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LIBERTY INTERNATIONAL PLC - PRESS RELEASE - LIBERTY INTERNATIONAL PLC 2004
PRELIMINARY ANNOUNCEMENT
LIBERTY INTERNATIONAL PLC
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILI I
PRESS RELEASE
LIBERTY INTERNATIONAL PLC 2004 PRELIMINARY ANNOUNCEMENT
9 FEBRUARY 2005
Liberty International`s Preliminary Announcement for 2004 which has been
released today is attached.
Contents
This document contains:
Pages
Highlights 3-5
Summary of Investment Property Valuations 7-8
Chairman`s Statement and Review of Operations 9 - 27
Financial review 28 - 36
Preliminary results 37 - 51
Chairman`s Comment on Preliminary Results
Donald Gordon, Chairman of Liberty International, commented:
`2004 ranks as one of Liberty International`s most active and successful years
since its incorporation 25 years ago in 1980, with strong financial results and
the completion of a record number of important projects and transactions which
have considerably enhanced the positive momentum of the business. We have
developed a powerful market position in the UK regional shopping centre
industry and are determined to extend our excellent track record of growth.
I am highly confident in Liberty International`s exceptional long-term
prospects given the quality of its people, its ongoing leadership, its
irreplaceable physical assets and the exciting prospects and challenges of our
chosen industry in which Liberty International is the prime player in the UK.
It is also extremely gratifying that both the London and Johannesburg stock
markets have reacted positively to the company`s momentum by recording the
highest overall yearly improvement of our share price since our incorporation
in 1980.`
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.
Further Information
Liberty International PLC is today making a presentation to property analysts
in London. The full text of this presentation, which does not form part of the
Preliminary Announcement, is available today on Liberty International PLC`s
website at www.liberty-international.co.uk.
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
DIVIDENDS
The Directors of Liberty International PLC have proposed a final ordinary
dividend per share of 14.1p (2003 - 13.25p) to bring the total ordinary
dividend per share for the year to 26.5p (2003 - 25.0p).
The following are the salient dates for the payment of the final dividend:
22 March 2005 Sterling/Rand exchange rate struck.
4 April 2005 Ordinary shares listed ex-dividend on the JSE Securities
Exchange South Africa.
6 April 2005 Ordinary shares listed ex-dividend on the London Stock
Exchange.
8 April 2005 Record date for final dividend in London and Johannesburg.
21 April 2005 Dividend payment day for shareholders
(Note: Payment to ADR holders will be made on 2 May 2005).
South African shareholders should note that, in accordance with the
requirements of STRATE, the last day to trade cum-dividend will be 1 April
2005. No dematerialisation or rematerialisation of shares will be possible from
4 April to 8 April inclusive.
No transfers between the UK and South African registers may take place from 19
March to 10 April inclusive.
LIBERTY INTERNATIONAL PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004
HIGHLIGHTS
Financial Highlights
Increase 2004 2003
Investment properties
(including share of joint
ventures) at market values 12.0% GBP5,341m GBP4,768m
Shareholders` funds 13.5% GBP3,244m GBP2,859m **
Net debt (including share of
joint ventures) 0.3% GBP1,923m GBP1,917m
Net assets per share (diluted,
adjusted*) 12.3% 1017p 906p
Diluted number of shares (for
NAV) 352.1m 351.8m
Operating profit (including
share of joint ventures) 3.9% GBP245.2m GBP235.9m
Profit before tax including
exceptional items 43.9% GBP158.3m GBP110.0m
Net exceptional profits GBP42.6m GBP5.8m
Profit before tax and
exceptionals 11.0% GBP115.7m GBP104.2m
Earnings per share before
exceptionals (adjusted*) 5.7% 29.02p 27.45p
Earnings per share (unadjusted) 49.8% 39.32p 26.25p
Dividends per ordinary share 6.0% 26.5p 25.0p
Weighted average number of
shares (for EPS) 317.0m 306.9m
* Adjusted for deferred tax relating to capital allowances (see note 13
to preliminary results). Unless otherwise stated, references in the
preliminary results to earnings per share are to earnings per share
before exceptional items (adjusted); and to net assets per share are
to net assets per share (diluted, adjusted).
** Restated for the effect of change of accounting policy in respect of
shares held by an Employee Share Ownership Plan Trust
Notional acquisition costs including stamp duty deducted by the valuers in
arriving at the market values of investment properties amount in aggregate to
GBP170 million (2003 - GBP156 million), equivalent to 48p per Liberty
International share (2003 - 44p). These notional costs assume assets are sold
individually on the open market and take no account of the structures through
which the assets are held. In the case of a going concern and listed company
such as Liberty International, the purchase and sale of shares is the
predominant mode of exchange of value for shareholders rather than the sale of
each underlying individual property. If these notional acquisition costs were
added back, shareholders` funds would increase to GBP3,414 million (2003 -
GBP3,015 million) and net assets per share (diluted, adjusted) would increase
from 1017p (2003 - 906p) to 1065p (2003 - 950p).
Revaluation surplus for the year on completed investment properties
Revaluation surplus
Market Value Year ended
31 December 2004 31 December 2004
GBPm GBPm
UK regional shopping centres 4,310 247 6.1%
US regional shopping centres and other retail 195 18 10.3%
Central London retail and offices 355 30 9.1%
Retail outside London 185 31 19.9%
Business space outside London 170 15 9.7%
US other commercial 47 2 5.4%
Completed investment properties 5,262 343 7.0%
- Regional shopping centres amount to 82 per cent of aggregate investment
properties and retail overall amounts to 92 per cent (2003 - 90 per cent)
Acquisitions and additions
- GBP221 million of investment property acquisitions:
GBPm
Eldon Square, Newcastle (interest increased from 30% to 45%) 45
Potteries, Stoke-on-Trent (interest increased from 50% to 100%) 128
Plaza Escuela and others, USA 48
221
- Aggregate investment property additions, including development expenditure,
amounted to GBP321 million in 2004.
Development programme
- GBP30 million Lakeside, Thurrock, refurbishment and enhancement completed in
July 2004 on time and to budget with beneficial impact on trading
- GBP85 million MetroCentre, Gateshead, Red Mall extension opened fully let in
October 2004, restoring MetroCentre as Europe`s largest covered shopping centre
at 1.8 million sq.ft.
- 510,000 sq.ft. Chapelfield, Norwich, development scheduled for Autumn 2005
opening with lettings agreed or solicitors instructed for 82 per cent of
anticipated income. Project cost to CSC excluding residential element estimated
at GBP260 million (of which GBP219 million remains to be paid)
- Aggregate development programme of GBP1.3 billion, of which GBP350 million is
committed, divided between regional shopping centres (GBP1,150 million) and
other retail and commercial (GBP150 million)
- The programme includes major new regional shopping centre developments in
Norwich, Cardiff and Oxford, together with Braehead (Phase 2) and substantial
extensions to and additional investment in Eldon Square, Newcastle; The
Harlequin, Watford, and other existing centres
- Other retail and commercial development programme includes King`s Reach,
Southwark, and 190 Strand, London
Disposals
- GBP285 million disposals of non-core assets:
Disposal Exceptional
proceeds profits
GBPm GBPm
Investment in Great Portland Estates 148.4 26.8
UK investment properties 71.0 11.5
USA - Ghirardelli Square 23.5 5.5
Other investments 41.7 2.2
284.6 46.0
Financial Strength
- Debt to assets ratio reduced from 39 per cent to 36 per cent with aggregate
net borrowings virtually unchanged at GBP1.92 billion
- Cash balances of GBP438 million and committed facilities of GBP675 million,
representing over GBP1.1 billion of available financial resources
Financial Record
- Total return (increase in net asset value plus dividends) of 15.2 per cent
in 2004
- Compound total return over past decade of 15.9 per cent per annum
- The annual dividend has increased by a multiple of almost 6 times over 20
years from 4.55p per share in 1984 to 26.5p per share in 2004, with an unbroken
growth record each year for the past decade.
Notes for Editors - Company Background
Liberty International is a major UK FTSE-100 listed property company, with
shareholders` funds of GBP3.25 billion and property investments of over GBP5.3
billion, of which regional shopping centres amount to over 80 per cent.
The company is engaged in three principal activities:
Capital Shopping Centres (`CSC`), the leading company in the UK regional
shopping centre industry, owning Lakeside, Thurrock; MetroCentre,
Gateshead; Braehead, Renfrew, Glasgow; and six major in-town regional
centres. CSC has a substantial development programme, involving both new
centres, in Norwich, Cardiff and Oxford, and extensions to existing
centres;
Capital & Counties, a successful retail and commercial property business,
increasingly concentrated in Central London, the south-east of England and
California, USA; and
Investment activities, where Liberty International looks to use the
substantial capital resources at its disposal to access profitable real
estate-related financial market opportunities.
Liberty International aims to produce outstanding long-term returns for
shareholders, through capital and income growth, with a relatively full
dividend distribution policy from recurring income.
The group focusses on premier property assets, particularly shopping centres
and other retail, which have high potential, scarcity value and require active
management and creativity.
SUMMARY OF INVESTMENT PROPERTY VALUATIONS
31 December 2004
True equivalent Market
yield(1) Value
% % GBP`m
Lakeside, Thurrock 5.37% (5.40%) 1,075.2
MetroCentre, Gateshead 5.43% (5.74%) 875.0
Braehead, Glasgow 5.68% (5.75%) 580.6
Other M25 centres 5.57% (5.88%) 899.3
Other centres 6.03% (6.26%) 774.9
Other properties 6.95% (7.35%) 105.2
UK regional shopping centres 5.62% (5.82%) 4,310.2
US regional shopping
centres and other retail 194.9
UK other commercial properties:
Central London retail and offices 6.94% (7.23%) 354.8
Retail outside London 6.60% (6.84%) 184.4
Business space outside London 7.40% (7.79%) 169.9
US other commercial properties 47.6
5,261.8
UK regional shopping
centre developments 58.5
Other developments 21.0
Total investment properties 5,341.3
Held through joint ventures (2) (28.4)
Group investment properties 5,312.9
Revaluation
surplus
GBP`m %
Lakeside, Thurrock 76.1 7.6%
MetroCentre, Gateshead 17.8 2.1%
Braehead, Glasgow 42.5 7.9%
Other M25 centres 55.1 6.5%
Other centres 49.8 6.9%
Other properties 6.0 6.0%
UK regional shopping centres 247.3 6.1%
US regional shopping
centres and other retail 18.1 10.3%
UK other commercial properties:
Central London retail and offices 29.7 9.1%
Retail outside London 30.6 19.9%
Business space outside London 15.0 9.7%
US other commercial properties 2.5 5.4%
343.2 7.0%
UK regional shopping
centre developments
Other developments
Total investment properties
Held through joint ventures
Group investment properties
31 December 2003
Market True equivalent
Value yield(1)
GBP`m % %
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 retail and offices 327.1 7.88% (8.33%)
Retail outside London 131.6 7.64% (7.90%)
Business space outside London 204.6 8.35% (8.85%)
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)
Group investment properties 4,625.2
(1) Yield to a purchaser of the assets individually at Market Value after
taking account of notional acquisition costs.
The figure in brackets represents the yield earned by Liberty International on
the asset at Market Value.
(2) Includes GBP5.8 million regional shopping centres and GBP22.6 million other
commercial properties (31 December 2003 GBP122.8 million and GBP19.9 million
respectively).
SUMMARY OF CAPITAL & COUNTIES COMPLETED INVESTMENT PROPERTY
VALUATIONS
Year ended
31 December 2004
Net
Number property Market
of income Value
properties GBP`m GBP`m
Central London retail and offices 21 26.5 354.8
Retail outside London 7 10.4 184.4
Business space outside London 15 13.1 169.9
Total United Kingdom 43 50.0 709.1
investment properties
United States(1) 10 14.9 242.5
Total completed investment properties 53 64.9 951.6
Revaluation
surplus
GBP`m
Central London retail and offices 29.7 9.1%
Retail outside London 30.6 19.9%
Business space outside London 15.0 9.7%
Total United Kingdom 75.3 11.9%
investment properties 20.6 9.3%
United States(1)
Total completed investment properties 95.9 11.2%
Year ended
31 December 2003
Net
property Market
income Value
GBP`m GBP`m
Central London retail and offices 24.6 327.1
Retail outside London 8.5 131.6
Business space outside London 14.1 204.6
Total United Kingdom 47.2 663.3
investment properties
United States(1) 15.8 201.2
Total completed investment properties 63.0 864.5
(1) Includes GBP0.9 million net property income and GBP9.1 million Market Value
(2003 - GBP1.6 million and GBP9.8 million respectively) in respect of
properties owned through joint ventures.
Properties by use: 31 December 2004
Retail Offices Total
GBP`m GBP`m GBP`m
Central London retail and offices 152.9 201.9 354.8
Retail outside London 184.4 - 184.4
Business space outside London - 169.9 169.9
Total United Kingdom investment properties 337.3 371.8 709.1
United States 194.9 47.6 242.5
Total completed investment properties 532.2 419.4 951.6
Developments 5.4 15.6 21.0
Total investment properties 537.6 435.0 972.6
Held through joint ventures - (22.6) (22.6)
Group investment properties 537.6 412.4 950.0
Properties by use: 31 December 2003
Retail Offices Total
GBP`m GBP`m GBP`m
Central London retail and offices 128.0 199.1 327.1
Retail outside London 131.6 - 131.6
Business space outside London 21.1 183.5 204.6
280.7 382.6 663.3
Total United Kingdom investment properties
United States 164.8 36.4 201.2
Total completed investment properties 445.5 419.0 864.5
Developments - 20.3 20.3
Total investment properties 445.5 439.3 884.8
Held through joint ventures - (19.9) (19.9)
Group investment properties 445.5 419.4 864.9
Chairman`s Statement and Review of Operations
Introduction
2004 ranks as one of Liberty International`s most active and successful years
since its incorporation 25 years ago in 1980, with strong financial results and
the completion of a record number of important projects and transactions which
have considerably enhanced the positive momentum of the business.
In terms of underlying revenue performance, we have reported a further year of
consistent growth with an 11 per cent increase in profit before tax and
exceptionals to GBP115.7 million and an improvement in adjusted earnings per
share of 6 per cent to 29p per share.
In terms of business activity, we invested over GBP220 million in strategic
acquisitions, particularly by way of increasing our percentage interests in
Eldon Square, Newcastle, and The Potteries, Stoke-on-Trent, two of our existing
centres, each with considerable expansion potential. We also completed
significant development and upgrading projects at our two largest shopping
centres, Lakeside, Thurrock, and MetroCentre, Gateshead. Overall, we made
considerable headway with our promising development programme, now amounting to
around GBP1.3 billion, focussed primarily on new and existing regional shopping
centres.
Furthermore, we took advantage of favourable property market conditions to
raise GBP285 million from disposals of non-core assets, realising a substantial
GBP46 million aggregate surplus over book value. Overall profit for the year
before tax, including these surpluses as exceptional profits, amounted to
GBP158.3 million.
Our financial position strengthened considerably, with the debt to assets ratio
now reduced to 36 per cent, a level giving ample scope for business expansion,
while our debt structure was improved by several favourable refinancing
transactions. We ended the year with cash balances of GBP438 million and
committed long-term facilities of GBP675 million, representing over GBP1.1
billion of available financial resources.
Finally, we have reported an overall revaluation surplus on our completed
investment properties of GBP343 million (7.0 per cent) increasing our adjusted
net asset value by 12.3 per cent from 906p to 1017p per share, giving a total
return for the year of 15.2 per cent.
To the above adjusted net asset value per share of 1017p should be added a
further 48p per share, reversing the deduction made by the valuers of notional
purchasers` costs of GBP170 million. This deduction is not in our view valid
for a going concern structure such as Liberty International, a listed property
company, where purchase and sale of shares is the predominant mode of exchange
of value for shareholders rather than sale of each underlying individual
property incurring transfer costs.
Dividends
The directors are recommending a final ordinary dividend of 14.1p per share
payable on 21 April 2005, bringing the full year`s dividend to 26.5p per share,
an increase of 6 per cent on 2004, continuing our unbroken track record over
the last decade of annual dividend improvement. The Board of directors remains
committed to a progressive and relatively full dividend policy which it
believes represents a major attraction to long-term investors. Our annual
dividend has increased by a multiple of almost 6 times over 20 years from 4.55p
per share in 1984 to 26.5p per share in 2004.
Strategy
We concentrate through Capital Shopping Centres (`CSC`) on premier regional
shopping centres, where we have a unique market position in the UK with nine
completed centres in total, six of which rank in the UK`s top eighteen. We also
have a further three centres at the development stage with a number of other
projects under consideration. This business, which represented over 80 per cent
of investment properties at 31 December 2004, is complemented by the other
retail and commercial activities of Capital & Counties in the UK and USA, and,
from time to time when suitable opportunities emerge, by related investment
activities. Retail overall represented 92 per cent of investment properties at
31 December 2004 compared with 90 per cent a year ago.
Our regional shopping centre business continued to deliver the stable and
consistent investment performance which makes the asset class attractive to
long-term investors, while our non-shopping centre activities, with investment
and trading properties passing the GBP1 billion mark, had a particularly
successful year.
Our chosen strategy has proven its merit over the last decade by delivering a
compound total return in terms of increase in net asset value plus dividend of
around 16 per cent per annum, with capital appreciation providing the
substantial part of the overall return.
Liberty International has a number of unique strengths:
- prime regional shopping centres seldom change hands in transparent open
market situations and it is our belief that the valuation approach, as
described under Property Valuations below, has resulted in market valuations
which, when compared with other retail asset classes, would imply an unduly
conservative net asset value per share
- an increasingly difficult UK planning environment increasing the scarcity
value and investment attraction of our regional shopping centres
- a portfolio value substantially above the market value of the constituent
individual assets, given the virtual impossibility of assembling such
irreplaceable assets individually on the open market
- a balance between out-of-town centres (Lakeside, MetroCentre and Braehead)
and city centre projects, all in major regional destinations
- a wide geographic spread across the UK including major UK cities such as
Glasgow, Newcastle and Nottingham as well as locations in London and the
South East of England
- an absolute commitment to quality which in our view underpins superior rental
income growth prospects from long-term lease structures, typically with 10 or
15 year leases containing rent reviews every five years. The attractiveness of
the assets to retailers and shoppers, enhanced by our active management
approach and capital investment programme, ensures they are very defensive and
resilient in more difficult market conditions
- regional shopping centres with very limited fragmentation in ownership,
enabling effective management control to be exercised. Following a number of
transactions in recent years to acquire partners` interests, including two such
transactions in 2004, we own 90 per cent or more of seven of our nine completed
centres. Of our developments, Chapelfield, Norwich will be 100 per cent owned,
while St Davids 2, Cardiff, and Westgate, Oxford, are 50:50 joint ventures, a
pragmatic structure with which we are entirely familiar
- assets of an individual size sufficient to access substantial scale
advantages in debt markets. As evidenced by the Lakeside transaction in 2004
and the MetroCentre transaction in early 2005, we can obtain overall borrowing
terms which are considerably superior to those available to owners of smaller
commercial assets or assets with fragmented ownership
- strong and extensive relationships with key retailers, aided by our extensive
use of turnover-related leases which create a common interest in the success of
our centres. These relationships give us access to development opportunities,
enhance our understanding of the business and provide insights which enable us
to better judge investment and development opportunities and effectively manage
their risks
- a business of a size where we can create economies of scale in procurement
and greater expertise in centre management, leading to lower levels of service
charge to our tenants and better service overall
- a substantial development programme of GBP1.3 billion predominantly focussed
on regional shopping centres which should bring meaningful benefits to
shareholders as projects are completed. This programme largely concentrates on
extensions of existing prime retail locations and therefore has an attractive
risk profile and is of a size appropriate to maintain Liberty International`s
measured growth approach
- a financial position which enables the company to pursue acquisition
opportunities, particularly where these fit in with our strategic ambitions to
strengthen our market leadership in the UK regional shopping centre industry
- a successful but often under-recognised retail and commercial business in
Capital & Counties, including a predominantly regional shopping centre and
retail business in California, which is complementary to our UK shopping centre
business and has produced excellent returns for shareholders
- a level of intellectual capital, experience and management skills within the
organisation which ensures that the business as a whole is worth more than the
market value of its individual assets
Property valuations
Of the overall GBP343 million (7.0 per cent) property revaluation surplus,
CSC`s completed regional shopping centres contributed GBP247 million (6.1 per
cent), increasing in market value to an aggregate GBP4.3 billion, while the
completed investment properties of Capital & Counties appreciated this year by
an exceptional GBP96 million (11.2 per cent) to GBP952 million.
CSC`s valuation increase was some two-thirds the result of a downward shift in
equivalent yields applied by our valuers from 5.83 per cent to 5.62 per cent.
Prime regional shopping centres such as ours now represent demonstrably
better value than other retail asset classes which surprisingly benefited
from a more pronounced yield shift in 2004. The balance of one-third of
CSC`s valuation surplus for the year, some GBP86 million, was attributable
to an increase in rental values, mostly in the second half year.
The table set out below, based on figures supplied by one of our valuers, CB
Richard Ellis, illustrates representative yields for the different retail asset
classes at the beginning and end of 2004, showing the yield reductions in the
year and the illustrative capital appreciation in 2004 due to shift in yield:
Nominal Equivalent yield
31 December 31 December
2003 2004
% %
Prime High Street Shops 5.0 4.5
Prime Retail Warehouses 5.75 5.0
Prime Shopping Centres 5.75 5.5
Secondary Shopping Centres 7.0 6.25
(Source: CB Richard Ellis)
Illustrative
Yield capital
reduction appreciation in
in 2004 2004 due to
% yield shift
Prime High Street Shops (0.5) 11.1%
Prime Retail Warehouses (0.75) 15.0%
Prime Shopping Centres (0.25) 4.5%
Secondary Shopping Centres (0.75) 12.0%
(Source: CB Richard Ellis)
Prime shopping centres, which in our view have superior rental income growth
prospects, anomalously yield more than prime high street shops and retail
warehouses according to the above table as at the end of 2004. Secondary
shopping centres, which carry much greater risks and volatility, yield only
0.75 per cent more than prime shopping centres at the end of 2004, a margin
which has narrowed significantly in recent years.
In fact, if Liberty International`s shopping centres were valued in line with
prime high street shops at a nominal equivalent yield of 4.5 per cent, our net
asset value would increase by some GBP970 million (approximately 275p per
Liberty International share).
Capital & Counties` UK investment properties increased in value by GBP75
million (11.9 per cent overall) to GBP709 million. The retail properties
outside London increased by nearly 20 per cent, while Central London
investments and Business Space outside London both showed strong gains of over
9 per cent. Overall true equivalent yield for Capital & Counties` UK properties
fell from 7.97 per cent at December 2003 to a still attractive 6.94 per cent at
December 2004.
The US investments of Capital & Counties performed similarly well with an
overall increase of GBP21 million to GBP243 million, amounting to 9.2 per cent
for the year or 11.5 per cent if assets purchased close to the year end are
excluded. As in 2003, the Serramonte shopping centre was an outstanding
performer, increasing in value by 14 per cent.
Net asset value per share
As we have previously advised shareholders of Liberty International, they
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 only pay 0.5 per cent stamp duty plus
brokerage on the share transaction, rather than the full purchasers` costs of
acquiring the assets individually in the property market (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). These notional
purchasers` costs were some GBP170 million in aggregate at 31 December 2004
and, if added back, would increase the net asset value by that amount,
equivalent to 48p per Liberty International share, and would increase overall
net asset value per share to 1065p.
The market values reported at 31 December 2004, as was the case with those
reported at 31 December 2003, subtracted these notional purchasers` costs, in
line with the RICS Appraisal and Valuation Standards which became mandatory
from 1 May 2003.
These Standards need urgent review as, in our view, these notional costs should
not be relevant or taken into account as Liberty International is a going
concern and has not earmarked its investment properties for disposal.
Furthermore, the Standards give no recognition to the structures through which
the assets are held which would substantially reduce the notional costs on a
genuine disposal.
Financial position
We have always regarded the maintenance of financial strength as a
pre-requisite for success in the property business and our financial ratios at
31 December 2004 are exceptionally robust.
We are favourably placed to pursue our substantial GBP1.3 billion development
programme which represents an important source of future growth and brings the
prospect of delivering superior performance for shareholders from the extra
returns which well-judged development should bring.
Opportunistic acquisitions also represent an important source of added value
and sustain the momentum of the business. Experience has demonstrated to us
that a strong financial position with substantial liquidity often enables us to
take advantage of investment opportunities on attractive terms as vendors
prefer to deal with parties who have a track record of delivery and who can
undertake transactions swiftly without needing any financing condition.
Notwithstanding the scale of our development programme, our financial position
is such that we do not feel constrained from pursuing other opportunities where
these fit our strategy of measured expansion in our chosen property market
sectors.
Financing transactions
The attached Financial Review sets out in detail some of the major financing
exercises which the group has undertaken recently, particularly the GBP650
million refinancing of Lakeside in 2004 and the GBP600 million refinancing of
MetroCentre which has been launched and completed since the year end.
The substantial expansion of the commercial mortgage-backed securities (CMBS)
market in the UK is proving a major benefit to Liberty International. Given the
size and quality of our major assets, we can now access large sums of debt
finance on extremely favourable margins from bond markets by creating
asset-specific structures with debt instruments rated by external rating
agencies. We estimate that the Lakeside and MetroCentre refinancing
transactions will reduce our annual interest expense by some GBP6 million,
confirming the decision we took some years ago to focus primarily on
asset-specific non-recourse debt finance rather than corporate unsecured debt
which now plays only a small part in our debt structure. In essence, the
increasing liquidity in structured debt markets and consequential spread
compression has created an additional source of value for owners of large and
high quality assets such as Liberty International.
Capital Shopping Centres
2004 has proved to be another active year for Capital Shopping Centres (`CSC`).
We completed the refurbishment at Lakeside in July and the Red Mall extension
of MetroCentre opened for trading in October. Towards the end of the year, we
took advantage of opportunities to increase our interest in Eldon Square,
Newcastle, from 30 per cent to 45 per cent and in The Potteries, Stoke-on-Trent
from 50 per cent to a full 100 per cent ownership.
During 2004, our major shopping centres have continued to demonstrate their
undoubted quality by the high levels of interest from retailers and support
from shoppers. Through our active approach to management, we constantly refine
the tenant mix in our centres to maintain their appeal to shoppers by providing
the most attractive retail offer in a vibrant environment. During the year we
have made 87 tenancy changes, producing additional annual rental income of some
GBP3.3 million. The success of our management approach is demonstrated by the
very low levels of voids, 11 shop units out of an aggregate of 1443 shops at
the year end, an occupancy level of over 99 per cent.
The like-for-like growth in rental income in our centres in 2004 was GBP4.1
million, 2.3 per cent, in line with expectations in a year when a relatively
small proportion of CSC`s income benefited from rent reviews. However, income
over the next few years is expected to benefit strongly from major rent review
cycles. The first reviews since Braehead, Renfrew, Glasgow opened in 1999 are
now being settled and further cycles commence in 2005 at Lakeside, Thurrock
and, for the first time since opening, at The Chimes, Uxbridge. In 2006, rent
reviews will focus on MetroCentre.
The trading climate for retailing during the first half of 2004 was generally
favourable.
Rising interest rates and the correction in the UK housing market inevitably
had an effect on consumer spending which resulted in a lower increase in retail
sales for the second six months. Our centres have maintained their market
position with both Lakeside and MetroCentre benefiting from the capital
investment referred to below while the more recently opened centres, Braehead
and The Chimes, Uxbridge, continued to trade strongly.
Development activities in respect of completed shopping centres
A major focus for management is to strengthen our existing prime regional
shopping centres by implementing refreshment, remodelling and expansion schemes
to meet the ever-changing needs of retailers.
At Lakeside, Thurrock, we completed the remodelling, refurbishment and
modernisation works on programme and on budget at the beginning of July 2004,
with a highly favourable response from shoppers and retailers. These
improvements have encouraged many retailers to refit their shops, with an
increase in demand from retailers who do not have a presence in the centre and
from existing retailers wishing to expand. As an example, an 18,600 sq.ft.
extension to increase the size of the Next store to 63,000 sq.ft., has
commenced and is due to be completed in time for the enlarged store to be
trading before Christmas 2005. Importantly, this increase in retailer demand is
being reflected in higher levels of rental value being obtained on new
lettings. Also, Thurrock Council have resolved to grant planning consent to
remodel and extend the Pavilion building to improve the catering in Lakeside by
providing 42,000 sq.ft. of new restaurants, of which 72 per cent is under
offer.
We opened the major extension to MetroCentre, Gateshead, providing a new
department store for Debenhams, 28 new shop units, an 1100 space car park and a
new bus station, on time, on budget and fully let at the beginning of October
2004. The project restored MetroCentre`s position as Europe`s largest covered
shopping centre at 1.8 million sq.ft., adding significantly to the retail offer
on both trading levels. The space has attracted an excellent selection of
retailers including Debenhams, Zara, ennes, River Island, French Connection,
New Look and the first Bershka store in the UK. Generally retailers are
reporting sales in excess of their initial budgets.
At Braehead, Renfrew, Glasgow, the Phase 2 development, comprising some 165
acres of land, is now gathering pace. We sold 11 acres for residential
development in the first half year recording a substantial trading profit of
GBP6 million. In October, the 460,000 sq.ft. construction of the Xscape Leisure
scheme, a joint venture with Capital & Regional Plc, which will include an
indoor ski-slope, cinema, bowling, restaurants, cafes and speciality retail,
commenced on site. We are continuing to pursue other sales of land for more
residential and business space.
At Eldon Square, Newcastle, planning consent has been granted for three
separate projects to expand and renovate the centre, in total amounting to
468,000 sq.ft. of retail space including a new 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 1.25 million sq.ft. of space,
ranking it amongst the UK`s largest city- centre regional shopping centres.
In Watford, we have completed a preliminary agreement with Watford Borough
Council with the intention that CSC will in due course develop a mixed-use
scheme of up to 600,000 sq.ft. including the redevelopment of Charter Place, an
older style 1970`s shopping centre owned by the Council which adjoins our major
regional shopping centre, The Harlequin, and other high street properties we
already own. The Council continues to work on a planning brief for the area
which is expected to be completed during the first half of 2005. The proposals
when implemented will substantially enhance Watford as a destination in the
regional retail hierarchy.
At The Victoria Centre, Nottingham, we have commenced construction of a 40,000
sq.ft. remodelling project creating an additional 31,600 sq.ft. of prime retail
space from available indoor market space. Terms have been agreed to pre-let the
whole of the new space of 40,000 sq.ft. In addition, further opportunities are
being explored to add additional retail space subject to planning consent.
At The Glades, Bromley, where we recently purchased properties in the high
street adjoining the main entrance to the shopping centre, plans to incorporate
these properties to provide some 38,000 sq.ft. of new retail space have been
finalised and a planning application has been submitted.
During 2004, we made two strategic acquisitions of sites adjoining The
Potteries, Stoke-on-Trent, which will provide an opportunity for a proposed
major extension to meet unsatisfied retailer demand in this 561,000 sq.ft.
regional centre, where we have now obtained full 100 per cent ownership.
Progress on new projects
The development of the 510,000 sq.ft. Chapelfield shopping centre, Norwich,
where CSC will become the owner on completion, continues to be progressed by
Lend Lease Europe for completion in the Autumn of 2005. Anchored by House of
Fraser, an excellent line up of retailers has been secured with Lend Lease
reporting that they have let or instructed solicitors on 89 per cent of the
space, representing 82 per cent of anticipated income. CSC`s estimated cost for
the centre, excluding the residential element, is around GBP260 million of
which GBP219 million remains to be paid.
In Cardiff, the St David`s Partnership, our joint venture with Land Securities
Group PLC, continues to progress the detailed design of the proposed 850,000
sq.ft. retail-led mixed-use extension to the existing St David`s shopping
centre in the heart of the City.
We have agreed terms with The John Lewis Partnership to occupy a new department
store in the extended scheme which will rank on completion as one of the
largest UK regional shopping centres.
Our joint venture with LaSalle Investment Management to expand and upgrade the
Westgate shopping centre, Oxford continues to make progress. A master planning
exercise has been finalised following an extensive period of consultation and
this has been well received by the public, third parties and both the City and
County Councils.
The next step is to finalise discussions with interested parties on transport
issues, which are being considered in the context of a wider joint initiative
to regenerate a larger area, encompassing the entire western part of the City
of Oxford. Our proposals for Oxford also include a department store for The
John Lewis Partnership.
Capital & Counties
2004 has been a year of excellent performance for Capital & Counties, both in
the UK and the USA. Buoyant investment market conditions coupled with active
asset management have combined to deliver a very attractive total return on
capital employed within Capital & Counties and the revaluation surplus this
year of GBP96 million increased property assets including development and
trading properties to over GBP1 billion.
UK
Tenant interest in our Central London office properties, primarily located in
the West End and Mid-Town, has markedly improved over the last 12 months and
rental levels are showing signs of returning to a growth pattern. The
performance of retail properties outside London, which rose in value by nearly
20 per cent, was substantially helped by active management, particularly of our
retail parks. The valuers estimate the rental value of Capital & Counties`
investment properties to be GBP6 million in excess of passing rents.
We took advantage of the strong investment market conditions in 2004 to sell
four non-core office properties, in particular Imperial Place, Borehamwood,
Hertfordshire, realising a total of GBP68 million, GBP11.5 million in excess of
the market values at 31 December 2003.
Central London offices and retail
(GBP355 million market value)
Activity returned to the West End office letting market in 2004 with a
noticeable improvement in demand and take-up. We have as a consequence been
successful in letting vacant space in Kensington High Street, Regent Street and
Piccadilly. In our core West End and Mid-Town office properties, space
available to let currently represents 1.9 per cent by area of the total
accommodation. A further 2.9 per cent is undergoing refurbishment. We continue
the policy of upgrading common areas to reflect the increasing expectations of
occupiers and to maximise achievable rents.
Retail space remains fully occupied.
The scheme for the refurbishment and redevelopment of the Kings Reach complex
was finalised in 2004 and a planning application will be made in February 2005.
If consented the new scheme will provide 350,000 sq.ft. of new offices (a 40
per cent increase over the existing building) and 30,000 sq.ft. of new retail
space. A start on site could be made in 2007 and a pre-letting campaign is
likely to commence during 2005.
Retail outside London
(GBP184 million market value)
The retail investments have performed outstandingly well in 2004. The benefits
of our active approach were particularly evident at the retail warehouse parks
at Stafford and Braintree where lease buy-backs have enabled strategic
reletting to higher quality retailers together with evidence for increased
rental value. Further opportunities continue to be realised to improve these
assets in both physical and tenant-mix terms.
At Swansea, an extension of part of our holding on the prime pitch of Oxford
Street was completed in order to provide larger retail units, all of which have
been successfully let to a quality range of new tenants. We are now exploring
other opportunities to increase the retail offer in Swansea`s City Centre.
At Ilford in Essex we continue to work with the London Borough of Redbridge and
Countryside Properties in progressing the 400,000 sq.ft. town centre
regeneration scheme.
Business space outside London
(GBP170 million market value, including Capital Enterprise Centres)
As the group`s retail focus has increased, offices outside London have become
progressively non-core and we were pleased to make the substantial disposals
referred to above in 2004.
Significant marketing effort at Capital Park, Cambridge during 2004 has
resulted in the letting of all the remaining vacant office space. This 160,000
sq.ft. office park is now fully occupied and we are contemplating the
development of a further 40,000 sq.ft. on the remaining undeveloped land.
Encouragingly, in the case of our other recent development, Capital Court,
Uxbridge, further lettings of 10,000 sq.ft. have been achieved, with interest
in the majority of the 14,000 sq.ft. of offices remaining to be let.
Four Capital Enterprise Centres` locations with a total of 175,000 sq.ft. of
business space are now open and trading successfully with construction of the
fifth, in Milton Keynes, expected to commence in the first quarter of 2005.
Occupier demand at Chelmsford has been exceptionally strong and terms are
agreed for the purchase of additional land to extend the centre by 50 per cent
to 55,000 sq.ft.
United States
2004 was also an excellent year for our US company, focussed on California. The
Serramonte Center, our flagship regional shopping centre in Daly City, San
Francisco, continues to trade strongly, with tenants` turnover increased in
dollar terms by 7 per cent in 2004. For the first time, total property assets
in the US exceed $500 million.
The sale of Ghirardelli Square in San Francisco raised $45 million in the first
half year and produced an exceptional profit of $10 million. The $95 million
refinancing of the Serramonte Center (reducing the interest rate from 6.9 to
4.8 per cent) raised $31 million of further funds. These transactions enabled
the company to make acquisitions with a potentially attractive return profile.
Plaza Escuela, a 154,000 sq.ft. open shopping centre in the affluent community
of Walnut Creek, Contra Costa County, and a 75,000 sq.ft. medical office
complex at Danville were acquired for $72.5 million and $20 million
respectively. In addition, a 42 acre retail development site has been acquired
at a nearby East Bay location, Antioch.
Economic and financial background and the UK property market
2004 was a year of relative stability in financial markets, with the exception
of some commodity sectors such as oil where sizeable price rises generated some
inflationary concerns. In equity markets, the FTSE-100 Index and the US
Standard & Poors 500 Index rose by 7.5 per cent and 9 per cent respectively.
While short term interest rates rose, with UK base rate increasing from 3.75 to
4.75 per cent and the US Fed Funds rate increasing from 1.0 to 2.25 per cent
(increasing in 2005 to 2.5 per cent), longer term fixed interest markets were
little affected, with the yield on the UK 10 year gilt declining from 4.8 to
4.5 per cent and the 10 year US treasury remaining virtually unchanged at 4.2
per cent. The US dollar declined against sterling from $1.78 to $1.92,
reflecting financial market concerns about the size of the US trade and budget
deficits.
Although UK GDP growth in 2004 has been estimated at around 3 per cent, very
much in line with its long run average of some forty years or more, the
immediate outlook for consumer spending looks more challenging than over the
last few years. We are reassured by the fact that prime regional shopping
centres have historically demonstrated their resilience and stability when
market conditions are more difficult.
2004 was another strong year for property returns in the UK with the IPD UK
Monthly Index, the widely recognised benchmark for UK property performance,
showing a total return of 19 per cent for the year, substantially outperforming
UK equities and gilts.
Over the last decade, according to the same index, UK property has produced a
compound total return of 11.2 per cent, compared with equities which have
produced
8.1 per cent.
Not surprisingly, the continued strong relative performance of property, its
yield advantage and lower volatility have attracted increasing investor
interest, resulting in valuation yields dropping sharply in 2004, as referred
to above under Property Valuations. The All Property equivalent yield reduced
from 7.65 per cent to 6.86 per cent, a substantial move for a single year and a
major factor in the exceptional 2004 total return. Retail property continued to
be the strongest performer of the property asset classes measured by IPD
producing a total return of 21.6 per cent in 2004 compared with offices
producing 13.9 per cent.
While direct property performed strongly in 2004, property shares performed
even better with a 41 per cent rise in the FTSE 350 Real Estate Index, slightly
exceeded by Liberty International as we recorded a 42 per cent increase with
our share price rising from 683p to 971p.
Real Estate Investment Trusts (`REITS`)
The relentless migration by participants in the UK property industry to
offshore tax jurisdictions and indirect vehicles, not least in the face of the
penal and counter- productive 4 per cent stamp duty levy on UK property
transactions, is clearly concentrating the mind of the UK Treasury on the need
for a UK onshore tax- transparent property vehicle in line with other developed
economies. Following last year`s Treasury consultation paper, which received an
unprecedented level of submissions, the indications are that a further Treasury
pronouncement is likely in Spring 2005 which could lead to legislation in time
for the 2006 tax year.
REIT investors worldwide have generally shown a strong preference for
specialist companies rather than generalists. Regional shopping centres have
been one of the asset classes which they have particularly favoured, with major
REITS in the sector in several territories now trading at a significant premium
to underlying net asset value.
Liberty International would represent an attractive REIT. We therefore hope
that the next round of Treasury proposals does not look to impose unnecessary
regulations or tax barriers which would impede the successful evolution of an
onshore REIT sector in the UK.
Chairmanship, Directorate and Management
During 2004, following the two retirements at the Annual General Meeting
referred to in my statement last year, we were pleased to appoint as
non-executive directors Lesley James, CBE, former human resources director of
Tesco who now holds a number of non-executive appointments, and Rob Rowley,
former finance director of Reuters and currently, amongst other appointments,
senior independent non-executive director of Prudential PLC.
In 2005, we have made a further round of appointments. Kay Chaldecott and
Richard Cable, respectively asset management director and development director
of Capital Shopping Centres with 20 and 17 years experience with the group,
have been appointed as executive directors of Liberty International.
As non-executive directors, we have appointed Sir Robert Finch, immediate past
Lord Mayor of London and former head of the property department at leading City
law firm, Linklaters, and Ian Henderson, CBE, former chief executive of the
UK`s largest property company, Land Securities Group PLC.
We look forward to all of the above making a substantial and valuable
contribution to our affairs.
My intention remains to retire as Chairman at the end of June 2005 when I reach
my 75th birthday but I look forward to continuing my association with the
company, in which my family has a substantial 22 per cent shareholding, as the
Board has invited me to accept the appointment of President for Life on my
retirement and to act in an advisory capacity. We anticipate announcing my
successor as Chairman in the second quarter of 2005, sufficiently far in
advance of my retirement to ensure an orderly handover.
I would like to extend my thanks to the management team, my non-executive board
colleagues and the entire staff of Liberty International for their exceptional
efforts and commitment in such an active year when so much has been achieved to
enhance the company`s long-term prospects. Furthermore, I would like to thank
our shareholders, advisers, bankers and other consultants for their continuing
support.
Prospects
24 June 2005 marks Liberty International`s 25th anniversary and I am gratified
to have been involved from the very formation of the company on my 50th
birthday in 1980.
The company has advanced from small beginnings into a major UK FTSE-100
company, with our ranking now in the top 75 companies. Over this period, we
have developed a powerful market position in the UK regional shopping centre
industry and have found that increasing size, far from representing a barrier,
has generated a steady flow of attractive new opportunities to maintain the
company`s momentum.
We are determined to extend our track record of growth, by relentlessly
pursuing, in our chosen property market sectors and within sound financial
parameters, an expansion strategy which has three main elements:
- to increase net property income and thereby profits through appropriate rent
reviews, lettings and active management
- to take advantage of market opportunities for acquisitions where these fit
our overall strategy
- to successfully pursue our development programme to ensure the long-term
growth profile of the business
While my impending retirement at the end of June on my 75th birthday means this
represents my last annual Chairman`s Statement, I can however assure
shareholders that I am highly confident in Liberty International`s exceptional
long-term prospects given the quality of its people, its ongoing leadership,
its irreplaceable physical assets and the exciting prospects and challenges of
our chosen industry in which Liberty International is the prime player in the
UK. It is also extremely gratifying that both the London and Johannesburg stock
markets have reacted positively to the company`s momentum by recording the
highest overall yearly improvement of our share price since our incorporation
in 1980.
Donald Gordon
Chairman
9 February 2005
FINANCIAL REVIEW
MEASUREMENT OF PERFORMANCE
The key performance measure used by Liberty International is total return,
being the growth in net assets per share plus the annual dividend. Growth in
net assets per share is primarily driven by investment property revaluations,
and the dividend derives from the revenue results for the year.
REVENUE RESULTS
Profit on ordinary activities before taxation increased by 44 per cent to
GBP158.3 million from GBP110.0 million. Removing the effect of exceptional
items, profit on ordinary activities before tax and exceptional items increased
by 11 per cent to GBP115.7 million from GBP104.2 million.
Operating profit including joint ventures, a key measure of underlying
performance, increased by over 3.9 per cent to GBP245.2 million from GBP235.9
million. The growth in operating profit reflected both like-for-like rental
growth of GBP7.0 million (2.9 per cent) and GBP1.8 million of rental income
from net additions to investment properties. The contribution within operating
profit from property trading was GBP9.9 million compared to GBP4.5 million for
2003, comprising both rental income from the trading properties and, in 2004,
the profit from the sale of land at Braehead.
The group`s share of operating profit of joint ventures reduced from GBP8.1
million to GBP7.7 million. These amounts principally comprise net rental income
derived from the underlying property investments. The reduction is primarily
due to the largest joint venture, at The Potteries, Stoke-on-Trent, ceasing to
be accounted for as a joint venture during December 2004 following the
acquisition of our partner`s 50 per cent interest.
Investment and other income decreased to GBP8.9 million from GBP10.8 million.
This item largely comprises the dividends received from the investments in
Great Portland Estates, and from the New Star Property Unit Trust, both of
which were disposed of during the period.
Exceptional items, material items which need to be disclosed by virtue of their
size or incidence but are nevertheless included in the results for the period,
have had a significant impact on the presentation and interpretation of the
revenue results in recent years. Exceptional items are, by their nature, likely
to be erratic and changes in the size and nature of exceptional items can
complicate the direct comparison of one period with another.
In the year ended 31 December 2004 the group recorded exceptional profits
before tax of GBP42.6 million, compared to net exceptional profits of GBP5.8
million for 2003.
Exceptional profits in 2004 arose primarily from the disposal of the group`s
investments in Great Portland Estates
