| Thu 27 Jul 2006, 8:04 | | Liberty International - Interim results for the si |
|
LBT
LILII
Liberty International - Interim results for the six months ended 30 June 2006
Liberty International Plc
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILII
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006
Attached is the full Interim Report for the six months ended 30 June 2006:
Highlights
Summary of Investment and Development Properties
Chairman"s Statement
Operating and Financial Review
Interim Results
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.
HIGHLIGHTS
Sir Robert Finch, Chairman of Liberty International, commented:
"Liberty International has continued its dynamic track record of growth with
an
8.1 per cent total return in the six month period increasing net assets per
share to 1268p on the property industry standard measure, equivalent to 1361p
if adjusted for notional acquisition costs deducted from market values.
The quality and resilience of our market-leading UK regional shopping centre
business conducted through Capital Shopping Centres was demonstrated at our
established centres by 7.3 per cent growth in like-for-like net rental income
and an occupancy level which improved in the period to an impressive
98.8 per cent.
The recently opened regional shopping centre developments, Chapelfield,
Norwich, and the Northern Extension of Manchester Arndale, represent
outstanding additions.
Our GBP1.2 billion development programme continues to gather momentum, with
the
three largest components, in Cardiff, Oxford and Newcastle, all in prime
locations extending existing established high quality retail destinations.
Our financial position is robust with a debt to assets ratio further reduced
in
the period to 39 per cent."
27 July 2006
A conference call for investors and analysts will take place at 9.30 a.m. UK
time on 27 July.
HIGHLIGHTS (Continued)
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
Net rental income GBP161.7m GBP143.8m
GBP300.1m
Profit before tax, valuation and
exceptional
items* GBP59.0m GBP54.4m
GBP120.9m
Profit before tax GBP490.5m GBP130.1m
GBP526.9m
Gain on revaluation and sale of
investment
properties GBP258m GBP195m
GBP565m
Total properties GBP7,271m
GBP7,070m
Net assets (diluted, adjusted**) GBP4,465m
GBP4,180m
Basic earnings per share 104.7p 28.8p 114.8p
Earnings per share (adjusted***) 14.0p 13.3p 29.8p
Dividend per ordinary share 13.75p 13.0p 28.25p
Net assets per share (diluted,
adjusted**) 1268p 1188p
* 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.
Net assets per share (diluted, adjusted) would increase by 93p per share
at
30 June 2006 (31 December 2005 - 90p) to 1361p (31 December 2005 - 1278p)
if adjusted for notional acquisition costs (see Financial Review).
Net assets per share (diluted, adjusted) would reduce by 44p at 30 June
2006 (31 December 2005 - 82p) if adjusted for the fair value of all
financial instruments (see Financial Review).
*** Adjusted for valuation and exceptional items and their tax effect (see
note
12 to Interim 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.
Gains on revaluation of investment properties of GBP235 million, with
like-for-like increases for the six month period as follows:
- UK regional shopping centres + 2.7%
- Capital & Counties UK + 8.9%
- Capital & Counties USA + 4.8%
Overall revaluation gain on UK regional shopping centres of GBP163 million
of
which 56 per cent came from yield shift of 8 basis points and the balance
of
44 per cent came from underlying rental growth
GBP126 million disposals of investment properties at GBP23 million over 31
December 2005 market values
Substantial progress with GBP1.2 billion development programme
- St David"s 2, Cardiff
- Westgate, Oxford
- extensions to and upgrades of existing shopping centres
- other retail and commercial assets of Capital & Counties
98.8 per cent occupancy in established UK regional shopping centres,
97.5 per cent overall including recently completed developments (31
December
2005 - 98.5 per cent)
7.3 per cent like-for-like net rental income growth in UK regional shopping
centres, 4.7 per cent for Capital & Counties UK
Strong financial position with debt to assets ratio of 39 per cent
8.1 per cent total return for the six month period (increase in adjusted net
asset value plus dividends)
DIVIDENDS
The Directors of Liberty International PLC have announced an increased interim
ordinary dividend per share of 13.75p (2005 - 13.0p).
The following are the salient dates for the payment of the interim dividend:
Wednesday, 2 August 2006 Sterling/Rand exchange rate struck.
Monday, 14 August 2006 Ordinary shares listed ex-dividend on
the JSE, Johannesburg
Wednesday, 16 August 2006 Ordinary shares listed ex-dividend on
the London Stock Exchange.
Friday, 18 August 2006 Record date for interim dividend in
London and Johannesburg.
Tuesday, 5 September 2006 Dividend payment day for shareholders
(Note: Payment to ADR holders will be
made on 15 September 2006).
South African shareholders should note that, in accordance with the
requirements of STRATE, the last day to trade cum-dividend will be Friday, 11
August 2006 and that no dematerialisation or rematerialisation of shares will
be possible from Monday, 14 August to Friday, 18 August 2006 inclusive.
No transfers between the UK and South African registers may take place from
Wednesday, 2 August to Sunday, 20 August 2006 inclusive.
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES
Market Value Revaluation surplus
31 December 30 June
2005 2006
GBPm GBPm GBPm
Increase
UK regional shopping centres
Lakeside 1,155.9 1,208.6 50.4 4.4%
MetroCentre 930.0 957.2 23.8 2.6%
Braehead 671.0 692.9 22.6 3.4%
Other M25 1,002.1 1,014.2 12.4 1.2%
Other centres 695.8 719.9 23.7 3.4%
Like-for-like income 4,454.8 4,592.8 132.9 3.0%
Other centres 1,244.5 1,285.8 20.6 1.6%
Like-for-like capital 5,699.3 5,878.6 153.5 2.7%
Acquisitions and completions - 35.9 2.3 6.9%
Redevelopments 113.7 125.6 9.6 8.3%
Developments 24.2 27.8 (2.0)
Total UK regional shopping
centres 5,837.2 6,067.9 163.4 2.8%
Other UK properties
Like-for-like income 539.1 589.5 49.5 9.2%
44.0 46.3 2.3 5.3%
Like-for-like capital 583.1 635.8 51.8 8.9%
Redevelopments 86.0 102.0 4.6 5.0%
Developments - 0.1 (0.4)
Disposals 102.9 - -
Total other UK properties 772.0 737.9 56.0 8.2%
US properties
Like-for-like income 303.9 295.4 14.4 4.9%
24.7 23.9 0.8 3.5%
Like-for-like capital 328.6 319.3 15.2 4.8%
Total investment properties 6,937.8 7,125.1 234.6 3.4%
Net rental income
30 June 30 June
2005 2006
GBPm GBPm Increase
UK regional shopping centres
Lakeside
MetroCentre
Braehead
Other M25
Other centres
Like-for-like income 96.5 103.5 7.3%
Other centres 11.1 23.0
Like-for-like capital 107.6 126.5 17.6%
Acquisitions and completions - 0.3
Redevelopments 3.0 2.7
Developments - -
Total UK regional shopping centres 110.6 129.5 17.1%
Other UK properties
Like-for-like income 14.8 15.5 4.7%
- 1.0
Like-for-like capital 14.8 16.5
Redevelopments 3.1 2.0
Developments - -
Disposals 5.0 2.5
Total other UK properties 22.9 21.0 (8.3)%
US properties
Like-for-like income 8.6 9.6 6.9%
- 0.8
Like-for-like capital 8.6 10.4 15.7%
Total investment properties 142.1 160.9 13.2%
Trading properties 1.7 0.8
Net rental income 143.8 161.7 12.4%
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.
Like-for-like capital - Properties included in like-for-like income above,
plus
those 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.
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.
Percentage increases for the US have been adjusted for the effect of exchange
rates.
Property analysis by use and type
Market Value
31 December 30 June Revaluation
2005 2006 % of total surplus
GBPm GBPm properties
Increase
Regional shopping
centres & other
retail
UK regional shopping
centres 5,837.2 6,067.9 85.2% 2.8%
UK other retail 354.4 380.6 5.3% 6.6%
US regional shopping
centres 130.8 129.5 1.8% 7.4%
US other retail 137.9 133.3 1.9% 3.7%
Total regional
shopping centres &
other retail 6,460.3 6,711.3 94.2% 3.1%
Office
UK business space 417.6 357.3 5.0% 10.0%
US business space 59.9 56.5 0.8% 2.7%
Total office 477.5 413.8 5.8% 8.9%
Total investment
properties 6,937.8 7,125.1 100% 3.4%
Analysis of other UK and US properties by location and type
Market Market
Value Value Revaluation surplus
31 December 30 June 30 June
2005 2006 2006
GBPm GBPm GBPm
Increase
Other UK properties
Central London 408.1 397.0 40.0 11.2%
Retail outside London 170.5 179.9 7.1 4.2%
Business space outside
London 193.4 161.0 8.9 5.8%
Total other UK properties 772.0 737.9 56.0 8.2%
US properties
US retail 268.7 262.8 13.7 5.3%
US business space 59.9 56.5 1.5 2.5%
Total US properties 328.6 319.3 15.2 4.8%
Total properties 1,100.6 1,057.2 71.2 7.2%
Net rental income
30 June 30 June
2005 2006
GBPm GBPm
Other UK properties
Central London 13.2 11.9
Retail outside London 4.8 3.9
Business space outside London 4.9 5.2
Total other UK properties 22.9 21.0
US properties
US retail 6.6 8.3
US business space 2.0 2.1
Total US properties 8.6 10.4
Total properties 31.5 31.4
UK investment property valuation data
Market
Value True equivalent yield
30 June 31 December 30 June
2006 2005 2006
GBPm
UK regional shopping centres
Lakeside 1,208.6 5.06% 5.01%
MetroCentre 957.2 5.16% 5.06%
Braehead 692.9 5.25% 5.16%
Other M25 1,014.2 5.29% 5.23%
Other centres 2,005.7 5.52% 5.44%
Like-for-like capital 5,878.6 5.30% 5.22%
Other 189.3
Total UK regional shopping centres 6,067.9 5.32% 5.24%
Other UK properties
Central London 335.0 5.55% 5.14%
Retail outside London 156.2 5.68% 5.39%
Business space outside London 144.6 5.17% 5.01%
Like-for-like capital 635.8 5.49% 5.17%
Other 102.1
Total Other UK properties 737.9 5.76% 5.23%
Six
months
Passing Net rental
rent income ERV
30 June 30 June 30 June
2006 2006 2006
GBPm GBPm
GBPm
UK regional shopping centres
Lakeside
MetroCentre
Braehead
Other M25
Other centres
Like-for-like capital 247.6 126.5 310.7
Other 6.0 3.0 8.8
Total UK regional shopping centres 253.6 129.5 319.5
Other UK properties
Central London
Retail outside London
Business space outside London
Like-for-like capital 33.4 16.5 35.6
Other 3.7 4.5 10.0
Total Other UK properties 37.1 21.0 45.6
Definitions:
Like-for-like capital
As defined above
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 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.
Acquisitions
Properties acquired during the current period.
Developments
Properties under development and land which have not previously been held as
completed investment properties.
Disposals
Properties which have been sold during the period. Net rental income in 2005
also includes income from properties sold in 2005.
CHAIRMAN"S STATEMENT
Introduction
Liberty International is a major UK FTSE-100 ranking listed property company
with shareholders" funds of nearly GBP4.5 billion and property assets now over
GBP7.2 billion of which prime UK regional shopping centres amount to some 85
per
cent. The half year ended 30 June 2006 has seen substantial progress with a
continuation of our dynamic track record of growth. We have reported an 8.1
per cent total return with an increase in net assets per share from 1188p to
1268p and a 5.3 per cent increase in underlying earnings per share to 14.0p.
The quality and resilience of our UK regional shopping centre business
conducted through Capital Shopping Centres (`CSC") was demonstrated at CSC"s
established centres by 7.3 per cent growth in like-for-like net rental income
and an occupancy level which improved in the period to an impressive 98.8 per
cent.
CSC"s recently opened regional shopping centre developments, Chapelfield,
Norwich, and the Northern Extension of Manchester Arndale represent
outstanding additions to our business.
Development Programme
Our GBP1.2 billion development programme continues to gather momentum.
The largest three components are all in prime locations extending established
high quality retail destinations. At St. David"s 2, Cardiff, we expect the
main construction contract to start on site at the end of the year. At
Westgate, Oxford, we have now submitted a detailed application for planning
permission with an anticipated start on site at year end 2007. The major
enlargement of Eldon Square, Newcastle, is already underway.
Active management of our centres is a key component of their continuing
success - as they change to reflect shopping habits and demands. Accordingly
the programme includes a large number of smaller projects where we seek to add
incremental value to existing centres.
An example of such a project is the conversion to restaurant use of the
Pavilion building which overlooks the lake at Lakeside, Thurrock. We are now
on site with practical completion programmed for 2007. The restaurants have
been pre-let to a very strong line-up of restaurateurs. The project will
create a major additional attraction to strengthen further the important
evening trade at our flagship centre which already successfully trades on
weekdays from 10 a.m. until 10 p.m.
The overall programme includes substantial regeneration activities of some
GBP150 million at Capital & Counties, our non-shopping centre business, where
several assets are currently non-income producing while they undergo
redevelopment or refurbishment. The programme includes promising projects such
as the mixed-use redevelopment of the former Allders department store in The
Headrow, Leeds, and in aggregate involves around 700,000 sq.ft. to be brought
back into income production over the next few years.
Disposals
We achieved GBP126 million of office disposals in the period at a surplus of
GBP23
million over their 2005 market values thus freeing up financial resources for
our development programme. These disposals were in line with our overall
strategy to focus on retail property which constitutes 94 per cent of our
business. Our remaining office component is mostly in London"s West End, as
part of mixed-use buildings in locations with significant constraints on
further supply.
Valuations
Our assets are revalued every six months by independent external professional
valuers.
A revaluation surplus on our investment properties of GBP235 million arose for
the half year, representing an overall 3.4 per cent increase. Our established
UK regional shopping centres increased by 2.7 per cent while Capital &
Counties recorded a like- for-like increase of 8.9 per cent in the UK and 4.8
per cent in the USA.
Our prime regional shopping centres were valued at an average true equivalent
yield of 5.22 per cent at 30 June 2006, a relatively conservative yield
compared with other retail asset classes. By comparison, prime high street
shops are now valued on yields around 4 per cent and prime retail parks have
moved below the 4 per cent mark. As we consider the rental growth prospects
from our centres to be as good or better than high street shops or retail
parks, we believe that, on a relative basis, our centres represent excellent
value.
The equivalent yield used by our valuers for our UK regional shopping centres
reduced in the period from an average of 5.30 per cent to 5.22 per cent, a
yield shift of 8 basis points. The gap between current net rental income and
the valuers" higher estimate of the rental value of the centres limited the
scope for downward yield shift in the period; but does imply scope for future
growth in Liberty International"s net rental income assuming this gap is
closed in due course through our rolling programme of rent reviews.
Furthermore and encouragingly, nearly half the period"s valuation uplift from
these assets came from underlying rental growth.
The valuation of CSC"s assets has been carried out with limited evidence
available to the valuers of recent actual market transactions for prime UK
regional shopping centres. Also, each asset is valued individually and the
result therefore takes no account of any additional value were the portfolio
to be considered as a whole. Furthermore, investment properties are valued
after deducting notional acquisition costs, particularly stamp duty land tax
at 4 per cent in the UK, amounting in aggregate to GBP330 million, equivalent
to 93p per Liberty International share. Each of these factors is relevant and
overall they add significantly to the value of Liberty International.
UK investment property market
We are firm believers in the importance of specialisation in the property
business as a key factor in long term success. However, as a specialist, one
has at times to endure periods when investors" attention moves elsewhere and
other sectors are more in favour.
UK office markets, after a long period of underperformance compared with other
property asset classes, particularly retail, are currently experiencing a
sharp cyclical recovery and significant re-rating, particularly in Central
London. In our case, Capital & Counties" Central London assets appreciated by
11 per cent in the six month period ended 30 June 2006.
A marked downward shift in yields has been an important component of the
exceptional returns recorded from UK real estate in the last few years. This
process had strong foundations in its early phases as investors adapted and
grew to accept lower and more stable long term interest rates in the UK;
looking forward, however, the likelihood is a less benign inflationary
environment, particularly as a result of increased commodity prices. The UK
investment property market has to date been relatively unperturbed by the
change in the interest rate environment in the first six months of 2006.
We have always adopted a prudent approach to debt financing and, while the
debt component of the group"s capital structure is predominantly floating
rate, it is backed by interest rate swaps thereby achieving long term fixed
rate finance on a flexible basis and immunising the group against rising
interest rates. This period"s Income Statement shows a surplus of GBP175
million on the revaluation of these financial instruments, reflecting the
sharp upward
movement in UK interest rates in the period, with the UK 10 year gilt yield
increasing from 4.1 per cent to 4.7 per cent.
Retail Market Conditions
We consistently remind investors that as a retail property company, not a
retailer, our cash flows are underpinned by long term rental contracts which
in the UK at the present time predominantly have rent reviews every 5 years.
The encouraging 7 per cent growth in like-for-like net rental income from our
established centres was the result of progress with our rent reviews in this
period, particularly at Lakeside, Thurrock, The MetroCentre, Gateshead, and
The Chimes, Uxbridge, in the latter case the first rent reviews since opening
in March 2001.
Non-food retail sales in the UK, which showed an unprecedented absolute
reduction of 0.6 per cent in 2005 compared with 2004, have recovered to some
extent in 2006, particularly in the last three months. Trade appears to have
improved overall at our centres this year, although as ever with winners and
losers among our retail customers as the process of dynamic change in UK
retailing unfolds.
Notwithstanding last year"s difficult market, retailers are generally
continuing with selective expansion plans and the early indications of
retailer enthusiasm for our attractive major developments are encouraging.
However, the letting market is likely to be challenging for the next few years
as a number of major UK city centre development projects, few of which are
however directly competing with CSC centres, are scheduled to open between now
and the end of 2008.
Our immediate priorities are to maintain the high level of occupancy within
our established centres and to complete lettings at Chapelfield, Norwich, and
Manchester Arndale. Beyond that point, we have no material development letting
exposure until the opening of St. David"s 2, Cardiff in Autumn 2009 and of the
last and largest phase of the Eldon Square, Newcastle extension, also
scheduled for 2009.
Mixed-use
One pervading theme in UK property development at present is the move to mixed-
use and higher density development.
Braehead, Glasgow, with 1.2 miles of river frontage to the Clyde, is of course
an excellent example of mixed-use regeneration. In addition to the major
retail and leisure offer of some 2 million sq.ft., including the recently
opened 460,000 sq.ft. Xscape indoor leisure scheme, we are now engaged in
transforming a further 165 acres of additional derelict industrial land into a
new residential community which is expected to grow to a population of around
4,500 people, together with 750,000 sq.ft. of offices and two new hotels.
Braehead currently provides employment for 4,500 people and this number is
expected to grow significantly over the next few years.
Recent and proposed shopping centre developments such as Norwich, Cardiff and
Oxford all contain a substantial residential component including an affordable
housing quota. We now have significant experience of the residential aspect of
development activity and, particularly with the additional skills available
within Capital & Counties, are fully equipped to deal with complex mixed-use
projects and to prosper in the changing planning environment.
Management
I would like to compliment our management team on the achievements of the six
month period; especially our property management teams which have maintained
such a high level of occupancy at our established UK regional shopping
centres.
I would also particularly like to record our great appreciation for the 33
years service of John Saggers, Managing Director of Capital & Counties and an
executive Board Director of Liberty International, who retires in October this
year. We are pleased to have announced the appointment of Ian Hawksworth,
formerly an executive director of Hongkong Land, who is returning to the UK
and takes up his role as Managing Director of Capital & Counties in September
this year.
Dividends
The directors are recommending an interim dividend of 13.75p per share payable
on 5 September 2006, an increase of 5.8 per cent on 2005. The directors remain
committed to a progressive and relatively full dividend policy which they
believe represents a major attraction for long-term investors.
UK Real Estate Investment Trusts (`UK-REITS")
The 2006 Finance Act containing the new REIT legislation has now been passed.
It provides the UK with a tax-transparent property investment vehicle, a model
which has been satisfactorily in operation in other major jurisdictions for
many years.
While some detailed regulations are still awaited, the directors consider it
likely that it will be in the best interests of shareholders for Liberty
International to convert with effect from 1 January 2007. A circular on the
subject will be sent to shareholders in the latter part of this year; the
circular will, inter alia, set out our dividend policy as a REIT.
In the case of Liberty International, the charge for entry into the UK-REIT
regime, which has been set at 2 per cent of investment properties, would
amount to some GBP136 million (39p per share) on the basis of market values at
30 June 2006. This compares with our current liability for tax on capital
gains, if our UK assets were sold at market value, of around GBP630 million
(179p per share).
Prospects
Our financial position is robust with a debt to assets ratio further reduced
in the period to 39 per cent. We have a strong and experienced management team
with immense enthusiasm to seize attractive opportunities to enhance our
property activities.
The sheer quality, the stability and the resilience of our assets is quite
evident. These fundamentals will allow us in the years ahead to continue to
deliver strong results to our shareholders.
Sir Robert Finch
Chairman
27 July 2006
OPERATING AND FINANCIAL REVIEW FOR THE SIX MONTHS ENDED 30 JUNE 2006
OPERATING REVIEW
CAPITAL SHOPPING CENTRES (`CSC")
Significant events in the first half of 2006 have been the completion of Phase
2 of the Northern Extension, Manchester Arndale and Xscape, Braehead,
Renfrewshire, Glasgow, both opening on 6 April.
UK retailing continues to be a challenging activity within an ever more
competitive environment. Consumers have become more conservative in their
approach to spending, and retailers are facing continuous downward pressure on
prices and intense competition from other retail formats and channels. The
current leaders are investing both in physical space and online.
Our quality portfolio, with 50 per cent of the UK"s population within 45
minutes drive time of our centres, continues to experience satisfactory
retailer demand for well configured space with occupancy levels excluding
recently completed developments continuing to be high at 98.8 per cent. The
weighted average length of CSC"s leases is nearly 10 years.
Our active management approach has effected 33 tenancy changes in the first
six months of 2006 adding GBP0.6 million to annual rental income on a like-for-
like basis.
Progress continues to be made on the major rent review programmes, in
particular at Lakeside where the majority of the 2005 reviews have now been
settled.
Further settlements since the year end have been effected at MetroCentre,
Uxbridge and Watford, in line with our expectations.
We continue to work closely with local authorities and other stakeholders
wherever we are represented in the UK; promoting education, training and other
community issues. We estimate over 46,000 people are directly employed at our
UK shopping centres.
The development programme at both completed centres and new sites extending
existing prime locations gives considerable momentum to the company"s long-
term growth profile.
CSC"s successful active management focus continually responds to new retail
and leisure trends initiated by both our customer groups; the retailer and the
consumer. This approach strengthens the quality of our product in prime
locations, extending catchments and creating more attractive and compelling
destinations.
Development activities in respect of completed shopping centres
At Lakeside, Thurrock, the final phase of refurbishment of the centre, the
remodelling of the Pavilion to provide ten new restaurants and further retail
and leisure space, commenced on site in April this year. 76 per cent of the
space is committed and the project is due to complete in Summer 2007.
At MetroCentre, Gateshead, our ongoing refurbishment of the malls has
successfully continued with completion of this year"s programme on target for
pre-Christmas trading.
At Braehead, Renfrew, Glasgow, significant progress has been made since the
year end on the Phase 2 development comprising 165 acres. Xscape, our joint
venture with Capital & Regional opened in April, strengthening the Braehead
destination offering sport experiences and other leisure activities such as
bowling and specialist retail together with cafA(c)s and restaurants. 95 per
cent of the Xscape space is committed. A further 40 acres of residential land
is now in conditional missives for sale and a two acre site has been sold for
the development of an 80-bedroom hotel. A new Scottish headquarters for
Spanish ceramics company Porcelanosa is under construction. In addition,
detailed planning consent has been granted for a 35,000 sq.ft. office
development adjacent to Xscape and construction will start later this year.
At Eldon Square, Newcastle, two of our three schemes to improve and extend the
centre to a total of 1.3 million sq.ft. have commenced on site. Eldon Square
West will provide 22,000 sq.ft. of retail and restaurant space overlooking Old
Eldon Square and 58 per cent of the income is currently committed.
Construction works are on programme for completion this Autumn. Eldon Square
North, our project to relocate the current bus station and provide 48,000
sq.ft. of additional retail space started on site in April this year and is
due to complete, in phases between 2007 and 2008.
Progress has also been achieved on the third and largest of the schemes, Eldon
Square South, which will provide 410,000 sq.ft. of retail space and an
agreement for lease is expected to be completed shortly for the 175,000 sq.ft.
department store. This store, together with units currently under active
negotiation, amount to 54 per cent of the scheme"s anticipated rental income.
The second phase of the 550,000 sq.ft. Northern Extension at Manchester
Arndale opened in April providing big floor plates and well configured space
to meet retailer requirements, including the opening of the largest Top Shop
in the UK outside London. The final phase of the new development is on
programme to open for pre- Christmas trade. 87 per cent of the total
floorspace in the extension is either let or committed. On opening of the
final phase the centre will provide 1.4 million sq.ft. of retail space, the
largest city centre shopping centre in the UK.
The first phase of our project to provide an additional 38,000 sq.ft. of
retail space at The Glades, Bromley has commenced on site. H&M have contracted
to occupy a 30,000 sq.ft. unit and are due to open in 2008.
Negotiations with Watford Council to remodel the Charter Place site, adjacent
to The Harlequin are gathering momentum following the publication of the
planning brief for the site.
In partnership with Prudential, the refurbishment of the Cribbs Causeway,
Bristol, retail park has commenced on site with completion scheduled for early
November. These works will create the opportunity to introduce new retailers,
refreshing the tenant mix at this successful location.
Our portfolio of quality centres in good catchments continues to offer
opportunities to improve rental income and tenant mix through remodelling such
as at The Potteries, Stoke-on-Trent, where plans to provide four units for
large space users are progressing well.
Following the successful opening of Chapelfield, Norwich, the fit-out of the
residential apartments which flank the shopping centre is underway, providing
phased completions from September 2006 until spring 2007. Of the 117
apartments, 28 have been allocated and sold for affordable housing, 70
apartments are to be sold privately on long leases, and 19 will be retained by
CSC and let on assured shorthold tenancies.
Progress on new centres
In Oxford, the Westgate Partnership, our joint venture with LaSalle Investment
Management, continues to progress following the submission of a detailed
planning application in June. The proposals include the refurbishment and
extension of the existing centre to around 750,000 sq.ft. In addition to a
John Lewis Partnership department store and around 90 shops, there are 127
city centre homes, 50 per cent of which will be designated as affordable
housing. Significant improvements to the surrounding environment will also add
to the increased vitality of this part of Oxford.
Our joint venture with Land Securities Group PLC for a substantial extension
to the existing St. David"s Centre in Cardiff is progressing well. The retail
provision of some 967,500 sq. ft. will be anchored by a John Lewis Partnership
department store and will provide around 125 shops and restaurants. In
addition over 300 new apartments will be created together with a state of the
art civic library of around 55,000 sq. ft.
The scheme has detailed planning consent and a public inquiry for the
Compulsory Purchase Order took place in May. Enabling works are now underway
with construction of the main scheme due to start at the beginning of 2007. On
completion, the new St. David"s Centre will provide around 1.4 million sq. ft.
of space, ranking it amongst the UK"s largest city centre regional shopping
centres.
CAPITAL & COUNTIES
UK
Capital & Counties" focus in the first half of 2006 has been threefold,
concentrating on property regeneration, disposals and new initiatives.
We have made substantial progress in the six months in bringing forward our
wide range of refurbishment and redevelopment projects. We have also taken
advantage of the strong property investment market to make further disposals
at very satisfactory prices. Efforts have intensified to identify further
value-adding opportunities both within the existing core property investments
and within new acquisitions. Residential use is becoming an increasingly
evident theme in potential projects.
Investment property values continued to improve during the half year both as a
result of rental growth expectations and further positive yield shift,
particularly within London"s West End. UK properties increased in value by
GBP56
million to GBP737.9 million at 30 June 2006, an increase of 8.9 per cent on a
like-for-like basis.
Central London offices and retail
The vacancy rate in our West End and Mid-Town offices continues to reduce; at
the end of June only 4,500 sq.ft. was vacant and available to let which
represents only one per cent of our total office space in those locations.
Average passing office rents in our West End properties are still only GBP27
per
square foot, a modest figure bearing in mind some recently reported lettings.
We also have significant exposure to West End and Covent Garden retail
property and have been very encouraged by the current rate of growth in
Central London retail sales reported by the London Retail Consortium; for
example, an increase of 10.1 per cent in the March-May period of 2006 compared
with 2005. If this momentum continues, it should have a very positive effect
on rental values.
In the half year, we mounted a selective sales campaign for King"s Reach on
the South Bank, prompted by a number of unsolicited approaches for the
property. A sale was achieved at GBP80 million, well in excess of last year"s
valuation. Notwithstanding this opportunistic disposal, our strategy remains
to increase the critical mass of investment within the West End and Mid Town
retail and office markets and we are currently considering a number of new
opportunities.
Meanwhile planning consent was received for a revised scheme for the 110,000
sq.ft. Wapping Riverside workspace refurbishment, a scheme aimed at the
creative industries. In Hammersmith, the 110,000 sq.ft. office refurbishment
at the Metro Building will complete mid-August when it will be formally
launched. At 190, Strand, WC2, we are progressing a joint venture agreement
with Prudential to enable this exciting redevelopment scheme to proceed in
2007. The consent permits 200,000 sq.ft. of office and retail space as well as
44 apartments. Also in Central London, a planning application has been made
for the redevelopment of offices and garaging at Old Court Place, London W8 to
provide 6 town houses.
We have also exchanged contracts for the purchase of 1.5 acres of prime
development land adjacent to the retail heart of historic riverside Greenwich,
South East London. A mixed use scheme including 30,000 sq.ft. of retail and
120 apartments is envisaged and we are in discussion with a residential
developer in respect of a potential joint venture.
Retail outside London
In Leeds, at The Headrow, negotiations have been conditionally concluded to
enable us to carry out the major retail, office and residential scheme
originally envisaged. Substantial preparatory work has already been carried
out and we anticipate that the main refurbishment and redevelopment work will
start in the Autumn. The scheme has been renamed `Broad Gate", a name drawn
from the heritage of the location.
Further progress has also been made in working up schemes for redundant space
within the department stores at Liverpool and Manchester where residential
conversions and the provision of creative workspace are envisaged.
Following the sale of land in 2005 at Junction 15 of the M40 at Warwick
planning consent has been received for commercial development on the remaining
5 acres of land. We intend to sell this land when appropriate.
Offices outside London
We are gradually reducing our exposure to this sector and in March sold three
properties totalling 174,000 sq.ft. in Slough, Portsmouth and Cheshunt. Total
realisation was GBP47 million, GBP2.6 million in excess of the 31 December
2005
market value. Other disposals are envisaged in due course in order to recycle
the capital into Central London investments, retail property throughout the UK
and development opportunities.
USA
The investment property valuation at the half year has resulted in a very
satisfactory increase of 4.8 per cent on a like-for-like basis compared with
31 December 2005. Overall, initial yield on the US investment portfolio is an
attractive 6.2 per cent.
Asset management activities continue. Of particular interest is an initiative
to create an overall master plan for Serramonte Shopping Center where
substantial land area on the 80 acre site is underutilised. The purpose of the
master plan will be to inform and assist discussion with the city planners as
we move towards creating further added value at this property.
Construction projects are advancing on schedule at the Trio Apartments
residential development in Pasadena and the Willows Shopping Center in the San
Francisco Bay area. Trio Apartments remains on schedule for completion in the
second half of the year and the leasing of the initial phases continues on
plan. The new retail building at the Willows is proceeding with completion
scheduled in November of this year.
Leasing progress during the first half of the year was excellent, the
highlights of which are new leases covering 14,000 sq.ft. on the top floor of
222 Sutter Street, San Francisco, 7,000 sq.ft. at the Willows, 7,000 sq.ft. at
Plaza Escuela, Walnut Creek, and 16,000 sq.ft. of new tenancies at Serramonte.
FINANCIAL REVIEW
INCOME STATEMENT
Analysis of profit before tax
Six
Six months months
ended ended
30 June 30 June
Increase 2006 2005
GBPm
GBPm
Underlying profit before tax 8.4% 58.3 53.8
Property trading profits 0.7 0.6
Profit before tax, valuation and
exceptional 8.5% 59.0 54.4
Gains on revaluation and sale of
investment properties 258.0 195.2
Movement in fair value of derivative
financial instruments 175.5 (114.3)
Exceptional items (2.0) (5.2)
Profit before tax 490.5 130.1
Underlying profit before tax increased by 8.4 per cent to GBP58.3 million from
GBP53.8 million reflecting rent reviews and interest savings, offset in part
by
the impact of active management and disposals all of which are discussed in
more detail below.
Trading profits of GBP0.7 million showed a small increase over the level
achieved
in 2005. Overall profit before tax, valuation and exceptional items therefore
increased by 8.5 per cent from GBP54.4 million to GBP59.0 million.
In addition to exceptional items, material items which need to be disclosed by
virtue of their size or incidence, reported profit before tax 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.
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
Investment Properties. Also the fair value of derivative financial instruments
is included in the Balance Sheet and the movement in fair value of derivative
financial instruments is included in the Income Statement. Inclusion of these
items can create 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. The separation of the fixed and floating
elements in this way has 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.
Over the period to 30 June 2006, interest rates in general increased and in
particular the ten-year sterling interest rate swap, which represents a
suitable benchmark for the group"s fixed rate obligations, increased from 4.45
per cent to 5.05 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, improved by GBP175.5 million
and this movement has been reported in the Income Statement. Of this movement
GBP12.7 million was attributable to the GBP350 million of interest rate swaps
contracted around and just after the 2005 year end when rates were at historic
lows.
The fair value of financial instruments is extremely sensitive to movements in
interest rates. An increase of around 0.40 per cent in swap rates would be
sufficient to eliminate the GBP107 million negative fair value shown in the
balance sheet at 30 June 2006 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 30 June 2006 primarily comprised the
unamortised costs of the original bank facility secured on The Glades, Bromley
and The Chimes, Uxbridge which were written off when this facility was repaid
earlier in the period. Further commentary on the impact of financings is
included below under the section net interest payable.
Profit before tax increased to GBP490.5 million from GBP130.1 million, largely
as a result of the substantial increase in the revaluation gain on investment
properties and the reversal in respect of the fair value of derivative
financial instruments.
Net rental income increased to GBP161.7 million from GBP143.8 million. The
increase has two components, like-for-like growth and acquisitions and
completions, net of disposals. Like- for-like growth, calculated in respect of
77 per cent of properties by value, was 6.9 per cent.
UK regional shopping centres provided like-for-like growth of GBP7.0 million
(7.3 per cent) primarily from the favourable rent reviews at Lakeside,
MetroCentre, Uxbridge and Watford. A further GBP11.9 million increase in net
rental income came from the impact of acquisitions in 2005, where income had
only been received for part of the comparative period, and centres where there
had been substantial capital expenditure so again income in the two periods is
not directly comparable.
Other UK properties contributed 4.7 per cent like-for-like growth. However,
property sales and the effect of medium and longer-term refurbishment or
redevelopment activity resulted in an overall reduction in net rental income
of
GBP1.9 million.
The US properties showed like-for-like growth of 6.9 per cent.
Interest payable increased to GBP90.7 million from GBP84.9 million and
interest
receivable reduced to GBP2.9 million from GBP7.6 million. The increase of
GBP10.5
million in net interest payable reflects expenditure on property acquisitions;
interests in Manchester Arndale and The Mall at Cribbs Causeway during the
first half of 2005 and the completion of Chapelfield, Norwich and an increased
interest in Eldon Square, Newcastle in the second half.
The interest charge benefited from savings generated by the three major
non-recourse refinancings undertaken in the first half of 2005 and from the
conversion of GBP129 million of 3.95% convertible bonds into 16 million
ordinary
shares at the end of 2005.
In April 2006 the GBP208 million loan secured on The Glades, Bromley and The
Chimes, Uxbridge was replaced with separate ten-year loans initially amounting
to GBP252 million with a further GBP80 million available when the current
round of
rent reviews are complete at The Chimes. This increased debt was achieved
while at the same time securing a saving in margin. In May 2006, we completed
a GBP212 million ten-year loan secured on Chapelfield, Norwich.
The movement in net debt and available facilities is commented upon further
under Financial Management.
The underlying tax charge, before valuation and exceptional items and before
deferred tax on capital allowances amounted to 20.5 per cent (2005 - 22.4 per
cent). The low tax charge was primarily due to the benefit of capital
allowances and tax relief for capitalised interest.
Provision for tax on valuation and exceptional items and deferred tax in
respect of capital allowances increased the group"s reported tax charge to
28.2 per cent (2005 - 29.5 per cent).
Basic earnings per share increased to 104.7p from 28.8p. Earnings per share
(adjusted) increased by 5.3 per cent to 14.0p from 13.3p.
The interim dividend per share increased by 5.8 per cent to 13.75p per share.
NET ASSETS
Net assets per share As at As at
30 June 31 December
2006 2005
GBPm
GBPm
Basic net asset value 3,249.0 2,933.1
Effect of dilution:
On conversion of bonds 107.0 105.4
On exercise of options 14.0 17.9
Diluted net asset value 3,370.0 3,056.4
Adjustments:
Fair value of derivative financial instruments (net
of tax) 75.1 194.4
Deferred tax on revaluation surpluses 893.5 817.4
Deferred tax on capital allowances 96.7 95.7
Unrecognised surplus on trading properties (net of
tax) 29.7 16.4
Diluted adjusted net asset value 4,465.0 4,180.3
Basic net assets per share from IFRS balance sheet 966 p 875 p
Net assets per share (diluted, adjusted) 1268 p 1188 p
Basic shares in issue used for calculation 336.4 m 335.4 m
Diluted shares used for calculation 352.2 m 352.0 m
Net assets increased to GBP3,249 million from GBP2,933 million. Net assets
(diluted, adjusted) increased to GBP4,465 million from GBP4,180 million and
net
assets per share (diluted, adjusted) increased to 1268p from 1188p, mostly as
a result of the gains on revaluation and sale of investment properties arising
during the period.
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. The first relates
to the fair value of financial instruments, which includes all financial
instruments and not just derivatives. The fair value adjustment for
non-derivative financial instruments (note 10) amounts to 23p per share after
tax (31 December 2005 - 27p) and the adjustment for derivative financial
instruments equates to 21p per share after tax (31 December 2005 - 55p). The
sum of the above potential adjustments is a deduction from net assets per
share (diluted, adjusted) of 44p (31 December 2005 - 82p).
The second potential adjustment is the provision for deferred tax which,
calculated on a disposal basis (note 5) rather than the basis reported under
IFRS, would amount to GBP671 million (31 December 2005 - GBP642 million) or
191p
per share (31 December 2005 - 182p). However, this amount is undiscounted and
takes no account of the savings that may be available depending on how sales
are structured. This potential adjustment would reduce to around 50p per share
if Liberty International becomes a REIT, taking into account overseas
properties which are not covered by the UK tax exemptions, and the expected
entry charge of around GBP136 million (39p per share).
Investment properties increased to GBP7,125 million from GBP6,938 million at
December 2005. Additions amounted to GBP62 million, comprising primarily
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 2005 6,938
Additions 62
Disposals (103)
Foreign exchange and other movements (24)
Valuation surplus on investment properties 237
Valuation surplus on developments 15
Investment properties at 30 June 2006 7,125
The aggregate valuation surplus arising in the period to 30 June 2006 amounted
to GBP252 million.
Investment properties are valued after deducting notional acquisition costs
including stamp duty amounting in aggregate to GBP330 million (31 December
2005 -
GBP318 million), equivalent to 93p per Liberty International share (31
December
2005 - 90p).
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 GBP4,795
million (2005 - GBP4,498 million) and net assets per share (diluted, adjusted)
would amount to 1361p (2005 - 1278p) compared with the reported figure of
1268p (2005 - 1188p).
FINANCIAL MANAGEMENT
Movement in Net Debt and Bank Facilities
Cash balances increased by GBP47 million from GBP71 million at 31 December
2005 to
GBP118 million at 30 June 2006 while gross borrowings reduced by GBP7 million
to
GBP2,977 million. The resulting small 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 9) 2,913
Additions to investment properties 62
Disposals of investment properties (126)
Other 10
Closing net debt (note 9) 2,859
At 30 June 2006 the group had committed undrawn medium-term bank facilities of
GBP585 million.
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 for the period ended
30 June 2006 remained at around 1.7 times and the ratio of net debt to assets
reduced to 39 per cent at 30 June 2006 from 40 per cent at 31 December 2005,
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 remained
unchanged at 4.50 per cent. However, the market in longer-term sterling swaps
reflected expectations for interest rates to rise and the ten-year sterling
interest rate swap increased by over 0.60 per cent to 5.05 per cent over the
same period.
The table below summarises the interest rate swaps in place at 30 June 2006
compared with 31 December 2005. As reported at the year end, the level of
fixed rate protection was increased early in 2006, extending protection beyond
the current maturity of existing floating rate facilities.
Interest rate swap
summary
Notional principal Average rate
30 June 31 December 30 June 31 December
2006 2005 2006 2005
GBPm GBPm
In payment after:
2006 2,501 2,462 5.33% 5.36%
2011 2,907 3,125 5.20% 5.29%
2016 1,800 1,780 4.78% 4.97%
2021 1,475 1,175 4.65% 4.86%
2026 1,475 1,175 4.65% 4.86%
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 capital expenditure on potential
developments becomes more probable 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 30
June 2006 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).
27 July 2006
Independent review report to Liberty International PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2006 which comprises the consolidated interim
balance sheet as at 30 June 2006 and the related consolidated interim
statements of income, cash flows, statement of recognised income and expense
and the related notes for the six months then ended. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
Directors" responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing
Rules of the Financial Services Authority require that the accounting policies
and presentation applied to the interim figures should be consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
This interim report has been prepared in accordance with the basis set out in
Note 1.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and
applying analytical procedures to the financial information and underlying
financial data and, based thereon, assessing whether the disclosed accounting
policies have been applied. A review excludes audit procedures such as tests
of controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit and therefore provides a lower level
of assurance. Accordingly we do not express an audit opinion on the financial
information. This report, including the conclusion, has been prepared for and
only for the company for the purpose of the Listing Rules of the Financial
Services Authority and for no other purpose. We do not, in producing this
report, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 July 2006
Notes:
(a) The maintenance and integrity of the Liberty International PLC website is
the responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the interim
report since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
CONSOLIDATED INCOME STATEMENT (Unaudited)
For the six months ended 30 June 2006
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Notes
Revenue 2 246.8 202.5 434.3
Rental income 244.2 201.1 417.1
Rental expenses (82.5) (57.3) (117.0)
Net rental income 161.7 143.8 300.1
Other income 0.3 1.3 14.2
Gain on revaluation and
sale of investment 3 258.0 195.2 565.5
properties
2 420.0 340.3 879.8
Administration expenses (15.2) (13.4) (29.2)
Operating profit 404.8 326.9 850.6
Interest payable 4 (90.7) (84.9) (171.7)
Interest receivable 2.9 7.6 7.5
Exceptional finance
costs 4 (2.0) (5.2) (13.7)
Change in fair value of
derivative financial 175.5 (114.3) (145.8)
instruments
Net finance costs 85.7 (196.8) (323.7)
Profit before tax 490.5 130.1 526.9
Current tax on ordinary
items (18.6) (12.8) (25.5)
Deferred tax on
ordinary items 5 (120.3) (26.8) (139.8)
Tax on exceptional items 0.5 1.2 4.7
Taxation charge (138.4) (38.4) (160.6)
Profit for the period
attributable to equity 352.1 91.7 366.3
shareholders
Ordinary dividends -
paid and proposed 46.3 41.6 98.8
- pence per share 13.75p 13.00p 28.25p
Basic earnings per share 12 104.7p 28.8p 114.8p
Diluted earnings per
share 12 101.0p 27.8p 107.4p
Adjusted earnings per share are shown in note 12
CONSOLIDATED BALANCE SHEET (Unaudited)
As at 30 June 2006
As at As at As at
30 June 31 December 30 June
2006 2005 2005
Notes GBPm GBPm
GBPm
Non-current assets
Investment property 6 7,097.2 6,913.6 6,167.1
Development property 6 27.9 24.2 56.7
7,125.1 6,937.8 6,223.8
Plant and equipment 0.7 0.6 1.0
Trade and other
receivables 8 61.0 65.7 57.8
7,186.8 7,004.1 6,282.6
Current assets
Trading property 7 146.4 132.6 128.1
Trade and other
receivables 8 70.7 78.7 84.3
Investments 14.0 3.0 -
Cash and cash equivalents 117.7 70.8 163.4
348.8 285.1 375.8
Total assets 7,535.6 7,289.2 6,658.4
Current liabilities
Trade and other payables (186.4) (212.4) (181.7)
Tax liabilities (17.1) (10.0) (13.8)
Borrowings, including
finance leases 9 (64.8) (173.5) (26.9)
Derivative financial
instruments (13.1) (21.6) (11.2)
(281.4) (417.5) (233.6)
Non-current liabilities
Borrowings, including
finance leases 9,10 (2,911.7) (2,810.2) (2,830.1)
Derivative financial
instruments (94.2) (259.5) (236.5)
Deferred tax provision 5 (981.1) (856.2) (745.6)
Other provisions (7.7) (6.8) (19.8)
Other payables (10.5) (5.9) (1.7)
(4,005.2) (3,938.6) (3,833.7)
Total liabilities (4,286.6) (4,356.1) (4,067.3)
Net assets 3,249.0 2,933.1 2,591.1
Equity
Called up share capital
and reserves 13 3,249.0 2,933.1 2,591.1
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
(Unaudited)
For the six months ended 30 June 2006
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Profit for the period 352.1 91.7 366.3
Actuarial losses on defined
benefit pension schemes - - (2.6)
Surplus/(deficit) on revaluation
of development properties 17.0 1.2 (15.7)
Tax on items taken directly to
equity (5.1) (0.4) 5.5
(0.1)
Net exchange translation
differences and other movements (2.2) 0.5
Total recognised income and
expense for the period 361.8 93.0 353.4
A summary of changes in group equity is shown in note 13.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Cash flows from operating
activities
Operating profit before
exceptional items 404.8 326.9 850.6
Adjustments for non-cash items:
Unrealised net revaluation gains
on investment properties (234.6) (195.2) (562.9)
Profit on sale of investment
properties (23.4) - (2.6)
Depreciation and amortisation 0.2 0.3 0.8
Amortisation of lease inducements
and other direct costs (0.1) 2.5 (4.6)
Cash flows from operations before
changes in working
146.9 134.5 281.3
capital
Change in trade and other
receivables 5.5 (14.5) (24.2)
Change in trading properties 8.4 (15.7) (18.1)
Change in current asset
investments (11.0) - (3.0)
Change in trade and other payables 4.7 4.9 17.1
Cash generated from operations 154.5 109.2 253.1
Interest paid (113.7) (80.0) (168.2)
Interest received 1.9 6.2 9.7
Tax paid (8.4) (14.3) (24.5)
Cash flows from operating
activities 34.3 21.1 70.1
Cash flows from investing
activities
Purchase and development of
property (66.1) (688.1) (1,081.5)
Sale of property 126.0 - 43.7
Purchase of interests in joint
ventures and subsidiary
companies - (6.1) -
Increase in long term loans
receivable, before amortisation - (0.3) -
Cash flows from investing
activities 59.9 (694.5) (1,037.8)
Cash flows from financing
activities
Issue and repurchase of shares 5.3 7.4 10.1
Borrowings drawn 471.0 1,694.7 1,944.8
Borrowings repaid (472.4) (1,259.4) (1,268.9)
Equity dividends paid (51.2) (44.7) (86.3)
Cash flows from financing
activities (47.3) 398.0 599.7
Net increase/(decrease) in cash
and cash equivalents 46.9 (275.4) (368.0)
Cash and cash equivalents at 1
January 70.8 438.8 438.8
Cash and cash equivalents at
closing 117.7 163.4 70.8
NOTES TO THE ACCOUNTS (Unaudited)
1. Basis of preparation
The Interim Report is unaudited and does not constitute statutory accounts
within the meaning of s240 of the Companies Act 1985. The statutory accounts
for 2005, which were prepared in accordance with International Financial
Reporting Standards, as endorsed by the European Union ("IFRS"), and with
those parts of the Companies Act 1985 applicable to companies reporting under
IFRS, have been delivered to the Registrar 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 comprises the consolidated balance sheets as at 30
June 2006 and 30 June 2005 and 31 December 2005 and related consolidated
statements of income, cash flow and recognised income and expense and the
related notes for periods then ended hereinafter referred to as `financial
information".
The financial information has been prepared in accordance with the Listing
Rules of the Financial Services Authority and the principal accounting
policies set out on pages 34 and 35 of the Annual Report 2005 dated 15
February 2006 which is available on the company"s website (www.liberty-
international.co.uk).
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.
2. Segmental analysis
Six months ended 30 June 2006
UK Other
Shopping Commercial Other Group
Centres Properties Activities Total
GBPm GBPm GBPm
GBPm
Revenue 200.4 46.4 - 246.8
Rental income 199.3 44.9 - 244.2
Rental expense (69.8) (12.7) - (82.5)
Net rental income 129.5 32.2 - 161.7
Property trading profits 0.3 0.4 - 0.7
Other income - 0.2 (0.6) (0.4)
Gain on revaluation and
sale of investment
properties 163.5 94.5 - 258.0
Segment result 293.3 127.3 (0.6) 420.0
Six months ended 30 June 2005
UK Other
Shopping Commercial Other Group
Centres Properties Activities Total
GBPm GBPm GBPm
GBPm
Revenue 154.4 47.3 0.8 202.5
Rental income 154.4 46.7 - 201.1
Rental expense (43.9) (13.4) - (57.3)
Net rental income 110.5 33.3 - 143.8
Property trading profits - 0.6 - 0.6
Other income - (0.1) 0.8 0.7
Gain on revaluation and
sale of investment
properties 159.7 35.5 - 195.2
Segment result 270.2 69.3 0.8 340.3
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
The segmental result is shown before administrative expenses.
3. Gain on revaluation and sale of investment properties
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Gain on revaluation of investment
properties 237.0 195.2 562.9
Loss on revaluation of development
properties (2.4) - -
234.6 195.2 562.9
Gain on sale of investment
properties 23.4 - 2.6
Income statement gain on
revaluation and sale of investment
properties 258.0 195.2 565.5
4. Finance costs
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Gross interest payable - recurring 95.2 88.2 180.3
Interest capitalised on
investment properties under
development (4.5) (3.3) (8.6)
Interest payable 90.7 84.9 171.7
Exceptional finance costs 2.0 5.2 13.7
Exceptional finance costs of GBP2.0m represents unamortised issue costs
written
off on redemption of loans (30 June 2005 - GBP4.5m, 31 December 2005 -
GBP4.5m). In the year ended 31 December 2005, GBP8.4m was incurred in the
early conversion of GBP128.7m of the 3.95% convertible bonds (30 June 2005 -
nil) and GBP0.8m (30 June 2005 - GBP0.7m) was incurred on the repurchase of
CSC unsecured bonds.
5. Taxation
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Deferred tax:
On investment property 72.5 61.8 183.3
On derivative financial
instruments 53.0 (34.4) (43.7)
On other temporary differences (5.2) (0.6) 0.2
Deferred tax on ordinary items 120.3 26.8 139.8
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 GBP893.5m at 30 June 2006 (31 December 2005 -
GBP817.4m, 30 June 2005 - GBP712.6m). 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 GBP671.4m at 30 June
2006 (31 December 2005 - GBP642.5m, 30 June 2005 - GBP538.4m).
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 GBP96.7m would also be released, and further
capital allowances of GBP26.0m 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 30 June
2005 income equity 2006
GBPm GBPm GBPm
GBPm
Revaluation of
investment
properties 817.4 71.4 4.7 893.5
Capital
allowances 95.7 1.1 (0.1) 96.7
Derivative
financial
instruments (83.4) 53.0 - (30.4)
Other temporary
differences 26.5 (5.2) - 21.3
Net deferred
tax provision 856.2 120.3 4.6 981.1
6. Investment and development property
Other
UK shopping commercial
centres properties Total
GBPm GBPm
GBPm
Investment property:
At 31 December 2005 5,813.0 1,100.6 6,913.6
Additions 28.1 11.3 39.4
Disposals - (102.6) (102.6)
Reclassification - from developments 33.6 - 33.6
Foreign exchange fluctuations - (23.8) (23.8)
Surplus on valuation 165.4 71.6 237.0
At 30 June 2006 6,040.1 1,057.1 7,097.2
Development property:
At 31 December 2005 24.2 - 24.2
Additions 22.2 0.5 22.7
Reclassification - to investment
property (33.6) - (33.6)
Surplus/(deficit) on valuation 15.0 (0.4) 14.6
At 30 June 2006 27.8 0.1 27.9
The group"s interests in investment properties were valued as at 30 June 2006
by external valuers in accordance with the Appraisal and Valuation Manual of
RICS, 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 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.
7. Trading property
The market value of trading properties was GBP188.8 million (31 December 2005
-
GBP156.0 million, 30 June 2005 - GBP157.1 million).
8. Trade and other receivables
As at As at As at
30 June 31 December 30 June
2006 2005 2005
GBPm GBPm
GBPm
Amounts falling due within one year:
Rents receivable 18.1 20.8 20.3
Other debtors 10.7 21.5 30.7
Derivative financial instruments 2.7 0.9 0.6
Prepayments and accrued income 39.2 35.5 32.7
70.7 78.7 84.3
Amounts falling due after more than one
year:
Other debtors 12.6 13.7 10.1
Prepayments and accrued income 48.4 52.0 47.7
61.0 65.7 57.8
9. Borrowings, including finance leases
As at As at As at
30 June 31 December 30 June
2006 2005 2005
GBPm GBPm
GBPm
Amounts falling due within one year:
Bank loans and overdrafts 36.3 151.6 14.9
Commercial Mortgage Backed Security
("CMBS") Notes 21.8 15.0 6.0
Finance lease obligations 6.7 6.9 6.0
Total amounts falling due within one
year 64.8 173.5 26.9
Amounts falling due after more than one
year:
Secured borrowings - non recourse
CMBS Notes 2015 1,133.3 1,141.9 1,158.8
CMBS Notes 2011 544.9 547.5 548.8
Bank loans 2016 460.1 - -
Bank loans 2014 177.3 384.9 385.8
Bank loan 2013 - 98.4 -
Bank loan 2007 - 40.0 40.0
2,315.6 2,212.7 2,133.4
Other secured borrowings
Debentures 2021 and 2027 230.0 230.0 230.0
Other loans 144.3 147.0 124.3
2,689.9 2,589.7 2,487.7
Unsecured borrowings
CSC bonds 2013 26.6 26.5 26.5
CSC bonds 2009 41.2 41.0 40.9
2,757.7 2,657.2 2,555.1
GBP111.3m 3.95% convertible bonds due
2010 (31 December 2005
- GBP111.3m, 30 June 2005 - GBP240m) 107.0 105.4
224.0
2,864.7 2,762.6 2,779.1
Finance lease obligations 47.0 47.6 51.0
Amounts falling due after more than one
year 2,911.7 2,810.2 2,830.1
Total borrowings, including finance
leases 2,976.5 2,983.7 2,857.0
Cash and cash equivalents (117.7) (70.8) (163.4)
Net borrowings 2,858.8 2,912.9 2,693.6
10. Fair value of financial instruments
As at 30 June As at 31 December
2006 2005
Balance Balance
sheet Fair sheet Fair
value value value value
GBPm GBPm GBPm
GBPm
Debentures and other fixed rate
loans
Sterling
C&C 9.875% debenture 2027 150.0 225.2 150.0 233.1
C&C 11.25% debenture 2021 80.0 124.1 80.0 126.9
CSC 6.875% unsecured bonds 2013 26.6 25.0 26.5 28.0
CSC 5.75% unsecured bonds 2009 41.2 41.2 41.0 41.0
US dollars
Fixed rate loans 147.1 145.6 156.7 162.4
444.9 561.1 454.2 591.4
Bank loans and loan notes -
LIBOR linked 2,370.9 2,370.9 2,369.6 2,369.6
Finance lease obligations 53.7 53.7 54.5 54.5
Derivative instruments 107.3 107.3 281.1 281.1
2,976.8 3,093.0 3,159.4 3,296.6
Convertible debt 107.0 150.9 105.4 141.0
As at 30 June
2005
Balance
sheet
value Fair value
GBPm GBPm
Debentures and other fixed rate loans
Sterling
C&C 9.875% debenture 2027 150.0 226.4
C&C 11.25% debenture 2021 80.0 122.8
CSC 6.875% unsecured bonds 2013 26.5 24.6
CSC 5.75% unsecured bonds 2009 40.9 40.5
US dollars
Fixed rate loans 118.8 124.8
416.2 539.1
Bank loans and loan notes - LIBOR linked 2,159.8 2,159.8
Finance lease obligations 57.0 57.0
Derivative instruments 247.1 247.1
2,880.1 3,003.0
Convertible debt 224.0 233.2
The fair value adjustment in respect of financial instruments, after credit
for
tax relief, would amount to 23p per share diluted (31 December 2005 - 27p, 30
June 2005 - 24p).
All other financial assets and liabilities included in the balance sheet are
stated at fair values.
11. Capital commitments
At 30 June 2006 the group was contractually committed to GBP51.0 million of
future expenditure for the purchase, construction, development and enhancement
of investment property (31 December 2005 - GBP69.9 million, 30 June 2005 -
GBP311.1 million).
In addition the group"s share of joint ventures" commitments at 30 June 2006
was GBP9.0 million (31 December 2005 - GBP13.6 million, 30 June 2005 - GBP23.9
million).
12. Per share details
(a) Number of shares used in the calculation of earnings per share
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
millions millions millions
Weighted average shares (basic) 336.2 318.0 319.0
Effect of dilution 15.1 32.2 31.5
Weighted average shares (diluted) 351.3 350.2 350.5
(b) Earnings used in the calculation of earnings per share
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Earnings used for calculation of
basic earnings per share 352.1 91.7 366.3
Effect of dilution 2.6 5.5 10.2
Earnings used for calculation of
diluted earnings per share 354.7 97.2 376.5
Basic earnings per share (pence) 104.7p 28.8p 114.8p
Diluted earnings per share (pence) 101.0p 27.8p 107.4p
Earnings used for calculation of
basic earnings per share 352.1 91.7 366.3
Less gain on revaluation and sale
of investment properties (258.0) (195.2) (565.5)
(Less)/add back fair value
movement on derivative financial
instruments (175.5) 114.3 145.8
Add back deferred tax in respect
of investment properties 72.5 61.8 183.3
Add back/(less) deferred tax in
respect of derivative financial
instruments 53.0 (34.4) (43.7)
Add back exceptional items, net
of tax 1.5 4.0 9.0
Add back tax on sale of
investment properties 1.3 - -
Earnings used for calculation of
adjusted earnings per share 46.9 42.2 95.2
Adjusted earnings per share
(pence) 14.0p 13.3p 29.8p
Earnings used for calculation of
adjusted earnings per share 46.9 42.2 95.2
Effect of dilution 2.6 5.5 10.2
Earnings used for calculation of
adjusted, diluted earnings per
share 49.5 47.7 105.4
Adjusted, diluted earnings per
share (pence) 14.1p 13.6p 30.1p
(c) Other share information
(i) 3.95% convertible bonds due 2010
At 30 June 2006 and 31 December 2005 3.95% convertible bonds with a nominal
value of GBP111.3m were in issue. The holders of the bonds have options to
convert their bonds into ordinary shares at 800p per share at any time until
23 September 2010 or to redeem their bonds at par on 30 September 2007. The
company has the option to redeem the bonds at par after 14 October 2008.
Number
(ii) Ordinary share capital millions
At 30 June 2006 337.8
Of which, held by ESOP trust and treated as cancelled 1.4
(iii) Dividends Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Prior period final dividend paid
of 15.25p (2005 - 14.1p) per
share 51.2 44.7 44.7
Interim dividend paid of 13.0p
per share - - 41.6
51.2 44.7 86.3
Proposed dividend of 13.75p (31
December 2005 - 15.25p,
30 June 2005 - 13.0p) per share
(not provided for) 46.3 41.5 51.1
13. Summary of changes in group equity
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm
GBPm
Opening equity shareholders" funds 2,933.1 2,534.2 2,534.2
Bond conversions - - 121.7
Issue of shares 6.2 9.7 11.2
Cancellation of shares (0.9) (1.1) (1.1)
2,938.4 2,542.8 2,666.0
Total recognised income and
expense for the period 361.8 93.0 353.4
3,300.2 2,635.8 3,019.4
Dividends paid (51.2) (44.7) (86.3)
Closing equity shareholders" funds 3,249.0 2,591.1 2,933.1
Date: 27/07/2006 08:04:53 AM Produced by the JSE SENS Department
