Rodamco Europe reports 10.0% increase in direct result after tax in first nine months of 2006

Property assets increased 10.1% to €10.0 billion (end of 2005: €9.1 billion); 93.5% of portfolio is invested in the retail sector (end of 2005: 90.3%); 

Triple NAV[1] (NNNAV) up 17.3% to €6,355 million (end of 2005: €5,418 million), NNNAV per share is €70.90[2] (end of 2005: €60.44[3]);

Direct result after tax up 10.0% to €281.1 million (9 mths. 2005: €255.6 million), driven by a 11.9% increase in gross rental income;

Direct result after tax per share up 10.0% to €3.14 (9 mths. 2005: €2.85);

Net rental income up 14.3% to €422.3 million (9 mths. 2005: €369.6 million), like for like[4] growth of net rental income was 4.8% (9 mths. 2005: 4.0%); 

Overall occupancy rate increased to 98.2% (end of 2005: 97.9%); retail occupancy increased slightly to 98.7% (end of 2005: 98.6%);                                                                                                    

Net shareholders' profit up 4.8% to €982.4 million, which includes indirect result after tax of €701.3 million (9 mths. 2005: €681.7 million);

Valuation result of investment property €742.1 million; 75% due to yield shift and 25% due to rental income change; net initial yield[5] on investment property is 5.6% (end of 2005: 6.1%);

Outlook for the full year 2006 is upwardly revised. Direct result after tax for full year is now expected to grow by at least 8% (earlier outlook was "more than 7%").

 

 

CEO Maarten Hulshoff: "On the operating side we showed strong like for like growth of 4.8%, whilst our loss of rent ratio[6] improved to 3.7%, compared to the loss of rent during 2005 of 4.6%. As to the indirect result, the investor market remained robust resulting in a 10 bp yield shift in the third quarter to 5.6% at the end of the third quarter of 2006. We are pleased to see a law allowing development for FBIs has been sent to the Dutch Parliament. Once approved, most likely during the first quarter of 2007, we cautiously will expand our business model to include developments for our own account and risk. Over time we will therefore evolve as an "Investor - Manager - Developer", covering the whole spectrum in the European shopping center sector."

 

 

Property assets increased by €922 million to €10,017 million in the first nine 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 (€742 million) and pipeline (€38 million), acquisitions (€123 million), capital expenditures (€51 million), capital expenditure and investments in pipeline projects (€124 million at cost), offset by divestments (minus €157 million) and other movements (€1 million).

 

During the 3rd quarter of 2006, Rodamco Europe divested a portfolio of high street shops in the Netherlands, for an amount of approximately €115 million at a net initial yield of 4.4%.

 

In the same quarter the divestment was announced of Rodamco Europe's office properties in business park "Klaver Vier", situated in Papendorp, Utrecht, the Netherlands, for an amount of €13.2 million. The realized part of the project was sold at a net initial yield of 7.1%.

 

During the 3rd quarter, Rodamco Europe announced the strengthening of its position in France by expanding its presence in the Paris prime shopping centers Velizy 2 and Parly 2 for the total amount of €25.9 million.

 

In a swap transaction with the French real estate company Union Financière de Gestion (UFG), Rodamco Europe acquired retail units in Velizy 2 for an amount of €19.4 million, at a net initial yield of 4.5%. UFG in turn acquired offices in the Credit Lyonnais tower in Lyon, for the same value. In addition to this transaction, Rodamco Europe has divested to UFG some non strategic retail units in Bordeaux (Villeneuve d'Ornon) for an amount of €11.3 million at a net initial yield of 7.5% and some non strategic retail units in Paris (Bobigny) for an amount of €12.2 million at a net initial yield of 8%.

 

In Parly 2 Rodamco Europe has acquired retail units for an amount of €6.5 million at a net initial yield of 4.9%.

 

With these transactions Rodamco Europe's stake in Parly 2 increased to 69.3% and in Velizy 2 to 27.1%, thus strengthening its position in Velizy 2 as largest shareholder with Auchan.

 

The total pipeline as per 30 September 2006 amounts to € 2.2 billion (end of 2005: €2.4 billion), of which 36% are committed projects and 64% uncommitted projects, and will potentially add GLA 615,000 m². During the first nine months of 2006, four projects in the Netherlands (Hasselo in Hengelo: 4,000 m², Woensel in Eindhoven: 650 m² ; Parade in Bergen op Zoom: 5,700 m²  and Stadshart Almere in Almere: 41,000 m²), one project in Germany (Allee Center in Magdeburg: 10,000 m²) and one project in Sweden (Nova 2 in Lund: 6,100 m²) have (partially) come into operation, for a total amount of €239 million (market value) resulting in a positive revaluation of €39 million.

 

In Q3 2006, Almere-Buiten phase 5 and Markthal in Rotterdam, both in the Netherlands, have been transferred from the uncommitted to the committed pipeline for the amount of €62 million. Completion of these projects is expected during 2009.

 

In the remaining three months of 2006 some smaller committed pipeline projects are expected to come into operation in France, Spain and the Netherlands. The estimated total development costs for these projects are €36 million.

 

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.

 

 

 

The Triple NAV increased by 17.3% to €6,355 million at the end of September 2006, or €70.90 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 of €937 million was mainly supported by the net shareholders' profit of €982 million, final 2005 dividend minus €195 million, a positive movement in the marked-to-market value of loans and borrowings of €57 million, as a result of interest rates moving up and a €40 million higher pipeline revaluation potential.

 

Rodamco Europe focuses on direct result after tax[7] as the key operational performance indicator and for its dividend policy. Direct result after tax increased 10.0% to €281.1 million in the first nine months of 2006, compared to €255.6 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 14.3% to €422.3 million, compared to €369.6 million in the first nine months of 2005 and the gross rental income increased 11.9% to €486.2 million (9 mths. 2005: €434.5 million). The gross rental income increase is primarily a result of rent generated from acquisitions during 2005 (€16.1 million; mainly Amstelveen in the Netherlands and Jumbo in Finland), acquisitions in 2006 (€4.6 million; mainly Aupark in Slovakia), from properties coming into operation during 2005 and 2006 (€27.6 million; mainly shopping centers in the Netherlands Vier Meren, Spazio, parts of Stadshart Almere and parts of De Parade, Bergen op Zoom, Parquesur extension and Albacenter in Spain and Chodov in the Czech Republic) and rent increases of €10.2 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 two offices in Paris (Marceau and Serbie), France which reduced the gross rental income by €11.6 million in 2006.

Overall occupancy increased to 98.2% in September 2006 compared to the end of 2005 (97.9%); retail occupancy increased slightly to 98.7% (year end 2005: 98.6%).

Like-for-like growth in net rental income was 4.8%, which is higher than the like for like growth in the first nine months of 2005 (4.0%).

The Loss of Rent improved during the first nine months of 2006 to 3.7% (in 2005: 4.6%) due to tight operational management (lower vacancy) and divestments.

Property operating expenses (excluding net service charges) decreased with 0.7% to €60.2 million in the first nine months of 2006 (9 mths 2005: €60.6 million). This decrease is amongst others the result of a refund of property taxes in Denmark.

 

The administrative expenses increased 21.0% to €35.8 million in the first nine months of 2006 compared to €29.6 million in the same period of 2005. This was mainly caused by higher abortive purchase costs in connection with two large potential retail property acquisition projects which have not materialized, 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 September 2005 to €3.3 billion at the end of September 2006, which caused an increase in interest expenses of €14.7 million. The average interest rate decreased to 3.89% over the first nine months of 2006 (4.11% over the first nine months of 2005). The €4.9 million positive effect of the lower average interest rate, was partly compensated by lower interest income of €4.6 million, due to lower capitalized interest and higher other interest expenses of €3.1 million (mainly the interest of the French SIIC exit tax liability). This resulted in an increase of the net interest expenses by 21.2%, from €82.4 million in the first nine months of 2005, to €99.9 million in the same period of 2006.

 

Under IFRS the foreign exchange result (minus €0.6 million) and the change in fair value of financial instruments are also included in the net financing result. In the first nine months of 2006, a positive fair value result of financial instruments of €4.7 million was reported (as part of the indirect result), primarily arising on interest rate swaps. These swaps are not directly linked to specific loans and are therefore 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 €102.4 million of deferred income tax expense (9 mths. 2005: €70.6 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 €5.0 million, compared to €2.6 million in the first nine months of 2005. A part of the income tax expense of 2006 (€0.8 million) is allocated to the indirect result since this relates to tax liabilities on indirect result. 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 €70 million, of which €20 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 realized 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 14.3% increase in net rental income compared to the first nine months of 2005 is the main driver for the 4.8% growth in net shareholders' profit to €982.4 million. This is relatively modest compared to the growth of 63.0% in the first half year of 2006, due to the large valuation result in the third quarter of 2005.

 

Direct result after tax per share increased 10.0% to €3.14 in the first nine months of 2006, compared to €2.85 in the comparable period of 2005. The net shareholders' profit per share amounted to €10.96 for the first nine months of 2006, an increase of 4.8% compared to €10.46 in the same period of 2005.

 

The valuation result of Rodamco Europe's property assets added €780 million in value in the first nine months of 2006. Approximately 75% of the valuation result on the investment property was attributable to a yield shift, while the remaining 25% was attributable to increased rental income. The net initial yield on investment property moved from 6.1% end of 2005 to 5.6% per 30 September 2006.

 

Valuation results on investment properties in all sectors were positive during the first nine months of 2006 (€742 million), revaluations on retail investment properties were €683 million, offices showed a positive revaluation of €50 million and logistic €9 million. Revaluation results on investment properties in all home regions over the period were as follows: the Netherlands and Belgium (€183 million), France (€129 million), Spain (€188 million), Nordic (€145 million) and Central Europe (€97 million). 

 

A net valuation result of €38 million was realized on pipeline projects transferred to investment property mainly due to the opening of Stadshart Almere in the Netherlands and the Allee Center extension in Germany, as well as an impairment on pipeline projects.

 

Rodamco Europe has divested for a total sales price of €179 million in assets, mainly consisting of the divestment of a portfolio of assets in the Netherlands, for an amount of approximately €115 million. Besides this divestment, some industrials in France, small projects in the Netherlands and part of a logistic site in Spain were divested. The total net results on disposals amounted to €22 million.

 

Total debt increased to €3.3 billion at the end of September 2006. Approximately 74% of the debt was fixed rate funded as per 30 September 2006 at an average interest rate of 4.02% (year-end 2005: 3.86%).

 

As an indication of sensitivity[8], a change in interest rates of 100 basis points would have an impact of €8.7 million on direct result before tax per annum; a plus or minus yield shift of 50 basis points would affect 2006 indirect result before tax with negative €806 million (+50 basis points) to positive €964 million (-50 basis points); a 10% change in the SEK/€ exchange rate would have a €31 million impact on shareholders' equity.

 

In October 2006, Rodamco Europe has been informed by ING Real Estate about the delay in opening of the Zlote Tarasy shopping center in Warsaw, Poland. According to ING Real Estate, the developer of the shopping center, the opening has been postponed to the first quarter of 2007.

 

Currently there are uncertainties regarding the timing of the opening and delivery of the Zlote Tarasy project. Rodamco Europe is studying its position and the possible consequences of the further delay of this project.

 

The Dutch Ministry of Finance has sent proposed legislation to the Dutch parliament (Tweede Kamer) allowing Dutch FBIs to be involved in project development activities for their own portfolio. This new law is expected to pass parliament early 2007 and will, if passed, be effective 1 January 2007.

 

Development profits will be taxable. However, developments and renovations resulting in an increase of value not exceeding 30% of the WOZ value ("Wet Waardering Onroerende Zaken") at the start of a renovation, are deemed to qualify as 'investing', and therefore will not be taxed.

 

Rodamco Europe welcomes the proposed change in the Dutch FBI regulations and will explore all options to continuously realize portfolio growth through development. 

 

Rodamco Europe has upwardly revised its outlook for the full year 2006. It now expects direct result after tax over the full year 2006 to increase by at least 8%[9] (earlier outlook was "more than 7%").

 

We emphasize that the 10.0% reported growth over the first nine months of 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 the first half year of 2005, and to some positive one off events in the fourth quarter of 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.

 

26 February 2007                                     Publication of 2006 results

27 April 2007                                           2006 Annual General Shareholders Meeting

 

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

 

www.allee-center-magdeburg.de www.4meren.nl www.aupark.sk www.centrumchodov.cz www.galeriamokotow.pl   www.jumbo.fi www.markthalrotterdam.nl www.novalund.com

www.parquesur.com www.spaziozoetermeer.nl www.stadshart.nl www.stadshart-almere.nl  www.stadshartamstelveen.nl www.winkelcentrumwoensel.nl www.zlotetarasy.pl

 

 

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 94% of Rodamco Europe's €10.0 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.