| Wed 14 Feb 2007, 9:11 | | LBT - Liberty International - Preliminary Report f |
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LBT
LILII
LBT - Liberty International - Preliminary Report for the Year Ended 31 December
2006 and dividend declaration
Liberty International Plc
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILI
PRESS RELEASE
14 February 2007
LIBERTY INTERNATIONAL PLC
PRELIMINARY REPORT FOR THE YEAR ENDED 31 DECEMBER 2006
Attached is the full Preliminary Report for the year ended 31 December 2006:
Highlights
- Summary of Investment and Development Properties
- Chairman`s Statement
- Development Projects of the Liberty International Group
- Financial Review
- Glossary
- Preliminary 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.
LIBERTY INTERNATIONAL PLC
PRELIMINARY REPORT FOR THE YEAR ENDED 31 DECEMBER 2006 - HIGHLIGHTS
Sir Robert Finch, Chairman of Liberty International, commented:
"2006 was a landmark year in the 26 year history of Liberty International with
conversion at the year end into a UK Real Estate Investment Trust (REIT). REIT
status brings many advantages including tax transparency for shareholders,
significantly increased flexibility for asset management and an internationally
recognised property holding vehicle.
We are delighted to have acquired the iconic seven acre Covent Garden Estate;
an estate which not only will provide an excellent showcase to demonstrate our
skills in the retail sector but also the opportunity to create a world class
mixed-use destination in the heart of London. We have also acquired a 50 per
cent interest in the St David`s shopping centre in Cardiff.
Our development pipeline amounts to some GBP1 billion including three top
quality
regional shopping centre projects in Cardiff, Newcastle and Oxford, with the
key anchor tenants already in place.
We have maintained virtually full occupancy of 98.6 per cent at our established
centres in 2006, while we made good progress with letting the developments
which opened in the year, the Northern Extension of Manchester Arndale and
Xscape, Braehead.
Our adjusted net asset value per share increased to 1327p per share, on the
property industry standard measure, after absorbing the REIT conversion charge
of GBP154 million (41p per share) and equivalent to 1425p if adjusted for
notional acquisition costs deducted from market values. Our total properties
amount to GBP8.2 billion, the debt to assets ratio has reduced to 36 per cent,
diluted net assets have passed the GBP5 billion mark and we have ended the year
with over GBP830 million of cash and committed bank facilities.
We very much look forward to the broader range of opportunities which our new
REIT status should bring; we face the future with confidence and with
commitment."
14 February 2007
A presentation to analysts and investors will take place at 9.30 a.m. on 14
February. The presentation will also be available to international analysts and
investors through a live audio call.
The presentation will be available on the group`s website
www.liberty-international.co.uk.
HIGHLIGHTS (Continued)
Year ended Year ended
31 December 31 December
2006 2005
Net rental income +13% GBP341m GBP300m
Profit before tax, valuation and
exceptional
items +28% GBP155m GBP121m
Profit before tax +71% GBP903m GBP527m
Profit for the period attributable to
equity
shareholders +327% GBP1,564m GBP366m
Gain on revaluation and sale of
investment
properties GBP587m GBP565m
Total properties +16% GBP8,232m GBP7,070m
Net debt +5% GBP3,063m GBP2,913m
Net assets (diluted, adjusted*) +20% GBP5,002m GBP4,180m
Basic earnings per share +303% 462.1p 114.8p
Earnings per share (adjusted*) +14% 33.9p 29.8p
Dividend per ordinary share +10% 31.0p 28.25p
Basic net assets per share +49% 1308p 875p
Net assets per share (diluted,
adjusted*)** +12% 1327p 1188p
Total return* 18% 19%
* See Glossary for definitions
** Net assets per share (diluted, adjusted) would increase by 98p per share at
31 December 2006 (31 December 2005 - 90p) to 1425p (31 December 2005 - 1278p)
if adjusted for notional acquisition costs (see Financial Review).
HIGHLIGHTS (Continued)
KEY FEATURES OF 2006 PRELIMINARY RESULTS
- Like-for-like gains on revaluation of investment properties:
Year ended Six months
31 December ended
2006 30 June 2006
- UK regional shopping centres + 7.9% + 2.7%
- UK non-shopping centre properties +13.9% + 8.9%
- USA + 5.8% + 4.8%
- Revaluation gain on UK regional shopping centres:
- 66 per cent from yield shift
- 34 per cent from underlying rental growth
- 98.6 per cent occupancy in established UK regional shopping centres, 97.7 per
cent overall including recently completed developments (31 December 2005 - 98.5
per cent)
- 8.5 per cent like-for-like net rental income growth in UK regional shopping
centres, 3.5 per cent for UK non-shopping centre properties
- GBP740 million property additions including:
- Covent Garden Estate GBP421 million
- St David`s, Cardiff (50 per cent) GBP180 million including St David`s 2
development
- GBP127 million disposals of investment properties at GBP23 million over 31
December 2005 market values
- Substantial progress with GBP1 billion development programme, of which GBP650
million is underway or with planning approval including:
- St David`s 2, Cardiff
- Eldon Square, Newcastle
- Westgate, Oxford
? Strong financial position with debt to assets ratio reduced to 36 per cent
(2005 - 40 per cent) benefitting from the placing of 25 million shares in
November 2006 raising GBP335 million
HIGHLIGHTS (Continued)
DIVIDENDS
The Directors of Liberty International PLC have proposed a final ordinary
dividend per share of 17.25p (2005 - 15.25p) to bring the total ordinary
dividend per share for the year to 31.0p (2005 - 28.25p).
The following are the salient dates for the payment of the final dividend:
Tuesday, 24 April 2007 Sterling/Rand exchange rate struck.
Monday, 7 May 2007 Ordinary shares listed ex-dividend on the JSE,
Johannesburg.
Wednesday, 9 May 2007 Ordinary shares listed ex-dividend on the London Stock
Exchange.
Friday, 11 May 2007 Record date for final dividend in London and
Johannesburg.
Wednesday, 30 May 2007 Dividend payment day for shareholders
(Note: Payment to ADR holders will be made on
13 June 2007).
South African shareholders should note that in accordance with the requirements
of STRATE the last day to trade cum-dividend will be Friday 4 May 2007 and that
no dematerialisation or rematerialisation of shares will be possible from
Monday 7 May to Friday 11 May 2007 inclusive. No transfers between the UK and
South African registers may take place from Tuesday 24 April to Sunday 13 May
2007 inclusive.
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES
Fair value Revaluation surplus
2005 2006
GBPm GBPm GBPm
Increase
UK regional shopping centres
Lakeside, Thurrock 1,155.9 1,289.0 126.0 10.8%
MetroCentre, Gateshead 930.0 1,019.2 80.8 8.6%
Braehead, Glasgow 677.2 742.0 65.1 9.6%
The Harlequin, Watford 493.2 521.7 28.7 5.8%
Victoria Centre, Nottingham 407.8 438.3 30.1 7.4%
The Potteries, Stoke-on-Trent 281.8 306.3 24.4 8.7%
The Glades, Bromley 266.6 281.4 11.4 4.2%
The Chimes, Uxbridge 242.3 271.8 30.8 12.8%
Like-for-like income 4,454.8 4,869.7 397.3 8.9%
Arndale, Manchester 436.0 439.6 (0.5) (0.1)%
Chapelfield, Norwich 307.3 345.3 25.6 8.0%
Cribbs Causeway, Bristol 289.1 314.5 23.8 8.2%
Eldon Square, Newcastle upon
Tyne 214.7 240.4 10.5 4.7%
Like-for-like capital 5,701.9 6,209.5 456.7 7.9%
Acquisitions and completions - 108.3 2.9 2.7%
Redevelopments and developments 137.1 225.0 6.5 3.0%
Total UK regional shopping
centres 5,839.0 6,542.8 466.1 7.7%
UK non-shopping centre
properties
Like-for-like income 528.8 609.8 76.7 14.4%
Like-for-like capital 52.8 57.4 4.6 8.6%
581.6 667.2 81.3 13.9%
Acquisitions - 500.2 (20.5) (3.9)%
Redevelopments 85.6 123.3 13.6 12.5%
Disposals 103.0 - - -
Total UK non-shopping centre
properties 770.2 1,290.7 74.4 6.1%
US properties
Like-for-like income 303.9 283.8 15.3 5.3%
Like-for-like capital 24.7 25.4 3.0 12.3%
328.6 309.2 18.3 5.8%
Acquisitions - 44.4 (0.3) (0.7)%
Total US properties 328.6 353.6 18.0 4.9%
Total investment properties 6,937.8 8,187.1 558.5 7.3%
Net rental income
2005 2006
GBPm GBPm Increase
UK regional shopping centres
Lakeside, Thurrock
MetroCentre, Gateshead
Braehead, Glasgow
The Harlequin, Watford
Victoria Centre, Nottingham
The Potteries, Stoke-on-Trent
The Glades, Bromley
The Chimes, Uxbridge
Like-for-like income 197.4 214.2 8.5%
Arndale, Manchester
Chapelfield, Norwich
Cribbs Causeway, Bristol
Eldon Square, Newcastle upon Tyne
Like-for-like capital 229.7 266.0 15.8%
Acquisitions and completions - 0.4
Redevelopments and developments 5.9 5.6
Total UK regional shopping
centres 235.6 272.0 15.4%
UK non-shopping centre
properties
Like-for-like income 29.0 30.0 3.5%
Like-for-like capital 1.4 2.7
30.4 32.7
Acquisitions 1.7 8.3
Redevelopments 4.4 4.4
Disposals 9.1 2.6
Total UK non-shopping centre
properties 45.6 48.0 5.3%
US properties
Like-for-like income 17.8 18.3 4.4%
Like-for-like capital 0.2 1.4
19.7 18.0
Acquisitions 0.9 0.9
Total US properties 18.9 20.6
Total investment properties 300.1 340.6 13.5%
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued)
Property analysis by use and type
Fair Value Revaluation surplus
2005 2006 % of total
GBPm GBPm properties
Increase
Regional shopping centres
and other retail
UK regional shopping centres 5,839.0 6,542.8 80.0% 7.7%
UK other retail 351.2 765.1 9.3% 3.3%
US regional shopping centres 130.8 121.6 1.5% 4.8%
US other retail 138.0 132.2 1.6% 7.5%
Total regional shopping
centres and other retail 6,459.0 7,561.7 92.4% 7.2%
Office
UK business space 419.0 525.6 6.4% 10.5%
US business space 59.8 65.8 0.8% 2.9%
Total office 478.8 591.4 7.2% 9.7%
Residential
US residential - 34.0 0.4%
Total residential - 34.0 0.4%
Total investment properties 6,937.8 8,187.1 100% 7.3%
Analysis of UK non-shopping centre and US properties by location and type
Revaluation surplus
2005 2006 2006
GBPm GBPm GBPm
Increase
UK non-shopping centre
properties
Covent Garden 47.8 489.3 (10.2) (2.0)%
Central London 358.5 397.3 51.5 14.9%
Business space outside London 193.4 212.0 19.7 10.3%
Retail outside London 170.5 192.1 13.4 7.5%
Total UK non-shopping centre
properties 770.2 1,290.7 74.4 6.1%
US properties
US retail 268.7 253.8 15.9 6.2%
US business space 59.9 99.8 2.1 1.9%
Total US properties 328.6 353.6 18.0 4.9%
1,098.8 1,644.3 92.4 6.0%
Net rental income
2005 2006
GBPm GBPm
UK non-shopping centre properties
Covent Garden 2.6 9.6
Central London 23.6 20.0
Business space outside London 11.1 10.7
Retail outside London 8.3 7.7
Total UK non-shopping centre properties 45.6 48.0
US properties
US retail 13.9 15.9
US business space 5.0 4.7
Total US properties 18.9 20.6
64.5 68.6
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued)
UK investment property valuation data
Value Nominal
Fair equivalent yield
2006
GBPm 2005 2006
UK regional shopping centres
Lakeside, Thurrock 1,289.0 4.91% 4.65
MetroCentre, Gateshead 1,019.2 5.00% 4.75%
Braehead, Glasgow 742.0 5.10% 4.81%
The Harlequin, Watford 521.7 5.00% 4.75%
Arndale, Manchester 439.6 5.36% 4.96%
Victoria Centre, Nottingham 438.3 5.30% 4.95%
Chapelfield, Norwich 345.3 5.50% 5.00%
Cribbs Causeway, Bristol 314.5 5.06% 4.74%
The Potteries, Stoke-on-Trent 306.3 5.40% 5.00%
The Glades, Bromley 281.4 5.21% 4.95%
The Chimes, Uxbridge 271.8 5.30% 5.00%
Eldon Square, Newcastle upon Tyne 240.4 5.50% 5.20%
Like-for-like capital 6,209.5 5.13% 4.83%
Other 333.3
Total UK regional shopping centres 6,542.8 5.15% 4.76%
UK non-shopping centre properties
Central London 354.4 5.36% 4.86%
Business space outside London 151.7 6.54% 6.03%
Retail outside London 161.1 5.49% 5.13%
Like-for-like capital 667.2 5.68% 5.20%
Other 623.5 6.83% 5.02%
Total UK non-shopping centre properties 1,290.7 5.95% 5.11%
Passing Net rental
rent income ERV
2006 2006 2006
GBPm GBPm GBPm
UK regional shopping centres
Lakeside, Thurrock
MetroCentre, Gateshead
Braehead, Glasgow
The Harlequin, Watford
Arndale, Manchester
Victoria Centre, Nottingham
Chapelfield, Norwich
Cribbs Causeway, Bristol
The Potteries, Stoke-on-Trent
The Glades, Bromley
The Chimes, Uxbridge
Eldon Square, Newcastle upon Tyne
Like-for-like capital 258.7 266.0 316.1
Other 9.3 6.0 12.8
Total UK regional shopping centres 268.0 272.0 328.9
UK non-shopping centre properties
Central London
Business space outside London
Retail outside London
Like-for-like capital 36.4 32.7 38.9
Other 26.2 15.3 41.0
Total UK non-shopping centre properties 62.6 48.0 79.9
CHAIRMAN`S STATEMENT
2006 was a landmark year in the 26 year history of Liberty International with
its conversion at the year end into a UK Real Estate Investment Trust (REIT).
Furthermore, we concluded in the year the acquisition of the seven acre Covent
Garden Estate and a 50 per cent interest in the St David`s shopping centre in
Cardiff. The group also completed a number of major development projects and
several important financings. We recorded a further strong performance in the
growth of our underlying earnings per share and a very satisfactory increase in
net asset value. Our development pipeline amounts to some GBP1 billion including
three top quality regional shopping centre projects, with the key anchor
tenants already in place. Our share price rose by 42 per cent from 981p to
1396p at the year end, driven by a strong property market and the anticipation
of the benefits of REIT status. We face the future with confidence and with
commitment.
Conversion to a REIT
The very rapid progress towards the launch of REITs was helped by a
constructive dialogue between the property industry and the UK Treasury. In
December 2006, our shareholders approved our conversion to a REIT with effect
from 1 January 2007. REIT status brings us many advantages including tax
transparency for shareholders, a significantly increased flexibility for our
asset management which can be conducted without the complication of tax on
future capital gains and an internationally recognised property holding vehicle
which should attract additional investors. By committing to the applicable
conversion charge at 2 per cent of investment properties of GBP154 million (41p
per share), we have been able to remove from the balance sheet and permanently
extinguish a provision for deferred tax including contingent tax on valuation
gains, amounting to GBP1,037 million (275p per share) at 31 December 2006; this
substantially enhanced our reported capital base.
Liberty International is the third largest UK REIT and currently ranks in the
top twenty largest REITs globally. We very much look forward to the broader
range of opportunities which our new status should bring.
Acquisition of the Covent Garden Estate
In August 2006, we took advantage of a very special and unusual opportunity and
acquired for GBP421 million a seven acre site in Covent Garden including the
historic market buildings at its centre. This important purchase provides a
strategic holding in the heart of the West End of London and ownership of a
well-recognised venue which attracts some 50 million customers a year. A number
of smaller add-on investments have since been made. We look forward to working
with the local communities and the planning authorities in creating a world
class retail and mixed-use destination at the core of our business. The project
will provide the group with an excellent showcase with which to demonstrate our
active management skills and the benefits of our extensive retailer
relationships, while delivering substantial benefits to shareholders.
Results for the year ended 31 December 2006
Our underlying revenue results for the year continued to be robust with a
strong 8.5 per cent like-for-like increase in UK shopping centre net rental
income and a 14 per cent increase in adjusted earnings per share.
The gains on revaluation and sales of investment properties amounted to GBP587
million, as described under Property Valuations below, while profits on trading
properties amounted to GBP33 million.
We also recorded a valuation surplus of GBP164 million on derivative financial
instruments which are used to fix the interest rate on our long term debt.
Somewhat paradoxically, we are required under the International Financial
Reporting Standards which we now adopt to mark-to-market these instruments
notwithstanding their purpose being to reduce the volatility of our cash flows.
The surplus reflects the rise in long-term interest rates in the year, with the
ten year interest rate swap, a reasonable proxy for our hedging strategy,
rising in the period from 4.45 per cent to 5.11 per cent.
Over and above these pre-tax items, we recorded substantial exceptional tax
surpluses as a result of REIT status and the debenture restructuring which we
concluded during the year, the details of which are contained in the Financial
Review.
During 2006, we substantially enhanced our financial position. We increased our
equity base with a share placing of 25 million shares in November 2006 raising
GBP335 million, concluded a major and complex restructuring of our long-dated
debenture stock and were active in raising further long-term fixed-rate debt.
Our total properties amount to GBP8.2 billion, the debt to assets ratio has
reduced to 36 per cent, diluted net assets have passed the GBP5 billion mark and
we have ended the year with over GBP830 million of cash and committed bank
facilities.
Our net asset value per share increased in 2006 from 1188p to 1327p per share.
Adjusting for the one-off 2 per cent conversion charge cost of 41p per share,
this represented a total return for the year including dividends of 18 per
cent. Indeed, over the last decade, Liberty International has delivered a
compound total return of over 15 per cent per annum, a very consistent and
satisfactory result for the company and its shareholders.
As we have regularly pointed out to shareholders and analysts, investment
properties are required to be valued after deducting notional acquisition
costs, including stamp duty land tax at 4 per cent in the UK, amounting in
aggregate to GBP370 million, equivalent to 98p per Liberty International share,
over 7 per cent of Liberty International`s adjusted net asset value as the
impact is magnified by the company`s gearing. The valuation process assumes
each asset is sold individually on the open market at the balance sheet date.
This point is especially relevant now shareholders have full tax transparency
with Liberty International`s REIT status. As stamp duty on share transfers only
amounts to 0.5 per cent, an incoming shareholder in Liberty International can
effectively invest in the assets at a substantially lower acquisition cost than
is assumed by the valuers in the direct property valuations.
Property valuations
The headline story in the 2006 UK investment market was very much that of the
office, as office markets especially in Central London experienced a strong
cyclical recovery after a long period of underperformance.
One of the characteristics of our UK regional shopping centres is stability
while delivering real returns consistently over the long term with low
volatility; in this changed property environment, our shopping centre market
valuations did not keep pace with the overall UK market in 2006. The valuations
increased by 7.9 per cent on a like-for-like basis, but encouragingly one-third
of the uplift, in respect of centres where income could be measured on a
like-for-like basis, came from improvement in underlying rental values. Our
shopping centre valuations did benefit, although not to the same extent as
office valuations, from a further downward shift in yields, with an average 30
basis points reduction across our UK regional shopping centres, to an average
nominal equivalent yield of 4.83 per cent. We continue to believe that our UK
regional centres, which represent 80 per cent of our overall assets, have a
relatively very undemanding investment rating. For example, at 31 December
2006, representative valuation yields for other relevant prime asset classes as
reported by one of our valuers, CB Richard Ellis, were 4.0 per cent for high
street shops, 3.85 per cent for retail parks, 4.25 per cent for City of London
offices and 3.75 per cent for West End of London offices. These yields in each
case represent a substantial premium to the CB Richard Ellis figure of 4.75 per
cent for UK regional shopping centres, a very stable asset class which has not
participated to the same extent in the strong downward movement in property
yields in the last few years.
Furthermore, no account is taken in the valuation process of any additional
value were our UK regional shopping centre portfolio to be considered as a
whole.
Lakeside, our flagship centre, provided a particularly strong 10.8 per cent
uplift following the completion of the 2005 rent review cycle. Otherwise
performance was consistent across our shopping centres with the exception of
Manchester Arndale where a flat result was recorded. This reflected the
extensive tenant reorganisation which has been taking place during the year as
we aim to optimise the tenant mix across the whole centre now the 550,000
sq.ft. Northern Extension is open. This process is progressing well and we
continue to believe the prospects are outstanding for this excellent city
centre project, where the general rental level is below that of other
comparable city centre locations.
Our UK non-shopping centre properties produced a creditable 13.9 per cent
uplift on a like-for-like basis while our United States` properties recorded a
5.8 per cent increase.
These results compare with the capital growth for the year from UK property, as
measured by the IPD monthly all-property index, of 12.4 per cent (offices 17.5
per cent and retail 10.5 per cent), a substantial part of which was the result
of further downward yield shift.
UK regional shopping centres
Major events of the year included the pooling of our interests in December with
our joint venture partner in Cardiff, Land Securities Group PLC, conferring
ownership of a 50 per cent interest in the existing St David`s Centre and the
St David`s 2 development. Construction of this large scale project extending an
existing prime location has now commenced and, when complete, the enlarged
centre at around 1.4 million sq.ft. should rank in the UK`s top ten regional
centres.
In addition, in partnership with the Prudential, we successfully opened the
final phases of the Northern Extension of Manchester Arndale increasing the
centre`s size to 1.4 million sq.ft. currently the largest city centre shopping
centre in the UK. The 550,000 sq.ft.
extension has significantly improved customer circulation, attracted new retail
formats to the city and the overall centre is around 90 per cent let by rental
value.
At Braehead, Renfrew, Glasgow, which has our major shopping centre at its
heart, we further strengthened the overall destination by the opening in April
of the 460,000 sq.ft. Xscape leisure attraction.
More generally and encouragingly, after a rather torrid 2005, conditions in the
UK retail market for non-food retail sales showed steady improvement from the
second quarter of 2006, recording a 2.2 per cent increase in value for the year
as a whole as measured by national ONS statistics after a fall of 0.6 per cent
in 2005. In fact, Christmas 2006 appears to have produced the best trading
result for three years.
Our management team must be congratulated on maintaining virtually full
occupancy of 98.6 per cent at our established centres in 2006. We made good
progress with letting the developments which opened in the year, the Northern
Extension of Manchester Arndale and Xscape, Braehead.
The UK retail landscape remains extremely competitive with regional shopping
centres fighting for their share of retail spend against other retail sectors
including superstores, retail parks, other shopping centres and e-commerce.
While reliable statistics on the latter are hard to find, the emerging pattern
in the UK is one of a virtuous circle where successful on-line operations
bolster a successful physical retailing presence and vice versa.
Our shopping centres are maintaining their position in this environment. Our
strategy is based on active tenant mix management aimed at providing the most
compelling comparison shopping offer. We aim to have the UK`s leading retailers
trading out of flagship stores in our centres and to meet shoppers` aspirations
for an enjoyable and satisfying experience, in a safe, secure and quality
environment.
Retailer changes are fundamental in providing a fresh impression to the shopper
on a regular basis and in 2006 we implemented 124 tenancy changes at our
established centres, 7 per cent of total retail units. 10 retailers chose a
Capital Shopping Centres` centre for their first store opening in a UK shopping
centre and in addition we achieved 17 lettings to UK retailers entirely new to
our centres.
Family dining is becoming integral to our business as the trend of extended
shopping hours continues and the quality of the offer is a key differentiator
for customers. We were delighted to achieve 32 casual dining lettings in 2006
and 19 lettings to coffee, juice bar and other similar operators.
The process of change and improvement is constant and part of the fascination
of the regional shopping centre, a format which has over the years proved its
adaptability and flexibility and maintained its core position in modern
lifestyles and in the economy.
Development programme
In each of the last three years, we have opened a major shopping centre
project; the New Red Mall at MetroCentre in 2004; Chapelfield, Norwich in 2005
and the Manchester Arndale Northern Extension in 2006.
We have maintained a measured approach to development risk and continue to have
an active development programme which represents an important component of our
long term growth profile. The programme currently comprises GBP650 million of
projects either underway or with planning approval and aggregates to GBP1
billion
including potential projects where we are already actively engaged on
preliminary work but as yet without planning permission.
The programme includes extremely high quality regional shopping centre
developments such as Cardiff, Oxford and Eldon Square, Newcastle where the risk
profile is very attractive as we are extending what are already established
prime regional locations and have commitments from leading anchor retailers. We
are making good progress with other initial lettings on these projects which
complete in 2009 and, in the case of Oxford, 2011.
We also have a number of attractive remodelling projects within our existing
shopping centres such as the Lakeside Boardwalk restaurant project, which
continually add value and respond to the changing requirements of both retailer
and shopper.
On the non-shopping centre side, notable projects are Broadgate, Leeds, a
mixed-use redevelopment of the former Allders store, and the office
redevelopment of 190 Strand, London WC2.
A full list of development projects is included in these Preliminary Results.
UK non-shopping centres
Capital & Counties, the group`s UK non-shopping centre and international
business, performed well in 2006 and offers the Group a strong platform for
future growth with GBP1,644 million of investment properties at 31 December
2006.
Following the acquisition of Covent Garden, the company has been reorganised
under new leadership to create focussed vehicles with the intention of
achieving superior performance arranged around core, value-add and
opportunistic investment returns.
Capco Covent Garden will focus on growing its already significant investment
into a major focussed district player utilising the retail skills of the group
to exploit fully the potential of Covent Garden as a core group investment.
Capco London holds our non-Covent Garden properties in London and through
partnership and acquisition intends to become a specialist value-add developer
and investor in the capital.
Capco Urban will participate in composite mixed-use developments nationally,
working closely with the development arm of CSC to create a long term
competency, fully capturing the component values of projects within this
growing sector of the UK property market.
Capco Opportunities will target higher return investments actively recycling
capital and co- operating where appropriate with third party investors to
properly exploit opportunities in all property categories.
International
Capco USA is an established value-add developer of mixed-use properties with an
emphasis on retail investment and performed strongly in 2006 recording a total
return of 23 per cent with total assets now amounting to some $720 million.
Most notable in 2006 was the successful completion and letting of the Trio
apartment development in Pasadena, providing a GBP17 million profit on
completion which has been shown as a trading profit. The Serramonte Shopping
Centre, our largest asset, continues to provide a number of active management
and remodelling opportunities which we are pursuing. Capital & Counties USA is
converting to a US REIT, as the company has reached the stage in its
development where US REIT status is considered beneficial.
Capco International has been formed to support broader group initiatives in the
international marketplace. We announced in 2006 and since the year end have
subscribed for a 25 per cent interest in an Indian shopping centre development
company, Prozone, a 75 per cent subsidiary of the fast-growing Indian retailer,
Provogue.
Board and management
In 2006, John Saggers, Managing Director of Capital & Counties, retired after
33 years of service and we thank him for his professionalism, commitment and
contribution to the group. In September, we were delighted to welcome in his
place Ian Hawksworth, previously with Hongkong Land, who has joined the Board
of Liberty International. The activities for which Ian is responsible include a
substantial GBP1.6 billion of investment properties and we have great confidence
in his ability to make a significant impact in this important segment of our
overall business. We have a tremendous platform for value- adding and
opportunity-driven activities, both in the UK and internationally, potentially
delivering higher returns to complement the very stable UK regional shopping
centre business.
Also, David Bramson retired as a non-executive director and we thank him for
his services to the Board. We appointed in his place Neil Sachdev, formerly
property director of Tesco PLC and from March 2007 the commercial director of J
Sainsbury plc, who brings valuable and relevant experience to our affairs.
Once again my thanks go to my Board colleagues for their active support during
2006. Along with the non-executive directors, I would like to thank the group`s
executive directors for shouldering such a substantial workload in 2006 given
the enormous activity in the year; also to thank the staff at 40 Broadway, at
our shopping centres and in the USA for their tremendous commitment and effort.
In the course of a year, we host a considerable number of visits to our
shopping centres and it is noticeable how many unprompted comments we receive
from visitors praising the professionalism, enthusiasm and cheerfulness at all
levels of our organisation - one of the group`s tremendous strengths.
Corporate social responsibility
I am pleased to record that for many years Liberty International has had a
strong commitment to Corporate Social Responsibility, producing our first full
annual report on the subject in 2002.
We have a strong community programme at our shopping centres, focussing on
youth, education and the prevention of crime and anti-social behaviour, with
some excellent local initiatives. Once again, in 2006 we have devoted
substantial time and financial support to this important area to the benefit of
all parties involved.
Our development programme has always been focussed on brownfield land and
Braehead in Renfrew, Glasgow, formerly derelict industrial land, is a wonderful
example of mixed-use urban regeneration. Overall we estimate that our shopping
centres have generated employment directly at the centres for some 50,000
people, leaving aside the indirect employment opportunities they have created.
In our development activities, we continue to apply the highest construction
standards; and, in management, we have made further major strides in energy
efficiency and the reduction of waste.
Our city centre development proposal in Oxford, where after a lengthy process
the Council has resolved to grant planning approval, is a good example of our
focus on designing and implementing practical responses to policy requirements
and the needs of our retailers and local circumstances. We have worked with a
wide range and number of stakeholders in Oxford to deliver a sustainability
package which we consider is unrivalled in developments of this type. The
location is a brownfield site in a city centre area in need of regeneration.
We are proposing a genuine mix of uses with a significant residential element
of some 127 units. We have woven new development into a sensitive location;
pedestrian and cycle access is at the forefront of the design befitting a City
already heavily reliant on these modes of transport.
Our constructive dialogue with the City and County Councils and the bus
operators has led to a huge proposed investment in public transport
infrastructure. This will include a major reorganisation of bus access into and
out of the city centre and a very significant contribution towards investment
in other public transport initiatives including park and ride.
In addition, the replacement car parking and the new arcade will both be
naturally ventilated. We will introduce green sedum roofs, solar thermals, and
rainwater harvesting. The department store for John Lewis and the residential
uses will be served by centralised carbon-neutral biomass boilers fuelled by
waste timber and wood from forestry thinning. The design of the buildings will
also include the installation of pipework to enable connection to a local
combined heat and power plant currently being researched by Oxford City
Council.
Over 2000 jobs are expected to be created when the new retail offer opens,
increasing the number employed in the centre to around 3,300. In addition,
there will be around 2,000 employment opportunities during construction.
Dividends
We are recommending a final dividend of 17.25p payable on 30 May 2007, bringing
the full year`s dividend to 31.0p per share, an increase of 10 per cent on
2005. This dividend will be an ordinary dividend with no property income
distribution (`PID`) element. Dividends for 2007 will contain both a PID
element, subject to withholding tax for certain shareholders, and a non-PID
element.
We expect the dividend for 2007 to include an extra increase out of the net
savings from conversion to a REIT.
The directors remain committed to a progressive and relatively full dividend
policy, distributing substantially all of the group`s recurring income.
Quarterly reporting
In recognition of our new status as a REIT and in order to address the
ever-increasing requirements of investors for more regular and up-to-date
information, we intend to move to quarterly reporting with effect from the
first quarter of 2007, including external independent property valuations.
Prospects
Shareholders can be reassured that our sound financial position and the
underlying strengths of our business mean we are well placed to continue to
prosper and to respond to challenges which lie ahead.
The retail industry is a core economic sector. We are the clear market leader
in the ownership, development and management of prime UK regional shopping
centres, owning 8 of the UK`s top 21 centres and overall attracting some 225
million customer visits per annum to our centres; we also now own the iconic
Covent Garden complex with its market and surrounding assets generating some 50
million annual customer visits.
Liberty International has three attributes which should prove to have an
enduring attraction to REIT investors - a business of exceptional quality, a
high degree of specialisation and the benefits of scale. I believe that our
excellent management team will take the business forward for the benefit of
shareholders and extend its long track record of success with confidence and
with commitment.
Sir Robert Finch
Chairman
14 February 2007
DEVELOPMENT PROJECTS OF THE LIBERTY INTERNATIONAL GROUP
New developments of Capital Shopping Centres
St David`s, Cardiff
In Cardiff, the St David`s Partnership, our joint venture with Land Securities
Group PLC for a substantial extension to the existing St David`s Centre, is
progressing well. The retail provision of an additional 967,500 sq ft will be
anchored by a John Lewis department store and an extended Debenhams and 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.
Enabling works, including a temporary library, have been completed and the
centre scheduled to open in autumn 2009. 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.
Westgate Centre, Oxford
Significant progress has been made in Oxford, where the Westgate Partnership,
our joint venture with LaSalle Investment Management, where the Council has
resolved to grant planning consent for the refurbishment and extension of the
existing centre to around 750,000 sq.ft. In addition to a John Lewis department
store and around 90 shops, there will be 127 city centre homes, 50 per cent of
which will be designated as affordable housing.
It is anticipated that a public inquiry into the Compulsory Purchase Order will
take place in late summer, allowing a start on site in spring 2008 and an
anticipated completion in autumn 2011.
Development Activities in Respect of Completed CSC Shopping Centres
Manchester Arndale
The final phase of the 550,000 sq.ft. Northern Extension opened, on programme,
in September 2006, extending the centre to 1.4 million sq.ft., currently the
largest city centre shopping centre in the UK, with over 90 per cent of the new
space either exchanged or in solicitors` hands and the overall centre around 90
per cent let by rental value. The centre now enjoys a continuous pedestrian
circulation, a new market operated by Manchester City Council and boasts many
new retailers to Manchester.
Eldon Square, Newcastle
Two of the proposed schemes to improve and extend the centre to a total of 1.3
million sq.ft. commenced on site during 2006. Eldon Square West, providing 2
new restaurants overlooking Old Eldon Square and 22,000 sq.ft. of additional
retail space opened for trade in November. 80 per cent of the space is
committed including the restaurants, let to Wagamama and Strada.
The first phase of the second scheme, Eldon Square North, providing a new bus
station for the City opens in March with the new retail mall, providing an
additional 48,000 sq.ft. of retail space, due to open in Spring 2008. Initial
letting interest is encouraging.
The third and largest scheme, Eldon Square South, providing a total of 410,000
sq.ft. of retail space including a new 175,000 sq.ft. department store for
Debenhams, is due to commence on site, subject to vacant possession, this year.
Over 50 per cent of the space is either exchanged or in solicitors` hands and
the scheme is due to open in Autumn 2009.
Lakeside, Thurrock
The remodelling of the Pavilion to provide 11 new restaurants and 4 additional
retail units overlooking Alexandra Lake continues on budget and programme. 91
per cent of the restaurant space is committed and all units are due to open
this Summer. The adjacent cinema is also being refurbished to provide 9 screens
with stadium seating.
Braehead, Renfrew, Glasgow
During 2006, the phase two development involving around 165 acres of land
adjacent to the shopping centre continued to progress well.
Xscape, our joint venture with Capital & Regional, opened in April broadening
Braehead`s retail and leisure offer to include activities such as bowling, wall
climbing, and indoor skiing/snow boarding together with specialist retail,
restaurants and cafA(c)s. A further 40 acres of residential land has been sold
to
Best Homes, a joint venture between Bett Homes and Strathclyde Homes who will
develop around 850 new homes and apartments. A new 80 bedroom hotel for Choice
Hotels is under construction and a Scottish headquarters for Spanish ceramics
company, Porcelanosa, will complete in the spring.
Conditional contracts have been exchanged to sell a further three sites for an
additional hotel, retirement homes and a headquarters building for a Scottish
plant hire company, GAP. In addition, Renfrew Riverside a 35,000 sq.ft. office
development is underway and is scheduled to complete in the summer.
We have 56 acres of remaining land for further enhancement of the regeneration
project.
The Glades, Bromley
The first phase of the project to remodel the entrance mall and adjacent
properties, provide a new 30,000 sq.ft. store for H&M and further deeper retail
units to meet modern retailer requirements, was completed in November. Phase
two is now underway and trading of the new space is anticipated to commence
early next year.
The Harlequin, Watford
Good progress continues to be made at Watford for plans to redevelop the
adjacent Charter Place site with our partners, Watford Borough Council.
Following publication of the planning brief, architects have been appointed and
initial designs have been drawn up for a retail-led mixed-use scheme including
a new department store, cinema, leisure and catering facilities.
The Potteries, Stoke-on-Trent
At The Potteries Shopping Centre, Stoke-on-Trent, planning consent has been
received to remodel and extend the existing food court to provide 15,700 sq.ft.
of new retail space to enhance the tenant mix. Construction is due to commence
in March to facilitate retailers opening for Christmas trade this year.
Chapelfield, Norwich
The phased completions of the fit out of the residential element of Chapelfield
have continued to be delivered with 42 units now completed. Of the 117
apartments, 28 have been sold to Wherry Housing for affordable housing, 38 are
in the process of being sold privately, with the remaining 51 to be released in
phases.
MetroCentre, Gateshead
During the year, our ongoing refurbishment works through the malls have
continued together with improvement to customer circulation. The final phase
will commence alongside plans to upgrade the leisure facilities.
UK non-shopping centre development activities
190 Strand, London WC2
Significant progress was made during 2006 with detailed design development
continuing on our joint venture scheme with Prudential. This office, retail and
residential project anticipates the creation of some 200,000 sq.ft. of new
commercial office and retail floor space plus 44 residential apartments.
Metropolitan Wharf, Wapping Riverside, London E1
The refurbishment and conversion of this 110,000 sq.ft. riverside warehouse for
the creative industries has commenced on site. Completion of the construction
work is expected later in 2007.
Metro Building, Hammersmith, London W6 The renovation and refurbishment of the
110,000 sq.ft. office building in Hammersmith was completed during the year.
Capital Park, Cambridge
The fourth phase of this major office park in Cambridge, 40,000 sq.ft. of Grade
A offices, was completed during 2006 and the marketing is well underway.
Broad Gate, Leeds
During 2006, demolition and preliminary works were completed at our major mixed
use scheme at Broad Gate in the centre of Leeds. The main construction work has
commenced and the scheme will see the introduction of 120,000 sq.ft. of retail,
complemented by 150,000 sq.ft. of office floor space and some residential on
the upper levels. Good progress is being made with marketing and a major retail
pre-letting has been secured. Construction is on course for completion in late
2008.
Hagley Road, Birmingham
The major refurbishment and upgrading of the 140,000 sq.ft. office in
Birmingham is underway. Allowing for phased handover, the expected completion
is early 2008.
New Fetter Lane, London EC4
Initial proposals for a major office redevelopment on New Fetter Lane are being
drawn up to create a significant prime office development. Architects are
instructed and preliminary designs are being drawn up.
Stockwell Street, Greenwich
Significant progress in preparing a planning application was made during the
year. This mixed use project in the centre of Greenwich comprises 131
residential apartments and 30,000 sq.ft. of retail. Public planning exhibitions
were organised and further community engagement will take place once the
planning application is submitted.
Capco USA
Trio Apartments, Pasadena, California
During 2006 the construction was completed on this mixed use project consisting
of 304 luxury residential units and 14,500 sq.ft. retail space. The scheme is
over 95 per cent let with strong tenant demand.
Serramonte Shopping Centre, Daly City
Construction was completed of the new casual dining wing which is 100 per cent
let and planning approvals for the renovation of the west wing food court have
been received.
The Willows Shopping Centre, Concord
2006 saw the completion of the Pier 1 building as well as the new courtyard and
landscaping. We leased 7,000 sq.ft. of space and the shopping centre is now 97
per cent let.
FINANCIAL REVIEW
INCOME STATEMENT
Analysis of profit before tax
Year ended Year ended
31 December 31 December
2006 2005
Increase GBPm GBPm
Underlying profit before tax 12% 122.3 109.3
Property trading profits 32.8 11.6
Profit before tax, valuation and
exceptional items 28% 155.1 120.9
Gain on revaluation and sale of
investment properties 586.5 565.5
Movement in fair value of
derivative
financial instruments 163.5 (145.8)
Exceptional finance costs (2.0) (13.7)
Profit before tax 903.1 526.9
Underlying profit before tax increased by 12 per cent to GBP122.3 million from
GBP109.3 million reflecting rent reviews and interest savings, offset in part by
the impact of active management and disposals.
Trading profits of GBP32.8 million showed a significant increase over the level
achieved in 2005. A substantial amount of these profits arose on the transfer
of trading stock to investment property including GBP17.7 million which was
achieved in the year on the completion of the Trio apartment project in the US.
These elements of the trading profit have been excluded in the calculation of
adjusted earnings per share. Overall profit before tax, valuation and
exceptional items increased by over 28 per cent from GBP120.9 million to
GBP155.1 million.
Profit before tax increased from GBP526.9 million to GBP903.1 million.
Revaluation movements on investment properties and the movement in fair value
of derivative financial instruments are presented in the Income Statement.
Inclusion of these items can create considerable volatility in the Income
Statement.
Commentary on the revaluation of investment properties is included in the
Chairman`s Statement.
Over the period to 31 December 2006, interest rates in general increased from
the historic lows in the early part of the year. 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 5.11 per cent.
As a result the negative fair value of the group`s derivative financial
instruments improved by GBP163.5 million to GBP112.5 million and this movement
has been reported in the Income Statement. This upward movement in interest
rates has continued since the year end with the 10 year swap rate rising to
around 5.35 per cent reducing the negative fair value of interest rate swaps by
approximately a further GBP70 million to around GBP40 million at 13 February
2007.
The fair value of financial instruments is extremely sensitive to movements in
interest rates. An increase of around 0.15 per cent in swap rates would be
sufficient to eliminate the remaining GBP40 million negative fair value while
such a rise in interest rates would have a minimal impact on the group`s
financing cash flows.
Net rental income increased from GBP300.1 million to GBP340.6 million. The
increase has two components; like-for-like growth; and acquisitions and
completions, net of disposals.
UK regional shopping centres provided like-for-like growth of GBP16.8 million
(8.5 per cent) primarily from the favourable rent reviews at Lakeside,
MetroCentre, Uxbridge and Watford. A further GBP20.1 million increase in net
rental income came from the impact of acquisitions made in 2005, where income
had only been received for part of the comparative period.
UK non-shopping centre properties contributed 3.5 per cent like-for-like
growth. Taking into account the impact of property acquisitions, sales and the
effect of medium and longer- term refurbishment or redevelopment activity, net
rental income increased by GBP2.4 million.
US properties showed like-for-like growth of 4.4 per cent.
Interest payable increased from GBP171.7 million to GBP190.0 million and
interest receivable reduced from GBP7.5 million to GBP3.9 million. The increase
in net interest payable of GBP21.9 million reflects expenditure on the
completion of Chapelfield, Norwich during 2005 and property acquisitions
including the acquisition of Covent Garden Market in 2006.
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 that year.
In April 2006 the GBP208 million loan secured on The Glades, Bromley and The
Chimes, Uxbridge was replaced with separate ten-year loans amounting to GBP332
million. This increase in the level of 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 and in October a GBP252 million loan
secured on the newly-acquired Covent Garden Market and surrounding properties.
While net debt was reduced by the GBP335 million raised through a placing of 25
million ordinary shares, this happened late in the year and had little impact
on net interest payable.
The underlying tax charge, before valuation and exceptional items amounted to
7.7 per cent (2005 - 21.3 per cent). The low tax charge was primarily due to
the benefit from capital allowances and tax relief for capitalised interest
together with the resolution of prior year items during the period.
The conversion to REIT status at the end of the year resulted in the reversal
of the provision for tax on valuation items and deferred tax in respect of
capital allowances previously included in the group`s balance sheet. This was
offset in part by the provision for the payment of a GBP154 million entry
charge.
The group`s reported tax charge also included an exceptional credit of GBP32.2
million in respect of the debenture reorganisation completed during the period,
referred to below. Current tax for the period reduced from GBP10.2 million
payable in 2005 to GBP0.8 million receivable in 2006.
Basic earnings per share increased from 114.8p to 462.1p. Earnings per share
(adjusted) increased by 13.7 per cent from 29.8p to 33.9p.
The proposed final dividend of 17.25p per share results in an annual dividend
per share of 31p, an increase of 9.7 per cent.
NET ASSETS
Net assets per share
As at As at
31 December 31 December
2006 2005
GBPm GBPm
Basic net asset value 4,732.4 2,933.1
Effect of dilution:
On conversion of bonds 108.7 105.4
On exercise of options 12.3 17.9
Diluted net asset value 4,853.4 3,056.4
Adjustments:
Unrecognised surplus on trading properties 4.7 23.4
Fair value of derivative financial instruments 112.5 280.2
Tax on the above (32.1) (92.8)
Deferred tax on revaluation surpluses 32.1 817.4
Deferred tax on capital allowances 31.8 95.7
Net assets diluted adjusted 5,002.4 4,180.3
Basic net assets per share from IFRS balance
sheet 1308 p 875 p
Net assets per share (diluted, adjusted) 1327 p 1188 p
Basic shares in issue used for calculation 361.7 m 335.4 m
Diluted shares used for calculation 377.1 m 352.0 m
Net assets per share (diluted, adjusted) is arrived at after adding back the
remaining IAS 12 provision for deferred tax on property revaluation surpluses
and the adjustment in respect of the fair value of derivative financial
instruments. The actual potential tax liability which could arise if the
properties were disposed of at their balance sheet values would be
GBP49.1million (2005 - GBP642.5 million), the residual potential tax liability
mainly relating to properties in the US. This liability could be offset by the
release of deferred tax provisions in respect of capital allowances of GBP31.8
million and further capital allowances of GBP24.4 million which may be available
to reduce the tax payable on a sale.
Investment properties increased from GBP6,938 million to GBP8,187 million at
December 2006.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
Acquisitions 641
Additions 98
Transfers from trading properties 109
Disposals (carrying value) (117)
Foreign exchange and other movements (40)
Valuation surplus on investment properties 558
Investment properties at 30 June 2006 8,187
Investment properties are valued after deducting notional acquisition costs
including stamp duty amounting in aggregate to GBP370 million (31 December 2005
-
GBP318 million), equivalent to 98p per Liberty International share (31 December
2005 - 90p).
In the case of a REIT 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. The transaction costs associated with transfers
of shares are considerably lower. If these notional acquisition costs were
added back, net assets (diluted, adjusted) would amount to GBP5,372 million
(2005
- GBP4,498 million) and net assets per share (diluted, adjusted) would amount to
1425p (2005 - 1278p) compared with the reported figure of 1327p (2005 - 1188p).
FINANCIAL MANAGEMENT
Movement in Net Debt and Bank Facilities
Cash balances increased by GBP251 million from GBP71 million at 31 December 2005
to
GBP322 million at 31 December 2006 while gross borrowings increased by GBP401
million to GBP3,385 million. The 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 2,913
Additions to investment properties 654
Disposals of investment properties (127)
Share placing (335)
Other (42)
Closing net debt 3,063
At 31 December 2006 the group had committed undrawn medium-term bank facilities
of GBP510 million.
In October 2006 the group completed the re-organisation of its long-term
debentures issuing a new GBP355 million 5.562% debenture and redeeming the
existing Capital and Counties` GBP80 million 11.25% 2021 and GBP150 million
9.875% 2027 stocks. The new stock amortises to a final redemption amount of
GBP231.4 million, a structure designed to closely match the aggregate cash flows
of the original stocks. Also it is secured on substantially the same assets as
the original stocks. The principal benefits to the group are improved
substitution and withdrawal provisions combined with the efficiency of a single,
larger more liquid instrument and a reduction in the annual finance charge of
around GBP0.8 million. Although the redemption gave rise to an exceptional
charge of around GBP130 million for Capital and Counties, the IFRS accounting
treatment effectively eliminates the underlying transactions from the group
accounts. The exceptional item has been reversed and deducted from the GBP355
million nominal value of the new bond to arrive at an adjusted balance sheet
carrying value of GBP225.8 million. This adjustment is then amortised through
the income statement resulting in an annual finance charge of around GBP23
million compared to GBP23.8 million for the previous debentures. The benefit of
the GBP32.2 million exceptional tax credit resulting from the re-organisation
has remained in the Income Statement.
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
31 December 2006 remained at around 1.7 times and the ratio of net debt to
assets reduced from 40 per cent at 31 December 2005 to 36 per cent at 31
December 2006, 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 increased
from 4.50 per cent to 5.00 per cent with a further increase to 5.25 per cent
since the year end. The market in longer-term sterling swaps reflected
expectations for interest rates to rise and the ten-year sterling interest rate
swap has increased since 31 December 2005 by over 0.90 per cent to 5.35 per
cent at 13 February 2007.
The table below summarises the interest rate swaps currently in place compared
with 31 December 2005. Over the period the level of fixed rate protection was
increased, both in relation to the additional debt incurred in the period and
extending protection beyond the current maturity of existing floating rate
facilities.
Interest rate swap summary
Notional principal Average rate
13 February 31 December
2007 2005 13 February 31 December
GBPm GBPm 2007 2005
In payment
after:
1 year 3,055 2,462 5.31% 5.36%
5 years 3,153 3,125 5.16% 5.29%
10 years 2,275 * 1,780 4.69% 4.97%
15 years 1,950 * 1,175 4.57% 4.86%
20 years 1,950 * 1,175 4.57% 4.86%
25 years 1,475 * 900 4.38% 4.81%
* increased by GBP200 million since 31 December 2006.
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 which are below those currently prevailing in
the market. Furthermore the rates which have been achieved through these swaps
as the base level for future borrowings are at reducing average interest rates
and appear attractive in the context of long-term historic rates in the UK.
The weighted average maturity of debt is 8 years, the weighted average lease
maturity
8.5 years and the weighted average interest cost of group debt at 31 December
2006 was
5.8 per cent (31 December 2005 - 6.1 per cent).
14 February 2007
GLOSSARY
Earnings per share (adjusted): Earnings per share adjusted for valuation and
exceptional items and their tax effect, in accordance with UK property industry
practice (for calculation, see note 14).
ERV (Estimated Rental Value): The external valuers` estimates of the group`s
share of the current annual market rent of all lettable space.
Like-for-like income: The category of investment properties which have been
owned throughout both periods without significant capital expenditure in either
period, so both income and capital can be compared on a like-for-like basis.
Like-for-like capital: The category of investment properties which includes
like-for-like income properties, 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.
Net assets (diluted, adjusted): Net assets adjusted for deferred tax in respect
of revaluation surpluses and capital allowances, fair value movements on
interest rate hedges, and valuation surpluses on trading properties net of tax,
in accordance with UK property industry practice (for calculation, see
Financial Review).
Net rental income: The group`s share of net rents receivable as shown in the
Income Statement.
Nominal equivalent yield: Effective annual yield to a purchaser from the assets
individually at market value after taking account of notional acquisition costs
but assuming rent is receivable annually in arrears rather than reflecting the
actual rental cash flows.
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.
Total return: Percentage increase in net assets per share (diluted, adjusted)
after adding back dividends and, in 2006, the one-off REIT conversion charge.
CONSOLIDATED INCOME STATEMENT (Unaudited)
for the year ended 31 December 2006
2006 2005
Notes GBPm GBPm
Revenue 2 562.8 434.3
Rental income 493.1 417.1
Rental expenses (152.5) (117.0)
Net rental income 2 340.6 300.1
Other income 34.8 14.2
Gain on revaluation and sale of investment
and development property 3 586.5 565.5
961.9 879.8
Administration expenses (34.2) (29.2)
Operating profit 927.7 850.6
Interest payable 4 (190.0) (171.7)
Interest receivable 3.9 7.5
Exceptional finance costs 4 (2.0) (13.7)
Change in fair value of derivative financial
instruments 163.5 (145.8)
Net finance costs (24.6) (323.7)
Profit before tax 903.1 526.9
Current tax 5 0.8 (10.2)
Deferred tax 814.5 (150.4)
REIT entry charge (154.3) -
Taxation 5 661.0 (160.6)
Profit for the period attributable to equity
shareholders 1,564.1 366.3
Ordinary dividends - paid and proposed 108.7 92.7
- pence per share 31.0p 28.25p
Basic earnings per share 14 462.1p 114.8p
Diluted earnings per share 14 444.0p 107.4p
Adjusted earnings per share are shown in note 14.
CONSOLIDATED BALANCE SHEET (Unaudited)
as at 31 December 2006
2006 2005
Notes GBPm GBPm
Non-current assets
Investment and development property 7 8,187.1 6,937.8
Plant and equipment 0.9 0.6
Trade and other receivables 9 81.4 65.7
8,269.4 7,004.1
Current assets
Trading properties 8 45.2 132.6
Trade and other receivables 9 113.8 78.7
Investments - 3.0
Cash and cash equivalents 321.8 70.8
480.8 285.1
Total assets 8,750.2 7,289.2
Current liabilities
Trade and other payables (319.5) (212.4)
Tax liabilities (2.1) (10.0)
Borrowings, including finance leases 10 (43.5) (173.5)
Derivative financial instruments (4.6) (21.6)
(369.7) (417.5)
Non-current liabilities
Borrowings, including finance leases 10 (3,341.3) (2,810.2)
Derivative financial instruments (128.9) (259.5)
Deferred tax provision 5 (40.8) (856.2)
Other provisions 12 (4.9) (6.8)
Other payables (132.2) (5.9)
(3,648.1) (3,938.6)
Total liabilities (4,017.8) (4,356.1)
Net assets 4,732.4 2,933.1
Equity
Called up share capital and reserves 15 4,732.4 2,933.1
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
(Unaudited)
2006 2005
GBPm GBPm
Profit for the period 1,564.1 366.3
Actuarial gains/(losses) on defined benefit pension
schemes 0.7 (2.6)
Deficit on revaluation of development properties - (15.7)
Tax on items taken directly to equity (4.9) 5.5
Net exchange translation differences and other movements (4.6) (0.1)
(8.8) (12.9)
Total recognised income and expense for the period 1,555.3 353.4
A summary of changes in group equity is shown in note 15.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
2006 2005
GBPm GBPm
Cash flows from operating activities
Operating profit 927.7 850.6
Adjustments for non-cash items:
Unrealised net revaluation gains on investment
properties (558.5) (562.9)
Unrealised gains on transfer of trading properties (33.1) -
Profit on sale of investment properties (28.0) (2.6)
Depreciation and amortisation 0.2 0.8
Amortisation of lease incentives and other direct
costs 10.3 (4.6)
Cash flows from operations before changes
in working capital 318.6 281.3
Change in trade and other receivables (10.9) (24.2)
Change in trading properties 9.7 (18.1)
Change in current asset investments 3.0 (3.0)
Change in trade and other payables (0.5) 17.1
Cash generated from operations 319.9 253.1
Interest paid (198.6) (168.2)
Interest received 2.9 9.7
Tax paid (6.6) (24.5)
Cash flows from operating activities 117.6 70.1
Cash flows from investing activities
Purchase and development of property (653.9) (1,081.5)
Sale of property 127.3 43.7
Cash flows from investing activities (526.6) (1,037.8)
Cash flows from financing activities
Issue and repurchase of shares 341.4 10.1
Borrowings drawn 902.0 1,944.8
Borrowings repaid (486.0) (1,268.9)
Equity dividends paid (97.4) (86.3)
Cash flows from financing activities 660.0 599.7
Net increase/(decrease) in cash and cash equivalents 251.0 (368.0)
Cash and cash equivalents at 1 January 70.8 438.8
Cash and cash equivalents at 31 December 321.8 70.8
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 the year ended 2005 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
accounting policies set out on pages 34 and 35 of the 2005 Annual Report have
been consistently applied in the preparation of this financial information.
The financial information has been prepared in accordance with International
Financial Reporting Standards, as adopted by the European Union ("IFRS"), IFRIC
interpretations 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, financial assets and liabilities held for trading.
2 Segmental analysis
2006
UK Other
shopping commercial Other Group
centres properties activities Total
GBPm GBPm GBPm GBPm
Revenue 421.1 139.2 2.5 562.8
Rental income 387.9 105.2 - 493.1
Rental expense (115.9) (36.6) - (152.5)
Net rental income 272.0 68.6 - 340.6
Property trading
profits/(losses) (0.8) 32.6 1.0 32.8
Other income - 0.5 1.5 2.0
Gain on revaluation and
sale of
investment and
development property 470.7 115.8 - 586.5
Segment result 741.9 217.5 2.5 961.9
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 and
development property 459.4 106.1 - 565.5
Segment result 696.2 181.4 2.2 879.8
3 Gain on revaluation
and sale of
investment and
development property
2006 2005
GBPm GBPm
Revaluation surplus on
investment and
development property 558.5 547.2
Exclude development
property deficit
recognised in reserves - 15.7
Income statement gain on
revaluation
of investment and
development property 558.5 562.9
Income statement gain on
sale of
investment property 28.0 2.6
Income statement gain on
revaluation
and sale of investment
and development property 586.5 565.5
NOTES TO THE ACCOUNTS (Continued)
4 Finance costs
2006 2005
GBPm GBPm
Gross interest payable - recurring 198.6 180.3
Interest capitalised on developments (8.6) (8.6)
Interest payable 190.0 171.7
Cost of early conversion of Liberty International 3.95%
convertible bonds - 8.4
Issue costs written off on redemption of loans 2.0 4.5
Repurchase of CSC unsecured bonds - 0.8
Exceptional finance costs 2.0 13.7
5 Taxation
REIT Entry
charge
Current Deferred 2006
GBPm GBPm GBPm
GBPm
Tax on non-exceptional
items (including GBP4.6m
current tax
in respect of trading
property reclassifications) 29.6 (17.6) - 12.0
Tax on exceptional items
and property disposals 1.8 - - 1.8
Other exceptional tax (32.2) - 154.3 122.1
Valuation items:
Investment property - (848.1) - (848.1)
Derivative financial
instruments - 51.2 - 51.2
(0.8) (814.5) 154.3 (661.0)
Taxation charge for the
financial year
2006 2005
GBPm GBPm
Current UK corporation tax
at 30% (2005 - 30%) on
profits 27.6 24.0
Prior year items - UK
corporation tax 0.2 (0.9)
27.8 23.1
Overseas taxation 1.8 2.4
Current tax on profits
excluding exceptional items
and property disposals 29.6 25.5
Deferred tax:
On investment and
development property (848.1) 183.3
On derivative financial
instruments 51.2 (43.7)
On other temporary
differences (17.6) 0.2
Deferred tax on profits
excluding exceptional items
and property disposals (814.5) 139.8
Tax charge on profits
excluding exceptional items
and property disposals (784.9) 165.3
REIT entry charge 154.3 -
Exceptional current tax
credit (32.2) -
Tax on exceptional items
and property disposals:
- current tax 1.8 (15.3)
- deferred tax - 10.6
Exceptional tax and tax
charge on exceptional items
and property disposals (30.4) (4.7)
Total tax (credit)/charge (661.0) 160.6
NOTES TO THE ACCOUNTS (Continued)
5 Taxation continued
Under IAS 12 (Income Taxes), provision is made for the deferred tax liability
associated with the revaluation of investment properties at the corporate tax
rate expected to apply to the group at the time of use. For those properties
qualifying as REIT properties the relevant tax rate will be 0 per cent (2005 -
30 per cent), for other UK properties the relevant tax rate will remain 30 per
cent and for overseas properties the relevant tax rate will be the prevailing
corporate tax rate in that country. This change in the relevant tax rate on the
group becoming a REIT resulted in the elimination of GBP834.2m of the 31
December 2005 deferred tax liability. Of this, GBP838.9m was credited to the
income statement and GBP4.7m was debited to reserves. Had the group not become a
REIT, the deferred tax liability at 31 December 2006 would have been
GBP1,078.0m, and so the impact on deferred tax of the group becoming a REIT is a
GBP1,041.9m liability being released to the income statement and a GBP4.7m asset
being released to reserves.
The deferred tax provision on the revaluation of investment properties
calculated under IAS 12 is GBP32.1m at 31 December 2006 (2005 - GBP817.4m). This
IAS 12 calculation does not reflect the expected amount of tax that would be
payable if the assets were sold. The group estimates that calculated on a
disposal basis the liability is GBP49.1m at 31 December 2006 (2005 - GBP642.5m).
If upon sale 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 GBP31.8m may also be released, and further capital allowances of
GBP24.4m may be available to reduce the amount of tax payable on sale.
Where gains such as revaluation of development properties and other assets and
actuarial movements on pension funds are dealt with in reserves, any deferred
tax is also dealt with in reserves.
Movements in the provision for deferred tax
As at As at
31 31
December Recognised Recognised December
2005 in income in equity 2006
GBPm GBPm GBPm GBPm
Revaluation of
investment and
development properties 817.4 (787.2) 1.9 32.1
Capital allowances 95.7 (60.9) (3.0) 31.8
Derivative financial
instruments (83.4) 51.2 - (32.2)
Other temporary
differences 26.5 (17.6) 0.2 9.1
Net deferred tax
provision 856.2 (814.5) (0.9) 40.8
6 Dividends
2006 2005
GBPm GBPm
Ordinary shares
Prior period final dividend paid of 15.25p per share (2005 -
14.1p) 51.1 44.7
Interim dividend paid of 13.75p per share (2005 - 13.0p) 46.3 41.6
Dividends paid 97.4 86.3
Proposed dividend of 17.25p per share (2005 - 15.25p) 62.4 51.1
7 Investment and development property
UK Other
shopping commercial
centres properties Total
GBPm GBPm GBPm
At 31 December 2005 5,839.0 1,098.8 6,937.8
Additions 251.9 487.3 739.2
Disposals (14.2) (102.7) (116.9)
Transfers from trading properties - 108.7 108.7
Foreign exchange fluctuations - (40.2) (40.2)
Surplus on valuation dealt with in the
income statement 466.1 92.4 558.5
At 31 December 2006 6,542.8 1,644.3 8,187.1
The group`s interests in investment and development properties were valued as
at 31 December 2006 by independent 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 and is estimated without
regards to costs of sale or purchase.
8 Trading properties
The estimated replacement cost of trading properties based on market value
amounted to GBP49.9 million (31 December 2005 - GBP156.0 million).
NOTES TO THE ACCOUNTS (Continued)
9 Trade and other receivables
2006 2005
GBPm GBPm
Amounts falling due within one year:
Rents receivable 26.1 20.8
Derivative financial instruments 7.0 0.9
Other receivables 42.3 21.5
Prepayments and accrued income 38.4 35.5
113.8 78.7
Amounts falling due after more than one year:
Other receivables 12.2 13.7
Derivative financial instruments 14.0 -
Prepayments and accrued income 55.2 52.0
81.4 65.7
10 Borrowings, including finance leases
2006 2005
GBPm GBPm
Amounts falling due within one year:
Secured borrowings
Bank loans and overdrafts 12.9 151.6
Commercial mortgage backed securities ("CMBS") notes 24.2 15.0
Finance lease obligations 6.4 6.9
Amounts falling due within one year 43.5 173.5
Amounts falling due after more than one year:
Secured borrowings - non recourse
CMBS notes 2015 1,124.1 1,141.9
CMBS notes 2011 639.7 547.5
Bank loans 2016 512.9 -
Bank loan 2014 175.6 384.9
Bank loans 2013 251.0 98.4
Bank loan 2007 - 40.0
2,703.3 2,212.7
Other secured borrowings
Debentures 2027 (2005 - 2021 and 2027) 225.8 230.0
Other loans 189.5 147.0
3,118.6 2,589.7
Unsecured borrowings
CSC bonds 2013 26.5 26.5
CSC bonds 2009 41.3 41.0
3,186.4 2,657.2
GBP111.3 million (2005 - GBP111.3 million) 3.95%
convertible bonds due 2010 108.7 105.4
Finance lease obligations 46.2 47.6
Amounts falling due after more than one year 3,341.3 2,810.2
Total borrowings, including finance leases 3,384.8 2,983.7
Cash and cash equivalents (321.8) (70.8)
Net borrowings 3,063.0 2,912.9
NOTES TO THE ACCOUNTS (Continued)
11 Fair values of financial instruments
As at 31 December
As at 31 December 2006 2005
Balance Balance
sheet Fair value sheet Fair value
value GBPm GBPm value GBPm GBPm
Debentures and other
fixed rate loans
Sterling
C&C 5.562% debenture 2027 225.8 348.8 - -
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 25.4 26.5 28.0
CSC 5.75% unsecured
bonds 2009 41.3 42.0 41.0 41.0
US dollars
Fixed rate loans 164.0 169.1 156.7 162.4
457.6 585.3 454.2 591.4
Convertible bonds -
fixed rate 108.7 195.4 105.4 141.0
The adjustment in respect of the above, after credit for tax relief, to the
diluted net assets per share (which does not require adjustment for the fair
value of convertible bonds) would amount to 24p per share (2005 - 27p).
All other financial assets and liabilities included in the balance sheet are
stated at fair values.
Derivative financial instruments
2006 2005
GBPm
GBPm
Non current assets (note 9) 14.0 -
Current assets (note 9) 7.0 0.9
Current liabilities (4.6) (21.6)
Non-current liabilities (128.9) (259.5)
(112.5) (280.2)
Of the movement in the balance sheet value of derivative financial instruments
during the year of GBP167.7 million, GBP4.2 million has been charged to finance
costs.
12 Other provisions for liabilities and charges
GBPm
At 31 December 2005 6.8
Net charge for the year 0.3
Other movements (2.2)
At 31 December 2006 4.9
13 Capital commitments
At 31 December 2006, the group was contractually committed to GBP127.0 million
(2005 - GBP69.9 million) of future expenditure for the purchase, construction,
development and enhancement of investment property.
NOTES TO THE ACCOUNTS (Continued)
14 Per share details
(a) Earnings per share
2006 2005
millions millions
Weighted average ordinary shares in issue for
calculation of basic earnings per share 338.5 319.0
Weighted average ordinary shares to be issued on
conversion of bonds and under employee
incentive arrangements 15.0 31.5
Weighted average ordinary shares in issue for
calculation of diluted earnings per share 353.5 350.5
2006 2005
GBPm GBPm
Earnings used for calculation of basic earnings per
share 1,564.1 366.3
Reduction in interest charge from conversion of
bonds, net of tax 5.3 10.2
Earnings used for calculation of diluted earnings per
share 1,569.4 376.5
Basic earnings per share (pence) 462.1p 114.8p
Diluted earnings per share (pence) 444.0p 107.4p
Earnings used for calculation of basic earnings per
share 1,564.1 366.3
Add back exceptional finance costs 2.0 13.7
Add back REIT entry charge 154.3 -
(30.4)
Add back other exceptional tax (4.7)
Less gain on revaluation and sale of investment and
development properties (586.5) (565.5)
(Less)/add back fair value movement on derivative
financial instruments (163.5) 145.8
(Less)/add back deferred tax in respect of investment
and development properties (787.2) 166.1
Add back/(less) deferred tax in respect of derivative
financial instruments 51.2 (43.7)
Less deferred tax on capital allowances (60.9) 17.2
Less gain on transfer of trading property to
investment property, net of tax (28.5) -
Earnings used for calculation of adjusted earnings
per share 114.6 95.2
Adjusted earnings per share (pence) 33.9p 29.8p
Earnings used for calculation of adjusted earnings
per share 114.6 95.2
Reduction in interest charge from conversion of
bonds, net of tax 5.3 10.2
Earnings used for calculation of adjusted, diluted
earnings per share 119.9 105.4
Adjusted, diluted earnings per share (pence) 33.9p 30.1p
(b) Ordinary share capital
2006 2005
Number Number
millions millions
At 31 December 362.8 337.8
Of which, held by ESOP trust and treated as cancelled 1.1 2.4
(c) Convertible debt
3.95 per cent convertible bonds due 2010
At 31 December 2006 and 31 December 2005 3.95 per cent convertible bonds with a
nominal value of GBP111.3 million were in issue.
The holders of the 3.95 per cent bonds have the option to convert their bonds
into ordinary shares at any time on or up to 23 September 2010 at 800p per
ordinary share. The 3.95 per cent bonds may be redeemed at par at the company`s
option after 14 October 2008.
NOTES TO THE ACCOUNTS (Continued)
15 Summary of changes in equity
2006 2005
GBPm GBPm
Opening equity shareholders` funds 2,933.1 2,534.2
Bond conversions - 121.7
Issue of shares 342.4 11.2
Cancellation of shares (1.0) (1.1)
3,274.5 2,666.0
Total recognised income and expense for the period 1,555.3 353.4
4,829.8 3,019.4
Dividends paid (97.4) (86.3)
Closing equity shareholders` funds 4,732.4 2,933.1
Date: 14/02/2007 09:10:37 Produced by the JSE SENS Department.
