UK- and South Africa-listed property group Liberty International (LBT) has reported a decline in its adjusted earnings per share for the six months to end-June 2005 to 13.3 pence from 13.9 pence a year earlier, reflecting lower trading profits during the period at stlg 0.6 million, compared to stlg 6.8 million the previous year.
 
Reporting its interim results on Thursday, Liberty International said, however, that it expected further trading profits in the second half of the year. This is the first time the company has prepared its financial statements on an International Financial Reporting Standards (IFRS) basis, converting from UK Generally Accepted Accounting Principles (UK GAAP).
 
The group declared an interim dividend of 13 pence per share, up from 12.4 pence at the halfway stage in 2004.
 
Liberty International, which specialises in the ownership and development of key shopping malls around the UK, said its net assets (on a diluted, adjusted basis) had risen from stlg 3.61 billion a year earlier to stlg 3.82 billion, while on an IFRS basis, net assets increased from stlg 2.53 billion to stlg 2.59 billion. Net assets per share rose from 1,025 pence to 1,085 pence (diluted and adjusted) in the six months, amounting to a 7.3% total return. Adjusting for the stlg 108.5 million (32 pence per share) one-off impact of the withdrawal in the period of disadvantaged area relief from stamp duty land tax, the total return would have been 10.7% for the period.
 
Net rental income rose by stlg 18.8 million to stlg 143.8 million from stlg 125 million, with 5.5% of the increase coming from underlying rental growth, and the balance from completed developments and acquisitions.
 
Underlying profit before tax, excluding valuation items, exceptionals and trading profits increased by 6.3%, to stlg 53.8 million from stlg 50.6 million a year earlier.
 
However, profit before tax under IFRS fell to stlg 130.1 million from stlg 277.3 million at the interim stage in 2004, reducing basic earnings per share to 28.8 pence from 62.4 pence, impacted by a stlg 114.3 million fall in the fair value of derivative financial instruments. Liberty International uses interest rate swaps to offset the risk of its floating-rate interest rate exposure, with substantially all of its future interest payments on existing debt and in respect of committed capital expenditure fixed for the next 10 years.
 
Meanwhile, the group reported a revaluation surplus of stlg 196 million, with the market value of completed investment properties increasing by 3.2% over the six months, representing an underlying 5.1% rise (adjusted for the withdrawal of disadvantaged area relief from stamp duty land tax). Investment and development properties grew to stlg 6.2 billion from stlg 5.3 billion during the period, with over stlg 700 million in net additions, particularly the stlg 653 million acquisition of interests in Manchester Arndale and The Mall at Cribbs Causeway, Bristol.

Sir Robert Finch, Chairman of Liberty International, commented: "The interim results show Liberty International to be in vibrant good health with a portfolio of first class assets, the market leadership in the UK's regional shopping centre industry, a promising development programme and a skilled and experienced management team at all levels.

"The challenge going forward will be to continue to find the right mix of investment properties and development proposals which add to the critical mass of the business in its core areas.
 
Looking at the company's financial strength, its debt-to-assets ratio rose to 43% from 36%, with aggregate net borrowings increasing to stlg 2.69 billion from stlg 1.94 billion at the end of December 2004. The weighted average maturing of the debt was nine years, with no significant repayments planned until 2011. Its weighted average interest cost was 6.3%.

At the end of the period, Liberty had cash balances of stlg 163 million and committed facilities of stlg 495 million, representing stlg 658 million of available financial resources, substantially in excess of its committed property projects.

Commenting on conditions in the UK property market, Finch noted: "UK investment property continues to attract a considerable inflow of capital on the grounds of yield and stability of returns compared with other asset classes.  As measured by the representative benchmark, the IPD UK monthly index, UK property delivered a total return of 7.3% for the first six months of 2005, with the compound total return for the last five years amounting to 11.9 per cent per annum.

"The noticeable slowdown in UK retail sales which became apparent in the second half of 2004 has continued into the first half of 2005, particularly in the second quarter, with UK non-food retail sales growth (as measured by the

Office for National Statistics non-food index) for the last twelve months now standing at 1.6% year on year. However, comparison goods, which are predominantly the product mix within our centres, have generally fared better than household goods, which have been more severely impacted by the anticipated downturn in the UK housing market.
 
Turning to prospects, Finch said that Liberty International was extremely active on a number of fronts at both its subsidiaries - CSC and Capital & Counties. The group's underlying income stream was set to benefit from important forthcoming rent review cycles at its shopping centres, including Lakeside, Thurrock in the last quarter of 2005 and the first round of rent reviews at The Chimes, Uxbridge, in 2006.
 
"We have demonstrated through the Manchester Arndale and Cribbs Causeway, Bristol transactions in the first quarter of 2005 that we remain alert to suitable acquisition opportunities where these meet our stringent investment criteria," he added.
 
"Furthermore, we have a wide range of promising development projects which will ensure the continued steady expansion of the group's activities. We particularly look forward to the opening, in September, of the 530,000 square foot regional shopping centre, Chapelfield, Norwich, and, in October, of the first phase of the Manchester Arndale Northern Extension."

I-Net Bridge

Publisher: Business Day
Source: Inet Bridge