Interim Results

26th Jul 2007 07:01

Liberty International PLC26 July 2007 26 July 2007 LIBERTY INTERNATIONAL PLC INTERIM REPORT FOR THE HALF YEAR ENDED 30 JUNE 2007 Attached is the interim report for the half year ended 30 June 2007: HighlightsDividendsSummary of Investment and Development PropertiesChairman's Statement and Review of OperationsFinancial ReviewUnaudited Financial InformationGlossary Sir Robert Finch, Chairman of Liberty International, commented: "The first six months of 2007 have again demonstrated the significant underlyingstrength of Liberty International and its high quality business, particularlyour leading position in the regional shopping centre business. In our opinion,prime regional shopping centres continue to be a very attractive sector of theUK property market on a long-term view and are currently valued on an extremelydefensive basis when compared with other sectors. We continue to have every confidence in the prospects for Liberty Internationaland in our ability to extend the group's successful long-term track record". This press release includes statements that are forward-looking in nature.Forward-looking statements involve known and unknown risks, uncertainties andother factors which may cause the actual results, performance or achievements ofLiberty International PLC to be materially different from any future results,performance or achievements expressed or implied by such forward-lookingstatements. Any information contained in this press release on the price atwhich shares or other securities in Liberty International PLC have been boughtor sold in the past, or on the yield on such shares or other securities, shouldnot be relied upon as a guide to future performance. A conference call with analysts and investors will take place at 9.00 a.m. on26th July 2007. Enquiries: Liberty International PLC:Sir Robert Finch Chairman +44 (0)20 7960 1273David Fischel Chief Executive +44 (0)20 7960 1207Aidan Smith Finance Director +44 (0)20 7960 1210 Public relations:UK: Michael Sandler, Hudson Sandler +44 (0)20 7796 4133SA: Matthew Gregorowski, +44 (0)20 7457 2020 College Hill Associates +27 (0)11 447 3030 Nicholas Williams, College Hill Associates Background on Liberty International LIBERTY INTERNATIONAL PLC is one of the UK's largest listed property companiesand 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) on1 January 2007. Liberty International owns 100 per cent of Capital Shopping Centres ("CSC"), thepremier UK regional shopping centre business, and of Capital & Counties, aretail and commercial property investment and development company.At 30 June 2007, Liberty International held £8.2 billion of total properties ofwhich UK regional shopping centres comprised 78 per cent and retail property inaggregate 93 per cent. Assets of the group under control or joint controlamounted to £10.8 billion at that date. Shareholders' funds (diluted, adjusted)amounted to £5.2 billion. CAPITAL SHOPPING CENTRES has interests in 14 UK regional shopping centresamounting to 12.4 million sq.ft. in aggregate including 8 of the UK's top 21regional shopping centres with a market value of £6.3 billion at 30 June 2007.CSC's largest centres are Lakeside, Thurrock; MetroCentre, Gateshead; Braehead,Renfrew, Glasgow; The Harlequin, Watford; and Manchester Arndale. CSC has threemajor development projects underway or with planning permission in Cardiff,Oxford and Newcastle. CAPITAL & COUNTIES held assets of £1.8 billion at 30 June 2007 amounting to 7.0million sq.ft. in aggregate. Capital & Counties has around £650 million investedin the Covent Garden area including the historic Covent Garden Market, andaround £300 million in Central London, primarily through the Great CapitalPartnership, a joint venture with Great Portland Estates plc. Since 30 June2007, Capital & Counties has acquired 50 per cent of EC&O Venues (EarlsCourt and Olympia Group) for a sum that values the assets at approximately £375million. Capital & Counties has interests in the USA amounting to around £350million (2.4 million sq.ft.), predominantly comprising retail assets inCalifornia, notably the 856,000 sq.ft. Serramonte Shopping Centre, Daly City,San Francisco. LIBERTY INTERNATIONAL PLC INTERIM REPORT FOR THE HALF YEAR ENDED 30 JUNE 2007 - HIGHLIGHTS ------------------------------------------------------------------------------- Six months Six months Year ended ended ended 31 December 30 June 30 June 2006 2007 2006 ------------------------------------------------------------------------------- Net rental income +7% £174m £162m £341m Profit beforetax(underlying*) +16% £67m £58m £122mProfit before tax £548m £491m £903mProfit for the period attributable toequity shareholders(note 1) £500m £352m £1,564m Gain on revaluation and sale ofinvestment and development properties £231m £258m £587m Total properties £8,172m £7,271m £8,232mNet debt £2,899m £2,859m £3,063mNet assets(diluted,adjusted**) £5,226m £4,465m £5,002m Basic earnings per share 138.0p 104.7p 462.1pEarnings per share (adjusted**) +34% 18.8p 14.0p 33.9pDividend per ordinary share +20% 16.5p 13.75p 31.0p Basic net assets per share 1429p 966p 1308pNet assets per share(diluted,adjusted**)*** +4% 1385p 1268p 1327p Total return for the period** 6% 8% 18%-------------------------------------------------------------------------------- Note 1 Year ended 31 December 2006 included £883 million (net) tax credit from conversion to REIT status * Before property trading, valuation and exceptional items ** See Glossary for definitions *** Net assets per share (diluted, adjusted) would increase by 101p per share at 30 June 2007 (31 December 2006 - 98p) to 1486p (31 December 2006 - 1425p) if adjusted for notional acquisition costs DIVIDENDS The Directors of Liberty International PLC have proposed an interim dividend perordinary share (ISIN GB0006834344) of 16.5p (2006 - 13.75p) payable on 4 September2007 (see salient dates below). This dividend will be paid totally as a PropertyIncome Distribution ("PID") and will be wholly subject to a 22% withholding taxunless exemptions apply (please refer to the SPECIAL NOTE below).DATES The following are the salient dates for the payment of the interim dividend: Wednesday 1 August 2007 Sterling/Rand exchange rate struck Monday 13 August 2007 Ordinary shares listed ex-dividend on the JSE, JohannesburgWednesday 15 August 2007 Ordinary shares listed ex-dividend on the London Stock ExchangeFriday 17 August 2007 Record date for interim dividend in London and JohannesburgFriday 17 August 2007 UK shareholders only: Last date for receipt of Tax Exemption Declaration forms to permit dividends to be paid gross Tuesday 4 September 2007 Dividend payment day for shareholders (Note: Payment to ADR holders will be made on 14 September 2007). South African shareholders should note that, in accordance with the requirementsof STRATE, the last day to trade cum-dividend will be Friday 10 August 2007 andthat no dematerialisation or rematerialisation of shares will be possible from Monday 13 August to Friday 17 August 2007 inclusive. No transfers between the UK and South African registers may take place fromWednesday 1 August to Sunday 19 August 2007 inclusive. SPECIAL NOTE: UK shareholders: For those who are eligible for exemption from the 22% withholding tax, an HM Revenue & Customs ("HMRC") Tax Exemption Declaration is available for download from the Liberty International website (www.liberty-international.co.uk), or from HMRC. Validly completed forms must be received by the UK registrars, Capita Registrars,no later than the Record Date,Friday 17 August 2007, otherwise the dividend will be paid after deduction of tax. South African and other non-UK shareholders: South African shareholders may applyto HMRC after payment of the dividend for a refund of the difference between the22% withholding tax and the current UK/South African double taxation treaty rate of 15%. Other non-UK shareholders may be able to make similar claims. Refundapplication forms for all non-UK shareholders are available for download from theLiberty International website (www.liberty-international.co.uk), or from HMRC. Refunds are not claimable from Liberty International, the South African Revenue Service or other national authorities, only from the UK's HMRC. The above does not constitute advice and shareholders should seek their ownprofessional guidance. Liberty International does not accept liability for any loss suffered arising from reliance on the above. SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES ---------------------------------------------------------------------------------------- Market value Revaluation surplus Net rental income --------------------------------------------------------------------------------------- 31 30 30 30 December June June June 2006 2007 2006 2007 £m £m £m Increase £m £m Increase --------------------------------------------------------------------------------------- UK regionalshopping centresLakeside, Thurrock 1,298.6 1,339.7 37.3 2.9%Braehead, Glasgow 746.1 752.7 6.6 0.9%MetroCentre,Gateshead (60%) 615.0 658.7 27.2 4.3%The Harlequin,Watford 523.6 535.9 12.3 2.4%Victoria Centre,Nottingham 441.1 461.9 22.1 5.1%Chapelfield, 354.0 351.2 4.8 1.4%NorwichCribbs Causeway,Bristol 311.6 313.5 2.2 0.7%The Potteries,Stoke-on-Trent 307.5 307.5 (0.7) (0.2%)The Chimes, 275.0 286.9 12.0 4.4%UxbridgeThe Glades, Bromley 269.5 276.6 6.0 2.1%Eldon Square,Newcastle upon Tyne 240.1 244.4 4.0 1.6% ---------------------------------- -------------------------- Like-for-like income 5,382.1 5,529.0 133.8 2.5% 110.2 117.0 6.1%Arndale, Manchester 428.3 448.8 18.7 4.2%St. David's, Cardiff 104.3 104.7 0.5 0.5%Xscape, Braehead 39.4 40.7 0.4 1.1% ---------------------------------- --------------------------Like-for-likecapital 5,954.1 6,123.2 153.4 2.6% 117.8 129.3 9.7% Redevelopments anddevelopments 193.2 215.8 (8.2) (3.7%) 2.7 2.0Disposals(MetroCentre (40%)) 410.0 - - 9.0 4.6 ---------------------------------- ---------------------------Total UK regionalshopping centres 6,557.3 6,339.0 145.2 2.3% 129.5 135.9 4.9% ---------------------------------- ----------------------------UK non-shoppingcentre propertiesLike-for-like income 532.6 556.6 20.0 3.8% 11.7 10.9 (6.5%)Like-for-like other 467.9 486.6 12.2 2.6% 0.8 10.0 --------------------------------- ----------------------------Like-for-likecapital 1,000.5 1,043.2 32.2 3.2% 12.5 20.9 Acquisitions - 228.7 (1.2) (0.5%) - 1.6Redevelopments anddevelopments 141.1 173.7 20.4 12.9% 1.4 2.1Disposals 147.9 - - 7.1 3.0 --------------------------------- ----------------------------Total UKnon-shopping centreproperties 1,289.5 1,445.6 51.4 3.7% 21.0 27.6 31.4% --------------------------------- ----------------------------US properties*Like-for-like income 283.2 288.3 8.1 2.8% 9.4 8.1 (4.7%)Like-for-like other 70.3 74.5 4.9 7.3% 0.7 2.0 ---------------------------------- -----------------------------Like-for-like capital 353.5 362.8 13.0 3.7% 10.1 10.1Disposals 5.7 - 0.1 0.3 - ---------------------------------- ----------------------------Total US properties 359.2 362.8 13.1 3.8% 10.4 10.1 ---------------------------------- ----------------------------Total investmentproperties 8,206.0 8,147.4 209.7 2.6% 160.9 173.6 7.6% ---------------------------------- ---------------------------- *Like-for-like % increases are in local currency SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued) Property analysis by use and type-------------------------------------------------------------------------------- Revaluation Market value surplus-------------------------------------------------------------------------------- 31 30 December June 2006 2007 % of total £m £m properties Increase-------------------------------------------------------------------------------- Regional shopping centres andother retailUK regional shopping centres 6,557.3 6,339.0 77.8% 2.3%UK other retail 781.6 941.8 11.6% 1.1%US regional shopping centres 123.1 125.9 1.5% 2.3%US other retail 134.2 132.9 1.6% 5.2% ---------------------------------- Total regional shopping centresand other retail 7,596.2 7,539.6 92.5% 2.2% ----------------------------------- OfficeUK business space 507.9 503.8 6.2% 8.3%US business space 67.9 69.9 0.9% 4.8% ----------------------------------- Total office 575.8 573.7 7.1% 7.9% ----------------------------------- ResidentialUS residential 34.0 34.1 0.4% ----------------------------------- Total investment properties 8,206.0 8,147.4 100.0% 2.6% ----------------------------------- Analysis of UK non-shopping centres and US properties by location and type ------------------------------------------------------------------------------- Market value Revaluation surplus Net rental income ------------------- -------------------- ----------------- 31 30 30 30 30 December June June June June 2006 2007 2007 2006 2007 £m £m £m Increase £m £m --------------------------------------------------------------------------------- UK non-shoppingcentre propertiesCapco Covent Garden 491.5 649.9 6.8 1.1% 1.5 11.3Capco Opportunities 276.1 316.8 30.2 10.6% 7.9 5.9Capco London (inc.Great CapitalPartnership) 323.2 276.3 14.6 5.5% 7.7 6.9Capco Urban 198.7 202.6 (0.2) (0.1%) 3.9 3.5 ----------------------------- -------------------Total UK non-shoppingcentre properties 1,289.5 1,445.6 51.4 3.7% 21.0 27.6 ----------------------------- ------------------- US propertiesUS retail 257.3 258.8 9.5 3.8% 8.4 7.4US businessspace 67.9 69.9 3.0 4.8% 2.0 2.1US residential 34.0 34.1 0.6 1.9% - 0.6 ----------------------------- --------------------Total US properties 359.2 362.8 13.1 3.8% 10.4 10.1 ----------------------------- -------------------- 1,648.7 1,808.4 64.5 3.7% 31.4 37.7 ----------------------------- -------------------- SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued) UK investment property valuation data-------------------------------------------------------------------------------- Market Passing Net rental value Nominal equivalent rent income ERV yield 30 June 31 30 30 June 30 June 30 June 2007 December June 2007 2007 2007 £m 2006 2007 £m £m £m-------------------------------------------------------------------------------- UK regional shoppingcentresLakeside, Thurrock 1,339.7 4.65% 4.55%Braehead, Glasgow 752.7 4.81% 4.81%MetroCentre, Gateshead 658.7 4.75% 4.62%The Harlequin, Watford 535.9 4.75% 4.70%Victoria Centre, 461.9 4.95% 4.85%NottinghamArndale, Manchester 448.8 4.96% 4.86%Chapelfield, Norwich 351.2 5.00% 4.95%Cribbs Causeway, Bristol 313.5 4.74% 4.72%The Potteries,Stoke-on-Trent 307.5 5.00% 5.00%The Chimes, Uxbridge 286.9 5.00% 4.90%The Glades, Bromley 276.6 4.95% 4.95%Eldon Square, Newcastleupon 244.4 5.20% 5.10%TyneSt. David's, Cardiff 104.7 5.00% 4.96%Xscape, Braehead 40.7 6.04% 5.92% ------- Like-for-like capital 6,123.2 4.83% 4.77% 236.4 129.3 302.0Other 215.8 4.3 6.6 5.1 ----------- ----------------------------Total UK regional shoppingcentres 6,339.0 4.83% 4.78% 240.7 135.9 307.1 ------------ ---------------------------- UK non-shopping centrepropertiesCapco Covent Garden 507.8 4.56% 4.52%Capco Opportunities 204.4 5.75% 5.59%Capco Urban 166.4 5.15% 5.38%London (incl. GreatCapital 164.6 5.03% 5.07%Partnership) -------Like-for-like capital 1,043.2 4.96% 4.95% 43.4 20.9 61.1Other 402.4 12.9 6.7 25.0 ---------- ---------------------------Total UK non-shoppingcentre 1,445.6 5.11% 4.93% 56.3 27.6 86.1properties ---------- ---------------------------- CHAIRMAN'S STATEMENT AND REVIEW OF OPERATIONS Introduction The first six months of 2007 have again demonstrated the significant underlyingstrength of Liberty International and its high quality business, particularlyour leading position in the regional shopping centre business. In our opinion,prime regional shopping centres continue to be a very attractive sector of theUK property market on a long-term view and are currently valued on an extremelydefensive basis when compared with other sectors. Our first half year as a UK Real Estate Investment Trust (REIT) has seensubstantial positive momentum throughout the business. Financial results The financial results for the six months ended 30 June 2007 compared with 2006show underlying profit before tax increasing by 16 per cent to £67 million andadjusted earnings per share increasing by 34 per cent to 18.8p per share. Thisreflects underlying growth in net rental income and a low tax charge. The growthin the like-for-like net rental income in our core UK regional shopping centrebusiness amounted to 6 per cent. The Directors propose a 20 per cent increase in the interim dividend from 13.75pto 16.5p. This dividend will be paid entirely as a Property Income Distribution('PID'). Our intention is that any non-PID element of the year's dividend willbe attached to the final dividend. Shareholders who believe they may be entitledto a different withholding tax rate than the standard 22 per cent which isapplied to the PID or who may be able to reclaim some of the withholding taxshould read carefully the section on Dividends contained within the InterimReport. Liberty International has always pursued a progressive dividend policydistributing substantially all of the group's recurring income. We have shownconsistent growth over a long period from 4.5p in 1985 to 31.0p in 2006. Thisprogressive policy will continue under REIT status but additionally we expectthe 2007 dividend to include an extra increase out of the net tax savings fromconversion to a REIT. Our net asset value per share (adjusted, diluted), the standard industrymeasure, has increased by 6 per cent to 1385p after taking into account the17.25p final dividend for 2006 paid in the period. This headline figure isequivalent to 1486p per share, adding back £382 million of purchasers' costsdeducted from valuations, a matter on which I comment further below. The valuation surplus for the six month period amounted to £231 million (£156million for the three months ended 31 March 2007). UK regional shopping centres held by Capital Shopping Centres ('CSC') increasedin value in the six months by 2.6 per cent (1.9 per cent in the three months to31 March 2007) with a substantial proportion, 40 per cent of the increase,derived from underlying rental growth. Our investment in these prime assetsamounted to £6.3 billion at 30 June 2007. Capital & Counties, our non-UK shopping centre business, has changedsubstantially over the last twelve months and grown through some significanttransactions from £1,057 million of investment properties at 30 June 2006 to£1,808 million at 30 June 2007. We reported a healthy like-for-like valuationsurplus on these assets for the six month period of 3.2 per cent in the UK and3.7 per cent in the US (1.6 per cent and 1.5 per cent respectively for the threemonths ended 31 March 2007). Overall equivalent yields, as determined by our valuers for our UK regionalshopping centres, were 4.77 per cent, effectively the same as 31 March 2007 and6 basis points less than the 4.83 per cent used at 31 December 2006 while yieldson our UK non-shopping centre business were virtually unchanged at 4.95 per cent(31 December 2006 - 4.96 per cent). Our financial position is strong with a debt to assets ratio at 30 June 2007 of36 per cent, £199 million of cash and £405 million of committed bank facilities. Our borrowings are almost entirely long-term, asset-specific and non-recourse tothe group. We have fixed our cost of debt for an average length of time ofnearly ten years with the fixed rates actually reducing over the hedging period.Our underlying revenue results before valuation items are not thereforesensitive to movements in short term UK interest rates such as any movement inthe base rate. The base rate increased from 5.0 per cent at 31 December 2006 to 5.5 per centat 30 June 2007. It is currently 5.75 per cent. However, the immediate impact ofrising interest rates is in fact substantially positive for our balance sheet.We recorded a valuation surplus on the derivative financial instruments used tofix long-term debt of £251 million for the six months (£109 million for thethree months ended 31 March 2007). Overall, the mark-to-market of our debt and financial instruments at 30 June2007 would add a further 13p before tax to our adjusted net asset value pershare. Positive business momentum We have moved decisively to take advantage of our new REIT status which enablesus to take asset management decisions without having to take account of tax oncapital gains. First, we introduced GIC Real Estate from Singapore, one of theworld's leading global real estate investors, as a strategic 40 per cent partnerin MetroCentre, Gateshead, for a gross consideration of £426 million. Secondly,we transferred £300 million of Central London properties into a £460 millionpartnership with Great Portland Estates plc, pooling assets which fittedtogether logically and realising nearly £70 million of cash from thetransaction. We have progressed our important transformation of Capital & Countiesparticularly in London where we now have strategic holdings in prime locations. Our overall development programme amounts to around £900 million of which £600million is currently committed or with planning approval. Capital Shopping Centres The major St David's, Cardiff mixed-use development is now on site, constructionhas commenced on the third and largest phase of the redevelopment and expansionof Eldon Square, Newcastle and the Westgate, Oxford project is advancingrapidly, having received planning consent in March, with a view to starting onsite next year. Each of these three developments is of the highest quality and has an attractiverisk profile, being well-anchored and extending an existing and well-establishedprime retail location in a leading UK city with robust demand from majorretailers. Pre-lettings at both Newcastle and Cardiff are progressing in linewith expectations with good demand for well-configured large fashion units. Occupancy remained at a high level of 98.6 per cent in established UK regionalshopping centres, 97.9 per cent overall including recently completeddevelopments (31 December 2006 - 98.6 per cent and 97.7 per cent respectively).In particular Manchester Arndale, where the major 550,000 sq. ft. NorthernExtension completed in Autumn 2006, is now 95 per cent committed by rental value(94 per cent at 31 March 2007). Demand continued to be robust in other use categories such as family dining andduring the first six months we have seen several new entrants to our centres. 51tenancy changes took place in the period adding £3.5 million to annual netrental income (first six months of 2006 - 33 units, £0.6 million uplift). The remodelled pavilion at Lakeside, renamed The Boardwalk, successfully openedin June comprising eleven restaurants overlooking Alexandra Lake together with arefurbished state of the art Vue Cinema. Initial restaurant trading has beenabove expectations as customers combine the advantage of longer shopping hoursand attractive dining facilities. Through focussed management of our prime assets we continually strive to offershoppers the best all round experience - differentiating our product andensuring we have the shopping and leisure destinations of choice. As we have often remarked before, CSC's growth in net rental income is morecorrelated with rent reviews, typically every five years in the UK, than withshort term fluctuations in retail sales. Our rent review programme continues toprogress satisfactorily with the bulk of rent reviews from earlier years nowsettled and some 11 per cent of CSC's income due for review this year. The retail market continues to be highly competitive. However, the underlyingpicture in UK retail remains positive, notwithstanding the rising interest rateenvironment. Non-food retail sales have continued to strengthen in the UK in thefirst six months with the twelve month rolling annual growth rate increasingfrom 2.2 per cent at 31 December 2006 to 3.7 per cent at 30 June 2007 (Source:ONS). Capital & Counties - increasing our Central London presence We are firm believers in the potential for London and its position as the growthengine for the whole UK economy. The foundation of London's prosperity is itsworld-leading financial services industry but additionally London is reapingsubstantial benefits from globalisation as its historical, cultural andresidential attractions are increasingly appreciated. Twelve months ago, Capital & Counties held £1,057 million of investmentproperties of which £397 million were in Central London. The business now has£1,808 million of investment properties of which £926 million are in London'sWest End. That total includes £650 million invested in the iconic and historic CoventGarden estate at the heart of London's West End. This destination attracts over40 million customer visits per annum and we see substantial scope for valueadding initiatives to increase dwell time and spend through improving tenant mixand other active asset management opportunities. In the first six months of2007, we invested around a further £150 million in Covent Garden, in particularacquiring prime retail units in the Royal Opera House block, all but completing our ownership around the historic piazza. We are committed to elevating the world-renowned Covent Garden to provide avibrant high quality destination for Londoners and visitors to the capital whilenurturing the unique characteristics familiar to residents. Initially we areconcentrating on improving the retail mix, diversity of dining, range ofentertainment activities, quality of direct estate management and focus ofmarketing activities. In the medium term, we intend improving the public realmincluding enhancing access to Covent Garden, celebrating the district's heritageand providing more interesting public spaces. In the longer term, we seeopportunities for refurbishing or redeveloping certain properties whilstimproving the quality of use of others. We are working closely with stakeholdersin Covent Garden and are making good progress with our strategic plan. Our investment in Central London has been further augmented in the second half ofthe year through a transaction announced just after the end of the period, theacquisition of a half share in the £375 million Earls Court and Olympiacomplexes, a globally-recognised landmark London venue. Capco Covent Garden and Capco London are two of the operating platforms ofCapital and Counties formed as part of the company's reorganisation at thebeginning of the year. In terms of Capital & Counties' other activities, CapcoUrban has won its first major mixed use development project in Canterbury and isactively sourcing other opportunities. Capco Opportunities is making goodprogress in upgrading its asset mix and Capco USA continues its steady growth inCalifornia. Strengths of Liberty International The FTSE-350 Real Estate Index dropped 18.5 per cent in the six months ended 30June 2007, while Liberty International's share price dropped 18 per cent from1396p to 1145p in the same period, indicating some measure of investoruncertainty surrounding the property industry. Strategies which may have been attractive to investors in recent years,particularly debt-driven buying on yield considerations and reliance on yieldcompression for capital appreciation, are less likely to be fruitful in a risinginterest rate environment or a more inflationary economic background. In these changing times, the real strengths of Liberty International are likelyto emerge, including our focus, our proven ability to add value throughintensive management involvement, our experience of investing through theproperty cycles and our financial track record. It would be helpful to set outthese strengths. First, we are a highly specialised business focussed on quality retail property,with a very strong market position in UK regional shopping centres, whichconstitute 78 per cent of our overall investment properties, with retail overallcomprising 93 per cent: - We are the UK's market leader in prime regional shopping centres with 14 major centres including 8 of the UK's top 21 centres. We have an attractive mix of out-of-town and city centre assets. We have interests in four of the UK's eight out-of-town super-regional centres with a combined value of £3.1 billion while in-town centres in prime city locations amount to £3.2 billion. - We have an enviable geographic spread across the UK including major cities such as Manchester, Glasgow, Newcastle, Nottingham and Cardiff as well as a strong presence in the South East of England through four of our major shopping centres, with an aggregate value of £2.4 billion, including our flagship Lakeside, Thurrock. - The scale of our business and our use of turnover-based rents produces strong retailer relationships. Retailers appreciate that our centres provide first-rate trading locations and have confidence they will continue to be maintained to the highest standards. We encourage retailers to have flagship stores in our centres, displaying their latest formats and continually refreshing their offer to the shopping public. - Our business has strong inflation-hedging characteristics as in the long run our ability to deliver growth in net rental income is linked to the success of retailers in our centres and the growth in their sales. - Our pro-active management approach, particularly focussed on constantly upgrading the retail mix, enables our centres to continually improve and attract repeat visits from shoppers. Examples are the Boardwalk restaurant development at Lakeside which opened in June introducing eleven new restaurants overlooking the lake and substantially enhancing the attraction of the centre late into the evening, while at The Glades, Bromley we are well underway with a project to link major high street units into the centre increasing its overall size. - We have a strong shopping centre development capability. We have opened major projects in 2004 (the Red Mall extension at MetroCentre), 2005 (Chapelfield, Norwich) and 2006 (Manchester Arndale extension), in each year the largest opening event in the UK regional shopping centre industry. Through our current development programme we aim to continue the measured expansion of our business. Secondly, on a relative basis, valuations of prime regional shopping centrescontinue to be very defensive: - Prime regional shopping centres are valued on an equivalent yield basis of around 4.75 per cent which is more conservative than other prime asset classes such as high street shops (4.0 per cent), retail parks (3.85 per cent), West End offices (3.50 per cent) and City offices (4.25 per cent) (Source: CB Richard Ellis). - Prime regional shopping centres are very stable and resilient assets which have provided consistent growth in net rental income and capital appreciation. Their performance has shown substantially less volatility than other major UK real estate asset classes. While in the property market euphoria of the last few years, offices have outperformed retail and secondary retail has outperformed prime, we are confident that the traditional strengths of our assets will soon reassert themselves and deliver long-term outperformance as rising interest rates make life more difficult for debt-driven buyers of assets and owners of inferior properties. Our centres are well let on long leases to a wide spread of tenants and we have consistently maintained high occupancy levels. Thirdly, shareholders should fully appreciate the basis on which our net assetvalue is prepared: - Our balance sheet aggregates our individual assets at market value and ignores important elements of value, such as the considerable management expertise and experience within the group including a strong development capability and the ability to handle large and complex transactions. - The market values take no account of the additional portfolio value of our assets which have been accumulated over a generation and 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 £382 million, representing 101p per share over and above our published net asset value per share figure of 1385p, producing a more realistic number for shareholders of 1486p. Fourthly, through Capital & Counties, we have an excellent business whichcomplements our regional shopping centre activities, with: - A substantial Central London presence, through the Great Capital Partnership and our Covent Garden investment. - An investment of scale in Covent Garden where the extent of our holdings is such that we have a degree of management influence over the area akin to ownership of a large shopping centre. - A new and energetic management team assembled over the last twelve months which is fully capable of taking on new challenges such as the Earls Court and Olympia investment. - An international capability, at present mostly through Capital & Counties USA where we have £363 million of predominantly retail assets on the West Coast of the USA and have delivered excellent returns to shareholders. While our balance sheet shows total property assets of £8.2 billion, assets ofthe group under control or joint control amounted to £10.8 billion at 30 June2007, giving a fuller measure of the scale of our business. Prospects Prime shopping centres have provided exceptional returns to shareholders overthe last 15 years. We continue to have every confidence in the prospects forLiberty International and in our ability to extend the group's successfullong-term track record. Sir Robert Finch 26 July 2007 FINANCIAL REVIEW Liberty International recorded the following significant corporate transactionsin the first half of 2007: - Formation of a strategic partnership with GIC Real Estate realising £426 million.- Formation of The Great Capital Partnership, a £460 million joint venture with Great Portland Estates.- £128 million acquisition of the Royal Opera House retail units in Covent Garden. Details of these transactions are shown in the paragraph "Transactions in theperiod" below. The acquisition of a 50% interest in Earls Court and Olympia Group was announcedafter the end of the period on 2 July 2007 and has not therefore been reflectedin the financial information contained within this report. Details are set outin the paragraph 'Post Period Transactions' below. Results for the Half Year Ended 30 June 2007 The Income Statement for the half year shows continuing underlying growth with a16 per cent increase in underlying profit before tax from £58 million to £67million, and a 34 per cent increase in adjusted earnings per share reflecting inaddition the benefit of tax savings from conversion to REIT status.Like-for-like net rental income in the group's UK regional shopping centresincreased by 6.1 per cent (3.8 per cent excluding a one-off £3 million surrenderpremium). Like-for-like non-shopping centre net rental income fell by 6.5 percent or £0.8 million in the UK and by 4.7 per cent in the US reflecting plannedrefurbishment activity, a lease expiry in the UK where the property has beensubsequently re-let and a small number of tenant failures. Good progress isbeing made in securing new tenants or on sales where appropriate. Gains on revaluation and sale of investment properties amounted to £231 million,including £21 million from disposals, of which £16 million came from the partialdisposal of MetroCentre, Gateshead. Quarterly Underlying Profit Statement A separate schedule showing the income statement for the quarter ended 30 June2007 together with relevant comparative information is attached at the end ofthis section of the report. Valuations Like-for-like gains on revaluation of investment properties are summarised asfollows: ------------------------------------------------------------------------------- Six months ended Quarter ended Year ended 30 June 2007 31 March 31 December 2007 2006 ------------------------------------------------------------------------------- - UK regional shopping centres +2.6% +1.9% +7.9%- UK non-shopping centre properties +3.2% +1.6% +13.9%- USA +3.7% +1.5% +5.8% ------------------------------------------------------------------------------- The related weighted average nominal equivalent yields were as follows: ------------------------------------------------------------------------------- As at As at As at 30 June 2007 31 March 2007 31 December 2006-------------------------------------------------------------------------------- UK regional shopping centres 4.77% 4.78% 4.83%UK non-shopping centreproperties 4.95% 5.00% 4.96%-------------------------------------------------------------------------------- Of the revaluation gain on UK regional shopping centres, 60 per cent isestimated to have arisen as a result of yield shift and 40 per cent fromunderlying rental growth. Net Assets Per Share Adjusted net assets per share increased from 1327p to 1385p, an increase of 5.7per cent for the six month period after taking into account the final dividendfor 2006 of 17.25p paid in May 2007. Financial Position The group acquired £236 million of investment properties during the six monthperiod and expenditure on developments and other additions amounted to £71million. Sales of investment property with a carrying value of £573 million at31 December 2006 generated a surplus of £21 million for the period. Net debtreduced by £164 million to £2,899 million at 30 June 2007. The net proceeds of the transactions referred to above, combined with the £335million of equity capital raised by way of a share placing in November 2006,represent a substantial strengthening of the group's financial position. LibertyInternational's financial ratios, including a debt to assets ratio of 36 percent (31 December 2006 - 36 per cent), remain robust. Fair Value of Debt and Financial Instruments Long-term interest rates continued to rise during the period, with the ten yearUK interest rate swap, a reasonable proxy for our fixed rate hedging strategy,rising from 5.11 per cent at 31 December 2006 to 5.92 per cent at 30 June 2007.We recorded a surplus of £251 million on revaluation of the derivative financialinstruments used to fix our long-term debt (31 March 2007 - £109 million). The potential adjustment to net assets per share (diluted, adjusted) arisingfrom the fair value of the group's debt and financial instruments in recentyears 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)p31 December 2006 5.11% (240.2) (64)p31 March 2007 5.35% (121.6) (32)p30 June 2007 5.92% 47.1 13p-------------------------------------------------------------------------------- The group's net borrowings at 30 June 2007 amounted to £2,899 million with £549million of fixed rate debt and the remainder largely fixed by way of derivativefinancial instruments. The structure of the group's hedging instruments meansthat on the fixed element of our borrowings the group has a declining interestrate profile (see table below): Interest Rate Swap Summary---------------------------------------------------------------------------------------------------------------- Notional Amount Average Rate Effective after £m % -------------------------------------------------------------------------------- 1 Year 2,642 5.315 Years 2,818 5.1010 Years 2,350 4.6815 Years 2,025 4.5720 Years 2,025 4.5725 Years 1,550 4.38-------------------------------------------------------------------------------- Share Buy-backs Liberty International has shareholder approval to buy-back on-market up to 10per cent of its shares. Although the current share price is a discount topublished net asset value, we would expect only to use the buy-back power veryselectively given the scale of our development programme and the long-term timehorizon required to bring major shopping centre projects to fruition. Transactions in the period - 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, releases capital to enable Liberty International to continue to expand its overall business. - Formation of a £460 million Central London joint venture with Great Portland Estates. 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. This relationship with GPE will enable us to increase our involvement in London in partnership with a first class team. - £128 million acquisition of the Royal Opera House retail units in Covent Garden. In the first quarter Capital and Counties acquired the retail element of the Royal Opera House block in London's Covent Garden for £128 million increasing the aggregate value of our interests in Covent Garden, together with other acquisitions in the period, to £650 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. Post-Period Transactions-------------------------- - Acquisition of a 50 per cent interest in EC&O Venues (Earls Court and Olympia Group) Capital & Counties has acquired a 50 per cent interest in EC&O for a sum that values the assets at approximately £375-380 million. The consideration for the 50 per cent interest is approximately £54 million taking into account all assets, debt and other liabilities of the business. The partnership will own and manage 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 is expected to be accounted for as a subsidiary in the group accounts with the results, assets and liabilities fully consolidated in the group's accounts. Development Programme Details of the principal development projects underway or with planningpermission are set out in the table below: -------------------------------------------------------------------------------- Cost toDevelopment Status complete--------------------------------------------------------------------------------Eldon Square, Newcastle (60% interest) £80m Phase one - restaurants and 22,000 sq. Completed in October 2006.ft. retail. Phase two - bus station and 48,000 sq. Bus station completed Februaryft retail. 2007. Retail on site; expected opening Spring 2008.------------------------------------------------------------------------- Phase three - 410,000 sq. ft. retail On site July 2007.extension including 175,000 sq. ft. Expected opening Spring 2010.Debenhams department store ------------------------------------------------------------------------- St David's, Cardiff 967,500 sq. ft. extension. On site. Expected opening £191mJoint venture with Land Securities Autumn 2009.Group PLC.------------------------------------------------------------------------- Westgate Centre, Oxford 750,000 sq. ft. refurbishment and Detailed planning permission £156mextension. Joint venture with LaSalle granted March 2007. CPO inquiryInvestment Management. date awaited. Expected start on site 2008. Expected opening 2011------------------------------------------------------------------------- Other developments - CSC £58mOther developments - Capital and Counties £115m -------- Total developments underway or with planning consent £600m -------- 26 July 2007 UNDERLYING PROFIT STATEMENT (unaudited) -------------------------------------------------------------------------------- Quarter Quarter Six months Six months ended ended ended ended 30 June 31 March 30 June 30 June 2007 2007 2007 2006 £m £m £m £m-------------------------------------------------------------------------------- UK shopping centres 64.1 71.8 135.9 129.5Other commercial properties 18.2 19.5 37.7 32.2-------------------------------------------------------------------------------- Net rental income 82.3 91.3 173.6 161.7 Other income/(expense) (0.1) 0.4 0.3 (0.4)-------------------------------------------------------------------------------- 82.2 91.7 173.9 161.3Administration expenses (9.6) (7.4) (17.0) (15.2)-------------------------------------------------------------------------------- Operating profit (underlying)* 72.6 84.3 156.9 146.1-------------------------------------------------------------------------------- Interest payable (43.2) (49.7) (92.9) (90.7)Interest receivable 2.1 1.3 3.4 2.9--------------------------------------------------------------------------------Net finance costs (underlying)* (41.1) (48.4) (89.5) (87.8)-------------------------------------------------------------------------------- Profit before tax (underlying)* 31.5 35.9 67.4 58.3 Tax on profit (underlying) 0.6 (0.5) 0.1 (12.1)--------------------------------------------------------------------------------Profit for the period(underlying)* 32.1 35.4 67.5 46.2-------------------------------------------------------------------------------- Adjusted earnings per share 9.0p 9.8p 18.8p 14.0p-------------------------------------------------------------------------------- Profit before tax (underlying)* 31.5 35.9 67.4 58.3 Property trading profits 0.7 - 0.7 0.7Gains on revaluation and sale ofinvestment properties 74.5 156.3 230.8 258.0Movement in fair value ofderivative financial instruments 142.0 109.2 251.2 175.5Exceptional finance costs 6.4 (8.3) (1.9) (2.0)-------------------------------------------------------------------------------- Profit before tax 255.1 293.1 548.2 490.5 Tax (28.3) (20.4) (48.7) (138.4)--------------------------------------------------------------------------------Profit for the periodattributable to equityshareholders 226.8 272.7 499.5 352.1-------------------------------------------------------------------------------- * before property trading, valuation and exceptional items Independent review report to Liberty International PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the consolidated interimbalance sheet as at 30 June 2007 and the related consolidated interim statementsof income, cash flows and statement of recognised income and expense for the sixmonths then ended and related notes. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLPChartered AccountantsLondon 26 July 2007 Notes: (a) The maintenance and integrity of the Liberty International PLC website isthe responsibility of the directors; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, the auditors acceptno responsibility for any changes that may have occurred to the interim reportsince it was initially presented on the website. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. CONSOLIDATED INCOME STATEMENT (unaudited) For the six months ended 30 June 2007 -------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Notes £m £m £m-------------------------------------------------------------------------------- Revenue 2 262.4 246.8 562.8-------------------------------------------------------------------------------- Rental income 254.9 244.2 493.1Rental expenses (81.3) (82.5) (152.5)--------------------------------------------------------------------------------Net rental income 2 173.6 161.7 340.6 Other income 1.0 0.3 34.8Gain on revaluation and sale ofinvestment and developmentproperties 3 230.8 258.0 586.5-------------------------------------------------------------------------------- 405.4 420.0 961.9Administration expenses (17.0) (15.2) (34.2)-------------------------------------------------------------------------------- Operating profit 388.4 404.8 927.7-------------------------------------------------------------------------------- Interest payable 4 (92.9) (90.7) (190.0)Interest receivable 3.4 2.9 3.9Exceptional finance costs 4 (1.9) (2.0) (2.0)Change in fair value of derivativefinancial instruments 251.2 175.5 163.5--------------------------------------------------------------------------------Net finance costs 159.8 85.7 (24.6)-------------------------------------------------------------------------------- Profit before tax 548.2 490.5 903.1--------------------------------------------------------------------------------Taxation 5 (48.7) (138.4) 661.0-------------------------------------------------------------------------------- Profit for the period attributableto equity shareholders 499.5 352.1 1,564.1 -------------------------------------------------------------------------------- Ordinary dividends - paid and proposed 59.7 46.3 108.7 - pence per share 16.5p 13.75p 31.0p-------------------------------------------------------------------------------- Basic earnings per share 13 138.0p 104.7p 462.1p--------------------------------------------------------------------------------Diluted earnings per share 13 133.0p 101.0p 444.0p-------------------------------------------------------------------------------- Adjusted earnings per share are shown in note 13. CONSOLIDATED BALANCE SHEET (unaudited) As at 30 June 2007 -------------------------------------------------------------------------------- As at As at As at 30 June 31 December 30 June 2007 2006 2006 Notes £m £m £m-------------------------------------------------------------------------------- Non-current assetsInvestment and development 7 8,124.8 8,187.1 7,125.1propertiesPlant and equipment 0.9 0.9 0.7Investments 23.5 - -Trade and other receivables 9 221.6 81.4 61.0-------------------------------------------------------------------------------- 8,370.8 8,269.4 7,186.8-------------------------------------------------------------------------------- Current assetsTrading properties 8 46.8 45.2 146.4Trade and other receivables 9 128.8 113.8 70.7Investments - - 14.0Cash and cash equivalents 199.4 321.8 117.7-------------------------------------------------------------------------------- 375.0 480.8 348.8--------------------------------------------------------------------------------Total assets 8,745.8 8,750.2 7,535.6-------------------------------------------------------------------------------- Current liabilitiesTrade and other payables (263.4) (319.5) (186.4)Tax liabilities (1.4) (2.1) (17.1)Borrowings, including finance 10 (167.9) (43.5) (64.8)leasesDerivative financial instruments (5.5) (4.6) (13.1)-------------------------------------------------------------------------------- (438.2) (369.7) (281.4)-------------------------------------------------------------------------------- Non-current liabilitiesBorrowings, including finance 10 (2,930.7) (3,341.3) (2,911.7)leasesDerivative financial instruments (7.6) (128.9) (94.2)Deferred tax provision 5 (85.0) (40.8) (981.1)Other provisions (4.8) (4.9) (7.7)Other payables (108.3) (132.2) (10.5)-------------------------------------------------------------------------------- (3,136.4) (3,648.1) (4,005.2)-------------------------------------------------------------------------------- Total liabilities (3,574.6) (4,017.8) (4,286.6)-------------------------------------------------------------------------------- Net assets 5,171.2 4,732.4 3,249.0-------------------------------------------------------------------------------- EquityCalled up share capital and 14 5,171.2 4,732.4 3,249.0reserves-------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (unaudited) -------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------- Profit for the period 499.5 352.1 1,564.1 Actuarial gains on defined benefit pensionschemes - - 0.7Surplus on revaluation of developmentproperties - 17.0 -Tax on items taken directly to equity - (5.1) (4.9)Net exchange translation differences andother movements (0.4) (2.2) (4.6)-------------------------------------------------------------------------------- Total recognised income and expense for theperiod 499.1 361.8 1,555.3-------------------------------------------------------------------------------- A summary of changes in group equity is shown in note 14. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) -------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------- Cash flows from operating activitiesOperating profit 388.4 404.8 927.7Adjustments for non-cash items:Unrealised net revaluation gains oninvestment properties (209.7) (234.6) (558.5)Unrealised gains on transfer of tradingproperties - - (33.1)Profit on sale of investment properties (21.1) (23.4) (28.0)Depreciation and amortisation - 0.2 0.2Amortisation of lease incentives and otherdirect costs 1.5 (0.1) 10.3-------------------------------------------------------------------------------- Cash flows from operations before changesin working capital 159.1 146.9 318.6Change in trade and other receivables (22.3) 5.5 (10.9)Change in trading properties (14.5) 8.4 9.7Change in current asset investments (23.5) (11.0) 3.0Change in trade and other payables (74.0) 4.7 (0.5)-------------------------------------------------------------------------------- Cash generated from operations 24.8 154.5 319.9Interest paid (81.5) (113.7) (198.6)Interest received 3.6 1.9 2.9Tax paid - (8.4) (6.6)-------------------------------------------------------------------------------- Cash flows from operating activities (53.1) 34.3 117.6-------------------------------------------------------------------------------- Cash flows from investing activitiesPurchase and development of properties (229.3) (66.1) (653.9)Sale of property 287.3 126.0 127.3-------------------------------------------------------------------------------- Cash flows from investing activities 58.0 59.9 (526.6)-------------------------------------------------------------------------------- Cash flows from financing activitiesIssue and repurchase of shares 2.1 5.3 341.4Borrowings drawn 130.0 471.0 902.0Borrowings repaid (197.0) (472.4) (486.0)Equity dividends paid (62.4) (51.2) (97.4)-------------------------------------------------------------------------------- Cash flows from financing activities (127.3) (47.3) 660.0-------------------------------------------------------------------------------- Net (decrease)/increase in cash and cashequivalents (122.4) 46.9 251.0Cash and cash equivalents at 1 January 321.8 70.8 70.8-------------------------------------------------------------------------------- Cash and cash equivalents at closing 199.4 117.7 321.8-------------------------------------------------------------------------------- NOTES TO THE ACCOUNTS (unaudited) 1 Basis of preparation The Interim Report is unaudited and does not constitute statutory accountswithin the meaning of s240 of the Companies Act 1985. The statutory accounts for2006, which were prepared in accordance with International Financial ReportingStandards, as endorsed by the European Union ("IFRS"), and with those parts ofthe Companies Act 1985 applicable to companies reporting under IFRS, have beendelivered to the Registrar of Companies. The auditors' opinion on these accountswas unqualified and did not contain a statement made under s237(2) or s237(3) ofthe Companies Act 1985. The financial information comprises the consolidated balance sheets as at 30June 2007, 30 June 2006 and 31 December 2006 and related consolidated statementsof income, cash flow and recognised income and expense and the related notes forthe periods then ended hereinafter referred to as "financial information". The financial information has been prepared in accordance with the Listing Rulesof the Financial Services Authority and the principal accounting policies setout on pages 42 and 43 of the Annual Report 2006 dated 28 February 2007 which isavailable on the company's website (www.liberty-international.co.uk). It hasbeen prepared under the historical cost convention as modified by therevaluation of properties, available for sale investments and financial assetsand liabilities held for trading. 2 Segmental analysis-------------------------------------------------------------------------------- Six months ended 30 June 2007 ----------------------------------------------- UK Other Other Group shopping commercial activities total centres properties £m £m £m £m-------------------------------------------------------------------------------- Revenue 199.8 62.4 0.2 262.4--------------------------------------------------------------------------------Rental income 199.8 55.1 - 254.9Rental expense (63.9) (17.4) - (81.3)--------------------------------------------------------------------------------Net rental income 135.9 37.7 - 173.6Property trading profits - 0.7 - 0.7Other income - 0.1 0.2 0.3Gain on revaluation and sale ofinvestment and developmentproperties 165.9 64.9 - 230.8-------------------------------------------------------------------------------- Segment result 301.8 103.4 0.2 405.4---------------------------------------------------------------------------------------------------------------------------------------------------------------- Six months ended 30 June 2006 -------------------------------------------- UK Other Other Group shopping commercial activities total centres properties £m £m £m £m-------------------------------------------------------------------------------- Revenue 200.4 46.4 - 246.8-------------------------------------------------------------------------------- Rental income 199.3 44.9 - 244.2Rental expense (69.8) (12.7) - (82.5)-------------------------------------------------------------------------------- Net rental income 129.5 32.2 - 161.7Property trading profits 0.3 0.4 - 0.7Other income - 0.2 (0.6) (0.4)Gain on revaluation and sale ofinvestment and developmentproperties 163.5 94.5 - 258.0-------------------------------------------------------------------------------- Segment result 293.3 127.3 (0.6) 420.0---------------------------------------------------------------------------------------------------------------------------------------------------------------- Year ended 31 December 2006 -------------------------------------------- UK Other Other Group shopping commercial activities total centres properties £m £m £m £m-------------------------------------------------------------------------------- Revenue 421.1 139.2 2.5 562.8-------------------------------------------------------------------------------- Rental income 387.9 105.2 - 493.1Rental expense (115.9) (36.6) - (152.5)-------------------------------------------------------------------------------- Net rental income 272.0 68.6 - 340.6Property trading (losses)/profits (0.8) 32.6 1.0 32.8Other income - 0.5 1.5 2.0Gain on revaluation and sale ofinvestment and developmentproperties 470.7 115.8 - 586.5-------------------------------------------------------------------------------- Segment result 741.9 217.5 2.5 961.9-------------------------------------------------------------------------------- 3 Gain on revaluation and sale of investment and development properties-------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m--------------------------------------------------------------------------------Gain on revaluation of investment anddevelopment properties 209.7 234.6 558.5Gain on sale of investment properties 21.1 23.4 28.0--------------------------------------------------------------------------------Income statement gain on revaluation andsale of investment and developmentproperties 230.8 258.0 586.5-------------------------------------------------------------------------------- 4 Finance costs-------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m--------------------------------------------------------------------------------Gross interest payable - recurring 99.4 95.2 198.6Interest capitalised on developments (6.5) (4.5) (8.6)--------------------------------------------------------------------------------Interest payable 92.9 90.7 190.0--------------------------------------------------------------------------------Issue costs written off on redemption ofloans 1.9 2.0 2.0--------------------------------------------------------------------------------Exceptional finance costs 1.9 2.0 2.0-------------------------------------------------------------------------------- 5 Taxation-------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m--------------------------------------------------------------------------------Current tax on profits excluding exceptional items and property disposals 0.9 17.3 29.6-------------------------------------------------------------------------------- Deferred tax:On investment and development properties 2.9 72.5 (848.1)On derivative financial instruments 44.1 53.0 51.2On other temporary differences (1.0) (5.2) (17.6)--------------------------------------------------------------------------------Deferred tax on profits excludingexceptional items and property disposals 46.0 120.3 (814.5)-------------------------------------------------------------------------------- Tax on profits excluding exceptional itemsand property disposals 46.9 137.6 (784.9)-------------------------------------------------------------------------------- REIT entry charge 1.8 - 154.3-------------------------------------------------------------------------------- Exceptional current tax - - (32.2)Tax on exceptional items and propertydisposals:- current tax - 0.8 1.8-------------------------------------------------------------------------------- Exceptional tax and tax on exceptionalitems - 0.8 (30.4)and property disposals--------------------------------------------------------------------------------Taxation 48.7 138.4 (661.0)-------------------------------------------------------------------------------- Under IAS 12 (Income Taxes), provision is made for the deferred tax liabilityassociated with the revaluation of investment properties at the corporate taxrate expected to apply to the group at the time of use. For those propertiesqualifying as REIT properties the relevant tax rate will be 0 per cent, forother UK properties the relevant tax rate will be 28 per cent (following thesubstantial enactment on 26 June 2007 of tax law to reduce the UK corporationtax rate from 30 per cent to 28 per cent) and for overseas properties therelevant tax rate will be the prevailing corporate tax rate in that country. The deferred tax provision on the revaluation of investment propertiescalculated under IAS 12 is £33.8m at 30 June 2007 (31 December 2006 - £32.1million, 30 June 2006 - £893.5 million). This IAS 12 calculation does notreflect the expected amount of tax that would be payable if the assets weresold. The group estimates that calculated on a disposal basis the liability is£52.9m at 30 June 2007 (31 December 2006 - £49.1 million, 30 June 2006 -£671.4m). If upon sale the group retained all the capital allowances, which iswithin the control of the group, the deferred tax provision in respect ofcapital allowances of £31.2m may also be released, and further capitalallowances of £25.1m may be available to reduce the amount of tax payable onsale. Where gains such as revaluation of development properties and other assets andactuarial movements on pension funds are dealt with in reserves, any deferredtax is also dealt with in reserves. Movements in the provision for deferred tax-------------------------------------------------------------------------------- As at Recognised Recognised As at 31 December in income in equity 30 June 2006 £m £m 2007 £m £m-------------------------------------------------------------------------------- Revaluation of investment anddevelopment properties 32.1 2.2 (0.5) 33.8Capital allowances 31.8 0.7 (1.3) 31.2Derivative financialinstruments (32.2) 44.1 - 11.9Other temporary differences 9.1 (1.0) - 8.1-------------------------------------------------------------------------------- Net deferred tax provision 40.8 46.0 (1.8) 85.0-------------------------------------------------------------------------------- 6 Dividends-------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------- Ordinary sharesPrior period final dividend paid of 17.25pper share (2006 - 15.25p) 62.4 51.1 51.1Interim dividend paid of 13.75p per share - - 46.3-------------------------------------------------------------------------------- Dividends paid 62.4 51.1 97.4-------------------------------------------------------------------------------- Proposed dividend of 16.5p per share (30June 2006 - 13.75p, 31 December2006 - 17.25p) 59.7 46.3 62.4-------------------------------------------------------------------------------- 7 Investment and development properties-------------------------------------------------------------------------------- UK Other Total shopping commercial £m centres properties £m £m-------------------------------------------------------------------------------- At 31 December 2006 6,542.8 1,644.3 8,187.1Additions 54.7 252.5 307.2Disposals (419.1) (154.1) (573.2)Foreign exchange fluctuations - (6.0) (6.0)Surplus on valuation 145.2 64.5 209.7--------------------------------------------------------------------------------At 30 June 2007 6,323.6 1,801.2 8,124.8-------------------------------------------------------------------------------- The group's interests in investment and development properties were valued as at30 June 2007 and 31 December 2006 by independent external valuers in accordancewith the Appraisal and Valuation Manual of RICS, on the basis of market value.Market value represents the figure that would appear in a hypothetical contractof sale between a willing buyer and a willing seller. -------------------------------------------------------------------------------- As at As at As at 30 June 31 December 30 June 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------- Balance sheet carrying value of investmentand development properties 8,124.8 8,187.1 7,125.1Adjustment in respect of head leases andincentives 22.6 18.9 1.2-------------------------------------------------------------------------------- Market Value of investment and developmentproperties 8,147.4 8,206.0 7,126.3-------------------------------------------------------------------------------- 8 Trading properties The estimated replacement cost of trading properties based on market valueamounted to £51.0 million (31 December 2006 - £49.9 million, 30 June 2006 -£188.8 million). 9 Trade and other receivables-------------------------------------------------------------------------------- As at As at As at 30 June 31 December 30 June 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------- Amounts falling due within one year:Rents receivable 23.7 26.1 18.1Derivative financial instruments 7.4 7.0 2.7Other receivables 49.7 42.3 10.7Prepayments and accrued income 48.0 38.4 39.2-------------------------------------------------------------------------------- 128.8 113.8 70.7-------------------------------------------------------------------------------- Amounts falling due after more than one year:Derivative financial instruments 153.0 14.0 -Other receivables 12.5 12.2 12.6Prepayments and accrued income 56.1 55.2 48.4-------------------------------------------------------------------------------- 221.6 81.4 61.0-------------------------------------------------------------------------------- 10 Borrowings, including finance leases-------------------------------------------------------------------------------- As at As at As at 30 June 31 December 30 June 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------- Amounts falling due within one year:Secured borrowingsBank loans and overdrafts 139.6 12.9 36.3Commercial mortgage backed securities("CMBS") notes 21.7 24.2 21.8Finance lease obligations 6.6 6.4 6.7-------------------------------------------------------------------------------- Amounts falling due within one year 167.9 43.5 64.8-------------------------------------------------------------------------------- Amounts falling due after more than one year:Secured borrowings - non recourseCMBS notes 2015 911.4 1,124.1 1,133.3CMBS notes 2011 637.4 639.7 544.9Bank loans 2016 511.0 512.9 460.1Bank loan 2014 - 175.6 177.3Bank loans 2013 251.1 251.0 --------------------------------------------------------------------------------- 2,310.9 2,703.3 2,315.6Other secured borrowingsDebentures 2027 (30 June 2006 - 2021 and2027) 225.9 225.8 230.0Other loans 180.9 189.5 144.3-------------------------------------------------------------------------------- 2,717.7 3,118.6 2,689.9Unsecured borrowingsCSC bonds 2013 26.6 26.5 26.6CSC bonds 2009 31.2 41.3 41.2-------------------------------------------------------------------------------- 2,775.5 3,186.4 2,757.7£111.3 million 3.95% convertible bonds due2010 110.4 108.7 107.0Finance lease obligations 44.8 46.2 47.0--------------------------------------------------------------------------------Amounts falling due after more than one year 2,930.7 3,341.3 2,911.7-------------------------------------------------------------------------------- Total borrowings, including finance leases 3,098.6 3,384.8 2,976.5Cash and cash equivalents (199.4) (321.8) (117.7)--------------------------------------------------------------------------------Net borrowings 2,899.2 3,063.0 2,858.8-------------------------------------------------------------------------------- 11 Fair values of financial instruments -------------------------------------------------------------------------------- As at 30 June 2007 As at 31 December 2006 As at 30 June 2006 ------------------ ---------------------- ------------------ Balance Fair value Balance Fair value Balance Fair value sheet value sheet value sheet value £m £m £m £m £m £m ------------------------------------------------------------------------------------------Debentures andother fixed rateloansSterlingC&C 5.562% debenture 2027 225.9 327.5 225.8 348.8 - -C&C 9.875%debenture 2027 - - - - 150.0 225.2C&C 11.25%debenture 2021 - - - - 80.0 124.1CSC 6.875%unsecuredbonds 2013 26.6 26.6 26.5 25.4 26.6 25.0CSC 5.75% unsecuredbonds 2009 31.2 31.7 41.3 42.0 41.2 41.2US dollarsFixed rate loans 155.3 153.4 164.0 169.1 147.1 145.6---------------------------------------------------------------------------------------------- 439.0 539.2 457.6 585.3 444.9 561.1Floating rateand other loans 2,549.2 2,549.2 2,818.5 2,818.5 2,424.6 2,424.6---------------------------------------------------------------------------------------------- 2,988.2 3,088.4 3,276.1 3,403.8 2,869.5 2,985.7Convertiblebonds - fixed rate 110.4 160.3 108.7 195.4 107.0 150.9----------------------------------------------------------------------------------------------Total borrowings 3,098.6 3,248.7 3,384.8 3,599.2 2,976.5 3,136.6---------------------------------------------------------------------------------------------- All other financial assets and liabilities included in the balance sheet arestated at fair values. Derivative financial instruments-------------------------------------------------------------------------------- As at As at As at 30 June 31 December 30 June 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------- Non current assets (note 9) 153.0 14.0 -Current assets (note 9) 7.4 7.0 2.7Current liabilities (5.5) (4.6) (13.1)Non-current liabilities (7.6) (128.9) (94.2)-------------------------------------------------------------------------------- 147.3 (112.5) (104.6)-------------------------------------------------------------------------------- Interest rate swaps-------------------------------------------------------------------------------- Notional Average principal contracted rate-------------------------------------------------------------------------------- 30 June 31 December 30 June 31 December 2007 2006 2007 2006 £m £m % %Effective after:1 year 2,642 3,055 5.31 5.315 years 2,818 3,153 5.10 5.1610 years 2,350 2,075 4.68 4.7515 years 2,025 1,750 4.57 4.6320 years 2,025 1,750 4.57 4.6325 years 1,550 1,275 4.38 4.43-------------------------------------------------------------------------------- 12 Capital commitments At 30 June 2007, the group was contractually committed to £354.0 million offuture expenditure for the purchase, construction, development and enhancementof investment property (31 December 2006 - £127.0 million, 30 June 2006 - £51.0million). 13 Per share details (a) Earnings per share -------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Number Number Number millions millions millions -------------------------------------------------------------------------------- Weighted average ordinary shares in issuefor calculation of basicearnings per share 361.9 336.2 338.5Weighted average ordinary shares to beissued on conversion of bonds andunder employee incentive arrangements 14.8 15.1 15.0-------------------------------------------------------------------------------- Weighted average ordinary shares in issuefor calculation of dilutedearnings per share 376.7 351.3 353.5--------------------------------------------------------------------------------------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------- Earnings used for calculation of basicearnings per share 499.5 352.1 1,564.1Reduction in interest charge fromconversion 2.8 2.6 5.3of bonds, net of tax-------------------------------------------------------------------------------- Earnings used for calculation of dilutedearnings per share 502.3 354.7 1,569.4-------------------------------------------------------------------------------- Basic earnings per share (pence) 138.0p 104.7p 462.1p-------------------------------------------------------------------------------- Diluted earnings per share (pence) 133.0p 101.0p 444.0p-------------------------------------------------------------------------------- Earnings used for calculation of basicearnings per share 499.5 352.1 1,564.1Add back exceptional finance costs 1.9 2.0 2.0Add back REIT entry charge 1.8 - 154.3Add back/(less) other exceptional tax 0.8 (30.4)Less gain on revaluation and sale ofinvestment and development properties (230.8) (258.0) (586.5)Less fair value movement on derivativefinancial instruments (251.2) (175.5) (163.5)Add back/(less) deferred tax in respect ofinvestment and developmentproperties 2.2 71.4 (787.2)Add back deferred tax in respect ofderivative financial instruments 44.1 53.0 51.2Add back/(less) deferred tax on capitalallowances 0.7 1.1 (60.9)Less gain on transfer of trading propertyto investment properties, net of tax - - (28.5) -------------------------------------------------------------------------------- Earnings used for calculation of adjustedearnings per share 68.2 46.9 114.6-------------------------------------------------------------------------------- Adjusted earnings per share (pence) 18.8p 14.0p 33.9p-------------------------------------------------------------------------------- Earnings used for calculation of adjustedearnings per share 68.2 46.9 114.6Reduction in interest charge fromconversion of bonds, net of tax 2.8 2.6 5.3 -------------------------------------------------------------------------------- Earnings used for calculation of adjusted,diluted earnings per share 71.0 49.5 119.9-------------------------------------------------------------------------------- Adjusted, diluted earnings per share 18.8p 14.1p 33.9p(pence)-------------------------------------------------------------------------------- 13 Per share details (continued) (b) Net assets ------------------------------------------------------------------------------- As at As at As at 30 June 31 December 30 June 2007 2006 2006 £m £m £m ------------------------------------------------------------------------------- Basic net asset value 5,171.2 4,732.4 3,249.0Fair value of derivative financialinstruments (net of tax) (135.4) 80.4 75.1Deferred tax on revaluation surpluses 33.8 32.1 893.5Deferred tax on capital allowances 31.2 31.8 96.7Unrecognised surplus on trading properties(net of tax) 3.2 4.7 29.7------------------------------------------------------------------------------- 5,104.0 4,881.4 4,344.0Effect of dilution:On conversion of bonds 110.4 108.7 107.0On exercise of options 11.8 12.3 14.0------------------------------------------------------------------------------- Diluted, adjusted net asset value 5,226.2 5,002.4 4,465.0------------------------------------------------------------------------------- (c) Shares in issue------------------------------------------------------------------------------- As at As at As at 30 June 31 December 30 June 2007 2006 2006 Number Number Number millions millions millions ------------------------------------------------------------------------------- Shares in issue, excluding those held by ESOPtrust and treated as cancelled 362.0 361.7 336.4Effect of dilution:On conversion of bonds 13.9 13.9 13.9On exercise of options 1.4 1.5 1.9------------------------------------------------------------------------------- Diluted shares in issue 377.3 377.1 352.2------------------------------------------------------------------------------- (d) Convertible debt 3.95 per cent convertible bonds due 2010 At 30 June 2007, 31 December 2006 and 30 June 2006 3.95 per cent convertiblebonds with a nominal value of £111.3 million were in issue. The holders of the 3.95 per cent bonds have the option to convert their bondsinto ordinary shares at any time on or up to 23 September 2010 at 800p perordinary share. The 3.95 per cent bonds may be redeemed at par at the company'soption after 14 October 2008. 14 Summary of changes in equity------------------------------------------------------------------------------- Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m------------------------------------------------------------------------------- Opening shareholders' equity 4,732.4 2,933.1 2,933.1Issue of shares 2.6 6.2 342.4Cancellation of shares (0.5) (0.9) (1.0)------------------------------------------------------------------------------- 4,734.5 2,938.4 3,274.5Total recognised income and expense for theperiod 499.1 361.8 1,555.3------------------------------------------------------------------------------- 5,233.6 3,300.2 4,829.8Dividends paid (62.4) (0.9) (97.4)------------------------------------------------------------------------------- Closing shareholders' equity 5,171.2 3,249.0 4,732.4------------------------------------------------------------------------------- GLOSSARY Earnings per share (adjusted): Earnings per share adjusted for valuation andexceptional items and their tax effect, in accordance with UK property industrypractice (for calculation, see note 13). ERV (Estimated Rental Value): The external valuers' estimates of the group'sshare of the current annual market rent of all lettable space. Like-for-like income: The category of investment properties which have beenowned throughout both periods without significant capital expenditure in eitherperiod, so both income and capital can be compared on a like-for-like basis. Like-for-like capital: The category of investment properties which includeslike-for-like income properties, plus those which have been owned throughout thecurrent period but not the whole of the prior period, without significantcapital expenditure in the current period, so capital values but not income canbe compared on a like-for-like basis. Net assets (diluted, adjusted): Net assets adjusted for deferred tax in respectof revaluation surpluses and capital allowances, fair value movements oninterest rate hedges, and valuation surpluses on trading properties net of tax,in accordance with UK property industry practice (for calculation, see note 13). Net rental income: The group's share of net rents receivable as shown in theIncome Statement. Nominal equivalent yield: Effective annual yield to a purchaser from the assetsindividually at market value after taking account of notional acquisition costsbut assuming rent is receivable annually in arrears rather than reflecting theactual rental cash flows. Passing rent: The group's share of contracted annual rents receivable at thebalance sheet date. This takes no account of accounting adjustments made inrespect of rent free periods or tenant incentives, the reclassification ofcertain lease payments as finance charges or any irrecoverable costs andexpenses, and does not include excess turnover rent, additional rent in respectof 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, to December 2006, the REIT conversion charge. This information is provided by RNS The company news service from the London Stock Exchange

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