Rodamco Europe reports 9.7% increase in direct result after tax in first half year 2006

Highlights first six months 2006

 

Property assets increased 8.6% to €9.9 billion (end of 2005: €9.1 billion); 93.4% of portfolio is invested in the retail sector (Q4 2005: 90.3%);  

Triple NAV[1] (NNNAV) up 11.3% to €6,030 million (end of 2005: €5,418 million), NNNAV per share is €67.27[2] (end of 2005: €60.44[3]);

Direct result after tax up 9.7% to €186.5 million (H1 2005: €170.0 million), driven by a 12.2% increase in gross rental income;

Direct result after tax per share up 9.7% to €2.08 (H1 2005: €1.90);

Net rental income up 14.6% to €278.7 million (H1 2005: €243.1 million), like for like[4] growth of net rental income was 4.3% (H1 2005: 3.8%); 

Overall occupancy rate increased slightly to 98.0% (Q4 2005: 97.9%); retail occupancy remained stable at 98.6% (Q4 2005: 98.6%);

Net shareholders' profit up 63.0% to €669.1 million, which includes indirect result after tax of €482.6 million (H1 2005: €240.4 million);

Valuation result of investment property €544.5 million; 80% due to yield shift and 20% due to rental income change; net initial yield[5] on investment property is 5.7% (end of 2005: 6.1%);

Outlook remains unchanged, direct result after tax for full year 2006 is expected to grow by more than 7%;

Interim dividend up 9.6% to €1.37 per share (H1 2005: €1.25), payable on 13 October 2006.

 

 

CEO Maarten Hulshoff: "Employment and consumer confidence in the Euro area have been improving, resulting in stronger retail sales numbers in most of the countries we operate in. Especially Dutch retail sales, after a few years of stagnation, showed an exceptionally high increase in excess of 10%[6]. If the increased Dutch retail sales prove to be sustainable, we expect to benefit from this positive development in our largest home region.

 

 

 

Property assets increased by €778 million to €9,873 million in the first six months of 2006 compared to €9,095 million at the end of 2005. The contributors to this increase were the substantial valuation results of investment property (€545 million) and pipeline (€5 million), acquisitions (€96 million), capital expenditures (€35 million), capital expenditures in pipeline projects (€88 million at cost), divestments (minus €2 million) and other movements (€11 million).

 

During the 2nd quarter of 2006, Rodamco Europe announced the closing of the transaction of Aupark shopping center (50% ownership) in Bratislava, Slovakia, with a total GLA of 43,600 m2, for an initial purchase price of €75 million, at a 7.0% net initial yield for the first three years based upon rental guarantees.

 

 

The total pipeline as per 30 June 2006 amounts to € 2.3 billion (end of 2005: €2.4 billion), of which 38% are committed projects and 62% uncommitted projects, and will add GLA 640,000 m2. During the first six months of 2006, three projects in the Netherlands (Hasselo in Hengelo: 4,000 m2, Woensel in Eindhoven: 650 m2 and Parade in Bergen op Zoom: 5,700 m2) and one project in Germany (Allee Center in Magdeburg: 10,000 m2) have (partially) come into operation, for a total amount of €52 million (market value) including a positive revaluation of €6 million.

 

In Q2 2006, the Aupark shopping center extension (50% ownership) of 14,400 m2 in Bratislava, Slovakia, has been transferred from the uncommitted to the committed pipeline. The net initial yield is approximately 7.0% and completion is expected during 2007. Also in Q2 2006, Rodamco Europe added the Markthal (GLA 8,300 m2) in Rotterdam, the Netherlands, to its uncommitted pipeline. The Markthal will be acquired for approximately €28 million with an expected net initial yield of 6.5% on investment; expected completion in 2009.

 

For the remaining six months in 2006, the following committed pipeline projects are expected to come into operation:

Stadshart Almere in Almere, the Netherlands: turnkey project of 79,000 m2. The majority of shops has been opened on 19 April 2006. The total estimated development costs are € 240 million of which a part has already been transferred to investment property before 2006. In Q3 2006 blocks 1 and 2 will be transferred (€146 million) to investment property and in Q1 2007 the remaining parts (€30 million) will be transferred. The net initial yield on investment is around 7%.

Zlote Tarasy in Warsaw, Poland (50% ownership): pre-let turnkey project of 89,100 m2 in total; estimated completion in Q4 2006; estimated total development costs are €157 million for Rodamco Europe, estimated net initial yield on investment is 8.1%.

 

IFRS ignores some business aspects in valuing real estate companies. In line with the Best Practice Policy Recommendations of the European Public Real Estate Association (EPRA) for transparent, uniform and comparable financial information by real estate companies, Rodamco Europe reports the triple net asset value ("Triple NAV" or "NNNAV"). This performance measure does not replace the IFRS disclosure, but provides additional information to help the investors understand the performance of Rodamco Europe.

 

(in €)
Net Asset Value	5,743  mln
Valuation surplus on pipeline projects	59  mln
Nominal deferred taxes	445  mln
Discount deferred taxes	-243  mln
Marked-to-market value of loans and borrowings	26  mln
Triple NAV	6,030  mln

 

The Triple NAV increased by 11.3% to €6,030 million at the end of June 2006, or €67.27 per share (end of 2005: €60.44) after final 2005 dividend per share of €2.17 that was paid in April 2006, and before interim dividend 2006 of €1.37 per share. The increase was mainly supported by the net shareholders' profit €669 million, final dividend of 2005 minus €195 million and a positive movement in the marked-to-market value of loans and borrowings of €93 million, as a result of interest rates moving up.

 

 

Rodamco Europe focuses on direct result after tax[8] as the key operational performance indicator and for its dividend policy. Direct result after tax increased 9.7% to €186.5 million in the first six months of 2006, compared to €170.0 million in the same period of 2005. This was largely driven by pipeline projects coming into operation and the net positive effect of acquisitions and divestments.

 

 

Net rental income increased 14.6% to €278.7 million, compared to €243.1 million in the first six months of 2005 and the gross rental income increased 12.2% to €321.2 million (H1 2005: €286.3 million). The gross rental income increase is primarily a result of rent generated from acquisitions during 2005 (€13.2 million; mainly Amstelveen in the Netherlands and Jumbo in Finland), acquisitions in 2006 (€2.8 million; Aupark in Slovakia), from properties coming into operation during 2005 (€18.5 million; mainly shopping centers in the Netherlands Vier Meren, Spazio and parts of Stadshart Almere, Parquesur extension in Spain and Chodov in the Czech Republic) and rent increases of €7.8 million.

The increase in gross rental income was partially offset by the effect of disposals, mainly Mecc in the Netherlands (exhibition, office, and hotel), Hallunda and Sollentuna in Sweden (shopping centers), Pontis Haus (offices) and Rozalia Park (logistics) in Central Europe and 2 offices in Paris, France which reduced the gross rental income by €8.5 million in 2006.

Overall occupancy increased slightly to 98.0% in June 2006 compared to the end of 2005 (97.9%); retail occupancy remained stable at 98.6% (end 2005: 98.6%).

Like-for-like growth in net rental income was 4.3%, which is higher than the like for like growth in H1 2005 (3.8%).

The Loss of Rent improved during the first six months of 2006 to 3.8% (year end 2005: 4.6%) due to tight operational management and divestments.

Property operating expenses (excluding net service charges) decreased with 0.7% to €40.1 million in the first six months of 2006 (H1 2005: €40.4 million). This decrease is amongst others the result of a refund of property taxes in Denmark.

 

 

The administrative expenses increased 24.6% to €24.3 million in the first six months of 2006 compared to €19.5 million in the same period of 2005. This was mainly caused by high abortive purchase costs in connection with two large potential retail property acquisitions, an increase of ICT expenses, increased staffing due to the growth of the investment portfolio and an increase of compliance activities.

 

 

The total debt increased from €3.1 billion at the end of June 2005 to €3.5 billion at the end of June 2006, which caused an increase in interest expenses of €9.5 million. The average interest rate decreased to 3.86% over the first half year of 2006 (4.21% over the first half year of 2005). The €5.1 million effect of the lower average interest rate, was partly compensated by lower interest income of €3.5 million, due to lower capitalized interest and higher other interest expenses of €1.4 million (mainly the interest of the French SIIC exit tax liability). This, amongst others, resulted in an increase of the net interest expenses by 20.2%, from €54.0 million in the first half of 2005, to €64.9 million in the same period of 2006.

 

Under IFRS the foreign exchange result (€0.4 million) and the change in fair value of financial instruments are also included in the net financing result. In the first six months of 2006, a positive fair value result of financial instruments of €5.1 million was reported (as part of the indirect result), primarily arising on interest rate swaps not being directly linked to specific loans, thus not subject to hedge accounting treatment.

 

 

The change in deferred tax position as a result of valuation results and the realization of deferred tax assets (tax losses carry forward) resulted in €70.7 million of deferred income tax expense (H1 2005: €6.5 million). The deferred tax expenses are calculated using the effective tax rates for those countries where there is no tax efficient status like in the Netherlands (FBI) and in France (SIIC).

 

Income tax expense amounted to €3.1 million, compared to €1.5 million in the first six months of 2005. A number of tax positions are being challenged by local tax authorities or may be challenged in the future. Some items are being litigated before courts. The potential tax exposure may range from nil to a maximum of €64 million, of which €19 million is provided for in the balance sheet.

 

 

Net Profit not only takes the direct result after tax into account, but also includes non-cash items ('indirect result after tax') such as the valuation result, the result on disposals of investment property, the fair value result derivative financial instruments and the deferred income tax expense. The net profit under IFRS fully includes any minority share. The net shareholders' profit (net profit attributable to Rodamco Europe's shareholders) excludes minority shares and is used under IFRS as the main indicator for Rodamco Europe's overall performance. The 14.6% increase in net rental income compared to the first six months of 2005, but especially the increase of the valuation result in the first half year of 2006, has led to the 63.0% growth in net shareholders' profit to €669.1 million.

 

 

Direct result after tax per share increased 9.7% to €2.08 in the first six months of 2006, compared to €1.90 in the comparable period of 2005. The net shareholders' profit per share amounted to €7.46 for H1 2006, an increase of 63.0% compared to €4.58 in H1 2005.

 

 

The valuation result of Rodamco Europe's property assets added €550 million in value in the first six months of 2006. Approximately 80% of the valuation result on the investment property was attributable to a yield shift, while the remaining 20% was attributable to increased rental income. The net initial yield on investment property moved from 6.1% end of 2005 to 5.7% per 30 June 2006.

 

Valuation results on investment properties in all sectors were positive during the first six months of 2006 (€545 million), revaluations on retail investment properties were €516 million, offices showed a positive revaluation of €20 million and logistic €9 million. Revaluation results on investment properties in all home regions over the period were positive as well: the Netherlands and Belgium (€134 million), France (€118 million), Spain (€112 million), Nordic (€120 million) and Central Europe (€61 million). 

 

A valuation result of €6 million was realized on pipeline projects transferred to investment property mainly due to the opening of the Allee Center extension in Germany.

 

Rodamco Europe divested at a total sales price of €2 million in assets, consisting of the sale of some industrials in France and small projects in the Netherlands.

 

 

Total debt increased to €3.5 billion at the end of June 2006. Approximately 69% of the debt was fixed rate funded as per 30 June 2006 at an average interest rate of 3.91% (year-end 2005: 3.86%).

 

 

As an indication of sensitivity[9], a change in interest rates of 100 basis points would have an impact of €10.7 million on direct result per annum; a plus or minus yield shift of 50 basis points would affect 2006 indirect result with negative €790 million (+50 basis points) to positive €940 million (-50 basis points); a 10% change in the SEK/€ exchange rate would have a €27 million impact on shareholders' equity.

 

 

 

As indicated in the Q1 2006 results press release, Rodamco Europe expects direct result after tax over the full year 2006 to increase by more than 7%[10]. 

The 9.7% reported growth over the first half year 2006 is not representative for the whole year, as part of the forecasted growth is attributable to acquisitions and projects which came into operation in H2 2005.

 

This outlook is based on the current investment property and estimated timing of completion of pipeline projects and disregards changes in IFRS policies, the potential effects of additional acquisitions and divestments and the potential effects of significant changes in exchange rates, interest rates and the economic situation.

 

 

6 October 2006	(interim) ex-dividend date
13 October 2006	(interim) dividend payment date
13 November 2006	Publication of Q3 2006 results
26 February 2007	Publication of 2006 results
27 April 2007	2006 Annual General Shareholders Meeting

 

 

The websites of the shopping centers mentioned in this press release are listed below:

 

Rodamco Europe with headquarters in Rotterdam, the Netherlands, is both investor and manager of its dominant shopping centers in its home regions The Netherlands & Belgium, the Nordic countries, France, Spain and Central Europe. Top quality shops and shopping centers form 93% of Rodamco Europe's €9.9 billion property assets. This makes Rodamco Europe the largest listed property investment and management company in the retail sector in Europe. Rodamco Europe is listed on the Stock Exchanges in Amsterdam, Paris, Frankfurt and Brussels. A Euronext 100 company, Rodamco Europe is included in the Euronext AEX Index (AEX) and in the MSCI World Index. For more information on Rodamco Europe, please visit our website: www.rodamco.com.

 

 

 

Vivienne van Asten - de Leeuw, Investor Relations

Tel: +31 (0) 10 217 6400

E-mail: investors@rodamco.com

 

Arie Bos, Corporate PR & Communication

Tel: +31 (0) 10 217 6400

E-mail: media@rodamco.com