20th Apr 2007 07:00
20 April 2007
LIBERTY INTERNATIONAL PLC ANNUAL GENERAL MEETING STATEMENT AND TRADING UPDATE The following is the text of the statement and trading update at today's AnnualGeneral Meeting.Enquiries:Liberty International PLC: Sir Robert Finch Chairman +44 (0)20 7960 1273 David Fischel Chief Executive +44 (0)20 7960 1207 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
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.
ANNUAL GENERAL MEETING STATEMENT AND TRADING UPDATE
CORPORATE ACTIVITY IN 2007
Liberty International has had an exceptionally busy first three months since becoming a UK Real Estate Investment Trust ("REIT") on 1 January 2007.
With the benefit of increased asset management flexibility from REIT status, we have recorded three significant corporate transactions in the first quarter of 2007:
* Strategic partnership with GIC Real Estate realising ‚£426 million
Our wholly owned subsidiary, Capital Shopping Centres ("CSC"), has entered into an agreement with GIC Real Estate ("GIC RE") for GIC RE to acquire a 40 per cent share of CSC's interest in the MetroCentre, Gateshead for a gross consideration of ‚£426 million. We are delighted to welcome GIC RE, the real estate investment arm of the Government of Singapore Investment Corporation and one of the world's leading global real estate investors, as a strategic long-term partner in this flagship asset. CSC will continue to manage the MetroCentre. The transaction releases capital to enable Liberty International to continue to expand its overall business which includes a ‚£1 billion development programme.
* Formation of ‚£460 million Central London joint venture with Great Portland
Estates
Our wholly owned subsidiary, Capital & Counties, has 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 will have a starting value of around ‚£460 million, with Capital & Counties contributing ‚£299 million of investment properties and GPE contributing ‚£162 million. GPE will therefore make a balancing payment of ‚£68 million in cash to Capital & Counties. GPE will be responsible for asset management of the partnership properties. We are delighted to have created this relationship with GPE which will enable us to increase our involvement in London in partnership with a first class team.
* ‚£127 million acquisition of Royal Opera House retail units in Covent Garden
Capital & Counties has acquired the retail element of the Royal Opera House block in London's Covent Garden for ‚£127.5 million increasing the aggregate value of our interests in Covent Garden, which are wholly-owned and directly managed, to over ‚£620 million. This purchase is of strategic importance to our long-term plans for Covent Garden. The retail units in the Royal Opera House block are amongst the most prime in Covent Garden and the acquisition expands our ownership to encompass the northern side of the Market and James Street which serves as the "front door" to the Covent Garden Market itself.
The net proceeds of these transactions, combined with the ‚£335 million of equity capital raised by way of share placing in November 2006, represent a substantial strengthening of the group's financial position in the last six months. Liberty International's financial ratios, which included a debt to assets ratio of 36 per cent at 31 December 2006, are robust and we are well placed to continue with the measured expansion of our business which has aggregate investment properties exceeding ‚£8 billion.
LONG-TERM FINANCING
Liberty International has always adopted a prudent approach to financing and the weighted average maturity of the group's aggregate debt of ‚£3.1 billion at 31 December 2006 was eight years.
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. 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 interest rate 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.
In the first quarter of 2007, long-term interest rates in the UK continued to rise, with the 10 year interest rate swap, a reasonable proxy for our hedging profile, rising from 5.11 per cent at 31 December 2006 to 5.35 per cent at 31 March 2007. Since the quarter end, the ten year interest rate swap has risen further to 5.46 per cent on 19 April.
Notwithstanding their purpose being to reduce the volatility of cash flows, we now mark-to-market under International Financial Reporting Standards the derivative financial instruments used to fix the interest cost of our long-term debt. The valuation surplus on these items amounted to over ‚£100 million in the first quarter of 2007.
QUARTERLY REPORTING
We indicated at the time of announcing our 2006 results that we were intending to report on a quarterly basis commencing with the first quarter of 2007.
We anticipate releasing our first quarter's results including a full external independent property valuation in early May 2007 and will defer until that date any comment on the valuation outcome for the first quarter or other components of the first quarter's results.
IMPACT OF NOTIONAL ACQUISITION COSTS DEDUCTED FROM MARKET VALUES
As we have regularly pointed out to shareholders and analysts, the valuation process in respect of investment properties assumes each asset is sold individually on the open market at the balance sheet date. Investment properties are required to be valued after deducting notional acquisition costs, including stamp duty land tax at 4 per cent in the UK. This deduction amounted in aggregate to ‚£370 million at 31 December 2006, 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.
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.
The net asset value per share of 1327p reported at 31 December 2006 is equivalent to 1425p if adjusted for notional acquisition costs deducted from market values.
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.
CAPITAL SHOPPING CENTRES
CSC is the UK's industry leader in large scale shopping centres with 14 major centres valued at ‚£6.5 billion at 31 December 2006 including 8 of the UK's top 21 regional shopping centres and significant development activities referred to below.
Occupancy levels at CSC's completed shopping centres remain high at 98.4 per cent, virtually unchanged from 98.6 per cent reported at 31 December 2006. These occupancy figures exclude new developments, particularly Manchester Arndale Northern Extension where the final phases of the major 550,000 sq.ft. addition opened in Autumn 2006; we have continued to make steady progress with lettings in the 1.4 million sq.ft centre and now have 94 per cent committed by rental value.
Rent review settlements continue to progress in line with expectations.
Nationally, retail sales have seen steady positive growth for the last 12 months and our prime regional shopping centres continue to attract both retailers and shoppers alike, offering premium destinations against a background of continuing competition between different retail formats.
CSC DEVELOPMENT ACTIVITIES
Good progress continues to be achieved on CSC's high quality development pipeline, extending existing prime retail locations.
At St. David's 2, Cardiff, the main construction contract has commenced on site and the development, which will provide 967,500 sq. ft. of additional retail space, anchored by John Lewis, is due to complete in Autumn 2009.
In Oxford, planning consent has now been granted for our major mixed-use project which will extend the existing Westgate Centre to 750,000 sq.ft. retail, also anchored by John Lewis. Tendering for the construction contract is at an advanced stage for scheduled commencement in early 2008 and completion in 2011.
In Newcastle, the new state-of-the-art bus station has opened and work has commenced to provide 48,000 sq.ft. of new retail space on the site of the old bus concourse. Following the CPO inquiry held in March, we expect to start construction of Eldon Square South, the third and largest element of the overall redevelopment of Eldon Square, providing 410,000 sq.ft. of well-configured retail space, including a new department store for Debenhams, in September 2007 for completion in 2010.
At Lakeside, Thurrock, the Boardwalk project, providing 11 new restaurants and a children's entertainment area overlooking Alexandra Lake, is on programme to open in June. With all the restaurant space now committed, substantially enhancing Lakeside's casual dining offer, and a comprehensive refurbishment of the cinema underway, we look forward to considerable benefits for the entire centre.
CAPITAL & COUNTIES
In addition to the two transactions referred to above, Capital & Counties, which had investment properties of ‚£1.65 billion at 31 December 2006, has recorded considerable progress in the year to date. Most notably at Metro Building, Hammersmith, where 90,000 sq.ft. was refurbished last year, 64,500 sq.ft. has been let at the highest rent achieved in Hammersmith for over 5 years; at St Martin's Place, Slough, where 54,000 sq.ft. was available, 11,000 sq.ft was let during February and a further 43,000 sq.ft. is currently under offer and in lawyer's hands; and at Wincheap Estate, Canterbury, we have been selected by Canterbury City Council as their preferred developer in respect of the regeneration of over 25 acres to the southwest of the city centre. The intention is to develop a mixed-use scheme incorporating retail, leisure, offices and residential accommodation.
CONCLUDING REMARKS
REIT status brings many advantages including tax transparency for shareholders, significantly increased flexibility to recycle and enhance our investment properties and an internationally recognised property holding vehicle.
After an exceptionally busy start to the year, 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.
Sir Robert Finch
Chairman
LIBERTY INTERNATIONAL PLCRelated Shares:
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