been subdued with no sales or purchases in the
half year. Our conscious decision to curb development exposure is now
thoroughly vindicated with no major projects under construction in an
extremely difficult market for office developers.
In the UK, circumstances remain challenging for the GBP385 million office
element of Capital & Counties" Central London and South East investments.
Downward pressure on rental values continued throughout the first half of 2003
and the retention of tenants at lease expiry has remained a high priority,
notwithstanding the need to accept rental settlements below the expectation of
six months ago. Tenant activities remain muted but we are encountering signs
that availability levels in our core West End markets have stabilised for the
multi-let properties we specialise in, albeit at vacancy levels last seen in
this market nearly ten years ago.
Within Capital & Counties" Central London investments, space which is vacant
and available to let represents 2.8% of rental value, though it is anticipated
that this percentage may increase somewhat before the year end. A further 1.4%
of space by rental value is currently undergoing refurbishment to create the
quality of accommodation required to attract tenants in the current market.
Outside London, letting progress is being made on our most recently completed
assets. At Capital Court, Uxbridge (55,000 sq.ft.), over 30,000 sq.ft. has now
been let and at Capital Park, Cambridge, 18,900 sq.ft. of the third phase of
48,000 sq.ft. remains available, following a recent letting of a further
12,500 sq.ft.
Turning to major future projects, the proposed refurbishment and redevelopment
of King"s Reach, Southwark, London, a 32 storey office tower with 250,000
sq.ft. of office space and 15,000 sq.ft. of retail, is at the detailed design
stage in preparation for a planning application in Autumn 2003. Meanwhile the
June 2002 rent review has been settled close to our expectations at GBP5.25
million per annum.
At Wapping, London E1, planning consent was granted in May (subject to a
Section 106 Agreement) for comprehensive alteration and upgrading of the seven
storey 100,000 sq.ft. riverside warehouse. The scheme will create contemporary
loft-style business space unique to this location.
Work has commenced on seven separate office refurbishment schemes in Central
London with a total rental value of GBP500,000. At Swansea, Wales, a scheme to
extend the retail areas of shops in Oxford Street has started.
Edinburgh Property Portfolio
The Edinburgh Property Portfolio, an authorised UK property unit trust asset
managed by Capital & Counties, has continued to grow with a strong and
consistent inflow of cash from investors. The size of the Fund was GBP138
million at the end of June 2003. Since the start of 2003, two further
investments have been made for a total of GBP11 million, 11 retail units in
Northampton and two retail warehouses in Welwyn and Fareham.
Capital & Counties" interest in units in the Fund was GBP59 million at 30 June
2003, with the ongoing level of third party interest in the Fund now extremely
encouraging.
Capital Enterprise Centres
This joint venture to provide managed workspace for small occupiers on
flexible lease terms is now committed to four projects at Croydon, Harlow,
Kings Hill (Kent) and Chelmsford for an aggregate capital expenditure of GBP27
million. The latter two schemes are completed and income producing.
United States of America
The purchase in June 2003 for $16 million of the 50 per cent share of
Ghirardelli Square, San Francisco, not already owned has with other additions
brought the value of the investment portfolio to a total of $328 million
(GBP198 million).
Major projects continue to evolve. At Trio, Pasadena, construction continues
under the direction of our partner, Shea Properties, on the substantial 304
unit apartment scheme.
At Serramonte, our largest US asset and a well located regional shopping
centre south of the City of San Francisco, physical and tenant mix
improvements have started together with discussions with anchor tenants aimed
at securing further enhancements to the scheme. A conditional sale has been
agreed of a segment of perimeter land for hillside residential development.
Progress is also being made towards securing the right to develop a major
mixed use waterfront project at Redondo Beach in Southern California.
Prospects
Our view remains that the investment attractions of quality real estate,
especially regional shopping centres, are still compelling, given valuation
yields well in excess of bond yields, and only major further economic
deterioration or a substantial adverse change in the interest rate environment
would alter our positive view.
With our strong and stable business platform and a range of attractive
projects to provide the necessary expansion of our activities, we look forward
to continuing to deliver outstanding long term results for shareholders and
investors, in terms of a growing dividend stream and capital appreciation.
Donald Gordon
Chairman
16 July 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 30 June 2003
Six months Six months
ended ended Year ended
30 June 30 June 31 Dec
2003 2002 2002
Unaudited Unaudited Audited
GBP"m GBP"m GBP"m
Notes
Turnover, including share
of joint ventures 183.8 175.5 351.1
Less: Share of joint ventures 7 (7.4) - (6.5)
Group turnover 2 176.4 175.5 344.6
Property investment income:
Rents receivable 144.1 140.8 272.6
Service charge and other income 23.7 29.5 51.5
167.8 170.3 324.1
Rents payable (16.0) (24.3) (37.0)
Property outgoings (34.1) (37.9) (66.8)
Net property investment income 117.7 108.1 220.3
Property trading 2.4 1.5 5.1
Investment and financial services
income 6.1 3.7 7.2
126.2 113.3 232.6
Administrative expenses (12.0) (9.0) (20.5)
Group operating profit 2 114.2 104.3 212.1
Share of operating profit of joint
ventures 7 4.1 - 3.8
Operating profit including joint
ventures 118.3 104.3 215.9
Exceptional (loss)/profit on
disposal of fixed
assets and subsidiaries 3 (0.5) 5.5 8.6
Profit before interest and taxation 117.8 109.8 224.5
Net interest (payable)/receivable
- recurring 4 (65.1) (66.4) (129.3)
Net interest (payable)/receivable
- exceptional 4 10.0 7.1 8.6
Profit on ordinary activities
before taxation 62.7 50.5 103.8
Taxation on profit on ordinary
activities (13.1) (10.1) (18.2)
Taxation on profit on exceptional
items (3.2) (4.1) (4.6)
Profit on ordinary activities after
taxation 46.4 36.3 81.0
Ordinary dividends paid and proposed (35.9) (31.4) (69.6)
Transfer to retained profit 10.5 4.9 11.4
Dividends per ordinary share 11.75p 11.25p 23.75p
Earnings per share before
exceptional items
(adjusted) 14 14.00p 10.82p 25.58p
Earnings per share (basic) 14 15.13p 12.96p 28.54p
Earnings per share (diluted) 14 14.81p 12.85p 27.91p
CONSOLIDATED BALANCE SHEET
As at 30 June 2003
Notes As at
As at 31 December As at
30 June 2003 2002 30 June 2002
Unaudited Audited Unaudited
GBP"m GBP"m GBP"m
Fixed assets:
UK shopping centres 6 3,572.2 3,522.3 3,246.8
Other retail
investment
properties 6 410.4 414.3 415.1
Other investment
properties 6 442.3 459.7 491.2
4,424.9 4,396.3 4,153.1
Investment in joint
ventures:
Share of investment
properties 7 138.4 143.8 -
Share of other
assets 7 4.2 0.5 -
Share of gross
liabilities 7 (69.3) (66.6) -
73.3 77.7 -
Other tangible
assets 0.8 0.9 1.2
Investments 8
204.6 176.2 134.6
4,703.6 4,651.1 4,288.9
Current assets:
Trading properties 9 67.5 66.7 68.4
Debtors
61.6 75.2 67.0
Other shortterm
investments 1.3 1.1 1.2
Cash and near cash
investments 56.2 71.7 186.4
186.6 214.7 323.0
Creditors: amounts
falling due within
one year 10 (204.4) (224.4) (298.7)
Net current
liabilities (17.8) (9.7) 24.3
Total assets less
current liabilities 4,685.8 4,641.4 4,313.2
Creditors: amounts
falling due after
more than one year
Loans 11 (1,847.8) (1,817.9) (1,810.1)
Subordinated
convertible debt (63.6) (64.0) (64.5)
Other creditors (1.0) (1.0) (0.5)
(1,912.4) (1,882.9) (1,875.1)
Provisions for
liabilities and
charges 13 (81.1) (75.0) (73.2)
Net assets 2,692.3 2,683.5 2.364.9
Capital and
reserves:
Called up ordinary
share capital and
reserves 2,692.3 2,683.5 2,364.9
Net assets per
share (diluted,
adjusted) 14 866p 862p 836p
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES AND
RECONCILIATION OF RESERVES
Six months Year ended
Six months ended 31
ended 30 June December
30 June 2003 2002 2002
Unaudited Unaudited Audited
GBP"m GBP"m GBP"m
Statement of group total
recognised gains and losses
Profit for the period 46.4 36.3 81.0
(Decrease)/increase in
valuation of investment
properties (note 6) (7.0) 19.6 174.3
Group"s share of increase in
valuation of joint ventures 2.1 - 4.3
Unrealised gain/(deficit) on
other fixed asset investments 5.8 3.1 (2.5)
Current tax relating to
realisation of gains
recognised in prior
periods - - (3.5)
Exchange adjustments offset
in reserves and other
movements (1.1) (2.3) 0.1
Total recognised gains for
the period 46.2 56.7 253.7
Reconciliation of movements
in group shareholders" funds
Opening shareholders" funds 2,683.5 2,339.6 2,341.9
Recognised gains and losses
for the period 46.2 56.7 253.7
Dividends (35.9) (31.4) (69.6)
Ordinary shares issued - - 157.5
Purchase and cancellation of
shares (1.5) - -
Closing shareholders" funds 2,692.3 2,364.9 2,683.5
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Year ended
ended ended 31 December
30 June 2003 30 June 2002 2002
Unaudited Unaudited Audited
GBP"m GBP"m GBP"m
Net cash flow from
operating activities 118.7 107.5 201.8
Returns on investments
and servicing of
finance (55.8) (67.2) (130.9)
Taxation paid (10.5) (5.6) (12.6)
Capital expenditure
and financial
investment (60.2) (95.2) (288.5)
Acquisitions and
disposals 2.3 - -
Equity dividends paid (38.3) (33.5) (64.7)
Cash outflow before
use of liquid
resources and
financing (43.8) (94.0) (294.9)
Management of liquid
resources 5.2 (112.4) 5.3
Increase in financing* 28.2 196.4 282.1
(Decrease)/increase in
cash during the period (10.4) (10.0) (7.5)
* Analysis of
financing cash flows
Borrowings drawn 71.1 363.9 599.7
Borrowings repaid and
bonds cancelled (40.2) (169.2) (466.0)
Shares issued - - 157.5
Payments to acquire
own shares (1.5) - -
Other financing cash
flows (1.2) 1.7 (9.1)
28.2 196.4 282.1
Reconciliation of net
cash flow to movement
in net debt
(Decrease)/increase in
cash during the period (10.4) (10.0) (7.5)
Cash (inflow) from
increase in debt (30.5) (104.8) (122.9)
Non cash change in net
debt 2.2 3.3 12.5
Cash (inflow) from
decrease in liquid
resources (5.2) 112.3 (5.0)
Movement in net debt
during the period (43.9) 0.8 (122.9)
Opening net debt (1,823.3) (1,700.4) (1,700.4)
Closing net debt (1,867.2) (1,699.6) (1,823.3)
INDEPENDENT REVIEW REPORT TO LIBERTY INTERNATIONAL PLC
Introduction
We have been instructed by the company to review the financial information
which comprises the consolidated profit and loss account, consolidated balance
sheet, group statement of total recognised gains and losses and reconciliation
