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Article Excerpt
PARTICIPANTS
. Patrick Burgess, Liberty International Plc, Chairman . David Fischel, Liberty International Plc, CEO . Ian Durant, Liberty International Plc, Finance Director . Kay Chaldecott, Liberty International Plc, Managing Director, Capital Shopping Centers . Carl Gough, Cazenove, Analyst . John Cahill, KBC, Analyst . John Fraser-Andrews, HSBC, Analyst . John Lutzius, Green Street Advisors, Analyst . Osmaan Malik, JP Morgan, Analyst . Quentin Freeman, UBS, Analyst
OVERVIEW
For 2008, LII.L reported underlying profit of GBP103m and reported adjusted EPS, excluding mark-to-market valuation movements, 8.9p per share for 4Q08, and 29p per share for 2008.
FINANCIAL DATA
A. Key Data From Call 1. 2008 underlying profit = GBP103m. 2. 4Q08 adjusted EPS (excluding mark-to-market valuation movements) = 8.9p. 3. 2008 adjusted EPS (excluding mark-to-market valuation movements) = 29p. 4. 2008-end cash and undrawn committed bank facilities = GBP291m. 5. 2008 net external debt = GBP4.1b.
PRESENTATION SUMMARY
S1. 2008 Overview (D.F.) 1. Introduction: 1. Sold 40% interest in MetroCentre in the early months of 2007, two years ago, just after Co. became a REIT. 1. Off an initial yield in low fours for a gross consideration of GBP426m. 2. High quality and defensive UK regional shopping center and retail property business. 1. Retail, 85% of Co.'s business. 3. Since downswing started in June 2007, consistently outperformed IPD and again in 2008. 4. Took number of important steps to improve liquidity and financial strength. 5. Additional requirements to be addressed through further potential asset sales and new capital raising. 1. Other than to the extent of comments in 2/26/09 announcement, does not intend to give detail of timings, sizing, pricing or structure of any potential equity capital raising. 2. Primary focus of the Board has shifted from growth to reinforcing financial strength of the Co. 3. In light of falling values and dislocation in the financing markets, concluded that additional measures are necessary including potential further asset sales and new capital raising. 4. Predominantly non-recourse debt structure with over 90% of debt asset-specific and non-recourse provides financial flexibility enabling the Group to address issues on asset-by-asset basis with limited cross-default exposure. 5. In terms of residual corporate debt, appreciates support shown by lending bankers who have since the year-end agreed important changes to terms of GBP360m corporate bank facilities, including extending overall maturity into 2011. 6. These changes are contingent on the Group raising not less than GBP350m of additional equity. 7. Given current market conditions, Board's intention would be to raise a greater sum through a combination of asset disposals and new capital. 6. Believes prime retail property has early recovery potential vs. other property types. 2. Results: 1. NAV reduced from GBP12.64 to GBP7.45 per share very sharp drop obviously in the last qtr. from 975p at Sept.-end. 2. Overall property revaluation deficit, just over GBP2b, 22.5%. 1. Of that, 11.8% in 4Q08. 2. Nearly all driven by rising yields. 3. Underlying profit before tax reduced from GBP128m to GBP103m. 4. Adjusted EPS reduced from 36p to 29p 5. Debt to assets ratio, been around 40% level now for nearly a decade until 2008, has climbed to 58%. 3. Dividend: 1. 2008 interim dividend of 16.5p at a cost of approx. GBP60m. 1. Exceeds minimum PID requirement for the year, Property Income Distribution for a REIT of 12.8p. 2. Substantially less than EPS of 29p reflecting capital allowances and capitalized interest as Co. has been active developer [big brought forward pool] of capital allowances. 2. Board recommending no final dividend for 2008. 1. Given financial market conditions and debt contractionary environment, believes it to be in shareholders' best interests to restrict dividend for 2008 to 16.5p interim dividend already paid, which exceeds the minimum required under UK REIT legislation 2. This decision has been a particularly difficult one as Co. has had a long track record of steady dividend growth from 4.5p per share in 1985 to 34.1p in 2007. 3. Anticipates 2009 dividend of 16.5p per share or, if higher, minimum PID requirement. 4. Performance Indicators: 1. Shopping Center business, which is 70% of the business. 2. Last year's footfall taking 12 completed centers, up from 225m visitors to 229m. 1. Positive YonY growth in YTD in 2009. 3. Estimated retailer sales, Co. gets some turnover information, does not get complete turnover information and it has to do some estimations, but believes retailer sales in its centers generally reflected national trends. 4. Headline occupancy, unchanged at 98.7%. 1. Excluding tenants in administration, drops to 93.6% vs. September-end of 97.9%. 1. A lot of high profile failures as in Woolworth's, Zavvi, etc. 2. Taking account of space in advanced re-letting negotiations, would have been 95.4%. 5. Although seen a further 1.3% by rent of tenant failures in 2009 to date, no material change in those figures. 1. Has been re-letting during 2009 as fast as Co. has had tenants failing. 2. Position has not deteriorated since year-end. 6. Dec. qtr. collections, 97%. 1. Balance is mostly tenants on payment plans. 7. 2009 has been busier, 244 tenancy changes. 8. Rent review settlements in line with expectations. 1. Large one in 2008, Cribbs Causeway, Bristol. 9. Lease expiry, 2% in 2009 and 3% in 2010 5. Actions Taken (Changing Environment): 1. Over last couple of years, self help measures. 2. Reduced Capex and deferred projects other than where already committed. 1. Example, Westgate, Oxford. 3. Taken steps to reduce administrative expenses. 1. Target of significant reduction, there is a one-off cost this year for future benefit in 2009 and beyond. 4. Will focus on core of prime retail real estate. 1. Shopping center business. 2. Central London activities of Capital & Counties 5. Will continue program of disposals of non-core assets. 1. Some GBP200m in 2008 and GBP340m in 2007. 2. Taking all those disposals in aggregate, made those disposals above 2006-end book values. 3. Has GBP160m currently exchanged or under offer. 4. Aggregating that with MetroCentre disposal, that is over a GBP1b of disposals in last two years. 6. Agreed new corporate banking arrangements for GBP360m facility. 7. Strengthened capital structure by doing a transaction just around year-end to convert some convertible bonds early. 8. Changed dividend policy. 6. Business Overview: 1. A high quality and defensive UK regional shopping center and retail property business. 1. 70% UK regional shopping centers. 2. 85% retail by value. 2. Includes: 1. Nine of the Top 30 UK regional shopping centers 2. Prime central London...
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