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Market Cap
£1,826.15m
Change Today
-10.50p ()
Share Price
504.50p
Final Results
Liberty International PLC
13 February 2008
13 February 2008
LIBERTY INTERNATIONAL PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Attached are the preliminary results for the year ended 31 December 2007:
Highlights
Summary of Investment and Development Properties
Chairman's Statement
Financial Review
Unaudited Financial Information
Sir Robert Finch, Chairman of Liberty International, commented:
"Notwithstanding the challenging conditions which emerged in the UK property
market in the second half of 2007, Liberty International has fared extremely
well with record occupancy levels at our UK regional shopping centres and a
tremendous contribution from our non-shopping centre business which has been
completely transformed over the last 18 months and now includes such prime
assets as the Covent Garden Estate in London's West End.
We have a business of exceptional quality; a high degree of specialisation on
prime retail which constitutes nearly 90 per cent of our assets; the benefits of
scale; and financial strength, with a 42 per cent debt to assets ratio and
long-term fixed rate debt.
The results for the year, including a 6 per cent increase in underlying profit
before tax to £129 million, confirm the defensive merits of our UK regional
shopping centres with resilient income streams and relatively undemanding
valuation yields.
We are well placed to continue the measured growth of this high quality
company."
A presentation to analysts and investors will take place at 9:30 a.m. on 13
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.
This announcement 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 announcement 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.
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, +44 (0)20 7457 2020
College Hill Associates
Nicholas Williams, +27 (0)11 447 3030
College Hill Associates
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 converted into a UK Real Estate Investment Trust (REIT) on
1 January 2007.
Liberty International owns 100 per cent of Capital Shopping Centres ("CSC"), the
premier UK regional shopping centre business, and of Capital & Counties, a
retail and commercial property investment and development company.
At 31 December 2007, Liberty International owned £8.6 billion of properties of
which UK regional shopping centres comprised 75 per cent and retail property in
aggregate 88 per cent. Shareholders' funds and minority interests amounted to
£4.7 billion. Assets of the group under control or joint control amounted to
£11.0 billion at that date.
CAPITAL SHOPPING CENTRES has interests in 14 UK regional shopping centres
amounting to 12.6 million sq.ft. in aggregate including 8 of the UK's top 21
regional shopping centres with a market value of £6.5 billion at 31 December
2007. CSC's largest centres are Lakeside, Thurrock; MetroCentre, Gateshead;
Braehead, Renfrew, Glasgow; The Harlequin, Watford; and Manchester Arndale. In
addition, CSC has three major development projects in progress or with planning
permission in Cardiff, Newcastle and Oxford.
CAPITAL & COUNTIES owned assets of £2.2 billion at 31 December 2007 amounting to
7.2 million sq.ft. in aggregate. Capital & Counties had £664 million invested in
the Covent Garden area including the historic Covent Garden Market, and £353
million in Central London, primarily through the Great Capital Partnership, a
joint venture with Great Portland Estates plc. Capital & Counties acquired 50
per cent of EC&O Venues (Earls Court and Olympia Group) in 2007 for a sum that
valued the assets at approximately £375 million. In addition, Capital & Counties
has interests in the USA amounting to £381 million (2.7 million sq.ft.),
predominantly comprising retail assets in California, including the 856,000
sq.ft. Serramonte Shopping Centre, Daly City, San Francisco.
LIBERTY INTERNATIONAL PLC
HIGHLIGHTS
--------------------------------------------------------------------------------
Year Year
ended ended
31 December 31 December
2007 2006
--------------------------------------------------------------------------------
Net rental income +10% £374m £341m
Profit before tax (underlying)* +6% £129m £122m
(Deficit)/gain on revaluation and sale of
investment properties £(279)m £587m
(Loss)/profit before tax £(125)m £903m
Total properties £8,666m £8,232m
Net debt £3,668m £3,063m
Net assets (diluted, adjusted) £4,757m £5,002m
Adjusted earnings per share +6% 36.0p 33.9p
Dividend per share +10% 34.1p 31.0p
Net assets per share (diluted, adjusted)** -5% 1264p 1327p
--------------------------------------------------------------------------------
* Before property trading, valuation and exceptional items
** Net assets per share (diluted, adjusted) would increase by 104p per share to
1368p at 31 December 2007 (31 December 2006 - by 98p to 1425p) if adjusted for
notional acquisition costs amounting to £390 million (31 December 2006 - £370
million).
HIGHLIGHTS
• Stability and resilience of CSC's £6.5 billion prime UK regional
shopping centres
- like-for-like net rental income growth of 3.5 per cent
- high occupancy level of 98.7 per cent
- 138 tenancy changes in year increasing rent roll by £7 million per annum
• Dynamic re-alignment of non-shopping centres and international business
with £2.2 billion investment properties, including Central London ownership
increased to £1.4 billion
- consolidation of Covent Garden ownership to £664 million
- formation of Great Capital Partnership, now with £654 million of assets
(50% owned)
- £375 million Earls Court and Olympia acquisition (50% owned)
• Strong relative valuation performance of Liberty International on a
like-for-like basis as set out below:
Year ended Nine months Six months
31 December ended ended
2007 30 September 31 December
2007 2007
- UK regional shopping centres -3.9% +1.7% +2.6%
- UK non-shopping centre properties -0.2% +3.1% +3.2%
- USA +6.5% +6.5% +3.7%
By comparison, IPD monthly index capital returns for 2007 were minus 10.0 per
cent All Property and minus 11.8 per cent Retail
• Approximately 25 basis points upward shift in valuation yields
(like-for-like assets) in final quarter of 2007:
As at 31 As at 30 As at 30 As at 31
December September June December
2007 2007 2007 2006
- UK regional shopping 5.07% 4.82% 4.77% 4.84%
centres
- UK non-shopping 5.18% 4.94% 4.95% 4.89%
centre properties
• Net asset value per share (diluted, adjusted) reduced by 5 per cent from
1327p to 1264p, equivalent to 1368p (2006 - 1425p) adjusted for notional
acquisition costs.
• Total return for the year including dividends of minus 2.2 per cent.
• Ten year total return (NAV increase plus dividends) of 12.4 per cent per
annum compound (2006 - 15.1 per cent)
• Committed expenditure to complete current development programme around
£300 million, including
- St David's 2, Cardiff, opening Autumn 2009
- Eldon Square South, Newcastle, opening Spring 2010
• Disposals of £340 million at £37 million surplus over 31 December 2006
book values; also, CSC's interest in MetroCentre, Gateshead reduced by 40
per cent for £426 million consideration, a £16 million surplus.
• Robust financial position
- 42 per cent debt to assets ratio
- over £725 million cash and undrawn committed facilities
- no significant debt maturities before 2011
- debt mostly fixed rate and asset specific
DIVIDENDS
The Directors of Liberty International PLC have proposed a final dividend per
ordinary share (ISIN GB0006834344) of 17.6p (2006 - 17.25p) to bring the total
dividend per ordinary share for the year to 34.1p (2006 - 31.0p).
As a Real Estate Investment Trust ("REIT"), Liberty International is required to
distribute part of its income as a Property Income Distribution ("PID"). The tax
treatment of a PID is different to that of a non-PID; PIDs are required to be
paid after deduction of withholding tax unless specific exemptions apply.
The 2007 interim dividend paid on 4 September 2007 was paid wholly as a PID.
The proposed final dividend will be paid wholly as a non-PID, and therefore will
not be subject to deduction of withholding tax.
The following are the salient dates for the payment of the final dividend:
Tuesday 22 April 2008 Sterling/Rand exchange rate struck.
Monday 5 May 2008 Ordinary shares listed ex-dividend on the JSE,
Johannesburg.
Wednesday 7 May 2008 Ordinary shares listed ex-dividend on the London Stock
Exchange.
Friday 9 May 2008 Record date for 2007 final dividend in London and
Johannesburg.
Wednesday 28 May 2008 Dividend payment day for shareholders
(Note: Payment to ADR holders will be made on 11 June
2008)
South African shareholders should note that, in accordance with the requirements
of Strate, the last day to trade cum-dividend will be Friday 2 May 2008 and that
no dematerialisation or rematerialisation of shares will be possible from Monday
5 May to Friday 9 May 2008 inclusive.
No transfers between the UK and South African registers may take place from
Wednesday 23 April to Sunday 11 May 2008 inclusive.
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES
-----------------------------------------------------------------------------------------
Market value Revaluation surplus Net rental income
------------------------------------------------------------------------
31 December 31 December
2006 2007 Increase/ 2006 2007
£m £m £m (Decrease) £m £m Increase
-----------------------------------------------------------------------------------------
UK regional
shopping centres
Lakeside,
Thurrock 1,298.6 1,247.9 (56.5) (4.4)%
MetroCentre,
Gateshead 1,025.0 1,010.0 (43.7) (4.2)%
Braehead,
Glasgow 746.1 730.3 (15.9) (2.1)%
The Harlequin,
Watford 523.6 506.2 (17.0) (3.3)%
Victoria Centre,
Nottingham 441.1 444.8 3.5 0.8%
Chapelfield,
Norwich 354.0 324.5 (15.1) (4.5)%
Cribbs Causeway,
Bristol 311.6 296.3 (15.0) (4.8)%
The Potteries,
Stoke-on-Trent 307.5 278.3 (32.0) (10.4)%
The Chimes,
Uxbridge 275.0 261.8 (13.3) (4.9)%
The Glades,
Bromley 269.5 257.2 (16.1) (5.6)%
---------------------------- ----------------
Like-for-like 5,552.0 5,357.3 (221.1) (4.0)% 239.2 247.5 3.5%
capital and income
Arndale,
Manchester 428.3 418.5 (12.6) (2.9)%
Eldon Square,
Newcastle upon Tyne 240.1 258.0 (11.5) (4.2)%
St. David's,
Cardiff 104.3 101.2 (4.3) (4.1)%
Xscape, Braehead 39.4 39.8 (2.4) (6.2)%
---------------------------- ----------------
Like-for-like
capital 6,364.1 6,174.8 (251.9) (3.9)% 267.0 283.2 6.1%
Acquisitions - 77.0 (9.4) (10.9)% - 1.9
Redevelopments
and developments 193.2 229.3 (28.2) (11.0)% 5.0 3.7
---------------------------- ----------------
Total UK regional
shopping centres 6,557.3 6,481.1 (289.5) (4.3)% 272.0 288.8 6.2%
---------------------------- ----------------
UK non-shopping
centre properties
Like-for-like
capital and income 380.0 383.3 1.5 0.4% 18.2 18.5 1.6%
Like-for-like other 470.8 472.4 (2.7) (0.6)% 8.5 18.0
---------------------------- ----------------
Like-for-like capital 850.8 855.7 (1.2) (0.2)% 26.7 36.5
Acquisitions - 729.8 (26.5) (3.5)% - 18.9
Redevelopments
and developments 155.8 187.5 (22.2) (10.7)% 6.2 3.7
Disposals 282.9 - - - 15.1 7.0
---------------------------- ----------------
Total UK non-shopping
centre properties 1,289.5 1,773.0 (49.9) (2.7)% 48.0 66.1 37.7%
---------------------------- ----------------
US properties*
Like-for-like capital
and income 308.8 327.7 21.5 7.1% 19.3 17.7 (2.6)%
Like-for-like other 44.7 46.2 1.4 3.1% 0.9 1.7
---------------------------- ----------------
Like-for-like capital 353.5 373.9 22.9 6.5% 20.2 19.4
Acquisitions - 6.9 - - - -
Disposals 5.7 - - - 0.4 -
---------------------------- ----------------
Total US properties 359.2 380.8 22.9 6.5% 20.6 19.4 (5.8)%
---------------------------- ----------------
Total investment
properties 8,206.0 8,634.9 (316.5) (3.5)% 340.6 374.3 9.9%
---------------------------- ----------------
*Like-for-like percentage increases are in local currency
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued)
Property analysis by use and type
--------------------------------------------------------------------------------
Revaluation
Market value surplus
------------------------------------- -----------
31 December 31 December
2006 2007 % of total Increase /
£m £m properties (Decrease)
--------------------------------------------------------------------------------
Regional shopping centres and
other retail
UK regional shopping centres 6,557.3 6,481.1 75.1% (4.3)%
UK other retail 780.8 807.7 9.4% (5.4)%
US regional shopping centres 123.1 138.6 1.6% 11.8%
US other retail 134.2 130.0 1.5% 2.7%
------------------------------------
Total regional shopping
centres and other retail 7,595.4 7,557.4 87.5% (4.0)%
------------------------------------
Office
UK business space 508.7 583.8 6.8% (1.5)%
US business space 67.9 78.6 0.9% 6.2%
------------------------------------
Total office 576.6 662.4 7.7% (0.7)%
------------------------------------
Exhibition
UK Exhibition - 381.4 4.4% 1.3%
------------------------------------
Residential
US residential 34.0 33.7 0.4% 0.7%
------------------------------------
Total investment properties 8,206.0 8,634.9 100.0% (3.5)%
------------------------------------
Analysis of UK non-shopping centres and US properties by location and type
--------------------------------------------------------------------------------
Market value Revaluation surplus Net rental income
----------------- ------------------- ------------------
31 31 31 31 31
December December December December December
2006 2007 2007 Increase / 2006 2007
£m £m £m (Decrease) £m £m
--------------------------------------------------------------------------------
UK non-shopping
centre properties
Capco Covent
Garden 491.5 663.6 (19.4) (2.8)% 9.7 23.2
Capco Earls Court - 381.4 4.8 1.3% - 10.1
Capco London (inc.
Great Capital
Partnership) 323.2 353.2 (6.0) (1.6)% 16.5 14.2
Capco Opportunities 276.1 220.5 (12.2) (5.3)% 14.1 12.2
Capco Urban 198.7 154.3 (17.1) (10.1)% 7.7 6.4
--------------------------- --------------
Total UK non-shopping
centre properties 1,289.5 1,773.0 (49.9) (2.7)% 48.0 66.1
--------------------------- --------------
US properties
US retail 257.3 268.6 17.9 7.2% 15.9 14.1
US business space 67.9 78.6 4.8 6.6% 4.2 4.0
US residential 34.0 33.6 0.2 0.7% 0.5 1.3
--------------------------- --------------
Total US properties 359.2 380.8 22.9 6.5% 20.6 19.4
--------------------------- --------------
1,648.7 2,153.8 (27.0) (1.2)% 68.6 85.5
--------------------------- --------------
SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued)
UK investment property valuation data
--------------------------------------------------------------------------------
Market Nominal equivalent Passing Net rental
value yield rent income ERV
31 31 31 31
December 31 31 December December December
2007 December December 2007 2007 2007
£m 2006 2007 £m £m £m
--------------------------------------------------------------------------------
UK regional shopping
centres
Lakeside, Thurrock 1,247.9 4.65% 4.90%
MetroCentre,
Gateshead 1,010.0 4.75% 4.99%
Braehead, Glasgow 730.3 4.81% 5.02%
The Harlequin,
Watford 506.2 4.75% 4.95%
Victoria Centre,
Nottingham 444.8 4.95% 5.00%
Arndale, Manchester 418.5 4.96% 5.13%
Chapelfield, Norwich 324.5 5.00% 5.20%
Cribbs Causeway,
Bristol 296.3 4.74% 5.06%
The Potteries,
Stoke-on-Trent 278.3 5.00% 5.50%
The Chimes, Uxbridge 261.8 5.00% 5.35%
Eldon Square,
Newcastle upon Tyne 258.0 5.20% 5.25%
The Glades, Bromley 257.2 4.95% 5.40%
St. David's, Cardiff 101.2 5.00% 5.26%
Xscape, Braehead 39.8 6.04% 6.21%
-------
Like-for-like capital 6,174.8 4.84% 5.07% 267.2 283.2 328.7
Other 306.3 7.1 5.6 7.9
------- ----------------------------
Total UK regional
shopping centres 6,481.1 274.3 288.8 336.6
------- ----------------------------
UK non-shopping
centre properties
Capco Covent Garden 494.2 4.47% 4.72%
Capco London (inc.
Great Capital
Partnership) 149.2 4.93% 5.49%
Capco Opportunities 160.3 5.53% 6.20%
Capco Urban 52.1 5.03% 5.64%
-------
Like-for-like capital 855.8 4.79% 5.18% 38.5 36.5 50.2
Exhibition 381.4 10.1
Other 535.8 18.1 19.5 36.6
------- ----------------------------
Total UK non-shopping
centre properties 1,773.0 56.6 66.1 86.8
------- ----------------------------
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report that, notwithstanding the challenging conditions which
emerged in the UK property market in the second half of 2007, Liberty
International has fared extremely well with record occupancy levels at our UK
regional shopping centres and a tremendous contribution from our non-shopping
centre business which has been completely transformed over the last 18 months
and now includes such prime assets as the Covent Garden Estate in London's West
End.
Four key attributes of Liberty International came very much into evidence in
2007 - a business of exceptional quality, a high degree of specialisation on
prime retail which constitutes nearly 90 per cent of our assets, the benefits of
scale and our financial strength. Looking forward, our experienced property
management teams and our low debt to assets ratio position the group well to
identify and crystallise investment opportunities emanating from the current
market correction.
February 2008 is too early to form a view on the length and the breadth of the
turbulence now evident in the property market as a whole. 2007 was certainly a
transitional year when, particularly in the second half, investor enthusiasm for
UK property diminished rapidly with negative sentiment abounding as the US
sub-prime mortgage market contagion spread across the Atlantic and credit market
conditions deteriorated rapidly.
Under International Financial Reporting Standards ("IFRS"), we include
revaluation movements in our Income Statement which introduces a considerable
degree of volatility into our reported profits. After several years of buoyant
market conditions, the second half of 2007 saw a more cautious view of UK
property being reflected in valuations. While our Income Statement for 2007,
after a revaluation deficit of £316 million reduced by £37 million of gains on
disposals, shows a loss before tax of £125 million, the underlying profit before
tax excluding valuation movements and one-off trading profits increased from
£122 million to £129 million and adjusted earnings per share increased by 6 per
cent from 33.9p to 36.0p.
Adjusted net assets per share reduced by 5 per cent from 1327p to 1264p, giving
a total return for the year including dividends of minus 2.2 per cent. By way of
comparison, the IPD monthly index for the year, an ungeared measure, showed a 10
per cent fall in capital values and a negative total return of 5.5 per cent. The
successful relative outcome delivered by Liberty International in 2007
vindicates our focus over a long period on the highest quality real estate, in
particular on super-prime and prime regional shopping centres, which has
generated a compound per annum total return of 12.4 per cent for the last 10
years.
In order to address the requirements of investors for up-to-date information on
a more frequent basis, we moved to quarterly reporting with effect from the
first quarter of 2007, including external independent property valuations. This
has given shareholders an excellent insight into the unfolding changes in
property market conditions in 2007.
We moved rapidly in 2007 to take advantage of conversion at the end of 2006 to a
tax transparent status as a UK real estate investment trust ('REIT'). We
recorded £340 million of disposals in 2007 at an aggregate surplus over book
values at 31 December 2006 of £37 million as well as £426 million from the 40
per cent reduction in our interest in MetroCentre, Gateshead at £16 million
above book value. These were matched by additions of £1,062 million in the year,
comprising development expenditure and strategic acquisitions at our UK regional
shopping centres and in Central London including materially increasing our
ownership in Covent Garden, purchases by the Great Capital Partnership and the
£375 million Earls Court and Olympia transaction.
Property valuations
Evidence remained strong in 2007 that super-prime and prime regional shopping
centres, which are well managed and properly marketed, attract considerable
investor interest; such centres are noticeably outperforming secondary centres
with the gap in valuation yields widening as investors factor in the much
greater risks of lower quality assets. Furthermore, the yields applied by
valuers to prime regional shopping centres have proved far less volatile than
other prime UK property asset classes.
As an illustration of this point, indicative UK property market valuation
yields, as provided by one of our valuers, CB Richard Ellis, are set out below,
together with the notional impact of these changes on property values over the
year:
-------------------------------------------------------
Notional impact on
31 December 31 December valuations of yield
2006 2007 shift in the year
Retail
---------
Prime shops 4.00 4.75 (19)%
Prime shopping centres 4.75 5.00 (5)%
Secondary shopping centres 5.50 6.25 (14)%
Prime retail parks 3.85 4.75 (23)%
Offices
---------
Prime West End of London 3.75 4.75 (27)%
Prime City of London 4.25 5.25 (24)%
Valuation yields for CSC's UK regional shopping centres increased overall from
4.84 per cent at 31 December 2006 to 5.07 per cent at 31 December 2007 and were
the main contributory factor to an overall like-for-like valuation deficit of
3.9 per cent. This benign outcome in the circumstances confirms the defensive
merits of our UK regional shopping centres, with resilient income streams and
relatively undemanding valuation yields.
Capital & Counties also performed particularly well in valuation terms in 2007
in this environment, with an overall decrease in like-for-like valuations of
just 0.2 per cent in our UK non-shopping centre properties and an increase of
6.5 per cent in the USA.
Successful property investment requires a long-term perspective. While the
indications are that upward pressure on valuation yields in the UK has continued
into 2008, we believe that many positive factors for real estate as an asset
class are still relevant; first, consistent economic growth; secondly, investor
demand for long-term, stable, income producing and inflation-proofing assets to
meet retirement needs; thirdly, relatively benign long-term interest rates; and
finally, limited over-supply issues in the real estate industry.
While credit market conditions have put upward pressure on lending margins and
unsettled UK property investors, one favourable consequence has been a lowering
of interest rate expectations. The 10 year UK interest rate swap fell
substantially in the second half of the year from 5.92 per cent at 30 June 2007
to 5.02 per cent at 31 December 2007, below its starting position for the year
of 5.11 per cent. Liberty International is relatively insensitive to interest
rate movements in the short term as our borrowings are mostly long-term
fixed-rate. However, the impact of lower interest rates on the wider UK economy
and property market should be beneficial over time.
We are confident that Liberty International's concentration on super-prime and
prime large-scale and predominantly retail real estate will be advantageous in
any overall flight to quality by UK property investors. Additionally, the
valuation process values each asset individually and takes no account of the
extra portfolio value of our assets which could not now be assembled
individually on any sensible timescale.
Furthermore, although shareholders buying our shares only pay stamp duty at 0.5
per cent on share transactions, the assumption contained within the valuations
is that our assets would be sold individually to purchasers who would pay the
full 4 per cent stamp duty land tax applicable to large property transactions
and other notional acquisition costs. Adjusting for this factor would increase
our net asset value by £390 million, representing 104p per share over and above
our published net asset value per share figure of 1264p producing a more
realistic number for shareholders of 1368p.
Capital Shopping Centres
CSC's business has continued to perform robustly. Like-for-like growth in net
rental income amounted to 3.5 per cent for the year and the occupancy rate
continued at the high level of 98.7 per cent (31 December 2006 - 97.7 per cent).
In the year to date, we have recorded 138 tenancy changes, 7 per cent of 2,021
total retail units, increasing the annual rents from these tenancies by £7
million (2006 - 124 tenancy changes increasing rents by £1.5 million).
Asset management initiatives are a constant feature of the business. In
particular, the Boardwalk development at Lakeside, Thurrock, of 11 restaurants
overlooking the lake and a refurbished cinema, has traded strongly since opening
in June 2007, enhancing activity throughout the centre. At MetroCentre,
Gateshead, we have, with our partners, GIC, acquired the adjoining 220,000
sq.ft. Metro Retail Park for £82.5 million, increasing our overall ownership to
over 2 million sq.ft.. We have obtained planning permission for the intended
upgrade of the leisure and dining facilities in the Yellow and Blue Quadrants,
with a view to continuing our improvement programme, most notably delivered by
the successful 370,000 sq.ft. Red Mall extension which opened in Autumn 2004.
CSC's development activities are progressing according to programme with two
major projects under way, the 967,500 sq.ft. extension of St David's, Cardiff,
opening in Autumn 2009, and the 480,000 sq.ft. extension of Eldon Square,
Newcastle, where the largest phase opens in Spring 2010. In both cases, we have
entered into fixed price construction contracts to ensure control of costs, we
have secured anchor tenants and lettings are in line with expectations. We
anticipate ample retailer requirements for the attractive and well-configured
retail space.
The compulsory purchase order inquiry for the 750,000 sq.ft. Westgate, Oxford,
refurbishment and extension took place in December 2007 and, subject to a
satisfactory outcome, we will be in a position to commit to the project in 2008
for an opening in 2011. We are pleased to have satisfied the principal
stakeholders that our proposals fit well in this unique and
architecturally-sensitive city-centre location. In 2007, we restructured the
arrangements with our investment partner, moving our potential ownership from 50
per cent to an interest of not less than 75 per cent, the final percentage
dependent on the amount our partner elects to contribute.
CSC is a retail property business, not a retailer. Our net rental income growth
is more correlated to rent reviews, typically on a five year cycle in the UK,
and active asset management initiatives, than short term fluctuations in retail
sales. In terms of rent reviews, 2007 was relatively quiet with 11 per cent of
CSC's net rental income coming up for review. These reviews are progressing in
line with expectations.
In terms of the overall retail environment, UK non-food retail sales, as
measured by ONS, continued to grow steadily with year-on-year growth of 3.4 per
cent for the year ended 31 December 2007. The last quarter of 2007 saw some
signs of weakening in this measure but successful retailers are continuing to
look to expand and trade from high quality space such as CSC offers.
Capital & Counties
We have continued the dynamic re-alignment of the business of Capital &
Counties, with gross assets now increased to £2.2 billion compared with £1.1
billion as recently as 30 June 2006, the last quarter date before the major
acquisition of the Covent Garden Estate.
Capital & Counties' activities are strongly focussed on Central London with over
£1.4 billion invested at 31 December 2007. We continue to regard Central London
as a long-term beneficiary of globalisation, with its world-class financial
services industry and historical, cultural and residential attractions. Three
important investments now form the core of our London holdings. First, the
Covent Garden Estate, where we have substantially consolidated our ownership
during the year. Covent Garden is now the group's fourth largest investment at
£664 million and we are making good progress working closely with stakeholders
on the strategic plan for the area. Second, our 50/50 partnership with Great
Portland Estates plc, The Great Capital Partnership, which has grown to £654
million, of which some two-thirds is focussed on the Regent Street, London W1,
area. Third, Earls Court and Olympia where we moved decisively in 2007 to secure
50 per cent ownership and effective control. These globally recognised London
landmark venues offer over 1 million sq.ft. of exhibition and conference space
with considerable opportunities to intensify use. The £381 million assets of
Earls Court and Olympia are fully consolidated at 31 December 2007 reflecting
the nature of the ownership arrangements.
Through Capco Urban, our mixed-use development business, the group continues its
activities in other important regional locations.
International
Capco USA is an established value-add developer of mixed-use properties with an
emphasis on retail investment with total assets now amounting to £381 million.
Our activities are focussed on California and the business has performed well in
2007 with a 6.5 per cent revaluation gain driven by our flagship shopping
centre, Serramonte, in the San Francisco bay area. This asset continues to
provide a number of active management and remodelling opportunities which we are
pursuing. Capital & Counties USA has converted 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. In 2007, we 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. In aggregate, we invested £39
million in Capco International activities in 2007 on which we recorded a
revaluation surplus of £8 million for the year.
Corporate responsibility
I am pleased to record that for many years Liberty International has had a
strong commitment to Corporate Responsibility (CR), producing our first full
annual report on the subject in 2002. We have reviewed and developed our CR
activities year on year and our community programmes have grown with ongoing
partnerships with a number of charities including Crime Concern and the
Conservation Foundation.
Our community programme working near our shopping centres focuses on youth,
education and the prevention of crime and anti-social behaviour, with some
excellent local projects in hand. A growing strand of environmental awareness
initiatives located on our Covent Garden estate complements our vision to
regenerate and restore that unique urban area. Once again, in 2007 we have
devoted substantial time and financial support via our CR partnerships to the
benefit of all involved.
Our development programme has always been focussed on brownfield land and
Braehead near Renfrew, Scotland, formerly derelict industrial land by the Clyde,
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, in addition to the indirect employment opportunities created.
In our development activities, we continue to apply the highest construction
standards; and operationally at the shopping centres we have made further major
strides in energy efficiency and waste reduction, with 2007 seeing the
realisation of our goal to measure the carbon footprint of all our directly
managed UK shopping centres. Work is in hand to understand the factors
influencing that footprint so that we can take practical steps to reduce it and
save on costs as well.
As an example of the external recognition of our activities in the CR field, we
are rated as a BiTC top 100 company and sector leader in their Environmental
Index.
Dividends
The Directors propose a final dividend of 17.6p per share bringing the full
year's dividend to 34.1p (2006 - 31.0p), an increase of 10 per cent. Liberty
International has always pursued a progressive dividend policy distributing
substantially all of the group's recurring income. We have shown consistent
growth over a long period from 4.5p per share in 1985 to 34.1p in 2007. This
progressive policy will continue under REIT status but additionally the 2007
dividend includes an extra increase out of the net tax savings from conversion
to a REIT.
The group is an active developer and has a substantial pool of brought forward
capital allowances. The required minimum Property Income Distribution ("PID")
for the year is estimated at around 18p per share, substantially below the
dividend proposed for the year. As the interim dividend of 16.5p was paid
entirely as a PID, subject to withholding tax for certain shareholders, we have
decided that for administrative simplicity the final dividend will be paid
entirely as a non-PID dividend not subject to any withholding tax and the
balance of the minimum PID requirement will, as permitted under REIT
regulations, be met from the current year's dividends.
Financial position
Liberty International's financial position is strong with gross property assets
of £8.6 billion and net debt of £3.6 billion providing a debt to assets ratio of
42 per cent at 31 December 2007. Our debt structures are predominantly long-term
in nature, asset specific and fixed-rate. The first material loan repayment is
not until 2011.
Board and management
Once again my thanks go to my Board colleagues for their active support during
2007. Along with the non-executive directors, I would like to thank the group's
executive directors and staff both in the UK and the USA for their tremendous
commitment and effort. We are pleased to have substantially strengthened the
overall management team in 2007 with a number of senior level recruits to the
group.
Prospects
Through our exceptional assets, financial strength and quality management, we
are well placed to continue on behalf of shareholders the measured growth of our
high quality company.
We look forward to opportunities emerging from the unsettled financial and
property markets of 2008.
Sir Robert Finch
Chairman
13 February 2008
FINANCIAL REVIEW
Liberty International recorded the following significant transactions in 2007:
First quarter
• Formation of a strategic partnership with GIC Real Estate through the creation
of the MetroCentre Partnership realising £426 million (accounted for as the
disposal of a part interest in a subsidiary with the creation of a minority
interest).
• Acquisition of the retail element of the Royal Opera House block in London's
Covent Garden for £128 million.
Second quarter
• Formation of The Great Capital Partnership creating a £460 million joint
venture with Great Portland Estates with Liberty International contributing
£299 million of assets to the partnership and receiving a balancing payment of
£68 million.
Third quarter
• Completion of the acquisition of a 50 per cent interest in the Earls Court
and Olympia Group for a net consideration of £54 million (accounted for as a
subsidiary).
• Acquisition of the Metro Retail Park through the MetroCentre Partnership for
£82.5 million (group's share £49.5 million).
• Acquisition of further properties by The Great Capital Partnership for £140
million (group's share £70 million).
• Acquisition of further properties in Covent Garden for £32 million.
Fourth quarter
• Acquisition of further properties by The Great Capital Partnership for £20
million (group's share £10 million).
• Further investment in Covent Garden with the purchase of the Covent Garden
Restaurants Group for £22 million and in Manchester with the purchase of
properties for £25 million.
And over the year as a whole:
• Property disposals (excluding the MetroCentre transaction with GIC) realising
£340 million at a surplus over 31 December 2006 values of £37 million.
Further details of the major items are shown in the paragraph "Transactions
during the year" at the end of this report.
Results for the year ended 31 December 2007
The results for the year to 31 December 2007 include those of The MetroCentre
Partnership from the date of its inception, 25 March 2007, and the Earls Court
and Olympia Group from the date of completion of the acquisition, 24 July 2007,
on the basis of full consolidation as subsidiaries. The share of profits and net
assets attributable to the other 40 per cent and 50 per cent interests
respectively are shown under minority interests. The results for the period have
therefore been affected in several ways with the result that they are not
directly comparable with 2006, both because of the inclusion of a new activity
and because of the presentation of both transactions on a consolidated basis.
Also there is a degree of seasonality in the Earls Court and Olympia business
with a peak of activity towards the end of the first quarter, which is not
reflected in the current year's results as it was pre-acquisition, and a
relatively quiet period during the summer months, which is reflected in the
group results.
The Income Statement for the year ended 31 December 2007 shows continuing
underlying growth, with a 5.8 per cent increase in underlying profit before tax
from £122.3 million to £129.4 million, and a 6.2 per cent increase in adjusted
earnings per share:
--------------------------------------------------------------------------------
Year Year
ended ended
31 Dec 31 Dec
2007 2006
£m £m
--------------------------------------------------------------------------------
Profit before tax (underlying)
attributable to ordinary shareholders +5.8% 129.4 122.3
Trading profits 2.9 32.8
Minority interests (before tax) (1.7) -
--------------------------------------------------------------------------------
Profit before tax, valuation and exceptional items 130.6 155.1
(Deficit)/gains on revaluation
and sale of investment property (279.1) 586.5
Movement in the fair value of derivatives 27.0 163.5
Exceptional items (3.3) (2.0)
--------------------------------------------------------------------------------
(Loss)/profit before tax (124.8) 903.1
--------------------------------------------------------------------------------
2007 Quarterly 2007 2006
-------------------------------- Dec Dec
Mar June Sept Dec
Adjusted earnings per share 9.8p 9.0p 7.9p 9.3p 36.0p 33.9p
--------------------------------------------------------------------------------
Like-for-like net rental income in the group's UK regional shopping centres
increased by 3.5 per cent.
Like-for-like non-shopping centre net rental income increased by 1.6 per cent in
the UK, and fell by 2.6 per cent in the US. This reflects planned refurbishment
activity, a lease expiry in the UK where the property has been subsequently
re-let and a small number of tenant failures. Good progress has been made in
securing new tenants or with sales where appropriate and consequently the full
year shows an improvement over the position reported at the end of the third
quarter.
Administration expenses increased from £34.2 million to £45.2 million, including
£5.2 million from Earls Court and Olympia since acquisition and approximately £3
million from fees related to investment and financing transactions during the
year.
Valuations
The overall deficit on revaluation and sale of investment properties for the
year ended 31 December 2007 amounted to £279.1 million, after a gain of £37.4
million from disposals.
Like-for-like percentage gains on revaluation of investment properties since the
preceding year end are summarised as follows:
--------------------------------------------------------------------------------
Year Nine months Six months
ended ended ended
31 Dec 30 Sept 30 June
2007 2007 2007
--------------------------------------------------------------------------------
- UK regional shopping centres -3.9% +1.7% +2.6%
- UK non-shopping centre properties -0.2% +3.1% +3.2%
- USA +6.5% +6.5% +3.7%
--------------------------------------------------------------------------------
The related weighted average nominal equivalent yields were as follows:
--------------------------------------------------------------------------------
As at As at As at As at
31 Dec 30 Sept 30 June 31 Dec
2007 2007 2007 2006
--------------------------------------------------------------------------------
UK regional shopping centres 5.07% 4.82% 4.77% 4.84%
UK non-shopping centre properties 5.18% 4.94% 4.95% 4.89%
--------------------------------------------------------------------------------
For UK regional shopping centres, the small increase in the average equivalent
yield between 30 June 2007 and 30 September 2007 was confined to a few centres
with the majority of yields, principally the yields on the larger centres,
unchanged from 30 June 2007. In the final quarter of the year these yields
increased by a quarter of a per cent on average across all centres. The overall
revaluation deficit on UK regional shopping centres over the whole year can be
analysed between a 0.7 per cent increase from underlying rental growth and a 4.6
per cent deficit from yield shift.
The percentage valuation movements on UK non-shopping centre properties follow a
similar pattern, with a similar movement in yields in the last quarter. However,
growth in rental income, particularly in the West End of London and Covent
Garden properties, compensated for the movement in yield such that the overall
like-for-like valuation movement for the year was a small negative. The overall
outcome for the year showed a fall of 2.7 per cent but this partly reflects the
realisation of some substantial valuation gains recognised earlier in the year
through sales in the third and fourth quarter and the absorption of costs
related to purchases made during the period. Sales by this business during the
year generated proceeds of £318.8 million and a surplus over December 2006
values of £32.4 million.
In the USA the revaluation surplus increased to 6.5 per cent at 30 September
2007 from 3.7 per cent at 30 June 2007 and was maintained at that level in the
last quarter, still primarily driven by the retail properties and, in
particular, the Serramonte shopping centre which showed an increase of 11.8 per
cent for the year to 31 December 2007.
Net assets per share
Adjusted net assets per share at 31 December 2007 of 1264p declined by 105p from
1369p at 30 September 2007 and by 63p from 1327p at 31 December 2006. This
represents a total return for the year of minus 2.2 per cent, from 1327p at 31
December 2006 (after taking into account the 2006 final dividend of 17.25p and
the interim dividend of 16.5p paid during 2007).
Financial position
The group raised £340 million from disposals during the year (in addition to
£426 million raised from the creation of the MetroCentre Partnership) and
purchased £518 million of investment properties in addition to the £375 million
of property acquired through the Earls Court transaction. Total additions for
the year, including development expenditure of £169 million, amounted to £1,062
million and proceeds from sales, including the creation of the MetroCentre
Partnership, amounted to £766 million. Net debt increased from £3,063 million at
31 December 2006 to £3,668 million at 31 December 2007 (£3,218 million if
minority interests and other IFRS adjustments are excluded).
Liberty International's financial ratios, including a debt to assets ratio of 42
per cent at 31 December 2007 (31 December 2006 - 36 per cent), remain robust.
The group's debt is analysed below:
-------------------------------------------------------------------------------
Consolidated Minorities' Underlying
Balance Share Head Balance
Sheet in JVs Leases Sheet
£m £m £m £m
--------------------------------------------------------------------------------
Investment properties 8,623 (641) (57) 7,925
Other fixed assets 162 162
--------------------------------------------------------------------------------
8,785 (641) (57) 8,087
--------------------------------------------------------------------------------
Net debt 3,668 (393) (57) 3,218
--------------------------------------------------------------------------------
Debt to Assets Ratio 42% 40%
The majority of the group's joint ventures are jointly controlled and the
group's policy is to use proportional consolidation whereby only the group's
share of assets and liabilities are consolidated in the group balance sheet.
However, where the structure of the group's joint ventures is such that the
group exercises effective control of the joint venture, as in the case of the
MetroCentre Partnership and the Earls Court and Olympia Group, then all of the
assets and liabilities of the joint venture are consolidated in the group's
balance sheet with the joint venturer's share of the net assets shown as a
minority interest. This, together with the presentation of fixed head lease
payments under International Financial Reporting Standards, can have the effect
of exaggerating the group's exposure to debt as measured by the Debt to Assets
Ratio. The table above re-presents the consolidated balance sheet showing only
the group's share of assets and net debt and removing the adjustment in respect
of head leases. As these joint ventures are more highly geared than the group as
a whole the revised presentation shows an underlying Debt to Assets Ratio of 40
per cent.
A further analysis shows the split of the underlying balance sheet between
secured and unsecured finance:
------------------------------------------------------------------------------
Underlying
Balance
Sheet Secured Unsecured
£m £m £m
------------------------------------------------------------------------------
Investment properties 7,925 6,212 1,713
Other fixed assets 162 - 162
---------------------------------------------- -----------------------
8,087 6,212 1,875
---------------------------------------------- -----------------------
Net debt 3,218 3,154 64
---------------------------------------------- -----------------------
Debt to Assets Ratio 40% 51% 3%
The analysis above is very important when assessing the risks associated with
the group's debt finance. The group has a relatively small amount of unsecured
debt with the vast majority of the group's debt being in the form of secured and
largely non-recourse debt. The Debt to Asset Ratio on the secured pool is around
51 per cent with the result that the asset cover for the unsecured debt is
considerably higher. This means that group still has considerable capacity to
borrow on an unsecured basis and, based on typical initial loan to value and
interest coverage ratios, there is also further capacity in the secured pool.
The first maturity in the secured pool does not arise until 2011.
At 31 December 2007 the weighted average maturity of the group's debt was over
6.7 years and the weighted average cost of debt was 6.0 per cent (7 years and
5.9 per cent excluding Earls Court debt). The group had undrawn committed
borrowing facilities of £540 million.
Fair value of debt and financial instruments
Long-term interest rates declined in the second half of the year having risen
strongly in the first half. The ten year UK interest rate swap, a reasonable
proxy for our fixed rate hedging strategy, rose from 5.11 per cent at 31
December 2006 to 5.92 per cent at 30 June 2007, falling back to 5.02 per cent at
31 December 2007. We recorded a surplus of £27 million in the year ended 31
December 2007 on revaluation of the derivative financial instruments used to fix
our long-term debt. Compared to the surplus at 30 June 2007 of £251 million,
this represents a reduction in the second half year of £224 million.
The potential adjustment to net assets per share (diluted, adjusted) arising
from the fair value of the group's debt and financial instruments in recent
years, and quarters in 2007, is shown below:
-------------------------------------------------------------------------------
Fair value
Fair value adjustment
10 year adjustment (before tax)
£swap (before tax) pence per
% £m share
-------------------------------------------------------------------------------
31 December 2005 4.51 (417.4) (119)p
31 December 2006 5.11 (240.2) (64)p
31 March 2007 5.35 (121.6) (32)p
30 June 2007 5.92 47.1 13 p
30 September 2007 5.45 (41.0) (11)p
31 December 2007 5.02 (187.7) (50)p
The group's net borrowings at 31 December 2007 amounted to £3,668 million with
£556 million of fixed rate debt and the remainder fixed by way of derivative
financial instruments. The structure of the group's hedging instruments means
that on the fixed element of our borrowings the group has a declining interest
rate profile (see table below):
Interest Rate Swap Summary
------------------------------------------------------------------------------
Notional amount Average rate
In effect after £m %
------------------------------------------------------------------------------
1 Year 3,319 5.27
5 Years 3,220 5.16
10 Years 2,543 4.72
15 Years 2,100 4.58
20 Years 2,100 4.58
25 Years 1,625 4.40
------------------------------------------------------------------------------
Share buy-backs
Liberty International has shareholder approval to buy-back on-market up to 10
per cent of its shares. Although the current share price is at a discount to
published net asset value, we would expect only to use the buy-back power very
selectively given the scale of our development programme and the long-term time
horizon required to bring major shopping centre projects to fruition. During the
third quarter of 2007, Liberty International bought 700,000 shares at an average
price of 1017 pence per share.
Transactions during the year ended 31 December 2007
• Strategic partnership with GIC Real Estate realising £426 million.
------------------------------------------------------------------
Our wholly owned subsidiary, Capital Shopping Centres ("CSC"), entered into
an agreement with GIC Real Estate ("GIC RE") for GIC RE to acquire a 40 per
cent share in CSC's interest in the MetroCentre, Gateshead for a gross
consideration of £426 million. GIC RE is the real estate investment arm of
the Government of Singapore Investment Corporation and one of the world's
leading global real estate investors. CSC continues to manage the
MetroCentre. The transaction, which completed during the second quarter,
released capital to enable Liberty International to continue to expand its
overall business. The MetroCentre Partnership is accounted for as a
subsidiary undertaking with the results, assets and liabilities fully
consolidated in the year's results and GIC's participation shown as minority
interests.
• Formation of a £460 million Central London joint venture with Great Portland
----------------------------------------------------------------------------
Estates, increased to £654 million at 31 December 2007.
-------------------------------------------------------
Our wholly owned subsidiary, Capital and Counties, announced the formation of
The Great Capital Partnership, a 50:50 joint venture with Great Portland
Estates plc ("GPE"), to own, manage and develop a number of Central London
properties and to broaden both parties' exposure in Central London. The Great
Capital Partnership had a starting value of around £460 million, with Capital
& Counties contributing £299 million of investment properties and GPE
contributing £162 million and making a balancing payment of £68 million in
cash to Capital & Counties. The transaction completed during the second
quarter. GPE is responsible for day-to-day asset management of the
partnership properties. Taking into account subsequent acquisitions and
revaluations, the partnership had increased to £654 million with no
borrowings at 31 December 2007.
• Acquisition of a 50 per cent interest in EC&O Venues (Earls Court and Olympia
-----------------------------------------------------------------------------
Group)
------
Capital & Counties acquired a 50 per cent interest in EC&O for a sum that
valued the assets at approximately £375 million. The consideration for the 50
per cent interest was £54 million taking into account all assets, debt and
other liabilities of the business. The group owns and manages the Earls Court
and Olympia Exhibition Centres in West London and the Brewery, Chiswell
Street, London EC2, with the aim of establishing the venues as landmark
leisure destinations, centred around the core businesses of exhibitions,
conferences and special events whilst exploring opportunities to intensify
use. The interest in EC&O has been accounted for as a subsidiary with the
results, assets and liabilities fully consolidated in the year's results.
• Acquisition of the Covent Garden Restaurants Group
--------------------------------------------------
Capital & Counties acquired the Covent Garden Restaurants Group, owners of
the Rock Garden and Tuttons restaurants in Covent Garden, for a net
consideration of £22 million. This, together with the EC&O transaction, gave
rise to goodwill carried in the group balance sheet at £27 million.
Development Programme
Details of the committed development projects are set out in the table below:
--------------------------------------------------------------------------------
Cost to
Development Status complete
as at
31 December
2007
--------------------------------------------------------------------------------
Eldon Square, Newcastle (60% interest) £57m
Eldon Square West - restaurants and Completed in October 2006.
22,000 sq. ft. retail.
Eldon Square North - bus station and Bus station completed
48,000 sq. ft. retail. February 2007.
Retail on site; expected
opening February 2008.
Eldon Square South - 410,000 sq. ft. On site July 2007.
retail extension
including 175,000 sq. ft. Debenhams Expected opening Spring
department store. 2010.
-------------------------------------------------------------------
St David's, Cardiff (50% interest) £186m
967,500 sq. ft. extension. On site. Expected opening
Joint venture with Land Securities Autumn 2009.
Group PLC.
-------------------------------------------------------------------
Other developments - CSC £34m
Other developments - Capital and Counties £40m
--------------------------------------------------------------------------------
Total committed developments £317m
--------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE YEAR ENDED 31 DECEMBER 2007
Notes 2007 2006
£m £m
--------------------------------------------------------------------------------
Revenue 2 574.6 562.8
--------------------------------------------------------------------------------
Rental income 546.7 493.1
Rental expenses (172.4) (152.5)
--------------------------------------------------------------------------------
Net rental income 2 374.3 340.6
Other income 2.0 34.8
(Deficit)/gain on revaluation and sale of investment
and development property 3 (279.1) 586.5
--------------------------------------------------------------------------------
97.2 961.9
Administration expenses (45.2) (34.2)
--------------------------------------------------------------------------------
Operating profit 52.0 927.7
--------------------------------------------------------------------------------
Interest payable 4 (209.3) (190.0)
Interest receivable 8.8 3.9
Exceptional finance costs 4 (3.3) (2.0)
Change in fair value of derivative financial
instruments 27.0 163.5
--------------------------------------------------------------------------------
Net finance costs (176.8) (24.6)
--------------------------------------------------------------------------------
Profit/(loss) before tax (124.8) 903.1
--------------------------------------------------------------------------------
Current tax (2.7) 0.8
Deferred tax (23.8) 814.5
REIT entry charge (3.9) (154.3)
--------------------------------------------------------------------------------
Taxation 5 (30.4) 661.0
--------------------------------------------------------------------------------
Minority interests 50.2 -
--------------------------------------------------------------------------------
Profit/(loss) for the period attributable to equity
shareholders (105.0) 1,564.1
--------------------------------------------------------------------------------
Ordinary dividends - paid and proposed 123.3 108.7
- pence per share 34.1p 31.0p
--------------------------------------------------------------------------------
Basic earnings per share 14 (29.0)p 462.1p
--------------------------------------------------------------------------------
Diluted earnings per share 14 (26.6)p 444.0p
--------------------------------------------------------------------------------
Adjusted earnings per share are shown in note 14.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 31 DECEMBER 2007
Notes 2007 2006
£m £m
--------------------------------------------------------------------------------
Non-current assets
Goodwill 26.6 -
Investment and development property 7 8,622.8 8,187.1
Plant and equipment 1.2 0.9
Trade and other receivables 9 83.5 81.4
Investments 51.0 -
--------------------------------------------------------------------------------
8,785.1 8,269.4
--------------------------------------------------------------------------------
Current assets
Trading property 8 43.7 45.2
Trade and other receivables 9 155.3 113.8
Cash and cash equivalents 188.4 321.8
--------------------------------------------------------------------------------
387.4 480.8
--------------------------------------------------------------------------------
Total assets 9,172.5 8,750.2
--------------------------------------------------------------------------------
Current liabilities
Trade and other payables (341.7) (319.5)
Tax liabilities (5.7) (2.1)
Borrowings, including finance leases 10 (152.3) (43.5)
Derivative financial instruments (3.8) (4.6)
--------------------------------------------------------------------------------
(503.5) (369.7)
--------------------------------------------------------------------------------
Non-current liabilities
Borrowings, including finance leases 10 (3,704.0) (3,341.3)
Derivative financial instruments (94.0) (128.9)
Deferred tax provision 5 (73.7) (40.8)
Other provisions 12 (1.4) (4.9)
Other payables (87.0) (132.2)
--------------------------------------------------------------------------------
(3,960.1) (3,648.1)
--------------------------------------------------------------------------------
Total liabilities (4,463.6) (4,017.8)
--------------------------------------------------------------------------------
Net assets 4,708.9 4,732.4
--------------------------------------------------------------------------------
Equity
Called up share capital and reserves
attributable to equity shareholders 15 4,507.0 4,732.4
Minority interests 201.9 -
--------------------------------------------------------------------------------
Total equity 4,708.9 4,732.4
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED)
2007 2006
£m £m
--------------------------------------------------------------------------------
Profit for the period (105.0) 1,564.1
Actuarial (losses)/gains on defined benefit pension schemes (2.0) 0.7
Tax on items taken directly to equity 0.5 (4.9)
Gains on revaluation of investments, net exchange
translation differences and other movements 6.4 (4.6)
--------------------------------------------------------------------------------
Net gains/(losses) recognised in equity 4.9 (8.8)
--------------------------------------------------------------------------------
Total recognised income and expense for the period (100.1) 1,555.3
--------------------------------------------------------------------------------
A summary of changes in group equity is shown in note 15.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
2007 2006
£m £m
--------------------------------------------------------------------------------
Cash flows from operating activities
Operating profit 52.0 927.7
Adjustments for non-cash items:
Unrealised net revaluation deficits/(gains) on investment
property 316.5 (558.5)
Unrealised gains on transfer of trading property - (33.1)
Profit on sale of investment property (37.4) (28.0)
Depreciation and amortisation 0.3 0.2
Amortisation of lease incentives and other direct costs (1.6) 10.3
--------------------------------------------------------------------------------
Cash flows from operations before changes
in working capital 329.8 318.6
Change in trade and other receivables (6.4) (10.9)
Change in trading property 8.5 9.7
Change in current asset investments (39.2) 3.0
Change in trade and other payables (65.1) (0.5)
--------------------------------------------------------------------------------
Cash generated from operations 227.6 319.9
Interest paid (222.0) (198.6)
Interest received 9.8 2.9
Tax paid (12.9) (6.6)
--------------------------------------------------------------------------------
Cash flows from operating activities 2.5 117.6
--------------------------------------------------------------------------------
Cash flows from investing activities
Purchase and development of property (575.5) (653.9)
Sale of property 459.2 127.3
Purchase of subsidiary companies (80.0) -
--------------------------------------------------------------------------------
Cash flows from investing activities (196.3) (526.6)
--------------------------------------------------------------------------------
Cash flows from financing activities
Issue and repurchase of shares (3.1) 341.4
Borrowings drawn 382.6 902.0
Borrowings repaid (197.0) (486.0)
Equity dividends paid (122.1) (97.4)
--------------------------------------------------------------------------------
Cash flows from financing activities 60.4 660.0
--------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (133.4) 251.0
Cash and cash equivalents at 1 January 321.8 70.8
--------------------------------------------------------------------------------
Cash and cash equivalents at 31 December 188.4 321.8
--------------------------------------------------------------------------------
NOTES (UNAUDITED)
1 Basis of preparation
The Preliminary Report is unaudited and does not constitute statutory accounts
within the meaning of Section 240 of the Companies Act 1985. The statutory
accounts for the year ended 2006 have been delivered to the Registrar of
Companies. The auditors' opinion on these accounts was unqualified and did not
contain a statement made under Section 237 (2) or Section 237 (3) of the
Companies Act 1985. The accounting policies set out in pages 42 and 43 of the
2006 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 and financial assets and liabilities held for trading.
2 Segmental analysis
2007
-----------------------------------------------------
UK Other
shopping commercial Other Group
centres properties Exhibition activities Total
£m £m £m £m £m
--------------------------------------------------------------------------------
Revenue 424.8 126.3 24.7 (1.2) 574.6
--------------------------------------------------------------------------------
Rent receivable 334.8 98.8 24.7 - 458.3
Service charge income 57.6 9.3 - - 66.9
Other income 19.3 2.2 - - 21.5
--------------------------------------------------------------------------------
411.7 110.3 24.7 - 546.7
Rent payable (22.3) (3.1) - - (25.4)
Service charge and other
non-recoverable costs (100.6) (31.8) (14.6) - (147.0)
--------------------------------------------------------------------------------
Net rental income 288.8 75.4 10.1 - 374.3
Property trading
profits/(losses) 1.5 1.4 - - 2.9
Other income - 0.3 - (1.2) (0.9)
(Deficit)/gain on revaluation
and sale of investment and
development property (284.5) 0.6 4.8 - (279.1)
--------------------------------------------------------------------------------
Segment result 5.8 77.7 14.9 (1.2) 97.2
--------------------------------------------------------------------------------
2006
-----------------------------------------------------
UK Other
shopping commercial Other Group
centres properties Exhibition activities Total
£m £m £m £m £m
--------------------------------------------------------------------------------
Revenue 421.1 139.2 - 2.5 562.8
--------------------------------------------------------------------------------
Rent receivable 320.4 79.8 - - 400.2
Service charge income 51.6 15.6 - - 67.2
Other income 15.9 9.8 - - 25.7
--------------------------------------------------------------------------------
387.9 105.2 - - 493.1
Rent payable (23.2) (3.8) - - (27.0)
Service charge and other
non-recoverable costs (92.7) (32.8) - - (125.5)
--------------------------------------------------------------------------------
Net rental income 272.0 68.5 - - 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
--------------------------------------------------------------------------------
3 Deficit on revaluation and sale of investment and
development property
2007 2006
£m £m
--------------------------------------------------------------------------------
(Deficit)/gain on revaluation of investment and development
property (316.5) 558.5
Gain on sale of investment property 37.4 28.0
--------------------------------------------------------------------------------
(Deficit)/gain on revaluation and sale of investment and
development property (279.1) 586.5
--------------------------------------------------------------------------------
4 Finance costs 2007 2006
£m £m
--------------------------------------------------------------------------------
Gross interest payable - recurring 224.4 198.6
Interest capitalised on developments (15.1) (8.6)
--------------------------------------------------------------------------------
Interest payable 209.3 190.0
--------------------------------------------------------------------------------
Issue costs written off on redemption of loans 2.0 2.0
Early termination of loan agreements 1.3 2.0
--------------------------------------------------------------------------------
Exceptional finance costs 3.3 2.0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5 Taxation Current Deferred REIT entry 2007
£m £m charge £m
£m
--------------------------------------------------------------------------------
Tax on non-exceptional items 2.7 (0.5) - 2.2
Other exceptional tax - - 3.9 3.9
Valuation items:
Investment and development property - 8.7 - 8.7
Derivative financial instruments - 15.6 - 15.6
--------------------------------------------------------------------------------
2.7 23.8 3.9 30.4
--------------------------------------------------------------------------------
Taxation charge for the financial year 2007 2006
£m £m
--------------------------------------------------------------------------------
Current UK corporation tax at 30% (2006 - 30%) on profits 6.0 27.6
Prior year items - UK corporation tax (3.4) 0.2
--------------------------------------------------------------------------------
2.6 27.8
Overseas taxation (including £0.7m (2006 - £nil) of prior
year items) 0.1 1.8
--------------------------------------------------------------------------------
Current tax on profits excluding exceptional items and
property disposals 2.7 29.6
--------------------------------------------------------------------------------
Deferred tax:
On investment and development property 8.7 (848.1)
On derivative financial instruments 15.6 51.2
On other temporary differences (0.5) (17.6)
--------------------------------------------------------------------------------
Deferred tax on profits excluding exceptional items and
property disposals 23.8 (814.5)
--------------------------------------------------------------------------------
Tax charge/(credit) on profits excluding exceptional items
and property disposals 26.5 (784.9)
--------------------------------------------------------------------------------
REIT entry charge 3.9 154.3
--------------------------------------------------------------------------------
Exceptional current tax credit - (32.2)
Tax on exceptional items and property disposals:
- current tax - 1.8
- deferred tax - -
--------------------------------------------------------------------------------
Exceptional tax and tax credit on exceptional items and
property disposals - (30.4)
--------------------------------------------------------------------------------
Total tax charge/(credit) 30.4 (661.0)
--------------------------------------------------------------------------------
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 (2006 - 0
per cent), for other UK properties the relevant tax rate will be 28 per cent
(2006 - 30 per cent) and for overseas properties the relevant tax rate will be
the prevailing corporate tax rate in that country.
The deferred tax provision on the revaluation of investment properties
calculated under IAS 12 is £35.8 million at 31 December 2007 (2006 - £32.1
million). 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 £86.8 million at 31 December
2007 (2006 - £49.1 million). 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 £49.9 million may also be released, and
further capital allowances of £25.9 million 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 December Recognised Acquisition of Recognised 31 December
2006 in income subsidiaries in equity 2007
£m £m £m £m £m
--------------------------------------------------------------------------------
Revaluation of
investment and
development
property 32.1 4.2 - (0.5) 35.8
Capital allowances 31.8 4.5 14.9 (1.3) 49.9
Derivative financial
instruments (32.2) 15.6 1.9 - (14.7)
Other temporary
differences 9.1 (0.5) (5.2) (0.7) 2.7
--------------------------------------------------------------------------------
Net deferred
tax provision 40.8 23.8 11.6 (2.5) 73.7
--------------------------------------------------------------------------------
6 Dividends 2007 2006
£m £m
--------------------------------------------------------------------------------
Ordinary shares
Prior period final dividend paid of 17.25p per share (2006 -
15.25p) 62.4 51.1
Interim dividend paid of 16.5 per share (2006 - 13.75p) 59.7 46.3
--------------------------------------------------------------------------------
Dividends paid 122.1 97.4
--------------------------------------------------------------------------------
Proposed dividend of 17.6p per share (2006 - 17.25p) 63.6 62.4
--------------------------------------------------------------------------------
7 Investment and development property
UK Other
shopping commercial
centres properties Total
£m £m £m
--------------------------------------------------------------------------------
At 31 December 2006 6,542.8 1,644.3 8,187.1
Additions 226.8 835.0 1,061.8
Disposals (14.2) (289.2) (303.4)
Foreign exchange fluctuations - (6.2) (6.2)
(Deficit)/gain on valuation (289.4) (27.1) (316.5)
--------------------------------------------------------------------------------
At 31 December 2007 6,466.0 2,156.8 8,622.8
--------------------------------------------------------------------------------
As at As at
31 December 31 December
2007 2006
£m £m
--------------------------------------------------------------------------------
Balance sheet carrying value of investment and
development properties 8,622.8 8,187.1
Adjustment in respect of head leases and incentives 12.1 18.9
--------------------------------------------------------------------------------
Market value of investment and development properties 8,634.9 8,206.0
--------------------------------------------------------------------------------
The group's interests in investment and development properties were valued as at
31 December 2007 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.
8 Trading property
The estimated replacement cost of trading properties based on market value
amounted to £46.1 million (31 December 2006 - £49.9 million).
9 Trade and other receivables 2007 2006
£m £m
--------------------------------------------------------------------------------
Amounts falling due within one year:
Rents receivable 27.3 26.1
Derivative financial instruments 20.4 7.0
Other receivables 60.4 42.3
Prepayments and accrued income 47.2 38.4
--------------------------------------------------------------------------------
155.3 113.8
--------------------------------------------------------------------------------
Amounts falling due after more than one year:
Other receivables 17.9 12.2
Derivative financial instruments 5.0 14.0
Prepayments and accrued income 60.6 55.2
--------------------------------------------------------------------------------
83.5 81.4
--------------------------------------------------------------------------------
10 Borrowings, including finance leases 2007 2006
£m £m
--------------------------------------------------------------------------------
Amounts falling due within one year:
Secured borrowings
Bank loans and overdrafts 118.8 12.9
Commercial mortgage backed securities ("CMBS") notes 27.4 24.2
Finance lease obligations 6.1 6.4
--------------------------------------------------------------------------------
Amounts falling due within one year 152.3 43.5
--------------------------------------------------------------------------------
Amounts falling due after more than one year:
Secured borrowings - non recourse
CMBS notes 2015 1,174.3 1,124.1
CMBS notes 2011 633.7 639.7
Bank loan 2017 117.2 -
Bank loans 2016 652.2 512.9
Bank loan 2014 - 175.6
Bank loans 2013 251.2 251.0
--------------------------------------------------------------------------------
2,828.6 2,703.3
Other secured borrowings
Debentures 2027 226.1 225.8
Other loans 428.9 189.5
--------------------------------------------------------------------------------
3,483.6 3,118.6
Unsecured borrowings
CSC bonds 2013 26.6 26.5
CSC bonds 2009 31.4 41.3
--------------------------------------------------------------------------------
3,541.6 3,186.4
£111.3 million (2006 - £111.3 million) 3.95% convertible
bonds due 2010 111.3 108.7
Finance lease obligations 51.1 46.2
--------------------------------------------------------------------------------
Amounts falling due after more than one year 3,704.0 3,341.3
--------------------------------------------------------------------------------
Total borrowings, including finance leases 3,856.3 3,384.8
Cash and cash equivalents (188.4) (321.8)
--------------------------------------------------------------------------------
Net borrowings 3,667.9 3,063.0
--------------------------------------------------------------------------------
11 Fair values of financial instruments
Financial assets and liabilities comprise long-term borrowings and other
payables, derivative instruments, cash, receivables and investments. The fair
values of financial assets and liabilities have been established using the
market value, where available. For those instruments without a market value, a
discounted cash flow approach has been used. Where no amount is disclosed in the
table below, there is no material difference between the balance sheet value and
the fair value.
As at 31 December 2007 As at 31 December 2006
----------------------------------------------
Balance Fair Balance Fair
sheet value value sheet value value
£m £m £m £m
--------------------------------------------------------------------------------
Debentures and other fixed rate loans
Sterling
C&C 5.562% debenture 2027 226.1 342.0 225.8 348.8
CSC 6.875% unsecured bonds 2013 26.6 26.2 26.5 25.4
CSC 5.75% unsecured bonds 2009 31.4 31.5 41.3 42.0
US dollars
Fixed rate loans 161.0 160.6 164.0 169.1
--------------------------------------------------------------------------------
445.1 560.3 457.6 585.3
--------------------------------------------------------------------------------
Convertible bonds - fixed rate 111.3 152.7 108.7 195.4
--------------------------------------------------------------------------------
The adjustment in respect of the above, after credit for tax relief, to the
diluted net assets per share