Liberty says earnings are resistant to retailers' slide

Liberty International warned of a slowdown in sales at its shopping centres but said it should not hit earnings or valuations.

The group is a major owner of shopping centres but is not a retailer itself. It reported strong interim figures yesterday, ahead of expectations, with a 6.2 per cent increase in the value of its UK regional shopping malls.

David Fischel, chief executive, said that retail sales generally had slowed and that Liberty's tenants were not immune from this. However, he said this was not akin to the slowdown seen in the office sector and that demand for retail space remained buoyant.

"Our business is much more stable and resilient than the underlying retail business ... we can live with periods of weaker [retail sales] performance without it making a difference to our earnings," Mr Fischel said.

He said the level of rents - which drives property valuations - are decided after five-yearly reviews, so are not driven by short-term trading at its tenants' outlets.

For the six months to 30 June, like-for-like rental income was up 5.4 per cent. Underlying pre-tax profit was up 40 per cent at £53.2m, while group net asset value grew 8.5 per cent to 866p a share - compared with six months earlier. The NAV uplift was in contrast to property companies with heavy office exposure, which have been seeing the value of their portfolios shrink.

Liberty owns six of the top 15 shopping centres in the UK, including Lakeside at Thurrock, Braehead in Glasgow and the MetroCentre at Gateshead - which is being extended and will, next year, be Europe's largest shopping centre, with 1.8 million sq ft of space.

Mr Fischel said letting for the MetroCentre extension represented 68 per cent of future rents, while 60 per cent of rents at a Norwich centre, due to open in 2005, are already committed.

"There is not the same over-supply situation in retail that we have seen with offices," Mr Fischel said.

The valuation of Braehead grew 15.7 per cent, Lakeside was 7.4 per cent better, making it worth £967m, while the MetroCentre was up 3.4 per cent. Overall, shopping centres, which make up 80 per cent of Liberty's portfolio, added £206m in value over the six months to £3.6bn. Its UK offices shrank 3.6 per cent to £325m.

Liberty has built up its stake in rival Great Portland Estates this year to 25 per cent, amid speculation that it will launch a bid for the company. Mr Fischel said "we have lots of options" but declined to comment further.

Mr Fischel said Liberty would potentially be interested in the giant Blue Water shopping centre in the South-east, where part-owner Lend Lease has said it will divest its 30 per cent interest. However, he added that the stake was not yet up for sale.