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LBT
LILII
Liberty International Plc - Preliminary report for the year ended 31 December
2005
Liberty International Plc
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILII
PRESS RELEASE
15 February 2006
LIBERTY INTERNATIONAL PLC
PRELIMINARY REPORT FOR THE YEAR ENDED 31 DECEMBER 2005
Attached is the full Preliminary Report for the year ended 31 December 2005:
Pages
Highlights 2-5
Summary of Investment and Development Properties 6-8
Chairman"s Statement 9 - 14
Operating and Financial Review 15 - 30
Preliminary Results 31 - 47
Enquiries:
Liberty International PLC:
Sir Robert Finch Chairman +44 (0)20 7960 1273
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 Capital Shopping Centres ("CSC"), the premier UK
regional shopping centre business, and Capital & Counties, a retail and
commercial property investment and development company concentrating on Central
London, non- shopping centre retail in the UK 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.
Sir Robert Finch, Chairman of Liberty International, commented:
"The impressive 2005 results, my first as Chairman, show that the company
continues to deliver strong growth in earnings and net assets per share,
possesses a very talented management team and has consolidated yet further its
position as the UK"s leading regional shopping centre business. Our total
property assets have now passed GBP7 billion and our GBP1.2 billion development
programme should provide added impetus to the consistent growth of this
outstanding business which, in terms of increase in net assets per share and
dividend, has produced a 19 per cent total return in 2005 and a compound annual
return of over 15 per cent for the last decade."
15 February 2006
A presentation to analysts and investors will take place at 9.30 a.m. on
15 February. The presentation will also be available to international analysts
and investors through a live audio call.
The presentation will be available afterwards on the group"s website
www.liberty-international.co.uk
HIGHLIGHTS (Continued)
Year ended Year ended
31 December 31 December
2005 2004
Restated#
Net rental income + 17% GBP300.1m GBP256.3m
Profit before tax, valuation and
exceptionals* + 13% GBP120.9m GBP107.0m
Profit before tax + 16% GBP526.9m GBP455.1m
Revaluation gains on investment
properties + 58% GBP565m GBP357m
Total properties + 31% GBP7,070m GBP5,409m
Net assets (diluted, adjusted**) + 16% GBP4,180m GBP3,607m
Basic earnings per share + 10% 114.8p 104.8p
Earnings per share (adjusted***) + 10% 29.8p 27.1p
Dividend per ordinary share + 6.6% 28.25p 26.5p
Net assets per share (diluted,
adjusted**) + 16% 1188p 1025p
# Restated for the effect of adopting International Financial Reporting
Standards (`IFRS") (see note 1 to Preliminary Results)
* See Analysis of profit before tax in Financial Review
** Adjusted for deferred tax in respect of revaluation surpluses and
capital allowances, fair value movements on interest rate hedges, net
of tax, and valuation surpluses on trading properties (see Financial
Review), in accordance with UK property industry practice
*** Adjusted for valuation and exceptional items and their tax effect (see
note 14 to Preliminary Results), in accordance with UK property
industry practice
Unless otherwise stated, references to net assets per share are to net
assets per share (diluted, adjusted) and references to earnings per
share are to adjusted earnings per share.
Notional acquisition costs including stamp duty deducted by the valuers in
arriving at the market values of investment properties on the balance sheet
date amount in aggregate to GBP318 million (2004 - GBP170 million), equivalent
to 90p per Liberty International share (2004 - 48p). These notional costs
assume each asset is sold individually on the open market at that date and take
no account of the structures through which the assets are held within the
Liberty International group.
In the case of Liberty International, the purchase and sale of shares is the
predominant mode of exchange of ownership and value for shareholders, not the
sale of each underlying individual property.
If these notional acquisition costs were added back, net assets (diluted,
adjusted) would amount to GBP4,498 million (2004 - GBP3,777 million) and net
assets per share (diluted, adjusted) would amount to 1278p (2004 - 1073p)
compared with the reported figure of 1188p (2004 - 1025p).
HIGHLIGHTS (continued)
A year of major expansion with total properties increased by 31 per cent to
GBP7.1 billion including GBP5.8 billion of UK regional shopping centres
GBP1.1 billion of acquisitions and development expenditure including 3
major regional shopping centres
- Manchester Arndale (joint ownership of 95 per cent)
- The Mall, Cribbs Causeway, Bristol (joint ownership of 66 per cent)
- Chapelfield, Norwich (100 per cent ownership, opened September
2005)
Future development programme of GBP1.2 billion
- St David"s 2, Cardiff
- Westgate, Oxford
- extensions to and upgrades of existing shopping centres
- other retail and commercial assets of Capital & Counties
98.5 per cent occupancy (UK regional shopping centres)
7.7 per cent like-for-like net rental income growth
Record revaluation gain of GBP565 million (2004 - GBP357 million)
Strong financial position with debt to assets ratio of 40 per cent
19 per cent total return for the year (increase in adjusted net asset value
plus dividends)
DIVIDENDS
The Directors of Liberty International PLC have proposed a final ordinary
dividend per share of 15.25p (2004 - 14.1p) to bring the total ordinary
dividend per share for the year to 28.25p (2004 - 26.5p).
The following are the salient dates for the payment of the final dividend:
Monday, 3 April 2006 Sterling/Rand exchange rate struck.
Thursday, 13 April 2006 Ordinary shares listed ex-dividend on the JSE,
Johannesburg.
Wednesday, 19 April 2006 Ordinary shares listed ex-dividend on the London
Stock Exchange.
Friday, 21 April 2006 Record date for final dividend in London and
Johannesburg.
Tuesday, 9 May 2006 Dividend payment day for shareholders
(Note: Payment to ADR holders will be made on
23 May 2006).
South African shareholders should note that, in accordance with the
requirements of STRATE, the last day to trade cum-dividend will be 12 April
2006 and that no dematerialisation or rematerialisation of shares will be
possible from 13 April to 21 April 2006 inclusive.
No transfers between the UK and South African registers may take place from
1 April to 23 April 2006 inclusive.
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES
Market Value
2004 2005
GBPm GBPm
UK Regional Shopping Centres
Lakeside 1,075.2 1,165.3
Braehead 580.6 675.1
Other M25 899.3 989.1
Other Centres 360.5 410.6
Like-for-like income(2) 2,915.6 3,240.1
MetroCentre 875.0 936.0
Other Centres 414.4 494.8
Like-for-like capital(3) 4,205.0 4,670.9
Acquisitions - 1,013.9
Redevelopments(4) 105.2 125.5
Developments 47.2 24.2
Total UK Regional Shopping Centres 4,357.4 5,834.5
Other UK Properties
Like-for-like income (2) 487.2 566.6
Like-for-like capital (3) 7.7 8.9
494.9 575.5
Acquisitions 20.5 42.5
Redevelopments(4) 153.7 153.4
Disposals 40.3 -
Total Other UK Properties 709.4 771.4
US Properties*
Like-for-like income (2) 187.3 241.4
Like-for-like capital (3) 55.2 64.3
242.5 305.7
Acquisitions - 24.7
Developments 0.4 -
Disposals - -
Total US Properties 242.9 330.4
Total Investment Properties(5) 5,309.7 6,936.3
Trading Properties
Net Rental Income
Revaluation surplus
Increase
GBPm Increase ex. DAR(1)
UK Regional Shopping Centres
Lakeside 85.2 7.9% 12.4%
Braehead 95.1 16.4% 21.3%
Other M25 88.3 9.8% 9.8%
Other Centres 43.3 11.8% 11.8%
Like-for-like income(2) 311.9 10.7% 13.2%
MetroCentre 52.6 6.0% 6.0%
Other Centres 15.0 3.1% 6.9%
Like-for-like capital(3) 379.5 8.8% 11.0%
Acquisitions 80.7 8.6% 10.5%
Redevelopments(4) 6.7 5.7% 6.0%
Developments (15.7)
Total UK Regional Shopping Centres 451.4 8.4% 10.4%
Other UK Properties
Like-for-like income (2) 77.4 15.8% 16.4%
Like-for-like capital (3) 1.2 15.2% 15.2%
78.6 15.8% 16.3%
Acquisitions 2.1 5.3% 5.3%
Redevelopments(4) (8.5) (5.5)% (2.7)%
Disposals -
Total Other UK Properties 72.2 10.3% 11.7%
US Properties*
Like-for-like income (2) 28.1 13.2%
Like-for-like capital (3) 1.6 2.6%
29.7 10.8%
Acquisitions 0.1 0.5%
Developments (0.5)
Disposals -
Total US Properties 29.3 9.7%
Total Investment Properties(5) 552.9 8.7% 10.5%
Trading Properties
Net Rental Income
Net rental income
2004 2005 Increase
GBPm GBPm
UK Regional Shopping Centres
Lakeside
Braehead
Other M25
Other Centres
Like-for-like income(2) 129.4 140.5 8.5%
MetroCentre
Other Centres
Like-for-like capital(3) 180.8 206.0 14.0%
Acquisitions - 23.5
Redevelopments(4) 6.6 6.1
Developments - -
Total UK Regional Shopping Centres 187.4 235.6 25.8%
Other UK Properties
Like-for-like income (2) 29.4 30.9 5.2%
Like-for-like capital (3) 0.4 0.6
29.8 31.5 5.8%
Acquisitions - 0.7
Redevelopments(4) 14.5 10.3
Disposals 5.7 1.0
Total Other UK Properties 50.0 43.5 (13.0)%
US Properties*
Like-for-like income (2) 13.4 14.0 5.2%
Like-for-like capital (3) 1.2 3.9
14.6 17.9 23.0%
Acquisitions - 0.1
Developments - -
Disposals 0.3 -
Total US Properties 14.9 18.0 19.0%
Total Investment Properties(5) 252.3 297.1 17.8%
Trading Properties 4.0 3.0
Net Rental Income 256.3 300.1 17.1%
(1) Disadvantaged Area Relief (DAR) from Stamp Duty Land Tax was withdrawn in
March 2005. Percentage valuation increases after adjusting for the effect of
DAR on opening values are shown where applicable.
(2) Like-for-like income - Properties which have been owned throughout both
periods without significant capital expenditure in either period, so both
income and capital values can be compared on a like-for-like basis.
(3) Like-for-like capital - Properties which have been owned throughout the
current period but not the whole of the prior period, without significant
capital expenditure in the current period, so capital values but not income can
be compared on a like-for- like basis.
(4) Redevelopments - Properties which have previously been held as completed
investment properties which may have been owned throughout the period but which
are undergoing, or have been earmarked for, substantial redevelopment such that
capital values or income may have been affected.
(5) Reconciliations of Total Investment Properties and Revaluation Surplus
shown above to the amounts shown on the Balance Sheet and in the Income
Statement are included in notes 7 and 3 respectively to the Preliminary
Results.
* Percentage increases for the US have been adjusted for the effect of exchange
rates.
Property Analysis by Use and Type
Revaluation
Market Value surplus
2004 2005 % of total Increase
GBPm GBPm properties ex DAR
Regional Shopping Centres &
Other Retail
UK Regional Shopping Centres 4,357.4 5,834.5 84.1% 10.4%
UK Other retail 337.3 355.4 5.1% 13.3%
US Regional Shopping Centres 104.2 131.6 1.9% 10.9%
US Other retail 90.8 138.3 2.0% 8.4%
Total Regional Shopping
Centres & Other Retail 4,889.7 6,459.8 93.1% 10.5%
Office
UK Business space 372.1 416.0 6.0% 10.4%
US Business space 47.9 60.5 0.9% 10.2%
Total Office 420.0 476.5 6.9% 10.4%
Total Investment Properties 5,309.7 6,936.3 100% 10.5%
Analysis of Other UK and US Properties by Location and Type
Market Foreign Market
Value exchange Value Revaluation surplus
2004 2005 2005 2005 Increase
GBPm GBPm GBPm GBPm ex DAR
Other UK
Properties
Central London 354.8 400.3 33.5 10.3%
Business space
outside London 170.2 197.2 23.0 13.7%
Retail outside
London 184.4 173.9 15.7 12.8%
Total Other UK
Properties 709.4 771.4 72.2 11.7%
US Properties
US Retail 195.0 23.1 269.9 23.7 9.6%
US Business
space 47.9 5.7 60.5 5.6 10.2%
Total US
Properties 242.9 28.8 330.4 29.3 9.7%
Further definitions:
Acquisitions
Properties acquired during the current period.
Developments
Properties under development and land which have not previously been held as
completed investment properties. Changes in the fair value of developments are
dealt with in reserves rather than in the Income Statement).
Disposals
Properties which have been sold during the period. Net rental income for 2004
also includes income from properties sold in 2004.
UK Investment Property Valuation Data
Market
Value
2005 True equivalent yield
GBPm 2004 2005
UK Regional Shopping Centres
Lakeside 1,165.3 5.37% 5.06%
MetroCentre 936.0 5.43% 5.16%
Braehead 675.1 5.68% 5.25%
Other M25 989.1 5.57% 5.29%
Other Centres 905.4 6.03% 5.56%
Like-for-like capital 4,670.9 5.59% 5.25%
Acquisitions and Redevelopments 1,139.4 5.58%
Developments 24.2
Total UK Regional Shopping Centres 5,834.5 5.31%
Other UK Properties
Central London 288.7 6.30% 5.57%
Business space outside London 147.7 6.78% 6.23%
Retail outside London 139.1 6.66% 5.68%
Like-for-like capital 575.5 6.51% 5.77%
Acquisitions and Redevelopments 195.9 5.76%
Total Other UK properties 771.4 5.76%
Passing Net rental
rent income ERV
2005 2005 2005
GBPm GBPm GBPm
UK Regional Shopping Centres
Lakeside
MetroCentre
Braehead
Other M25
Other Centres
Like-for-like capital 202.4 206.0 249.6
Acquisitions and Redevelopments 33.8 29.6 67.9
Developments
Total UK Regional Shopping Centres 236.2 235.6 317.5
Other UK Properties
Central London
Business space outside London
Retail outside London
Like-for-like capital 32.5 31.5 34.3
Acquisitions and Redevelopments 10.3 12.0 18.2
Total Other UK properties 42.8 43.5 52.5
Definitions:
Like-for-like capital
See page 6
True equivalent yield
Effective annual yield to a purchaser of rent receivable quarterly in advance
from the assets individually at Market Value after taking account of notional
acquisition costs.
Passing rent
The group"s share of contracted annual rents receivable at the balance sheet
date. This takes no account of accounting adjustments made in respect of rent
free periods or tenant incentives, the reclassification of certain lease
payments as finance charges or any irrecoverable costs and expenses, and does
not include excess turnover rent, additional rent in respect of unsettled rent
reviews or sundry income such as from car parks etc. As such passing rent
cannot be directly compared with net rental income shown in the Income
Statement.
Net rental income
The group"s share of net rents receivable in 2005 as shown in the Income
Statement.
ERV (Estimated Rental Value)
The external valuers" estimates of the group"s share of the current annual
market rent of all lettable space.
Turnover rent
Rent partly or wholly linked to tenants" annual sales normally comprising a
minimum or base rent plus excess turnover rent.
CHAIRMAN"S STATEMENT
Introduction
It is with great pleasure that I present the 2005 annual results, my first as
Chairman. They are an outstanding set of results and show that the company
continues to deliver strong growth in earnings and net assets per share,
possesses a very talented management team and has consolidated yet further its
position as the UK"s leading regional shopping centre business.
The legacy bequeathed by Sir Donald Gordon on his retirement from the Board in
the 25th year of Liberty International was substantial and I am indebted to him
for his friendship and assistance in making the transition such a seamless
exercise. The strong continuing links with his family both on the Board and in
South Africa are also hugely welcomed by me. I much look forward to the
challenges ahead and to building on the strong platform left us by Sir Donald.
2005 was another busy and highly successful year with over GBP1 billion of
investment expenditure and, after a record revaluation gain of GBP565
million, an increase in the aggregate value of our property assets of over 30
per cent to GBP7.1 billion. The high level of activity continues into 2006 with
plans for our new projects in Cardiff and Oxford progressing well and our
energetic programme of renewal and remodelling of existing assets continuing
unabated. Our overall GBP1.2 billion development programme should provide added
impetus to the consistent growth of our business.
Results for the year ended 31 December 2005
The 2005 results are the first full year results we have produced in
accordance with International Financial Reporting Standards ("IFRS") and are
fully described in the attached Operating and Financial Review. While the
format may be unfamiliar, the changes in presentation have no impact on the
cash flows of the business or its present strategic direction.
Our underlying revenue profit showed a 13 per cent increase from GBP107 million
to GBP121 million, after extracting from the Income Statement revaluations of
investment properties, the change in fair value of derivative financial
instruments and exceptional items. Solid growth in like-for-like rental income
and the realisation of some healthy trading profits in the second half year
drove this outcome.
Adjusted net asset value per share increased from 1025p to 1188p, a total
return for the year, taking dividends into account, of 19 per cent. The
unexpected withdrawal in the first half of the year of disadvantaged area
relief from stamp duty land tax reduced the total return by some 3.5 per cent.
Net asset value per share would have been further increased by 90p at 31
December 2005 to 1278p if purchasers" costs, primarily stamp duty land tax, had
not been deducted from the valuations as required by the RICS Appraisal and
Valuation Standards. This deduction may seem inappropriate, for we have no
present intention of selling these assets. Furthermore, since the assets were
valued individually, no recognition was given to the premium which could have
been added had the portfolio of shopping centre assets been valued as a whole.
The prime quality of the assets we have assembled in the UK and their strategic
locations, given the planning constraints under which the country operates,
could not easily be emulated.
Looking back over the last decade, our compound annual return of 15.4 per cent
in terms of increase in net assets per share plus dividends has represented an
exceptional outcome for shareholders. Looking forward, our focus on active
management to generate like-for-like rental income growth, alertness to the
acquisition of prime assets and our active development programme to upgrade the
quality of our asset base bode well.
Dividends
The directors are recommending a final ordinary dividend of 15.25p per share
payable on 9 May 2006, bringing the full year"s dividend to 28.25p per share,
an increase of 6.6 per cent on 2004, continuing our unbroken track record over
the last decade of annual dividend improvement. The directors remain committed
to a progressive and relatively full dividend policy which they believe
represents a major attraction for long-term investors.
Valuations
The recent strength of the UK property market, with 2005 another buoyant year
for property valuations, has been caused by a number of factors - considerable
international and institutional demand for product, the substantial drop in
long term interest rates, the comparative safety of UK investment when set
against the rigours and risks of finding investment in developing countries and
the huge pent-up demand particularly from the oil rich nations of the Middle
East. Although this competition for product leads us necessarily to maintain a
cautious stance towards new acquisitions and development opportunities,
nevertheless we remain excited by the prospects for our outstanding business.
Our overall revaluation gain was a record of GBP565 million even after the
quite unexpected withdrawal of disadvantaged area relief from stamp duty. The
underlying surplus represents a valuation increase of 10.5 per cent.
Regional shopping centres owned for more than twelve months contributed a
surplus of GBP380 million (11.0 per cent). A downwards shift in the equivalent
yield applied by the external valuers from 5.59 per cent to 5.25 per cent
provided some two-thirds of this uplift with the balance of one-third coming
from underlying increases in rental value. Particularly strong performers were
Braehead, Renfrew, Glasgow (opened September 1999) and The Chimes, Uxbridge
(opened March 2001), reflecting respectively the achievement and expectation of
uplifts in rental income from the first round of rent reviews since opening.
The GBP1.0 billion regional shopping centre additions in the year also
performed strongly, contributing a surplus of 10.5 per cent before costs. Our
acquisition of 50 per cent of Prudential PLC"s interests in the Manchester
Arndale and the Mall at Cribbs Causeway, Bristol, and associated properties at
an aggregate purchase price of GBP653 million, has proved an excellent
transaction both in financial terms and in strengthening our overall position
in the UK regional shopping centre industry. In September, we opened our newest
centre, Chapelfield, Norwich, where we have taken full freehold ownership for
an overall consideration of GBP263 million. The centre contributed a first time
valuation surplus of GBP34 million.
Our UK regional shopping centre interests, at GBP5.8 billion by market value,
amount to 84 per cent of our total investment properties. One of the investment
attractions of regional shopping centres is their stability, with historical
evidence indicating a lower level of volatility and obsolescence than other
property asset classes. Of course, in a rapidly rising market, the converse is
that other asset classes, temporarily at least, can perform more strongly.
The table set out below, provided by one of our valuers, CB Richard Ellis,
gives illustrative representative yields for the different retail asset classes
over the last three year ends:
Nominal Equivalent yield
31 December 31 December 31 December
2003 2004 2005
% % %
Prime High Street Shops 5.00 4.50 4.00
Prime Retail Warehouses 5.75 5.00 4.25
Prime Shopping Centres 5.75 5.50 5.25
Secondary Shopping Centres 7.00 6.25 5.85
(Source: CB Richard Ellis)
Over the last two years, prime high street shops and retail warehouses, mostly
driven by the greater accessibility of the product to investors, have moved to
a substantial premium rating to prime shopping centres, where evidence from
market transactions is much less readily available; the gap between prime and
secondary shopping centres has also significantly narrowed. By way of
illustration, at 31 December 2005, a rental income stream of GBP4 million would
have been valued (ignoring costs) at GBP100 million for high street shops,
GBP94 million for a retail park but only GBP76 million for a prime shopping
centre. We commented last year that prime regional shopping centres represented
demonstrably good value against the other retail classes; this year, that
conclusion is even more inescapable.
In fact, if Liberty International"s GBP5.8 billion of prime shopping centres
were valued in line with prime high street shops at a nominal equivalent yield
of 4.00 per cent, our net asset value would increase by some GBP1.7 billion
(approximately 485p per Liberty International share).
The business of Capital & Counties, concentrating on London"s West End, non-
shopping centre retail and California, USA, with retail property representing
57 per cent of its assets, has once again delivered a strong total return on
group capital employed. The Capital & Counties approach of combining, within
carefully defined sectors, active management, investment, development and
trading provides the group with greater strategic flexibility and a valuable
complement to the group"s shopping centre activities.
The overall retail and commercial portfolio of Capital & Counties increased to
GBP1.1 billion after a GBP102 million (11.1 per cent) revaluation surplus;
excluding impending redevelopments which had a market value of GBP153 million
at 31 December 2005, the surplus on UK properties amounted to an impressive 16
per cent.
The retail industry
2005 saw the UK economy sluggish with a below trend growth rate of 1.7 per cent.
Retail sales were particularly affected by a range of factors such as weakness
in the UK housing market, and the impact on disposable incomes from higher
prices for fuel and utilities; and higher council and other taxes. The total
value of retail sales was estimated by the Office for National Statistics (ONS)
at GBP249 billion, up 1 per cent on 2004. This compares with growth of 4.6 per
cent in 2004 and, according to ONS, is the lowest annual increase since the
Second World War.
The ONS year-on-year figure for non-food retail sales has been disappointing at
negative 0.6 per cent compared with 2004. However, although subdued, the
running rate of sales growth has improved after a stronger December 2005.
In this environment, retailers have faced many challenges - from price
deflation; the growing range of non-food products sold by the supermarkets; the
ever more demanding consumer; and from the growth of e-tailing. This last
category is of particular interest as established `bricks and mortar" retailers
who have successfully embraced e-tailing have in many cases discovered a
virtuous circle where the e-tail business produces positive benefits for their
in-store business.
We have seen several retail casualties during 2005 but in our centres these
units were absorbed, in the main by expanding UK fashion retailers and new
entrants to the UK retail market in all use categories. We have also seen the
disappearance of some familiar high street names such as Allders, Littlewoods
and Allsports but the market absorbed the majority of these units, mainly
through acquisitions by Primark, New Look and J D Sports.
The winning retailer formats this year have been those with trusted brands, a
strong complementary on-line presence and those who have focused on their core
customers. CSC has been delighted to work closely with such retailers to fulfil
their space requirements.
Retailer demand
The undoubted success of CSC"s centres and their pre-eminent position within
their localities, together with our close working relationships with retailers,
has continued to generate sustained levels of demand for all sizes of well
configured space. We have continued to take advantage of opportunities to
refresh the tenant mix of our centres and respond to retailers" ever-changing
space requirements.
Our prime regional centres can never remain in a static condition. They must
continually evolve to meet consumer needs and retailer demands. Remodelling of
space, upgrading facilities, modernising leisure areas and providing better
restaurant facilities constantly demand our attention, while changes in tenant
mix provide new attractions for our customers. This active approach is
particularly important in the tough trading environment which became evident in
2005. Overall, our occupancy level at CSC continues to be high at 98.5 per
cent.
Property industry issues
2005 saw for the first time the Government"s detailed proposals for the
creation of a UK Real Estate Investment Trust (UK-REIT), a tax transparent
vehicle for holding real estate. Liberty International believes that a thriving
property industry is essential for a successful modern economy - and the UK
property industry should have a vehicle to compete with the REIT models now
well established in the US, Continental Europe and the Far East.
Some of the details of the Government"s proposals clearly require further
amendment such as the proposed 10 per cent shareholding limit and an
exceptionally restrictive interest cover test, while the details of the
conversion process, particularly its tax implications, are still uncertain. I
hope that the Treasury proposals can be further refined to produce a product
which, while not disadvantageous for the Treasury, will encourage investment
into property.
However, a less welcome Government proposal is the so-called Planning Gain
Supplement - another form of taxation which in my view runs counter to the
Government"s own objectives for the release and development of land,
particularly for the residential sector, will create a valuation nightmare and
ignores the reality that a planning permission, the purported value of which
will be the basis of the proposed tax charge, is just one step amongst many
towards the creation of a new development;
this would particularly be the case for the sort of large and complex
development with a long time scale to which CSC commits. The Government needs
to think again, particularly since simpler proposals are available to provide
the infrastructure that communities require.
Corporate social responsibility
The forthcoming Annual Report details the progress we have made over several
years in our commitment towards Corporate Social Responsibility. We have
reformed our internal structures, introduced line responsibility for
implementing policy and introduced procedures for measuring and curbing
emissions and waste. We have encouraged our shopping centres to work at a local
level with the communities which create our customer base, particularly
focusing on youth, education and crime issues.
At all times, we strive to achieve the appropriate balance between the best
interests of shareholders, employees and our local communities.
Directorate changes & management
2005 has seen considerable change at Board level and within the underlying
management structure of CSC.
First of all, of course, the chairmanship has changed but we shall continue to
benefit from Sir Donald Gordon"s huge knowledge and commitment to Liberty
International through his appointment both as President for Life and as a
consultant to the group.
Secondly, John Abel retired as Managing Director of CSC and we have welcomed
Kay Chaldecott into that role. Kay has spent her working life to date at CSC.
She is hugely experienced in the retail sector and will bring much energy to
her new role. John Abel"s vast knowledge of CSC and the retail industry gained
through some 30 years at 40 Broadway will fortunately continue to be available
to us as he has agreed to remain on the group Board as a non-executive and as a
member of our Board- appointed Capital Projects Committee, which reviews major
capital expenditure decisions.
At this year"s Annual General Meeting, David Bramson is intending to step down
as one of our independent non-executive directors but his wise counsel will
remain available to us at the level of the Capital Projects Committee and he
has agreed to take on the role of chairman of the trustees of the group"s
pension fund.
We have made two further appointments to the CSC Board - namely Caroline Kirby
and Martin Ellis. Caroline has taken on Kay Chaldecott"s former role and will
take responsibility for the investment management of the CSC portfolio. Martin
Ellis will be director responsible for construction both of new projects and
within existing centres. We are confident both have the necessary expertise to
fulfil their senior positions.
We greatly appreciate the tireless work and assistance given to the group over
the course of many years by John Abel and David Bramson and I look forward to
working with those newly appointed.
I feel immensely privileged to have been so warmly welcomed into the group and
to be able to witness at first hand the dedication and effort demonstrated by
our employees at all levels.
Prospects
Regional shopping centres as an asset class remain extremely resilient to
retail market conditions. CSC"s investment criteria of quality and large scale
will become increasingly important as successful shopping destinations continue
to polarise.
Our considerable programme of activities to extend, remodel, refresh and
reconfigure space at our existing centres, together with opportunities each
year to grow the contracted income through rent reviews, will continue to
improve the overall business for shareholders, with added benefits from the
prospective development of our major new projects, in prime and enviable
locations. Both the size of programme of development activity and the timing of
completions give considerable momentum for growth. Against a retail environment
of increased competition, our quality assets should prove robust.
Capital & Counties provides a valuable complementary activity to the shopping
centre business and is engaged on a range of substantial and promising
initiatives to continue to provide excellent returns on capital employed.
With this unrivalled portfolio of highly attractive assets, and a young, able
and ambitious management team, we remain confident of Liberty International"s
future prospects.
Sir Robert Finch
Chairman
15 February 2006
OPERATING REVIEW
INTRODUCTION
In 2005, Liberty International has successfully extended its consistent
financial track record, reporting both strong growth in adjusted net asset
value per share and steady adjusted earnings per share progression.
We completed a number of major and important transactions in the year, most
notable of which were
the GBP653 million acquisition of interests in two of the UK"s leading
regional shopping centres, Manchester Arndale and Cribbs Causeway, Bristol,
and associated properties
the opening in September of the new and virtually fully let 530,000 sq.ft.
regional shopping centre, Chapelfield, Norwich, where we assumed ownership
soon after opening for an overall consideration of GBP263 million
increasing our interest in Eldon Square, Newcastle, from 45 per cent to 60
per cent at a cost of GBP53 million contemporaneously with the grant of a
new 250 year lease and entering into an agreement with Newcastle City
Council for the expansion and redevelopment of this top-ranking centre,
which has traded very successfully since opening in 1976
progressing our substantial development programme, particularly the
Northern Extension at Manchester Arndale; Eldon Square, Newcastle; Cardiff
and Oxford; and in the case of Capital & Counties, significant projects at
King"s Reach on London"s South Bank; the Strand, London WC2; and the
Headrow, Leeds
raising GBP1.2 billion of long term finance through the commercial
mortgage- backed securities ("CMBS") market and raising additional
permanent equity through early conversion of GBP129 million of the GBP240
million convertible bond 2010
Overall, the year was one of major expansion. Total property assets increased
by over 30 per cent from GBP5.4 billion to GBP7.1 billion with over GBP1
billion of additions and further strong upward property revaluations. Our
robust financial position has readily absorbed this expansion with the year end
debt to assets ratio at 40 per cent, a level which gives plenty of flexibility
to continue our active development programme.
The substantial drop in longer dated UK interest rates in 2005 provided a
favourable background for the UK property market. The 10 year gilt yield
reduced from 4.5 per cent to 4.1 per cent in the year while the 30 year gilt
finished the year yielding just below 4 per cent.
In this interest rate environment, property continued to prove an attractive
investment to yield-seeking investors. The total return from UK property for
the year, as measured by the IPD monthly all-property index, amounted to 18.8
per cent, comparable to the 18.9 per cent return in 2004, with most of the
capital growth of some 12 per cent explained by a substantial yield shift. The
all-property equivalent yield according to IPD reduced from 6.8 per cent at the
end of 2004 to a record low of 6.0 per cent at the end of 2005; compared with
8.8 per cent a decade ago, when long gilt yields were considerably higher at
7.7 per cent.
Our objective is to continue to deliver exceptional long-term returns to
shareholders through focus on three principal components; active management to
generate like- for-like rental income growth and thereby increase underlying
profits; acquisitions of prime assets where these enhance our strategic
position; and an active development programme, continually upgrading the
overall quality of our assets. All three of these elements contributed to the
positive outcome of 2005.
CAPITAL SHOPPING CENTRES (`CSC")
Key information on Capital Shopping Centres" UK regional shopping centres
market value of GBP5.8 billion
35 per cent increase in 2005 in space under ownership from 8.3 million
sq.ft. to 11.1 million sq.ft.
12 completed centres including 9 of the UK"s top 25
an estimated 210 million customer visits per annum with half the UK"s
population within a 45 minute drive time of our centres
98.5 per cent occupancy by rental value (1791 units out of 1828)
106 tenancy changes in the year increasing annual rental income by GBP3.8
million
like-for-like net rental income growth in 2005 of 8.5 per cent
net rental income from Braehead, Renfrew, Glasgow, increased 28 per cent in
2005 after the first round of rent reviews since the centre opened in
September 1999
rental income growth prospects in the next two years underpinned by five
yearly rent reviews on 17 per cent of CSC rental income in 2005 and 19 per
cent in 2006
GBP1 billion development programme on new projects and existing assets
Acquisitions in the year
2005 has been a year of tremendous growth for CSC, increasing our scale from
nine completed regional shopping centres to twelve. CSC now owns nine of the
UK"s top 25 shopping centres with a good geographical spread across the UK.
Half the UK"s population lives within 45 minutes drive time of one of our
centres - an excellent platform for future growth of market share nationally.
The acquisition of 50 per cent of Prudential PLC"s interests in Manchester
Arndale and The Mall, Cribbs Causeway, Bristol and associated properties has
provided CSC with two additional powerful centres. Manchester Arndale, on
completion of the current Northern Extension development, will be one of the
UK"s largest city centre retail destinations at 1.4 million sq.ft. and Cribbs
Causeway is one of only eight out-of-town super-regional centres in the UK;
four of which are now within CSC"s ownership. Phase One of the Manchester
Arndale Northern Extension opened, on programme, in October, the main event
being the opening of Next"s first 150,000 sq.ft. store. Also in October we
assumed 100 per cent ownership of Chapelfield, Norwich, for a total
consideration of GBP263 million, excluding the residential element, following
the centre"s successful opening in September.
These three new investments at Manchester Arndale, Cribbs Causeway and Norwich
all meet CSC"s criteria of large scale regional shopping centres with good
access, car parking and excellent tenant mix, adding 2.8 million sq.ft. of
regional shopping space. Overall space under CSC"s ownership increased in the
year by 35 per cent from 8.3 million sq.ft. to 11.1 million sq.ft.
Since the end of 1993, when CSC was formed as a stand-alone business, we have
increased the group"s prime UK regional shopping centre interests ten-fold from
GBP576 million to GBP5.8 billion, in the process carving out market leadership
in this attractive market sector.
Regional shopping centre industry background
Regional shopping centres of the quality and scale of those owned by CSC
broadly maintained their market position but the competition for customers and
retail spending in the UK retail property market remains intense. As the
boundaries become increasingly blurred between comparison and convenience
shopping, our centres compete not just with other shopping centres but also
with other retail formats, particularly superstores and retail parks; we also
compete with other non-retail attractions for our share of overall customer
expenditure. Active property management and superior customer service aiming to
deliver a pleasant shopper experience have increasingly become fundamental to
the success of our centres.
We have continued to generate sustained levels of demand for all sizes of well
configured space and taken advantage of opportunities to refresh the tenant
mix of our centres and respond to retailers" ever-changing space requirements.
Department stores continue to progress discussions for new space and
negotiations with major space users have been dominated by the fashion
retailers who have requirements for our future projects.
As our centres continually evolve to meet consumer needs and open for longer
hours, we have seen an increase in demand for standard units by quality
caterers and restaurants adding a vibrancy to the malls late into the evening.
These occupiers are responding to both the extended dwell time of consumers and
the increasing proportion of shopping trips made during the week after working
hours.
The pipeline of proposed shopping centre development in the UK between 2006 and
the end of the decade is considerable, with more town centre retail space now
under construction than at any time in the past ten years. However, little of
this additional space is directly competing with CSC centres and prime centres
such as ours in strong towns or cities continue to improve as retail
destinations.
Benefits from our active management approach
The many opportunities we have implemented to refresh the tenant mix at our
centres have continually created something new to attract consumers. During the
year, we have made 106 tenancy changes, excluding development lettings,
producing additional annual rental income of GBP3.8 million.
Occupancy has continued to run at high levels, amounting to 98.5 per cent by
rental value, representing 1791 units out of 1828 in aggregate.
The like-for-like growth in net rental income from our centres in 2005 was
GBP11.1 million, 8.5 per cent, reflecting the benefits of refreshing the tenant
mix and the well planned and executed rent reviews and lease renewals,
particularly at Braehead, Renfrew. Future like-for-like increases in rental
income are expected in 2006 from the 2005 rent review cycles at Lakeside and
Uxbridge where the first reviews are now being settled. 2006 also sees
significant rent reviews in respect of 19 per cent of CSC"s rental income, in
particular at MetroCentre, Gateshead, and The Harlequin, Watford.
Customer service
Consumers have become more selective demanding "added value"; convenience and a
broad range of shops have become priorities in the choice of shopping
destination. Our focus on improvements to customer service and amenities is
relentless, aiming to provide the consumer with a hassle-free shopping trip,
offering something special and different.
Through our close working relationships with retailers, we can plan ahead to
provide their store size requirements to enable them to meet consumer demand
for choice. We continue to invest in customer service - creating clean, safe
and bright environments to welcome each member of the public.
Our partnership approach extends beyond retailers and consumers to the wider
catchment areas in which we invest, working closely with local authorities and
consumer organisations to incorporate their requirements. These relationships
are important in ensuring our centres provide full benefit to their
communities, including for example in certain locations educational support
through the sponsorship of retail management and apprenticeship schemes.
Embracing local authorities" wider vision for their towns and cities assists in
providing more attractive destinations, differentiating them from competing
locations.
Our CSC Enterprises" business, building on the powerful marketing opportunity
of an estimated 210 million customer visits each year to our centres, made a
meaningful contribution to revenue in 2005 of GBP6 million.
Development activities in respect of completed shopping centres
In order to anticipate and respond to both retailer and consumer requirements,
management constantly focus on selecting and implementing opportunities to
further improve CSC"s centres; 2005 saw much activity.
At Lakeside, Thurrock, we have continued to enhance the customer offer. The
provision of a roof box has provided Next with a 63,000 sq.ft. store now
trading on three levels, while taking back the former Allders store has
afforded the opportunity to provide Primark, previously not represented at
Lakeside, with a 60,000 sq.ft. store, soon to be extended to 90,000 sq.ft.
Full planning consent has now been granted for the final phase of Lakeside"s
refurbishment, the remodelling of the Pavilion building, which will provide
nine new restaurants, overlooking Alexandra Lake together with additional
retail and leisure uses. All the restaurant space is under offer and
construction is due to commence in the Spring for completion in Summer 2007.
Our rolling programme of refurbishment at MetroCentre, Gateshead, has continued
successfully, providing new flooring and improved vertical circulation through
the majority of the malls, due to complete in Autumn 2006.
At Braehead, Renfrew, Glasgow the phase two development which involves 165
acres of land adjacent to the shopping centre made substantial progress in
2005. Major infrastructure works, including new roads, a riverside walkway and
a public park were completed. Construction of the 460,000 sq.ft. Xscape leisure
scheme, a joint venture with Capital & Regional plc, is progressing well for
opening in Spring 2006. The scheme includes an indoor ski slope, a multi-screen
cinema, bowling and an excellent line-up of restaurants, cafes and speciality
retailers. 71 per cent of the projected annual income is now committed with a
further 20 per cent under negotiation. We sold 4.3 acres for showroom and
offices in the second half of the year, recording a trading profit of GBP1.2
million. In addition, conditional contracts have been exchanged to sell a
further 40 acres of residential land and 2 acres of commercial land for anhotel.
Construction of Riverside, Braehead, a 35,000 sq.ft. office scheme
providing small units for sale or rent, will commence in Summer 2006.
At Eldon Square, Newcastle, enabling works have been completed for construction
to commence this Spring on the new bus station and 48,000 sq.ft. of retail
space in the north of Eldon Square (`ES North"), due to complete in 2008.
Construction work for the second phase, providing bigger units on
Blackettbridge and restaurants overlooking Old Eldon Square (`ES West"), has
commenced on site, with the new occupiers expected to open for Christmas trade
in 2006. 64 per cent of the 22,000 sq.ft. of new space in ES West is currently
under offer. Good progress continues to be made on the third and largest
development, to the south of the centre (`ES South"), providing 410,000 sq.ft.
of retail space including a new department store. Subject to site assembly,
works are due to commence on site in Autumn 2006 and retailer interest is very
encouraging. Eldon Square, currently comprising 961,000 sq.ft., will provide
1.3 million sq.ft. of city centre retail space on completion of the three
phases.
At The Glades, Bromley, our project to provide an additional 38,000 sq.ft. of
retail space through the re-configuration and integration of recent High Street
acquisitions, is programmed to commence on site in Spring 2006. The first phase
will also provide new and improved customer facilities for the centre. 60 per
cent of the new space is under offer.
In Watford, we continue to make good progress on our mixed use plans for the
Charter Place site adjacent to The Harlequin, where the planning brief has been
finalised and an initial public consultation programme completed.
At the Victoria Centre, Nottingham, the 40,000 sq.ft. remodelling project
converting the lower level of the former market to prime retail space is
complete and fully let. The new retailers - Top Shop, Monsoon and Republic -
opened ahead of the Christmas trading period.
Following our acquisition in March 2005 of 50 per cent of the Prudential"s
interest in properties at Manchester Arndale and Cribbs Causeway, initial
performance has been very encouraging with scope for additional initiatives to
add further value to these premium assets. In partnership with the Prudential,
we will commence works to refurbish and modernise the retail park at Cribbs
Causeway in March 2006 with completion programmed for the Autumn prior to
pre-Christmas trading.
At Manchester Arndale, where Prudential is responsible for delivery of the
Northern Extension, works for phases 2 and 3 are on programme which will enable
openings in April and October 2006 respectively. This will complete the 550,000
sq.ft. extension increasing the whole centre to 1.4 million sq.ft. in total.
Some 80 per cent of the new space is currently committed, reflecting strong
retailer demand for this prime location in the city.
Progress on New Projects
Significant progress has been made in Cardiff, where the St David"s
Partnership, our joint venture with Land Securities Group PLC, has secured
detailed planning consent for a 957,000 sq.ft. retail-led mixed-use extension
to the existing St David"s Centre.
A Conditional Development Agreement has been exchanged with Cardiff County
Council and the Compulsory Purchase Order has been published. Enabling works
are underway and a construction start is anticipated in Winter 2006 for
completion in Autumn 2009. An agreement for lease has been exchanged with the
John Lewis Partnership for a 260,000 sq.ft. department store and discussions
are underway with other major space users.
In Oxford, the Westgate Partnership, our joint venture partnership with La
Salle Investment Management, continues to make progress with agreement now
reached with both Oxford City and County Councils on a transport solution for
our proposed scheme and the wider West End regeneration area of which Westgate
is a vital ingredient. The detailed design of the proposed retail-led mixed-use
extension to the Westgate Centre is now underway. A further round of public
consultation on the emerging designs has proved very positive and a detailed
planning application for 750,000 sq.ft. of retail anchored by a department
store for the John Lewis Partnership, together with 124 residential units, is
expected to be submitted in Spring 2006.
CAPITAL & COUNTIES
Key information on Capital & Counties
complementary to regional shopping centre business
Central London and non-shopping centre retail
a window to the US market with regional shopping centres and other retail
in California
mixed-use development skills
over 6 million sq.ft. of retail and business space
investment properties at 31 December 2005 GBP1.1 billion; 30 per cent in USA
GBP102 million revaluation surplus in 2005 (11.1 per cent)
by value, 57 per cent retail, 43 per cent business space
like-for-like net rental income growth in 2005 of 5.2 per cent
2005 trading profits of GBP10.4 million
GBP200 million development programme with 1.6 million sq.ft. of development
and refurbishment under way or planned
UK
2005 has been dominated by preparation for a number of major refurbishment and
redevelopment projects. We have also taken advantage of strong investment
markets to make a number of disposals from both the investment and trading
portfolios. Where we have perceived opportunity to add value, we have been
prepared to make purchases, but without pursuing an aggressive policy in
current market conditions.
Central London
GBP400 million market value
We have seen West End office rental growth of up to 18 per cent over the year
in St James"s and Piccadilly where we have significant holdings. A rolling
programme of upgrading continued within the multi-let West End and Mid Town
office buildings with work planned in 2006 for 23,000 sq.ft. of space. Retail
rental values have been stable or showed some marginal growth.
At the year end, offices available to let within our Central London properties
excluding redevelopments or refurbishments planned or underway amounted to 2
per cent of total floorspace.
Purchasing investments in a very competitive marketplace within the West End
market has become increasingly difficult. Yields have continued to fall over
the year as investors became convinced of the likelihood of strong office
rental growth. We did however acquire Kendal House, a 10,150 sq.ft. office and
retail building strategically located at the junction of Regent Street and
Conduit Street, for GBP8 million.
Significant progress has been made with the refurbishment and redevelopment
programme outside the core West End. At Hammersmith, regeneration and re-
imaging is underway of the 110,000 sq.ft. office building currently known as
Commonwealth House and to be rebranded as the Metro Building. Completion of a
show suite is expected in May 2006. At Wapping, E1 architects are drawing up
creative plans for contemporary loft-style workspace within the 170,000 sq.ft.
riverside Metropolitan Wharf. A planning application will be made in February
2006.
As reported at the half year, the London Borough of Southwark has resolved to
grant consent for partial redevelopment and extension of the King"s Reach
complex. The scheme envisages complete reorganisation of the office, retail and
public realm elements and gross floorspace will increase by nearly half to
almost 400,000 sq.ft. We have also gained consent from Westminster City Council
for the major redevelopment with our partner, Prudential, of 190 Strand, WC2.
This outstanding design by architects Kohn Pederson Fox will provide 200,000
sq.ft. of office and retail floorspace together with 44 apartments. Vacant
possession of King"s Reach and 190 Strand is anticipated within two years.
Business space outside London
GBP197 million market value
In the M25 West area, office market conditions are improving in Uxbridge where
our property, Capital Court, is now fully let at rents of up to GBP24 per
sq.ft. Slough and Heathrow markets continue to experience oversupply, though we
have let over 4,000 sq.ft. at Capital Place, Hillingdon for around GBP20 per
sq.ft.
At Capital Park, Cambridge, an additional 39,000 sq.ft. office phase has
started and is due for completion in the second half of 2006. As reported at
the half year, we continue to plan for the substantial upgrading of 54 Hagley
Road, Birmingham. Planning consent has now been received for a major
`statement" entrance to the building and we are currently seeking consent for
enlargement of the car park.
We also completed refurbishment of 36,000 sq.ft. offices at Port Solent,
Hampshire, following negotiation of a prelet of the entire building.
Retail outside London
GBP174 million market value
Asset management activities at the Braintree and Stafford retail parks have
continued. We added to our retail warehouse investments by the acquisition of
the 38,000 sq.ft. Riverside Retail Park in Canterbury for GBP10.7 million. Let
to Staples, Pets at Home and Land of Leather, this park benefits from being
part of a major cluster of retail warehousing at the A2/A28 Junction, half a
mile south west of the city centre. A retail warehouse was also acquired in
Rotherham; let to B&Q but with an open A1 retail consent and expansion
potential.
No other retail acquisitions were made and we took advantage of investment
market conditions to sell the long leasehold interest in the 110,000 sq.ft.
Swansea Market retail scheme for GBP42.6 million, above book value.
As in Central London, current and prospective projects continue to dominate.
Planning consent was received in December 2005 for a major conversion and
extension of the mainly vacant former Allders store on the Headrow, Leeds. The
consented scheme includes 120,000 sq.ft. of prime retail and 150,000 sq.ft. of
new offices. An alternative and equally financially attractive scheme is also
being prepared which would enable us to proceed without gaining possession of
currently occupied offices.
In addition to this, we have started to look at the potential for unutilised
space over retailing areas at the Lewis" Liverpool and Primark Manchester
department stores. A total of 300,000 sq.ft. could be brought into use. At
Manchester, a scheme is being drawn up to provide about 100,000 sq.ft. of
loft-style workspaces whilst at Liverpool various possibilities are under
consideration including residential and hotel use.
Trading
GBP54 million market value (UK)
We continue to maintain a UK trading portfolio and the principal sale in 2005
was of an 8 acre site at Junction 15 of the M40, following the receipt of a
residential planning consent, creating a trading profit of GBP6.4 million. 5.5
acres of potential commercial development land have been retained.
US
2005 has been a very active year for Capital & Counties USA Inc.
At Mission Village, Fairfield, planning consent was obtained for a major
superstore in place of the remaining unoccupied retail units on this 18 acre
site, and a sale to WalMart was concluded. We also sold a parcel of land in
central Pasadena adjacent to our residential and retail development. Together,
these sales created substantial trading profits of GBP4.5 million ($8.1
million).
The proceeds of the sales were recycled into the purchase for $42 million of a
127,000 sq.ft. retail and office building at Sutter Street, downtown San
Francisco. The Senator office building in Sacramento was refinanced with a new
$38 million loan at 5.3 per cent, effectively repaying our original equity in
the purchase.
In Pasadena, two of the proposed five phases of the `Trio" apartment
developments have been completed together with the pool, gym and amenity areas.
We have also leased further vacant space at the adjoining Sanwa office
building, bringing it to 96 per cent occupancy.
At Serramonte Shopping Centre, improvements and enhancements continued
throughout the year. The development of areas adjacent to the North entrance to
the scheme was completed and the new `gateway" dining facility - the `Elephant
Bar" - was opened. We continue to work on upgrading tenant mix and completed an
important amendment to an anchor store lease, thus opening the way to further
development of the site.
At the Willows Shopping Centre, Concord we secured planning approval for the
redevelopment of 6,800 sq.ft. of awkwardly arranged vacant space. The resulting
10,800 sq.ft. unit has been preleased to Pier One.
In 2005, the US company has once again demonstrated the success of its
consistent focus on
- capital recycling through strategic sales and opportunistic purchases
- value adding activities
- timely use of leverage
- trading and development
In the US, the focus on retail will continue but will not preclude
consideration of other opportunities in 2006.
FINANCIAL REVIEW
ACCOUNTING ISSUES
International Financial Reporting Standards ("IFRS") became mandatory for all
listed companies within the European Union from 1 January 2005 and the
Preliminary Report for 2005 has been prepared in compliance with IFRS. The
comparative figures for 2004 have been restated accordingly and the notes to
the Preliminary Results contain summary reconciliations to the previously
reported figures. A more extensive commentary and explanation of the changes
brought about by the transition to IFRS is contained in a separate document
published on 26 July 2005 which is available in the Report and Accounts section
on the company"s website (www.liberty-international.co.uk).
INCOME STATEMENTAnalysis of profit before tax
Increase Year ended Year ended
31 December 31 December
2005 2004
Restated
GBPm GBPm
Underlying profit before tax 8.4% 109.3 100.8
Property trading profits 11.6 6.2
Profit before tax, valuation and
exceptional items 13.0% 120.9 107.0
Gains on revaluation and sale of
investment properties 565.5 357.3
Movement in fair value of
derivative financial instruments (145.8) (41.4)
Exceptional items (13.7) 32.2
Profit before tax 526.9 455.1
Underlying profit before tax increased by 8.4 per cent to GBP109.3 million from
GBP100.8 million reflecting rent reviews and interest savings, offset in part
by the impact of active management and acquisitions all of which are discussed
in more detail below.
Trading profits of GBP11.6 million were almost twice the level achieved in 2004.
Overall profit before tax, valuation and exceptional items therefore increased
by 13.0 per cent from GBP107.0 million to GBP120.9 million.
In addition to exceptional items, material items which need to be disclosed by
virtue of their size or incidence, profit before tax, under IFRS, includes
other items which are unpredictable by their nature, such as revaluation gains
on investment properties and the movement in fair value of derivative financial
instruments. These items can have a significant impact on the presentation and
interpretation of the revenue results. In order to compare one period with
another, the results have been analysed above to show the effect of these
items.
Under IFRS, the revaluation movements on investment properties, other than on
first time developments, are presented in the Income Statement rather than in
the revaluation reserve. Commentary on this movement is dealt with below under
the section, investment properties. Also, under IFRS, the fair value of
derivative financial instruments is now included in the balance sheet and the
movement in fair value of derivative financial instruments is included in the
Income Statement. This change creates considerable volatility in the Income
Statement and has particular significance for Liberty International because of
our chosen method of financing which employs a small proportion of fixed rate
finance but uses derivative financial instruments to fix interest rates on the
more flexible floating rate funding which forms the greater proportion of our
debt.
This gives the group the desired certainty over future cash flows combined with
a debt structure which enables early repayment without necessarily incurring
the significant penalties that can be associated with the early repayment of
fixed rate debt. For example, the separation of the fixed and floating elements
in this way enabled us to benefit from reduced margins, through the early
refinancing of non-recourse facilities secured on our major shopping centres,
in a way which would not have been possible had the original financing been on
a fixed rate basis.
We have not adopted the hedge accounting treatment for interest rate
derivatives with the result that these derivative financial instruments are
accounted for at fair value with movements in fair value shown in the Income
Statement. This differs from the treatment of fixed rate debt where fair value
has no impact on the Balance Sheet or the Income Statement even though the cash
flows from both types of financing should be broadly similar.
Over the period to 31 December 2005, interest rates in general fell and in
particular the ten-year sterling interest rate swap, which represents a
suitable benchmark for the group"s fixed rate obligations, decreased from 4.86
per cent to 4.45 per cent. As a result the fair value of the group"s derivative
financial instruments, which are outlined in more detail below under Maturity
and Interest Rate Profile of Debt, declined by GBP145.8 million and this
movement has been reported in the Income Statement.
The fair value of financial instruments is extremely sensitive to movements in
interest rates. An increase of around 0.80 per cent in swap rates would be
sufficient to eliminate the GBP281 million negative fair value shown in the
balance sheet at 31 December 2005 while such a rise in interest rates would
have a minimal impact on the group"s financing cash flows.
Exceptional items in the period to 31 December 2005 primarily comprised the
costs associated with the early conversion of GBP129 million convertible bonds
into 16 million ordinary shares plus the unamortised costs of the original
MetroCentre and Braehead bank facilities which were written off when these
facilities were repaid earlier in the period. Further commentary on the impact
of the financings is included below under the section net interest payable.
Profit before tax increased to GBP526.9 million from GBP455.1 million, largely
as a result of the substantial increase in the revaluation gain on investment
properties.
Net rental income increased to GBP300.1 million from GBP256.3 million. The
increase has two components, like-for-like growth and acquisitions net of
disposals. Overall the like-for-like growth, calculated in respect of 58 per
cent of properties by value, amounted to GBP13.2 million (7.7 per cent).
UK regional shopping centres provided like-for-like growth of GBP11.1 million
(8.5 per cent) primarily from the favourable rent reviews at Braehead. A
further GBP14.1 million increase in net rental income came from centres where
there had been substantial capital expenditure in 2004, notably the addition of
the Red Mall at MetroCentre and the increased interest in The Potteries,
Stoke-on-Trent. Acquisitions in 2005 accounted for a further GBP23.5 million of
the total increase.
Other UK properties contributed 5.2 per cent like-for-like growth. However, the
effect of property sales and management decisions to forgo short-term revenue
for medium and longer-term refurbishment or redevelopment opportunities led to
an overall reduction in net rental income of GBP6.5 million.
The US properties also showed like-for-like growth of 5.2 per cent with capital
expenditure in the previous period, net of disposals, resulting in an overall
19.0 per cent increase in net rental income.
Other income decreased marginally to GBP14.2 million from GBP15.1 million
reflecting a near doubling of property trading profits to GBP11.6 million but a
reduced level of investment income as a result of the disposal of the interest
in Great Portland Estates and other investments during 2004.
Interest payable increased to GBP171.7 million from GBP147.5 million. Together
with a reduction in interest receivable from GBP10.3 million to GBP7.5 million,
this reflects the increase in net debt during the period less the benefit from
the savings resulting from the refinancings referred to below. The increase in
interest payable reflects expenditure on property acquisitions both in the
latter part of 2004, and more significantly in 2005 the acquisition from
Prudential of interests in Manchester Arndale and The Mall at Cribbs Causeway
and more recently the completion of Chapelfield, Norwich and an increased
interest in Eldon Square, Newcastle.
In the second half of 2004 and the first half of 2005, Liberty International
undertook three major non-recourse refinancings, effectively replacing secured
bank loans with commercial mortgage backed securities, gaining the advantage of
capital markets pricing while retaining the flexibility of a bank loan. The
combined savings from the GBP650 million seven-year Lakeside facility in August
2004 and the GBP532 million ten-year facility secured on MetroCentre in
February 2005, amounted to around GBP6 million per annum.
The third major financing, in May 2005, involved Braehead and The Harlequin,
Watford raising on a ten-year basis a combined GBP640 million excluding the
higher coupon bonds retained by Liberty International. The net proceeds of this
financing, after repaying other facilities, amounted to GBP468 million and
provided the bulk of the resources for the GBP653 million purchases from
Prudential, with the balance of the purchase price satisfied from cash
resources. The rate achieved on the Braehead and Harlequin financing of 5.30
per cent before costs, but including hedging arrangements, is marginally above
the initial running yield of around 5 per cent on the properties acquired.
The movement in net debt and available facilities is commented upon further
under the Financial Management heading.
The underlying tax charge, before valuation and exceptional items and before
deferred tax on capital allowances amounted to 21.3 per cent (2004 - 19.8 per
cent).
The low tax charge was primarily attributable to the benefit of capital
allowances and tax relief for capitalised interest, both of which should
continue to be of benefit in 2006 as a result of the active development
programme.
Provision for tax on valuation and exceptional items and deferred tax in
respect of capital allowances increased the group"s reported tax charge to 30.5
per cent (2004 - 27.0 per cent).
Basic earnings per share increased to 114.8p from 104.8p. Earnings per share
(adjusted) increased by 10 per cent to 29.8p from 27.1p.
The final dividend per share increased to 15.25p per share making a total
dividend for the period of 28.25p, an increase of 6.6 per cent in line with our
policy of distributing substantially all of the group"s underlying net income.
Under IFRS no provision is made for dividends declared after the balance sheet
date.
BALANCE SHEET
Net assets per share
As at As at
31 December 31 December
2005 2004
Restated
GBPm GBPm
Basic net asset value 2,933.1 2,534.2
Effect of dilution:
On conversion of bonds 105.4 220.9
On exercise of options 17.9 27.7
Diluted net asset value 3,056.4 2,782.8
Adjustments:
Fair value of derivative financial instruments
(net of tax) 194.4 92.6
Deferred tax on revaluation surpluses 817.4 653.8
Deferred tax on capital allowances 95.7 76.2
Unrecognised surplus on trading properties (net
of tax) 16.4 2.0
Diluted adjusted net asset value 4,180.3 3,607.4
Basic net assets per share (pence) from IFRS
balance sheet 875 p 799 p
Net assets per share (diluted, adjusted) (pence) 1188 p 1025 p
Basic shares in issue used for calculation 335.4 m 317.3 m
Diluted shares used for calculation 352.0 m 352.1 m
Net assets per share (diluted, adjusted) is arrived at after adding back the
IAS 12 provision for deferred tax on property revaluation surpluses and the
adjustment in respect of fair value of derivative financial instruments.
Two further potential adjustments are often made in order to arrive at the UK
industry measure referred to as triple net assets per share. First is the
adjustment for the fair value of all financial instruments, not just
derivatives. The fair value adjustment for non-derivative financial instruments
(note 11) amounts to 27p per share after tax (31 December 2004 - 23p) and the
adjustment for derivative financial instruments equates to 55p per share after
tax (31 December 2004 - 26p). This number is of course extremely sensitive to
interest rates and, as referred to above, would be eliminated by a rise of
around 0.80 per cent in the ten-year interest rate swap.
The second potential adjustment is the provision for deferred tax which,
calculated on a disposal basis (note 6) rather than the basis reported under
IFRS, would amount to GBP642 million (31 December 2004 - GBP505 million) or
182p per share (31 December 2004 - 143p). However, this amount is undiscounted
and takes no account of the savings that may be available depending on how
sales are structured.
The sum of the above potential adjustments is 264p at 31 December 2005 (31
December 2004 - 192p).
Investment properties increased to GBP6,938 million from GBP5,298 million at
December 2004. Additions amounted to GBP1,102 million, comprising primarily the
acquisition of Manchester Arndale, The Mall at Cribbs Causeway and Chapelfield,
Norwich together with expenditure on development and refurbishment activity
across the portfolio. The movements during the period are summarised in the
table below.
Analysis of movement in investment properties
GBPm
Investment properties at 31 December 2004 5,298
Additions 1,102
Disposals (40)
Foreign exchange and other movements 30
Valuation surplus on investment properties 563
Valuation deficit on new developments (15)
Investment properties at 31 December 2005 6,938
The net valuation surplus arising in the period to 31 December 2005 amounted to
GBP547.2 million, of which a GBP562.9 million surplus was dealt with in the
Income Statement together with the GBP2.6 million gain on sales and the GBP15.7
million deficit on valuation of developments was dealt with in the revaluation
reserve. Under IFRS, investment properties under development or redevelopment
are revalued to fair value.
Net assets increased to GBP2,933 million from GBP2,534 million. Net assets
(diluted, adjusted) increased to GBP4,180 million from GBP3,607 million and net
assets per share (diluted, adjusted) increased to 1188p from 1025p, mostly as a
result of the valuation surpluses arising during the period and the underlying
profit for the period.
Investment properties are valued after deducting notional acquisition costs
including stamp duty amounting in aggregate to GBP318 million (31 December 2004
- GBP170 million), equivalent to 90p per Liberty International share (31
December 2004 - 48p). These notional costs assume each asset is sold
individually on the open market at that date and take no account of the
structures through which the assets are held within the Liberty International
group.
In the case of Liberty International, the purchase and sale of shares is the
predominant mode of exchange of ownership and value for shareholders, not the
sale of each underlying individual property. If these notional acquisition
costs were added back, net assets (diluted, adjusted) would amount to GBP4,498
million (2004 - GBP3,777 million) and net assets per share (diluted, adjusted)
would amount to 1278p (2004 - 1073p) compared with the reported figure of 1188p
(2004 - 1025p).
FINANCIAL MANAGEMENT
Movement in Net Debt and Bank Facilities
Cash balances reduced by GBP368 million from GBP439 million at 31 December 2004
to GBP71 million at 31 December 2005 while gross borrowings increased by GBP604
million to GBP2,984 million. The increase in gross borrowings is largely
explained by the GBP640 million net proceeds of the new Braehead and Harlequin
facilities. The resulting movement in net debt during the period is broadly
explained by the table below.
Analysis of movement in net debt
Net debt
GBPm
Opening net debt (note 10) 1,941
Additions to investment properties 1,102
Disposals of investment properties (43)
Conversion of bonds (116)
Other 29
Closing net debt (note 10) 2,913
At 31 December 2005 the group had committed undrawn medium-term bank facilities
of GBP405 million which in part provide standby cover for short-term loans of
GBP152 million. Available facilities have been increased by a further GBP90
million since the year end.
On 8 December 2005 Liberty International announced an offer of GBP60 per
GBP1,000 to holders of 3.95% Convertible Bonds who exercised their option to
convert into the ordinary shares of Liberty International at the rate of 125
shares per GBP1,000 of bonds. Acceptances were received in respect of GBP128.7
million of bonds resulting in the issue of 16.1 million ordinary shares and a
reduction in net debt of GBP108 million (after costs and expenses of GBP8.4
million). The early conversion brought an improvement in the group"s financial
ratios, reduced the risk associated with the potential early repayment of the
bonds in 2007, albeit that in current circumstances this possibility seems
remote, and the premium paid represented only a small proportion of the premium
received from the original issue. The additional permanent share capital and
reduced debt provide an improved capital structure from which to pursue the
development programme.
Financial Ratios
The group"s main internal constraints are that, at currently prevailing
property yields and interest rates, interest cover, measured before valuation
and exceptional items and adjusting for the amortisation of convertible debt,
should be maintained at a level in excess of 1.6 times and debt to assets at
less than 50 per cent. On these measures, interest cover reduced to around 1.7
times (2004 - 1.8 times) and the ratio of net debt to assets increased to 40
per cent from 36 per cent, in each case within the group"s internal
constraints.
Maturity and Interest Rate Profile of Debt
The group"s policy is to eliminate substantially all exposure to short and
medium-term interest rate fluctuations in order to reduce the variability of
cash flows. During the period short-term interest rates in the UK reduced from
4.75 per cent to 4.50 per cent.
However, the market in longer-term sterling swaps reflected expectations for
interest rates to fall further and the ten-year sterling interest rate swap
declined by over 0.40 per cent to 4.45 per cent over the same period.
The table below summarises the interest rate swaps in place at 15 February 2006
compared with 31 December 2005 and 31 December 2004. The level of fixed rate
protection was increased during 2005 and in early 2006, across all maturities
including extending protection beyond the current maturity of existing floating
rate facilities . The larger part of the increase resulted from the hedging
undertaken to cover the debt incurred for the GBP653 million acquisition of
shopping centre interests from Prudential, with further hedging undertaken in
respect of the committed element of the development programme. The average swap
rate across all periods was reduced.
Interest rate swap summary
Notional principal
15 February 31 December 31 December
2006 2005 2004
GBPm GBPm GBPm
Outstanding after:
1 year 2,462 2,462 1,744
5 years 2,909 3,125 2,111
10 years 1,950 1,780 1,235
15 years 1,475 1,175 900
20 years or more 1,475 1,175 900
Average rate
15 February 31 December 31 December
2006 2005 2004
Outstanding after:
1 year 5.36% 5.36% 5.64%
5 years 5.22% 5.29% 5.68%
10 years 4.76% 4.97% 5.22%
15 years 4.65% 4.86% 5.00%
20 years or more 4.65% 4.86% 5.00%
Over the next ten years substantially all interest payments, including those in
respect of debt which is expected to arise as a result of committed capital
expenditure, are at fixed rates. However, as the potential developments become
more probable capital commitments, the level of hedging will be addressed in
line with the group"s interest rate hedging policy.
The weighted average maturity of debt is 8 years, the weighted average lease
maturity 9 years and the weighted average interest cost of group debt at 31
December 2005 was 6.1 per cent (5.8 per cent excluding the GBP230 million of
Capital and Counties" First Mortgage Debenture Stocks 2021 and 2027 which were
issued in a different interest rate environment in the late 1980s and early
1990s).
15 February 2006
CONSOLIDATED INCOME STATEMENT (Unaudited)
For the year ended 31 December 2005
Year ended
Year ended 31 December
31 December
2005 2004
Restated*
GBPm GBPm
Notes
Revenue 2 434.3 392.7
Rental income 417.1 367.5
Rental expenses (117.0) (111.2)
Net rental income 300.1 256.3
Other income 14.2 15.1
Gain on revaluation and sale of
investment properties 3 565.5 357.3
2 879.8 628.7
Administration expenses (29.2) (27.2)
Operating profit before exceptional
items 850.6 601.5
Exceptional profit on disposal of
fixed asset investments 4 - 35.6
Operating profit 850.6 637.1
Interest payable 5 (171.7) (147.5)
Interest receivable 7.5 10.3
Exceptional finance costs 5 (13.7) (3.4)
Change in fair value of derivative
financial instruments (145.8) (41.4)
Net finance costs (323.7) (182.0)
Profit before tax 526.9 455.1
Current tax on ordinary items 6 (25.5) (24.4)
Deferred tax on ordinary items 6 (139.8) (96.4)
Tax on exceptional items 4.7 (2.2)
Taxation charge (160.6) (123.0)
Profit for the period attributable to
equity shareholders 366.3 332.1
Basic earnings per share 14 114.8p 104.8p
Diluted earnings per share 14 107.4p 98.3p
* Restated for the effect of adopting IFRS (see note 1)
Adjusted earnings per share are shown in note 14
CONSOLIDATED BALANCE SHEET (Unaudited)
As at 31 December 2005
As at As at
31 December 31 December
2005 2004*
Restated
Notes GBPm GBPm
Non-current assets
Investment property 7 6,913.6 5,250.4
Development property 7 24.2 47.2
6,937.8 5,297.6
Plant and equipment 0.6 1.3
Trade and other receivables 9 65.7 59.3
7,004.1 5,358.2
Current assets
Trading properties 8 132.6 111.9
Trade and other receivables 9 78.7 80.5
Investments 3.0 -
Cash and cash equivalents 70.8 438.8
285.1 631.2
7,289.2 5,989.4
Total assets
Current liabilities
Trade and other payables (212.4) (190.3)
Tax liabilities (10.0) (23.8)
Borrowings, including finance leases 10 (173.5) (13.2)
Derivative financial instruments (21.6) (12.9)
(417.5) (240.2)
Non-current liabilities
Borrowings, including finance leases 10 (2,810.2) (2,366.3)
Derivative financial instruments (259.5) (121.8)
Deferred tax provision 6, 12 (856.2) (708.9)
Other provisions 12 (6.8) (17.2)
Other payables (5.9) (0.8)
(3,938.6) (3,215.0)
Total liabilities (4,356.1) (3,455.2)
Net assets 2,933.1 2,534.2
Equity
Called up share capital and reserves 15 2,933.1 2,534.2
* Restated for the effect of adopting IFRS (see note 1)
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
(Unaudited)
For the year ended 31 December 2005
Year ended Year ended
31 December 31 December
2005 2004*
Restated
GBPm GBPm
Profit for the period 366.3 332.1
Net exchange translation differences and other (0.1) (2.9)
Actuarial losses on defined benefit pension
schemes (2.6) (0.4)
Deficit on revaluation of development properties (15.7) -
Tax on items taken directly to equity 5.5 0.1
Transfers to income statement on disposal of
investments - (6.6)
Tax on items transferred from equity - 1.1
Total recognised income and expense for the
period 353.4 323.4
* Restated for the effect of adopting IFRS (see note 1)
A summary of changes in group equity is shown in note 15
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Year ended Year ended
31 December 31 December
2005 2004*
Restated
GBPm GBPm
Cash flows from operating activities
Operating profit before exceptional items 850.6 601.5
Adjustments for non-cash items:
Unrealised net revaluation gains on investment
properties (562.9) (340.3)
Profit on sale of investment properties (2.6) (17.0)
Depreciation and amortisation 0.8 0.5
Amortisation of lease inducements and other
direct costs (4.6) 4.3
Cash flows from operations before changes in
working capital 281.3 249.0
Change in trade and other receivables (24.2) (8.6)
Change in trading properties (18.1) (30.1)
Change in current asset investments (3.0) -
Change in trade and other payables 17.1 15.9
Cash generated from operations 253.1 226.2
Interest paid (168.2) (140.8)
Interest received 9.7 10.3
Tax paid (24.5) (18.3)
Cash flows from operating activities 70.1 77.4
Cash flows from investing activities
Purchase and development of property (1,081.5) (145.2)
Sale of property 43.7 93.3
Purchase of investments and other fixed assets - (0.8)
Sale of investments - 190.1
Purchase of interests in joint ventures and
subsidiary companies - (51.3)
Increase in long term loans receivable, before
amortisation - (0.7)
Cash flows from investing activities (1,037.4) 85.4
Cash flows from financing activities
Issue and repurchase of shares 10.1 1.9
Borrowings drawn 1,944.8 644.8
Borrowings repaid (1,268.9) (490.4)
Equity dividends paid (86.3) (81.1)
Cash flows from financing activities 599.7 75.2
Net (decrease)/increase in cash and cash
equivalents (368.0) 238.0
Cash and cash equivalents at 1 January 438.8 200.8
Cash and cash equivalents at closing 70.8 438.8
* Restated for the effect of adopting IFRS (see note 1)
NOTES TO THE ACCOUNTS (Unaudited)
1. Basis of preparation
The Preliminary Report is unaudited and does not constitute statutory accounts
within the meaning of s240 of the Companies Act 1985. The statutory accounts
for 2004, which were prepared under UK GAAP, have been delivered to the
Register of Companies. The auditors" opinion on these accounts was unqualified
and did not contain a statement made under s237 (2) or s237(3) of the Companies
Act 1985.
The financial information has been prepared in accordance with the accounting
policies set out in the document entitled "Adoption of IFRS - Restatement of
2004 Income Statements and Balance Sheet" (the "release") dated 26 July 2005
which is available on the company"s website (www.liberty-international.co.uk).
The Group has applied these policies for the year ended 31 December 2005 in the
financial statements in accordance with International Financial Reporting
Standards, as adopted by the European Union ("IFRS") for the first time and
with those parts of the Companies Act 1985 applicable to companies reporting
under IFRS. It has been prepared under the historical cost convention as
modified by the revaluation of properties, available for sale investments and
financial assets and liabilities held for trading.
Change of accounting policies
Prior to the adoption of IFRS the financial statements of Liberty International
had been prepared in accordance with United Kingdom accounting standards (UK
GAAP). UK GAAP differs in certain respects from IFRS and certain accounting,
valuation and consolidation methods have been amended, when preparing these
financial statements, to comply with IFRS. The comparative figures in respect
of 2004 have been restated to reflect these amendments. Reconciliation and
description of the effect of the transition from UK GAAP to IFRS on the group"s
reported financial position, financial performance and cash flows is set out in
note 16.
2. Segmental analysis
Year ended 31 December 2005
UK Other
Shopping Commercial Other Group
Centres Properties Activities Total
GBPm GBPm GBPm GBPm
Revenue 328.7 103.4 2.2 434.3
Rental income 327.2 89.9 - 417.1
Rental expense (91.6) (25.4) - (117.0)
Net rental income 235.6 64.5 - 300.1
Property trading profits 1.2 10.4 - 11.6
Other income - 0.4 2.2 2.6
Gain on revaluation and
sale of investment
properties 459.4 106.1 - 565.5
Segment result 696.2 181.4 2.2 879.8
Year ended 31 December 2004 (restated)
UK Other
Shopping Commercial Other Group
Centres Property Activities Total
GBPm GBPm GBPm GBPm
Revenue 289.5 93.4 9.8 392.7
Rental income 274.3 93.2 - 367.5
Rental expense (86.9) (24.3) - (111.2)
Net rental income 187.4 68.9 - 256.3
Property trading
profits 6.0 0.2 - 6.2
Other income - - 8.9 8.9
Gain on revaluation
and sale of investment
properties 244.3 113.0 - 357.3
Segment result 437.7 182.1 8.9 628.7
The segmental result is shown before administrative expenses and exceptional
profit/losses.
3. Gain on revaluation and sale of investment properties
A reconciliation of the investment and development property revaluation
surplus to the gain on revaluation of investment properties in the income
statement is set out below:
Year ended
Year ended 31 December
31 December 2004
2005 Restated
GBPm GBPm
Investment and development property revaluation
surplus per external valuers 552.9 337.7
Less valuation movement in respect of head
lease payments (0.4) (0.4)
Less valuation movement in respect of lease
incentives (5.3) 3.0
Gain on sale of investment property 2.6 17.0
Development property revaluation recognised in
equity rather than the Income Statement 15.7 -
Income statement gain on revaluation and sale
of investment properties 565.5 357.3
4. Exceptional profit on disposal of fixed asset investments
Year ended
Year ended 31 December
31 December 2004
2005 Restated
GBPm GBPm
Profit on disposal of fixed asset investments - 35.6
5. Finance costs
Year ended Year ended
31 December 31 December
2005 2004
Restated
GBPm GBPm
Gross interest payable 180.3 151.9
Interest capitalised on investment properties
under development (8.6) (4.4)
Interest payable 171.7 147.5
Exceptional finance costs 13.7 3.4
Exceptional finance costs include costs of GBP8.4m (2004 - GBPnil) incurred in
early conversion of GBP128.7m of the GBP240m Liberty International 3.95%
convertible bonds in issue as well as GBP4.5m (2004 - GBP3.3m) of unamortised
issue costs written off on redemption of loans.
6. Taxation
(a) Current tax
Year ended Year ended
31 December 31 December
2005 2004
Restated
GBPm GBPm
Current UK corporation tax at 30% (2004 - 30%)
on profits 24.0 27.6
Prior year items - UK corporation tax (0.9) (6.2)
23.1 21.4
Overseas taxation 2.4 3.0
Current tax on ordinary items 25.5 24.4
Deferred tax:
On investment property 183.3 112.5
On derivative financial instruments (43.7) (12.9)
On other temporary differences 0.2 (3.2)
Deferred tax on ordinary items 139.8 96.4
Tax charge on ordinary items 165.3 120.8
Tax on exceptional items
Current tax (15.3) 0.4
Deferred tax 10.6 1.8
(4.7) 2.2
Total tax charge 160.6 123.0
(b) Deferred tax
Under IAS 12, provision is made for the deferred tax liability associated with
the revaluation of investment properties. The group does not provide for
deferred tax on investment properties by reference to the tax that would be due
on the sale of the investment properties as the group has no current intention
to dispose of these properties. Instead the group treats the value of the
investment properties as being recovered through use, and so provides for
deferred tax on the revaluation of investment properties by applying the
corporation tax rate of 30% to the revaluation surplus without indexation
allowance.
The deferred tax provision on the revaluation of investment properties
calculated under IAS 12 is GBP817.4m at 31 December 2005 (31 December 2004:
GBP653.8m). This IAS 12 calculation does not reflect the expected amount of tax
that would actually be payable if the assets were sold. On a disposal basis,
the estimated liability is GBP642.5m at 31 December 2005 (31 December 2004:
GBP505.0m).
If upon sale of the properties the group retained all the capital allowances,
which is within the control of the group, the deferred tax provision in respect
of capital allowances of GBP95.7m would also be released, and further capital
allowances of GBP19.1m would be available to reduce the amount of tax payable
on sale.
Under IFRS, where gains such as revaluation of development properties and other
assets, and actuarial movements on pension funds are dealt with in reserves,
the deferred tax is also dealt with in reserves.
Movements in the provision for deferred tax:
As at As at
31 December Recognised in Recognised in 31 December
2004 income equity 2005
Restated
GBPm GBPm GBPm GBPm
Deferred tax on
revaluation of
investment properties 653.8 168.3 (4.7) 817.4
Capital allowances 76.2 17.2 2.3 95.7
Derivative financial
instruments (39.7) (43.7) - (83.4)
Other temporary
differences 18.6 8.7 (0.8) 26.5
Net deferred tax provision 708.9 150.5 (3.2) 856.2
7. Investment and development property
Other
UK shopping commercial
centres properties Total
GBPm GBPm GBPm
Investment property:
At 31 December 2004 (as previously
stated) 4,310.2 942.5 5,252.7
Effect of adopting IFRS (8.4) 6.1 (2.3)
At 31 December 2004 (restated) 4,301.8 948.6 5,250.4
Additions 1,008.1 59.6 1,067.7
Disposals - (40.4) (40.4)
Reclassifications - developments 41.7 - 41.7
Reclassifications - trading
properties 2.5 - 2.5
Foreign exchange fluctuations - 28.8 28.8
Surplus on valuation 460.7 102.2 562.9
At 31 December 2005 5,814.8 1,098.8 6,913.6
Development property:
At 31 December 2004 (as previously
stated) 52.7 7.5 60.2
Effect of adopting IFRS (5.5) (7.5) (13.0)
At 31 December 2004 (restated) 47.2 - 47.2
Additions 34.4 - 34.4
Reclassification - investment
property (41.7) - (41.7)
(Deficit)/surplus on valuation (15.7) - (15.7)
At 31 December 2005 24.2 - 24.2
Total investment and development
properties:
At 31 December 2005 5,839.0 1,098.8 6,937.8
At 31 December 2004 (restated) 4,349.0 948.6 5,297.6
The group"s interests in investment and development properties, including those
held through joint ventures, were valued as at 31 December 2005 by external
valuers in accordance with the RICS Appraisal and Valuation Standards, on the
basis of market value. Market value represents the figure that would appear in
a hypothetical contract of sale between a willing buyer and a willing seller.
Regional shopping centres in the UK were valued by either DTZ Debenham Thorpe
Tie Leung, Chartered Surveyors or CB Richard Ellis. Other commercial properties
in the UK were valued by either Knight Frank LLP or CB Richard Ellis. In the
United States, properties were valued by Cushman and Wakefield California Inc.
A reconciliation of investment and development property valuations to the
balance sheet carrying value of property is shown below:
Year ended Year ended
31 December 31 December
2005 2004
Restated
GBPm GBPm
Investment and development property at market
value as determined by external valuers 6,936.3 5,309.7
Add minimum payment under head leases
separately included as a creditor in the
balance
sheet 53.9 31.9
Less accrued incentives separately included as
a debtor in the balance sheet (52.4) (44.0)
Balance sheet carrying value of investment and
development property 6,937.8 5,297.6
8. Trading properties
The estimated replacement cost of trading properties based on market value
amounted to GBP156.0m (31 December 2004 - GBP113.9m).
9. Trade and other receivables
As at As at
31 December 31 December
2005 2004
Restated
GBPm GBPm
Amounts falling due within one year:
Rents receivable 20.8 15.0
Other debtors 21.5 34.3
Derivative financial instruments 0.9 2.4
Prepayments and accrued income 35.5 28.8
78.7 80.5
Amounts falling due after more than one year:
Other debtors 13.7 11.5
Prepayments and accrued income 52.0 47.8
65.7 59.3
10. Borrowings, including finance leases
As at As at
31 December 31 December
2005 2004
Restated
GBPm GBPm
Amounts falling due within one year:
Bank loans and overdrafts 151.6 9.2
Commercial Mortgage Backed Securities ("CMBS") 15.0 -
Finance lease obligations 6.9 4.0
Total amounts falling due within one year 173.5 13.2
Amounts falling due after more than one year:
Secured borrowings - non recourse
CMBS Notes 2015 1,141.9 -
CMBS Notes 2011 547.5 548.7
Bank loan 2015 - 526.5
Bank loans 2014 384.9 386.0
Bank loan 2007 40.0 40.0
2,114.3 1,501.2
Other secured borrowings
Debentures 2021 and 2027 230.0 230.0
Bank loan due 2016 - 172.5
Bank loan due 2013 98.4 -
Other loans 147.0 117.4
2,589.7 2,021.1
Unsecured borrowings
CSC bonds 2013 26.5 31.7
CSC bonds 2009 41.0 64.1
2,657.2 2,116.9
GBP111.3m (2004- GBP240m) 3.95% convertible
bonds due 2010 105.4 220.9
2,762.6 2,337.8
Finance lease obligations 47.6 28.5
2,810.2 2,366.3
Amounts falling due after more than one year
Total borrowings, including finance leases 2,983.7 2,379.5
Cash and cash equivalents (70.8) (438.8)
Net borrowings 2,912.9 1,940.7
11. Fair value of financial instruments
As at 31 December
2005
Balance
sheet Fair
value value
GBPm GBPm
Debentures and other fixed rate loans
Sterling
C&C 9.875% debenture 2027 150.0 233.1
C&C 11.25% debenture 2021 80.0 126.9
CSC 6.875% unsecured bonds 2013 26.5 28.0
CSC 5.75% unsecured bonds 2009 41.0 41.0
US Dollars
Fixed rate loans 156.7 162.4
454.2 591.4
Bank loans and loan notes - LIBOR linked 2,369.6 2,369.6
Finance lease obligations 54.5 54.5
Derivative instruments 281.1 281.1
3,159.4 3,296.6
Convertible debt 105.4 141.0
As at 31 December
2004
Balance
sheet
value Fair value
Restated Restated
GBPm GBPm
Debentures and other fixed rate loans
Sterling
C&C 9.875% debenture 2027 150.0 217.0
C&C 11.25% debenture 2021 80.0 119.9
CSC 6.875% unsecured bonds 2013 31.7 33.0
CSC 5.75% unsecured bonds 2009 64.1 63.8
US Dollars
Fixed rate loans 119.1 124.7
444.9 558.4
Bank loans and loan notes - LIBOR linked 1,681.2 1,681.2
Finance lease obligations 32.5 32.5
Derivative instruments 132.3 132.3
2,290.9 2,404.4
Convertible debt 220.9 293.0
The fair value adjustment in respect of financial instruments, after credit
for tax relief, would amount to 27p per share diluted (31 December 2004 -
23p).
All other financial assets and liabilities included in the balance sheet are
stated at fair values.
12. Provisions for liabilities and charges
Deferred
taxation Other Total
GBPm GBPm GBPm
At 31 December 2004 (as previously stated) 79.3 16.6 95.9
Effect of adopting IFRS 629.6 0.6 630.2
At 31 December 2004 (restated) 708.9 17.2 726.1
Net charge for the period 150.5 1.2 151.7
Other movements (3.2) (11.6) (14.8)
At 31 December 2005 856.2 6.8 863.0
13. Capital commitments
At 31 December 2005, the group was contractually committed to GBP69.9 million
(2004 - GBP329.2 million) of future expenditure for the purchase, construction,
development and enhancement of investment property.
14. Per share details
(a) Number of shares used in the calculation of earnings per share
Year Year
ended ended 31
31 December December
2005 2004
millions millions
Weighted average shares (basic) 319.0 317.0
Effect of dilution 31.5 31.9
Weighted average shares (diluted) 350.5 348.9
(b) Earnings used in the calculation of earnings per share
Year
Year ended
ended 31 December
31 December 2004
2005 Restated
GBPm GBPm
Earnings used for calculation of basic earnings
per share 366.3 332.1
Effect of dilution 10.2 10.8
Earnings used for calculation of diluted
earnings per share 376.5 342.9
Basic earnings per share (pence) 114.8p 104.8p
Diluted earnings per share (pence) 107.4p 98.3p
Earnings used for calculation of basic earnings
per share 366.3 332.1
Add back/(less) exceptional items, net of tax 9.0 (30.0)
Less gain on revaluation and sale of investment
properties (565.5) (357.3)
Add back fair value movement on derivative
financial instruments 145.8 41.4
Add back deferred tax in respect of investment
properties 183.3 112.5
Less deferred tax in respect of derivative
financial instruments (43.7) (12.9)
Earnings used for calculation of adjusted
earnings per share 95.2 85.8
Adjusted earnings per share (pence) 29.8p 27.1p
Earnings used for calculation of adjusted
earnings per share 95.2 85.8
Effect of dilution 10.2 10.8
Earnings used for calculation of adjusted,
diluted earnings per share 105.4 96.6
Adjusted, diluted earnings per share (pence) 30.1p 27.7p
(c) Other share information
Nominal value
(i) Convertible bonds in issue
3.95% convertible
bonds 2010 GBPm Conversion price Callable from
At 31 December 2004 240.0 800p 14 October 2008
Converted in year (128.7)
At 31 December 2005 111.3
On 8 December 2005 Liberty International PLC announced that it would offer
GBP60 per GBP1,000 of bonds to holders of outstanding GBP240m 3.95 per cent
convertible bonds due 2010 to convert into ordinary shares.
Conversion notices were accepted by the company in respect of GBP128.7m of
bonds, representing 53.6 per cent of the GBP240m of bonds outstanding on 16
December 2005. The company paid a sum of GBP7.7m which, together with costs of
GBP0.7m resulted in an exceptional finance charge of GBP8.4m.
The bonds converted into 16.1 million new ordinary shares of the company on the
basis of 125 shares for GBP1,000 of bonds, increasing the company"s issued
ordinary share capital by 5 per cent from 321.7 million to 337.8 million
ordinary shares.
The outstanding convertible bonds may be redeemed at par on 30 September 2007
at the option of the bondholders.
Number
(ii) Ordinary share capital millions
At 31 December 2005 337.8
Of which, held by ESOP trust and treated as cancelled 2.4
(iii) Dividends paid Year Year
ended Ended
31 December 31 December
2005 2004
Restated
GBPm GBPm
Ordinary shares:
Prior period final dividend paid of 14.1p (2004
- 13.25p) 44.7 41.8
Interim dividend paid of 13.0p per share (2004
- 12.4p) 41.6 39.3
86.3 81.1
Proposed dividend of 15.25p (2004 - 14.1p) per
share (not provided for) 51.1 44.7
15. Summary of changes in group equity
Year ended Year ended
31 December 31 December
2005 2004
Restated
GBPm GBPm
Opening equity shareholders" funds - restated 2,534.2 2,288.9
Bond conversions 121.7 0.1
Issue of shares 11.2 4.1
Cancellation of shares (1.1) (1.2)
2,666.0 2,291.9
Total recognised income and expense for the
period 353.4 323.4
3,019.4 2,615.3
Dividends paid (86.3) (81.1)
Closing equity shareholders" funds 2,933.1 2,534.2
16 Adoption of International Financial Reporting Standards
As stated in note 1, this is the group"s first preliminary report prepared in
accordance with IFRS. The accounting policies set out in the release dated 26
July 2005 have been applied in preparing the financial information for the
periods ended 31 December 2005, 31 December 2004 and in the preparation of an
opening IFRS balance sheet at 1 January 2004 (the group"s date of IFRS
transition).
In preparing the opening IFRS balance sheet, the group has adjusted amounts
reported previously in financial statements prepared in accordance with UK
GAAP. An explanation of how the transition from UK GAAP to IFRS has affected
the group"s financial performance, financial position and cash flows is set out
in the following tables and accompanying notes. A full line-by-line
reconciliation of the financial position as at 31 December 2004 and the
financial performance for the year then ended is set out in the release dated
26 July 2005.
(a) Reconciliation of net profit:
Year ended
31 December
2004
Notes GBPm
Previously reported - UK GAAP:
Net profit on ordinary activities 115.7
Exceptional items 42.6
Net profit before tax 158.3
Taxation charge - recurring (32.3)
Taxation charge - on exceptional items (1.4)
Net profit after tax 124.6
Adjustments to net profit before tax:
Revaluation gains on investment properties previously
dealt with in reserves 1 336.7
Movement in fair value of derivative financial
instruments 2 (41.4)
"Recycling" of prior year valuation gains of fixed
asset
investments into profit on disposal 3 6.6
Additional amortisation upon reallocation to equity
of portion of
the convertible debt liability 4 (4.3)
Longer amortisation period for rent free periods and
other lease incentives 5 (0.4)
Defined benefit pension scheme net liability and
other employee benefits 6 (0.4)
296.8
Restated - IFRS:
Net profit on ordinary activities 422.9
Exceptional items 32.2
Net profit before tax 455.1
Taxation charge - recurring 8 (120.8)
Taxation charge - on exceptional items (2.2)
Net profit after tax 7 332.1
1. Under IFRS, gains and losses arising on revaluation of investment
properties are recorded as operating income in the Income Statement. For the
year ended 31 December 2004, this includes gains previously reported in the
revaluation reserve of GBP337.6m on the group"s investment properties and
GBP5.6m on the group"s share of investment properties of joint ventures, net of
GBP5.5m revaluation losses on development properties which were not revalued
under UK GAAP and GBP1.0m lower gain arising from reclassification of rent free
periods (see 5 below). In addition, gains or losses realised on investment
properties disposed of during the period are accounted for as revaluation
gains, rather than exceptional items as under UK GAAP. The effect of this for
the year ended 31 December 2004 is a reclassification from exceptional items to
revaluation gains of GBP17.0m. Other reclassifications which offset within net
profit in respect of finance-leased assets and letting costs are also included
within revaluation gains on investment properties (see note 7a and 7c below).
2. Under IFRS, derivative financial instruments are carried in the balance
sheet at fair value with gains or losses arising on revaluation dealt with in
the Income Statement unless they are eligible to be accounted for as hedges.
This does not affect the underlying cash flows.
3. Under IFRS, exceptional gains or losses on disposal of fixed asset
investments are calculated by reference to their historic cost. Any previous
revaluation surpluses are "recycled" into the profit on disposal, with a
corresponding adjustment to the revaluation reserve.
4. Under IFRS, convertible debt is required to be allocated between debt and
equity (see 12 below). The debt element is initially less than the nominal
value of the bond and must therefore be amortised up to full nominal value
over the term of the instrument, resulting in an additional tax-deductible
finance charge.
5. Under IFRS, investment property lease rent free periods, stepped rents and
other incentives are amortised over the full lease term rather than the
period to first open market rent review (see 13 below). To the extent that
any unamortized incentives have been taken into account in the property
valuation, for example rent free periods recognised as income ahead of
invoicing, the property valuation must be adjusted to avoid double counting
(see below).
6. Under IFRS, the group is required to account for the net liability or asset
in respect of defined benefit pension schemes. Whilst the actuarial gains
and losses in respect of the scheme are dealt with in the statement of
recognised income and expense, the difference between the notional interest
cost on scheme liabilities and the expected return on the scheme assets is
included in the group"s net interest cost. In respect of the year ended 31
December 2004, this amounts to a credit of GBP0.2m. Further, IFRS requires
the group to account for the cost of share-based payments at their fair
value rather than intrinsic value. This increases administration expenses
for the year ended 31 December 2004 by GBP0.5m.
7. Other adjustments have been necessary to the group"s reported financial
performance which offset within net profit.
a. Investment properties held leasehold are treated as finance-leased
assets, with the minimum element of future head rent payments treated as
if it relates to a loan which is financing an increased interest in the
property (see 17a below). The fixed head rental payment is largely
treated as a finance cost instead of a property expense. For the year
ended 31 December 2004, this decreases rental expenses by GBP4.0m,
increases net interest cost by GBP3.6m and decreases fair value gains on
investment property by GBP0.4m.
b. Under UK GAAP the group was required to show its share of the operating
profit of joint ventures as a separate line on the profit and loss
account. Under IFRS joint ventures are proportionally consolidated, with
the group"s share of individual gains and losses of the joint venture
included on the relevant line of the Income Statement. For the year
ended 31 December 2004 this increases rental income by GBP8.0m and
removes the line item "share of operating profit of joint ventures".
c. Under IFRS, letting costs of developments and investment properties are
capitalised over the lease term whereas under UK GAAP the former were
capitalised and the latter were written off as incurred. For the year
ended 31 December 2004, this increases fair value gains on investment
property and rental expenses, each by GBP4.0m.
8. The principal changes in the tax charge for the year ended 31 December
2004 are as follows:
UK GAAP Adjustments IFRS
GBPm GBPm GBPm
Profit on ordinary activities before
taxation 158.3 296.8 455.1
Current United Kingdom corporation tax at
30% 47.5 89.0 136.5
Effects of:
Capital allowances not reversing on sale (2.2) - (2.2)
Disposals of properties and subsidiaries (10.5) 1.9 (8.6)
Prior year items (2.5) 0.1 (2.4)
Expenses disallowed, net of capitalised
interest 1.9 (1.6) 0.3
Untaxed dividends (1.2) - (1.2)
Overseas taxation, including joint
ventures 0.7 (0.1) 0.6
Tax charge for the year 33.7 89.3 123.0
(b) Reconciliation of equity:
31 December 1 January
2004 2004
Notes GBPm GBPm
Previously reported - UK GAAP 3,244.0 2,859.4
Deferred tax on revaluation of
investment properties 9 (653.8) (549.9)
Fair value of derivative financial
instruments 10 (132.3) (89.5)
Exclusion of provision for proposed
dividend 11 44.7 41.8
Reallocation to equity of a portion of
the convertible debt liability 12 14.5 18.9
Longer amortisation period for lease
incentives - long term debtor 13 50.6 50.3
Longer amortisation period for lease
incentives - adjust property
valuation 13 (44.0) (42.3)
Fair value of development properties 14 (11.4) (5.8)
Defined benefit pension scheme net
liability and other employee
benefits 15 (2.0) (1.3)
Owner-occupied property held under
finance lease 16 (0.3) (0.4)
Tax effect of the above 24.2 7.7
Restated - IFRS 17 2,534.2 2,288.9
Notes:
9. Under IAS 12, provision is made for the deferred tax liability associated
with the revaluation of investment properties, whereas UK GAAP requires that
the potential liability on the sale of the properties be disclosed as
contingent tax but not provided in the balance sheet. This liability will
not be incurred while the group continues to hold its property assets.
10. Under IFRS, derivative financial instruments are carried in the balance
sheet at fair value. This does not affect the underlying cash flows. The
total fair value recognised as a liability at 31 December 2004 is GBP132.3m
(1 January 2004 GBP89.5m), which is partially offset by a deferred tax asset
of GBP39.7m (GBP26.9m).
11. Under IFRS, proposed dividends are not recognised as liabilities at the
balance sheet date. Accordingly, compared with UK GAAP, equity shareholders"
funds have increased, and current liabilities have decreased.
12. Under IFRS, convertible debt is required to be allocated between debt and
equity. The debt element is initially less than the nominal value of the bond
and must therefore be amortised up to full nominal value over the term of the
instrument, resulting in an additional tax-deductible finance charge. The
equity element is not remeasured during the term of the instrument. The
effect of this is to reduce borrowings by GBP14.5m and to reduce the tax
liability by GBP1.5m at 31 December 2004 (1 January 2004 GBP18.9m and
GBP0.2m).
13. Under IFRS, investment property lease rent free periods, stepped rents
and other incentives are amortised over the full lease term rather than the
period to first open market rent review. To the extent that any unamortized
incentives have been taken into account in the property valuation, for
example rent free periods recognised as income ahead of invoicing, the
property valuation must be adjusted to avoid double counting. The effect of
this at 31 December 2004 is to reduce the value of investment property by
GBP44.0m, increase debtors due in more than one year by GBP47.8m,
increase debtors due within one year by GBP2.8m and increase the provision for
deferred tax by GBP1.4m (1 January 2004 GBP42.3m, GBP47.9m, GBP2.4m and
GBP2.0m)
14. Under IFRS, investment properties under redevelopment remain classified
as investment properties subject to revaluation through the Income Statement
in accordance with IAS 40. The effect of this at 31 December 2004 is to
reduce development properties by GBP11.4m and reduce the deferred tax
liability by GBP3.4m (1 January 2004 GBP5.8m and GBP1.7m). Properties
acquired with the intention of development are classified as properties in
the course of development and are accounted for at fair value in accordance
with IAS 16. Valuation changes for the latter properties are recognised in
equity rather than the Income Statement
15. Under IFRS, the group is required to account for the net liability or
asset in respect of defined benefit pension schemes and any corresponding
deferred tax asset or liability. At 31 December 2004, the adjustment to the
net scheme liability was GBP1.2m with a deferred tax asset of GBP0.4m (1
January 2004 GBP1.0m and GBP0.3m). Further, IFRS requires the group to
account for the cost of share- based payments at their fair value rather than
intrinsic value. This increases accruals by GBP0.8m at 31 December 2004,
partially offset by a tax credit of GBP0.2m (1 January 2004 GBP0.3m and
GBP0.1m)
16. Under IFRS, the leased property occupied by the group is classified as a
finance-leased asset and as such it increases fixed assets by GBP0.3m, net of
cumulative depreciation. The minimum lease payments are included as a
creditor of GBP0.6m.
17. Other adjustments have been necessary to the group"s reported financial
position which offset within net assets and therefore do not affect equity:
a. Investment properties held leasehold are still valued at the fair value
of the group"s interest, but under IFRS the minimum element of future
head rent payments is treated as if it relates to a loan which is
financing an increased interest in the property. The capitalised value
of the minimum payment is reflected by grossing up the carrying value of
the property with an equal and opposite amount included as a creditor.
The fixed head rental payment is largely treated as a finance cost
instead of a property expense. At 31 December 2004, this increased
investment property and creditors by GBP31.9m, with GBP4.0m of the
creditor falling due within one year (1 January 2004 GBP32.3m and
GBP4.0m).
b. Under UK GAAP the group was required to show its share of the gross
assets and gross liabilities of joint ventures separately on the balance
sheet. Under IFRS joint ventures are proportionally consolidated, with
the group"s share of individual assets and liabilities of the joint
venture included on the relevant line of the balance sheet. At 31
December 2004 this increases investment property by GBP14.9m, trading
properties by GBP13.5m, cash by GBP0.4m, creditors due within one year
by GBP1.2m and borrowings by GBP7.3m, removing the GBP20.3m group"s
share of net assets of joint ventures (1 January 2004 investment
property GBP132.6m, trading property GBP10.6m, working capital GBP0.2m
and borrowings GBP69.3m).
c. Under IFRS, letting costs are capitalised and amortised over the lease
term (see 7c above). The effect of this is to increase investment
property cost and correspondingly reduce revaluation by GBP11.4m.
(c) Cash flows
Under IFRS, the consolidated cash flow statement reconciles the movements in
cash and cash equivalents, whereas in the last audited UK GAAP financial
statements it reconciled the movements in cash only. Other than this, there are
no material differences in the restated consolidated cash flow statement from
that previously published.
Date: 15/02/2006 09:05:31 AM Produced by the JSE SENS Department
