| Wed 21 Jul 2004, 8:30 | | Liberty International Plc - Interim Results For Th |
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LILII LIBERTY INTERNATIONAL PLC - Interim Results for the six months ended 30 June 2004 LIBERTY INTERNATIONAL PLC
(Registration number UK3685527) ISIN Code: GB0006834344 JSE Code: LBT Issuer Code: LILI I
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2004 Attached is the full Interim Results announcement for the six months ended 30 June 2004: Pages
Highlights 2 Summary of Investment Property Valuations 4 Chairman`s Statement 6 Interim Results 15
Financial Review 30 Analysis of Net Property Investment Income 34 Enquiries: Liberty International PLC:
David Fischel Chief Executive +44 (0)20 7960 1207 Aidan Smith Finance Director +44 (0)20 7960 1210 Public relations: UK: Michael Sandler, Hudson Sandler +44 (0)20 7796 4133
SA: Matthew Gregorowski, College Hill Associates +44 (0)20 7457 2020 Nicholas Williams, College Hill Associates +27 (0)11 447 3030
Background on Liberty International Liberty International PLC is the UK`s third largest listed property company and a constituent of the FTSE-100 Index of the UK`s leading listed companies. Liberty International owns 100 per cent of Capital Shopping Centres (`CSC`),
the premier UK regional shopping centre business, and Capital & Counties, a commercial and retail property investment and development company concentrating in Central London, South East England and California, USA.
This press release includes statements that are forward-looking in nature.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Liberty International PLC to be materially different from any future results, performance or achievements expressed or implied by such
forward-looking statements. Any information contained in this press release on the price at which shares or other securities in Liberty International PLC have been bought or sold in the past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance.
LIBERTY INTERNATIONAL PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2004 - HIGHLIGHTS Donald Gordon, Chairman of Liberty International, commented:
`The first half of 2004 saw a continuation of Liberty International`s strong performance of recent years. Profit before taxation amounted to GBP67.2 million, with an underlying 14.8 per cent increase excluding exceptional profits. Net asset value per share* increased 6 per cent to 961p, providing a total combined
return of 7.5 per cent for the six month period. Reflecting the weight of investor demand in the direct property market, our overall investment property revaluation surplus for the first half year amounted to GBP166 million. GBP108 million came from UK regional shopping
centres and the balance of GBP58 million from the group`s other retail and commercial assets in the UK and USA.
On 30 June 2004, total property assets amounted to over GBP5.2 billion and shareholders` funds have passed the GBP3 billion mark. Regional shopping centres
amount to 81 per cent by market value of aggregate investment properties with retail property overall amounting to 91 per cent. Our strategy of focussing on large scale premium assets of the highest quality and scarcity value, while maintaining at all times a strong financial position,
should provide shareholders with considerable confidence in the long-term sustainability of our highly successful business. For the immediate future, our revenue growth prospects are underpinned by the forthcoming cycle of five year rent reviews which specifically involves our
three largest regional shopping centres, Braehead, Glasgow, in the last quarter of 2004, Lakeside, Thurrock, in 2005 and MetroCentre, Gateshead, in 2006, where in each case we expect major recent initiatives to produce very positive rental growth.
Our substantial development programme positions Liberty International to continue our long- term track record of measured growth. Some GBP280 million of committed project expenditure remains to be spent, primarily on the Red Mall at MetroCentre and Chapelfield Shopping Centre, Norwich, where lettings are in
both cases well advanced. In addition, potential but as yet uncommitted projects amount in aggregate to around a further GBP1 billion.` 21 July 2004 (* diluted, adjusted, as described in Financial Highlights)
DIVIDENDS The Directors of Liberty International PLC have announced an increased interim ordinary dividend per share of 12.4p (2003 -- 11.75p).
The following are the salient dates for the payment of the interim dividend:
4 August 2004 Sterling/Rand exchange rate struck. 16 August 2004 Ordinary shares listed ex-dividend on the JSE Securities Exchange South Africa. 18 August 2004 Ordinary shares listed ex-dividend on the
London Stock Exchange. 20 August 2004 Record date for interim dividend in London and Johannesburg. 7 September 2004 Dividend payment day for shareholders (Note: Payment to ADR holders will be made on 17 September 2004).
South African shareholders should note that, in accordance with the requirements of STRATE, the last day to trade cum-dividend will be 13 August 2004 and that no dematerialisation or rematerialisation of shares will be possible from 16 August to 20 August inclusive.
No transfers between the UK and South African registers may take place from 4 August to 20 August inclusive. Financial highlights for the six months ended 30 June 2004 Increase on As at As at
31 December 30 June 31 December 2003 2004 2003 Unaudited Audited Total property assets (including
investments and trading properties) 4.2% GBP5,212m GBP5,005m Shareholders` funds 6.7% GBP3,051m GBP2,859m ** Net debt (including joint
ventures) 1.4% GBP1,944m GBP1,917m Net assets per share (diluted) 6.1% 941p 887p Net assets per share (diluted, adjusted*) 6.1% 961p 906p
Diluted number of shares (for NAV) 352.1m 351.7m** Increase on Six months Six months six months ended ended Year ended ended 30 June 30 June 31 December
30 June 2004 2003 2003 2003 Unaudited Unaudited Audited Group operating profit including
joint ventures 6.0% GBP125.4m GBP118.3m GBP235.9m Profit before tax including
exceptional items 7.2% GBP67.2m GBP62.7m GBP110.0m Net exceptional profits GBP6.1m GBP9.5m GBP5.8m Profit before tax
and exceptionals 14.8% GBP61.1m GBP53.2m GBP104.2m Earnings per share before exceptionals
(adjusted*) 5.5% 14.77p 14.00p 27.45p Earnings per share (unadjusted) 4.4% 15.80p 15.13p 26.25p
Dividends per ordinary share 5.5% 12.40p 11.75p 25.00p Weighted average number of shares
(for EPS) 316.8m 306.7m 306.9m * Adjusted for deferred tax relating to capital allowances (see note 13).
Unless otherwise stated, references to earnings per share are to earnings per share before exceptional items (adjusted); and references to net assets per
share are to net assets per share (diluted, adjusted). ** restated in accordance with UITF38 Accounting for ESOP Trusts - see Note 1 Revaluation surplus on completed investment properties for the six months ended 30 June 2004
Market value as at 30 June Revaluation 2004 Surplus Revaluation Unaudited Unaudited Surplus
GBPm GBPm UK regional shopping centres 3,901 108 2.9% US regional shopping centres and other retail 154 10 6.7%
Central London 348 19 6.0% Business space outside London 203 15 7.8% Retail outside London 168 14 9.3% US other commercial 36 - -
Completed investment properties 4,810 166 3.6% SUMMARY OF INVESTMENT PROPERTY VALUATIONS 30 June 2004
Revaluation True equivalent Market surplus/ yield(1) value (deficit) % % GBPm GBPm
Lakeside, Thurrock 5.42 (5.45) 1,033.8 38.1 3.8% MetroCentre, Gateshead 5.43 (5.73) 781.9 17.6 2.3% Braehead, Glasgow 5.90 (5.96) 549.0 9.4 1.7%
Other M25 Centres 5.66 (5.98) 864.1 20.8 2.5% Other Centres 6.14 (6.42) 570.5 19.5 3.5% Other properties 7.20 (7.59) 101.7 2.8 2.8% UK regional
shopping centres 5.70 (5.89) 3,901.0 108.2 2.9% US regional shopping centres and other retail 153.8 9.7 6.7%
UK other commercial properties: Central London 7.12 (7.45) 347.8 19.7 6.0%
Business space outside London 7.48 (7.90) 203.4 14.7 7.8% Retail outside London 7.10 (7.35) 167.7 14.2 9.3%
US other commercial properties 36.0 (0.2) (0.6)% 4,809.7 166.3
UK regional shopping centre developments 125.8
Other developments 22.1 Total investment
properties 4,957.6 Held through joint ventures (149.3)(2) Group
investment properties 4,808.3 31 December 2003 Market True equivalent
value yield(1) GBPm % % Lakeside, Thurrock 990.5 5.58 (5.61) MetroCentre,
Gateshead 763.0 5.59 (5.90) Braehead, Glasgow 533.5 6.01 (6.07) Other M25 Centres 842.0 5.78 (6.09) Other Centres 550.8 6.34 (6.62)
Other properties 98.7 7.39 (7.77) UK regional shopping centres 3,778.5 5.83 (6.03) US regional
shopping centres and other retail 164.8 UK other commercial
properties: Central London 327.1 7.88 (8.33) Business space outside London 204.6 8.35 (8.85)
Retail outside London 131.6 7.64 (7.90) US other commercial
properties 36.4 4,643.0 UK regional shopping
centre developments 104.6 Other developments 20.3
Total investment properties 4,767.9 Held through
joint ventures (142.7)(2) Group investment properties 4,625.2
(1) 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 earned by Liberty International shareholders on the asset which would be foregone 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. (2) Includes GBP128.5 million regional shopping centres and GBP20.8 million other commercial properties (31 December 2003 GBP122.8 million and GBP19.9
million respectively) SUMMARY OF CAPITAL & COUNTIES COMPLETED INVESTMENT PROPERTY VALUATIONS Six months ended Year ended 30 June 2004 31 December 2003
Net Net property Market Revaluation property Market Number of income value surplus income value properties GBPm GBPm GBPm GBPm GBPm
Central London 18 12.8 347.8 19.7 6.0% 24.6 327.1 Business space outside London 14 6.5 203.4 14.7 7.8% 14.1 204.6 Retail outside
London 7 5.0 167.7 14.2 9.3% 8.5 131.6 Total United Kingdom investment
properties 39 24.3 718.9 48.6 7.3% 47.2 663.3 United States (1) 8 7.8 189.8 9.5 5.3% 15.8 201.2 Total completed investment
properties 47 32.1 908.7 58.1 6.8% 63.0 864.5 (1) Includes GBP0.5 million net property income and GBP9.1 million market value (year ended 31 December 2003 - GBP1.6 million and GBP9.8 million respectively) in respect of properties owned through joint ventures.
Properties by use: 30 June 2004 31 December 2003 Retail Offices Total Retail Offices Total GBPm GBPm GBPm GBPm GBPm GBPm Central London 145.3 202.5 347.8 128.0 199.1 327.1
Business space outside London - 203.4 203.4 21.1 183.5 204.6 Retail outside London 167.7 - 167.7 131.6 - 131.6
Total United Kingdom investment properties 313.0 405.9 718.9 280.7 382.6 663.3
United States 153.8 36.0 189.8 164.8 36.4 201.2 Total completed investment properties 466.8 441.9 908.7 445.5 419.0 864.5
Developments - 22.1 22.1 - 20.3 20.3 Total investment properties 466.8 464.0 930.8 445.5 439.3 884.8 Held through
joint ventures - (20.8) (20.8) - (19.9) (19.9) Group investment properties 466.8 443.2 910.0 445.5 419.4 864.9 Chairman`s Statement - 2004 Interim Results
Introduction The first half of 2004 saw a continuation of Liberty International`s strong performance of recent years - - profit before taxation including exceptional items increased by 7.2 per cent
from GBP62.7 million to GBP67.2 million. Excluding the exceptional profits of GBP6.1 million (30 June 2003 - GBP9.5 million), the underlying increase amounted to 14.8 per cent - net asset value per share increased, after the proposed 12.4p interim
dividend, from 906p to 961p, a 6 per cent increase, providing a total combined return, including the dividend, of 7.5 per cent for the six month period - overall investment property revaluation surplus of GBP166 million with GBP108 million from the group`s UK regional shopping centres, GBP48 million from the
retail and commercial business of Capital & Counties in the UK and GBP10 million from the predominantly retail assets in the USA.
In addition, the group`s other property-related investments recorded a GBP14 million revaluation surplus
- direct property and property related investments increased from GBP5.0 billion to GBP5.2 billion, with shareholders` funds now exceeding the GBP3 billion mark at GBP3.05 billion - further strengthening of the group`s financial position, with the debt to
assets ratio reduced from 39 per cent at 31 December 2003 to 38 per cent at 30 June 2004 and interest cover for the six months to 30 June 2004 improved to 1.95 times compared with 1.8 for 2003. Highlights of the six month period include
- the effective completion of the widely acclaimed GBP30 million modernisation and refurbishment of Lakeside, Thurrock, on time and to budget - investment property disposals of GBP28 million, notably the successful sale of Ghirardelli Square, San Francisco, which produced the bulk of the GBP6.1
million exceptional profit - a substantial trading profit of GBP6.8 million on the sale of 11 acres at Braehead for residential development, and the acquisition on attractive terms of a strategically located 36 acres in the Braehead complex
- lettings well advanced on the GBP85 million Red Mall at MetroCentre, Gateshead, scheduled to be launched in October 2004, and the GBP275 million Chapelfield Shopping Centre, Norwich, expected to open in Autumn 2005. Expenditure in the period of GBP26 million on the committed development
programme, with estimated costs to completion of GBP280 million, most of which is payable in late 2005 when the Norwich project is delivered - progress as detailed below on the extensive potential but as yet uncommitted development programme.
This includes an estimated GBP850 million expenditure by
Capital Shopping Centres (`CSC`) to strengthen existing centres such as Braehead, Glasgow; The Harlequin, Watford, and Eldon Square, Newcastle, together with the new projects at Cardiff and Oxford. The programme also includes an estimated GBP150 million expenditure by Capital & Counties,
primarily on 190, Strand, London WC2, and King`s Reach, Southwark, London SE1. Financial markets The predominant influence on financial markets in the period was investor perception of a changing interest rate cycle as central bankers` monetary
stance became less accommodating.
Interest rates therefore began to rise around the world, confirming the approach we have adopted, as set out in the accompanying Financial Review, of substantially fixing our interest rate exposure. UK base rate rose steadily
from 3.75 per cent to 4.5 per cent and the US Federal Funds target rate eventually increased on 30 June from 1.00 per cent to 1.25 per cent. The stock market recovery of 2003 consequently stalled with the FTSE-100 down 0.3 per cent and the US Dow Jones index down 0.2 per cent in the first half of
2004, with further falls since 30 June 2004. Investment property has paradoxically been a beneficiary to date as institutional investors, given the unattractive outlook for fixed interest rate securities, have significantly upweighted their property allocations. The
impact of this can be seen in the half year valuations of Liberty International where the weight of investment demand has reduced yields and thereby increased capital values for virtually all classes of investment property.
Total returns according to the Investment Property Databank (`IPD`) UK Monthly Index for the
six months to the end of June 2004 amounted to 8.6 per cent for All-Property. Retail (not directly comparable to CSC`s prime regional centres) continued to outperform at 9.8 per cent while offices produced 5.9 per cent, including a small element of capital growth after a two and a half year period of falling
capital values between July 2001 and January 2004. Given the favourable fundamentals, UK property shares continued to attract investor interest, with the FTSE-350 Real Estate index rising 13.1 per cent in the six month period. Liberty International shares increased by 11.5 per cent
from 682.5p per share to 761p at 30 June 2004, and have continued to rise since then reaching an all-time closing price high of 795p on 19 July 2004.
Market values and net asset value per Liberty International share as at 30 June 2004
By market value, regional shopping centres constitute 81 per cent of our aggregate investment properties and retail property overall represents 91 per cent. Regional shopping centre valuations of CSC increased from GBP3,778 million to
GBP3,901 million after additions of GBP14 million and a revaluation surplus of GBP108 million (2.9 per cent). Although the major part of the valuation increase resulted from an average downward movement in equivalent yields of 13 basis points from 5.83 per cent to
5.70 per cent, we also achieved increases in headline rents at a number of our centres during the first six months of 2004.
In most cases, however, these new levels of headline rent need to be substantiated by further lettings before they can be reflected in market values.
The valuation of our flagship asset, Lakeside, Thurrock, passed the GBP1 billion mark, increasing from GBP990 million to GBP1,034 million, with potential for further significant improvements when the refurbishment and modernisation expenditure is reflected in higher rental levels at the
forthcoming 2005 rent review cycle, during which time 85 units amounting to over 50 per cent of Lakeside rental income are reviewed, mostly in the third quarter of the year. The market value of Capital & Counties` retail and commercial investment
properties in the UK amounted to GBP719 million at 30 June 2004.
After allowing for capital expenditure, valuations in the UK rose by 7.3 per cent compared with 31 December 2003, reflecting the current strength of the investment market and underlining the conservative approach to valuation at the end of 2003 when
office market recovery was not so clear. The portfolio average equivalent yield at 7.2 per cent remains conservative and attractive. In the USA, market values rose 5.3 per cent, after allowing for costs, to GBP190 million ($344 million).
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 plus brokerage on the share
transaction, rather than the full purchasers` costs (primarily 4 per cent stamp duty land tax where applicable and normal transfer costs including professional fees averaging around a further 1.2 per cent) of replacing the assets individually in the property market.
These notional purchasers` costs amounted
to GBP156 million in aggregate at 30 June 2004, and, if added back, would increase the net asset value per Liberty International share by 44p. However, the market values reported at 30 June 2004, as was the case with those reported at 30 June and 31 December 2003, subtracted these notional purchasers` costs,
in line with the RICS Appraisal and Valuation Standards which became mandatory from 1 May 2003. Two other factors are not reflected in the reported 961p net asset value per share at 30 June 2004. First, the contingent tax liability for chargeable gains
on Liberty International`s investment properties is calculated at GBP474 million, equivalent to 135p per share.
However, this figure should be substantially discounted to take account of the likely timescale to any disposal and the benefit from future inflation-linked indexation allowances.
Secondly, the fair value adjustment of marking debt and financial instruments to market value amounted, after allowance for tax relief, to a negative 27p per share, a considerable improvement on the negative 38p reported at 31 December 2003. The redemption yield on the most relevant benchmark, the 10 year UK
Government stock, amounted to around 5.10 per cent at 30 June 2004 and the mark-to-market adjustment would in fact become positive with a rise in excess of 75 basis points from that level. Dividends
The Directors have approved an interim ordinary dividend of 12.4p per share (2003 - 11.75p per share) payable on 7 September 2004.
The increase of 5.5 per cent is in line with our policy of progressive dividend growth and an interim dividend amounting to approximately half the previous year`s annual dividend,
in this case 25.0p per share in 2003. UK regional shopping centres Our strategy at CSC continues to focus on large scale assets of the highest quality which have scarcity value and are irreplaceable, particularly in the
restrictive UK planning environment. According to a recent independent survey, six of our nine completed regional centres rank in the UK`s top eighteen with three in the top ten. We have excellent geographic diversity across the UK with a large presence not only in
the area around London, where we have four major centres, but also in other leading UK cities such as Glasgow, Newcastle and Nottingham.
These shopping centres have many attractive investment characteristics, including a high degree of stability, a steady profile of income growth and considerable
reversionary income potential reflecting the lag factor embedded within the five year rent review cycle contained in most of our leases. The quality of CSC`s regional shopping centre business has been demonstrated in the six month period by a further increase in market valuations, continued
retailer demand reflected in low vacancy levels and indications of rising headline rental levels. Through our active management approach to tenant mix, we have made 31 tenancy changes, producing additional annual rental income of some GBP0.5 million, and continue to have a negligible level of voids, 18 units
out of a total of 1,418 units at the half year.
Net property investment income including joint ventures has increased by GBP1.4 million during the period to GBP90.7 million, with a like-for-like increase of 1.1 per cent, which was in line with expectations in a year when a relatively
small proportion of CSC`s income benefited from the rent review cycles at the completed centres. Like-for-like net property income over the next few years should benefit strongly from major forthcoming rent review cycles, starting with Braehead, Glasgow, in the last quarter of this year, Lakeside, Thurrock,
in 2005 and MetroCentre, Gateshead, in 2006. Generally the first half of this year has provided a favourable trading climate for retailers with the Office of National Statistics reporting surprisingly strong non-food sales growth of 4.2 per cent for the year to the end of May
2004 (6.4 per cent for the five months from January to May 2004).
Our centres have traded positively and, given their high quality and based on past experience, should prove resilient to any slowdown in consumer spending, which is anticipated by some commentators on the assumption that interest rates
continue to rise and the residential property market slows. Development activities at existing shopping centres An important part of our overall development programme is focussed on strengthening and expanding our existing prime regional locations.
At Lakeside, Thurrock, the refurbishment and modernisation works which started on site in January 2003 were completed on programme at the beginning of July this year. The project has included the installation of new faster lifts and additional escalators, new floors and ceilings and improved customer
facilities.
The revitalised Lakeside, launched with a ceremony on site on 7 July, has received wide acclaim from shoppers and retailers. These improvements have already resulted in many retailers refitting their shops or planning to refit this year and an increase in demand from retailers who do not have a
presence in the centre or existing retailers wishing to expand; an example of the latter is Next Plc, where the size of their store is to be increased by 18,600 sq.ft. to 63,000 sq.ft. The redevelopment to expand MetroCentre, Gateshead, to provide a new department
store for Debenhams, 28 additional shop units, an 1,100 space car park and a new bus station, at a cost of GBP85 million, is well advanced to open on programme and to budget at the beginning of October this year. This project, which restores MetroCentre`s position as Europe`s largest covered shopping
centre at 1.8 million sq.ft., will add significantly to the retail offer on both trading levels.
Lettings have been completed to an excellent selection of retailers including Debenhams, Zara, Hennes, River Island, French Connection and New Look. Nearly all the space, representing around 95 per cent of expected
annual rental income, is now exchanged or under offer. At Braehead, Glasgow, the Phase 2 development, comprising some 165 acres of land remaining after the acquisition and disposal referred to below, is now gathering pace. We have made considerable progress on the proposed 460,000
sq.ft. Xscape leisure scheme, a joint venture with Capital & Regional plc, which will include an indoor ski-slope, cinema, bowling, restaurants, cafes and speciality retail. Construction is due to commence on site later this year. The other main components in the Phase 2 development are residential and business
space. We concluded the sale of 11 acres for residential development recording a substantial trading profit of GBP6.8 million, and have recently purchased a further 36 acres strategically located in relation to our pre-existing Braehead land holding.
We have continued to make progress at Eldon Square, Newcastle, with three separate projects, for which planning consent has been granted, to significantly expand and renovate the centre. In total, the schemes amount to 468,000 sq.ft. of retail space including a 175,000 sq.ft. department store,
creating net additional retail space of 318,000 sq.ft. When all three projects have been implemented, Eldon Square will provide close to 1.25 million sq.ft. of space, ranking it amongst the UK`s largest city-centre regional shopping centres. The proposals, which involve our two partners, the City of Newcastle
and Shell Pension Trust, include restructuring the headlease from the City of Newcastle and potentially increasing CSC`s percentage participation.
In Watford, we have completed a preliminary agreement with Watford Borough Council with the intention that CSC will enter into a development agreement for
a mixed-use scheme of up to 700,000 sq.ft., the scale of which would substantially raise Watford as a destination in the regional retail hierarchy. The project will include Charter Place, an older 1970`s shopping centre owned by the Council which adjoins our major well-established 724,000 sq.ft. regional
centre, The Harlequin, and other High Street properties we already own. A planning brief for the area is well advanced and is expected to be completed by the year end. At Victoria Centre, Nottingham, our plans to undertake a remodelling of part of
the centre, which will create an additional 18,000 sq.ft.
of prime retail space, are well advanced and we expect to make a start on site next year. At The Glades, Bromley, we recently purchased properties in the High Street adjoining the main entrance to the centre and are finalising development plans
to incorporate these properties into The Glades to provide some 38,000 sq.ft. of new retail space. Progress on new projects The 510,000 sq.ft. Chapelfield shopping centre, Norwich, where CSC will become
the owner on completion, continues to be progressed by the developer, Lend Lease Europe, to achieve completion on programme in Autumn 2005. Lend Lease have reported that 88 per cent of the space is now either let, under offer or with terms agreed, representing 83 per cent of anticipated income. Chapelfield,
anchored by House of Fraser, continues to receive strong retail interest, with an excellent line-up of retailers being secured.
The St David`s Partnership, a joint venture with Land Securities, announced during the half year that the John Lewis Partnership would anchor with a new
department store the retail-led mixed-use extension to the existing St David`s Shopping Centre, Cardiff, amounting to a further 750,000 sq.ft. of retail space. This substantial project will also rank on completion as one of the UK`s largest city-centre regional shopping centres.
At Oxford, we are finalising a masterplanning exercise to expand and upgrade the Westgate Centre, a joint venture with LaSalle Investment Management, where the proposals also include a department store for the John Lewis Partnership. While the planning process is proving lengthy, we are confident that the
significant benefits of the project to Oxford, particularly through its regeneration impact on the Western part of the city, are now increasingly recognised.
Oxford contains a high-spending shopping population, with many residents at present often travelling elsewhere to satisfy shopping needs, and
has an undeniable high level of demand from retailers for appropriate floor space. Capital & Counties UK
Good performance has resumed at the company`s UK investment properties which provided an attractive total return of 10.3 per cent for the half year to June, even though like-for-like rental income declined marginally by 1.2 per cent reflecting difficult conditions in office letting markets. We continue to
retain a strong belief in the merits of multi-let mixed-use assets in the attractive and energetic locations of London`s West End and Mid-Town with their restrictive planning characteristics.
We have the opportunity and ability to create value by constant improvement of the office environment; important as
the smaller office tenants typical of the West End increasingly demand a better quality of space. Greater volatility of the performance of the office element is counterbalanced by exposure to prime Central London retail, a sector which the group would otherwise be unable to access.
Central London Offices The first half of 2004 has been encouraging with a noticeable and steady recovery in demand and take-up of space. However, whilst the level of enquiries has increased, tenants are still seeking value and rental levels, though
improving, need to remain competitive.
The West End and Mid-Town vacancy rate has fallen to 1.6 per cent at 30 June 2004 from 2.4 per cent reported at 31 December 2003. We have been active in refurbishing space this year and it is this space which
is attracting tenant interest. In March 2004, we completed the refurbishment and part new-build of 4,610 sq.ft. within 52 Jermyn Street, London W1. This space has been well received in the market and after competitive interest from prospective tenants, terms are agreed for a letting of part in excess of GBP40
per sq.ft. In Piccadilly, London W1, we are starting further comprehensive refurbishment of 10,750 sq.ft. in various suites to provide comfort-cooled, open-plan office accommodation. Business space outside London
Market conditions remain highly challenging, particularly West of London.
We have however made positive letting progress in the half year. Solicitors are instructed on lettings of half of the remaining 28,000 sq.ft. available at our development in Uxbridge, Capital Court. We have successfully
completed the letting of the remaining vacant space at the 48,000 sq.ft. CPC1 in Capital Park, Cambridge. The final letting achieved a rent of GBP17.75 per sq.ft., a strong level for the Cambridge out-of-town market. We will now look at pre-letting opportunities for the remaining 40,000 sq.ft. building available
to be developed. We have recently completed the refurbishment of 13,400 sq.ft. of accommodation at St Martins Place, Slough, which, together with refurbished offices at Capital Place, Bath Road, 14,700 sq.ft. in total, is now being actively
marketed. 36,000 sq.ft.
of offices at Port Solent, Hampshire are to be fully refurbished including the installation of air conditioning and we are in advanced discussions for a pre-letting of this space. Market activity
The most significant transaction in the period was the GBP11.9 million acquisition for the trading portfolio of 67-75 Kingsway, London WC2, a prominent office and retail property of 24,300 sq.ft., fully income producing and with an initial yield of 7.9 per cent. We also purchased a 30,000 sq.ft.
retail store in a West of London location where substantial regeneration is expected. Development opportunities We continue to make progress towards the submission of planning applications
for the two major development projects at 190, Strand, London WC2, and King`s Reach, South Bank, London SE1 where existing tenancies expire in 2007.
At the former, our architects have drawn up an exciting scheme for redevelopment which is currently under discussion with Westminster City Council. At King`s Reach,
significant progress is now being made on the planning front and we hope to submit an application by the end of the year. Together these two schemes could deliver a total of 600,000 sq.ft. of new and refurbished office space during the period 2009-2010.
New Star Property Unit Trust We are commercial property advisers and managers to the New Star Property Trust, an authorised property unit trust, which through strong cash inflows has now grown in size to over GBP200 million. The group`s holding in the fund at 30
June 2004 amounted to GBP29 million after partial realisation of the original GBP50 million investment, which has provided an excellent income flow and a significant capital profit.
Capital Enterprise Centres
Three centres providing managed workspace on flexible lease terms are now complete and in various stages of letting. The 38,000 sq.ft. development at Chelmsford is now fully let and expansion space is being sought. The 40,000 sq.ft. development at Harlow completed in May 2004 and has been letting
encouragingly. The 66,000 sq.ft. property at Kings Hill, Kent is undergoing rolling refurbishment as possession is taken of successive areas. The 30 June 2004 valuation of these assets produced an attractive uplift. The 57,000 sq.ft. Croydon development will complete by the year end. A number
of other potential schemes are being evaluated as we look to expand this joint venture as the concept is successfully proven.
USA Good progress was made in the US. The most significant event was the sale for
$45 million of the speciality shopping centre, Ghirardelli Square, just before the end of the half year, producing an exceptional profit of $10.2 million. We expect to reinvest the proceeds of this disposal locally during the second half of 2004.
Retail remains in excess of 80 per cent by value of our US assets. At the Serramonte Center, Phase II of the exterior remodelling is progressing well and we are seeking a `signature` tenant for this new area. Potential enhancement and enlargement of the West Mall are now under consideration.
Progress on tax transparent property vehicles During the period, the Government produced a consultation paper on tax transparent property vehicles, generally referred to as Real Estate Investment Trusts (`REITS`).
The property industry has submitted its response to this
paper, strongly favouring a vehicle with a minimum of unnecessary restrictions and regulations in areas such as development and gearing where the stockmarket is likely to impose its own preferences and disciplines. We have submitted our own response, generally supporting the industry position but additionally
focussing on two key issues, the tax position of non-resident investors and the level of conversion charge (if any) to become a REIT. While it is premature at this stage to predict whether adopting a REIT structure, which at the earliest could be available in 2005, would be beneficial for Liberty International
shareholders, Liberty International would undoubtedly represent an attractive candidate given its size and specialism in the dynamic sector of large scale, high quality retail property.
Prospects
Our overriding objective continues to be to deliver attractive long-term real returns to shareholders through the combination of a growing income stream and capital appreciation. The performance in the first six months of 2004, with a total return of 7.5 per
cent in terms of dividend and increase in net assets per share, has added to our consistent record in this respect since Liberty International`s formation in 1980. Our substantial development programme positions Liberty International to
continue our track record of growth over the last decade, not only by strengthening existing established regional shopping centre locations such as Watford and Newcastle city centre but also by generating high potential new income streams from attractive long-term projects such as Norwich, Cardiff and
Oxford. For the immediate future, our revenue growth prospects are underpinned by the forthcoming rent review cycle which predominantly involves our three largest assets, Braehead in the last quarter of 2004, Lakeside in 2005 and MetroCentre
in 2006, where in each case we expect major recent initiatives to produce a very positive outcome. While property is a cyclical business, our strategy of focussing on large scale assets of the highest quality and scarcity value, while maintaining at all
times a strong financial position, should provide shareholders with considerable confidence in the sustainability of our successful business and our corporate adaptability to fluctuating economic conditions.
Donald Gordon
Chairman 21 July 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the six months ended 30 June 2004
Six months Six months ended ended Year ended 30 June 30 June 31 December 2004 2003 2003
Unaudited Unaudited Audited Notes GBPm GBPm GBPm Turnover, including share of joint ventures 196.1 183.8 371.2
Less: Share of joint ventures 6 (3.9) (7.4) (9.1) Group turnover 2 192.2 176.4 362.1 Property investment income: Rents receivable 147.2 144.1 290.3
Service charge and other income 24.0 23.7 55.6 171.2 167.8 345.9 Rents payable (15.0) (16.0) (30.3) Property outgoings (37.2) (34.1) (78.3)
Net property investment income 119.0 117.7 237.3 Property trading 8.5 2.4 4.5 Investment and other income 5.8 6.1 10.8 133.3 126.2 252.6
Administrative expenses (11.7) (12.0) (24.8) Group operating profit 2 121.6 114.2 227.8 Share of operating profit of joint ventures 6 3.8 4.1 8.1
Operating profit including joint ventures 125.4 118.3 235.9 Exceptional profit/(loss) on disposal of fixed
assets and subsidiaries 3 6.2 (0.5) 1.0 Profit before interest and taxation 131.6 117.8 236.9 Net interest payable
- recurring 4 (64.3) (65.1) (131.7) Net interest (payable)/ receivable - exceptional 4 (0.1) 10.0 4.8 Profit on ordinary activities
before taxation 67.2 62.7 110.0 Taxation on profit on exceptional items (0.2) (3.2) (1.6) Deferred taxation on profit
on ordinary activities (2.8) (2.8) (7.9) Other taxation on profit on ordinary items (14.2) (10.3) (19.9) Profit on ordinary
activities after taxation 50.0 46.4 80.6 Ordinary dividends - paid and proposed (39.3) (35.9) (77.7) Transfer to retained profit 10.7 10.5 2.9
Dividends per ordinary share 12.40p 11.75p 25.00p Earnings per share before exceptional items (adjusted) 13 14.77p 14.00p 27.45p
Earnings per share (basic) 13 15.80p 15.13p 26.25p Earnings per share (diluted) 13 15.56p 14.81p 25.79p CONSOLIDATED BALANCE SHEET As at 30 June 2004
As at As at As at 30 June 31 December 30 June 2004 2003 2003 Unaudited Restated Restated
Notes GBPm GBPm GBPm Fixed assets: UK shopping centres 3,898.3 3,760.3 3,572.2 Other retail investment
properties 466.8 445.5 410.4 Other investment properties 443.2 419.4 442.3 5 4,808.3 4,625.2 4,424.9
Investment in joint ventures: Share of properties 6 149.8 143.2 138.4 Share of other assets 6 4.8 4.8 4.2
Share of gross liabilities 6 (75.5) (73.9) (69.3) 79.1 74.1 73.3 Other tangible assets 1.0 0.7 0.8 Investments 7 162.6 161.2 178.9
5,051.0 4,861.2 4,677.9 Current assets: Trading properties 8 91.1 75.0 67.5 Debtors 87.4 68.2 61.6
Other short-term investments - - 1.3 Cash and near cash investments 162.9 197.3 56.2
341.4 340.5 186.6 Creditors: amounts falling due within one year 9 (263.0) (220.8) (206.6)
Net current assets/(liabilities) 78.4 119.7 (20.0) Total assets less current liabilities 5,129.4 4,980.9 4,657.9
Creditors: amounts falling due after more than one year Loans 10 (1,754.0) (1,803.2) (1,847.8)
Convertible debt (234.6) (233.9) (63.6) Other creditors (0.4) (0.6) (1.0) (1,989.0) (2,037.7) (1,912.4) Provisions for liabilities
and charges 12 (89.4) (83.8) (81.1) Net assets 3,051.0 2,859.4 2,664.4 Capital and reserves: Called up ordinary share
capital and reserves 3,051.0 2,859.4 2,664.4 Net assets per share (basic) 13 962p 903p 868p
Net assets per share (diluted) 13 941p 887p 846p Net assets per share (basic, adjusted) 13 984p 924p 889p
Net assets per share (diluted, adjusted) 13 961p 906p 866p STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES AND RECONCILIATION OF RESERVES
Six months Six months Year ended ended ended 30 June 30 June 31 December 2004 2003 2003
Unaudited Unaudited Audited GBPm GBPm GBPm Statement of group total recognised gains and losses
Profit for the period 50.0 46.4 80.6 Increase/(decrease) in valuation of investment properties (note 5) 161.3 (7.0) 143.4 Group`s share of increase in
valuation of investment properties of joint ventures (note 6) 5.0 2.1 5.2 Unrealised surplus on other
fixed asset investments 13.8 5.8 9.0 Current tax relating to realisation of gains recognised in prior
periods (0.3) - (0.4) Exchange adjustments offset in reserves and other movements (1.5) (1.1) (0.6)
Total recognised gains for the period 228.3 46.2 237.2 Six months Six months Year ended ended ended
30 June 30 June 31 December 2004 2003 2003 Unaudited Restated Restated GBPm GBPm GBPm
Reconciliation of movements in group shareholders` funds Opening shareholders` funds as previously stated 2,886.2 2,683.5 2,683.5
Prior year adjustment (note 1) (26.8) (28.4) (28.4) Opening shareholders` funds (restated) 2,859.4 2,655.1 2,655.1 Recognised gains and losses
for the period 228.3 46.2 237.2 Bond conversions - - 44.7 Dividends (39.3) (35.9) (77.7) Issue of shares, including
from ESOP (note 1) 3.8 4.6 5.7 Purchase of shares, including into ESOP (note 1) (1.2) (5.6) (5.6) Closing shareholders` funds 3,051.0 2,664.4 2,859.4
CONSOLIDATED STATEMENT OF CASH FLOWS Six months Six months Year ended ended ended 30 June
