Final Results - Part 2

Hammerson PLC 27 February 2006 PART 2 NOTES TO THE ACCOUNTS --------------------- 1. OPERATING PROFIT 2005 2004 Notes Â£m Â£m ------------------------------------------- ------- ------- --------- Gross rental income 249.2 219.6 Rents payable (4.0) (4.1) ------------------------------------------- ------- ------- --------- Gross rental income, after rents payable 245.2 215.5 ------- --------- Service charge income ! 43.2 ! ! 39.5 ! Service charge expenses ! (52.3)! ! (47.6)! ------- --------- Net service charge expenses (9.1) (8.1) Other property outgoings (25.8) (17.9) ------------------------------------------- ------- ------- --------- Property outgoings (34.9) (26.0) ------------------------------------------- ------- ------- --------- Net rental income 2 210.3 189.5 ------- --------- Management fees receivable ! 3.0 ! ! 4.0 ! Cost of property activities ! (17.5)! ! (16.3)! Corporate expenses ! (16.9)! ! (14.3)! ------- --------- Administration expenses (31.4) (26.6) ------------------------------------------- ------- ------- --------- Operating profit before gain on investment properties 178.9 162.9 Profit on the sale of investment properties 32.1 40.3 Revaluation gains on investment properties 575.5 283.7 Negative goodwill 19 - 6.2 ------------------------------------------- ------- ------- --------- Gains on investment properties 607.6 330.2 ------------------------------------------- ------- ------- --------- Operating profit 786.5 493.1 ------------------------------------------- ------- ------- --------- Included in gross rental income is Â£4.8 million (2004: Â£4.3 million) calculated by reference to tenants' turnover. NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 2. SEGMENTAL ANALYSIS Primary and secondary segments The group's primary reporting format for the presentation of segmental information is the geographic location of its properties. The secondary reporting format is by business sector. Other net liabilities Other net liabilities include all operating assets and liabilities that can be allocated to the segment on a reasonable basis but exclude net debt. (a) Totals by geographic segment United Kingdom France Germany Unallocated Total 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- Gross rental 170.2 150.2 69.0 58.7 10.0 10.7 - - 249.2 219.6 income Rents payable (4.0) (4.0) - - - (0.1) - - (4.0) (4.1) Property (24.1) (15.9) (5.8) (6.2) (5.0) (3.9) - - (34.9) (26.0) outgoings --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- Net rental 142.1 130.3 63.2 52.5 5.0 6.7 - - 210.3 189.5 income --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- Non-cash flow items (charge)/ credit 2.6 3.6 (1.3) (2.7) (0.5) (0.8) (2.6) (1.9) (1.8) (1.8) --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- Operating 130.4 121.1 58.0 47.6 4.5 5.0 (14.0) (10.8) 178.9 162.9 profit Gain on investment properties 401.8 279.2 230.3 100.8 (24.5) (49.8) - - 607.6 330.2 --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- Segment 532.2 400.3 288.3 148.4 (20.0) (44.8) (14.0) (10.8) 786.5 493.1 result --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- Investment and development properties 4,093.1 3,176.0 1,494.7 1,266.3 143.9 160.7 - - 5,731.7 4,603.0 Net debt - - - - - - (2,049.3) (1,745.8) (2,049.3) (1,745.8) Other net (431.3) (342.6) (121.4) (98.7) (3.9) (5.7) - - (556.6) (447.0) liabilities --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- Equity shareholders' funds 3,661.8 2,833.4 1,373.3 1,167.6 140.0 155.0 (2,049.3) (1,745.8) 3,125.8 2,410.2 --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- Capital expenditure 401.9 608.4 181.5 19.5 11.3 2.6 - - 594.7 630.5 --------------- ------- ------- ----- ------ ------ -------- ----- -------- ------- -------- (b) Totals by business segment Shopping centres Retail parks Offices Total 2005 2004 2005 2004 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m --------------- ------- ------- ----- ------ ------ -------- ----- -------- Gross rental income 163.1 142.1 29.3 21.2 56.8 56.3 249.2 219.6 Rents payable (0.4) (0.4) - - (3.6) (3.7) (4.0) (4.1) Other property outgoings (24.9) (22.1) (1.2) (0.6) (8.8) (3.3) (34.9) (26.0) --------------- ------- ------- ----- ------ ------ -------- ----- -------- Net rental income 137.8 119.6 28.1 20.6 44.4 49.3 210.3 189.5 --------------- ------- ------- ----- ------ ------ -------- ----- -------- Property assets 3,312.7 2,695.5 807.0 503.2 1,612.0 1,404.3 5,731.7 4,603.0 --------------- ------- ------- ----- ------ ------ -------- ----- -------- Capital expenditure 265.2 328.5 235.5 60.5 94.0 241.5 594.7 630.5 --------------- ------- ------- ----- ------ ------ -------- ----- -------- NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 2. SEGMENTAL ANALYSIS (continued) (c) Analysis of equity shareholders' funds Equity shareholders' funds Assets employed Net debt 2005 2004 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Â£m Â£m -------------------------- ---------- --------- --------- ---------- ---------- --------- United Kingdom 3,661.8 2,833.4 (975.1) (949.7) 2,686.7 1,883.7 Continental Europe 1,513.3 1,322.6 (1,074.2) (796.1) 439.1 526.5 -------------------------- ---------- --------- --------- ---------- ---------- --------- 5,175.1 4,156.0 (2,049.3) (1,745.8) 3,125.8 2,410.2 -------------------------- ---------- --------- --------- ---------- ---------- --------- As part of the group's foreign currency hedging programme, at 31 December 2005 the group had sold Â£100.0 million forward against sterling for value on 31 January 2006, at a spot rate of Â£1 = â‚¬1.455. Net debt cannot be allocated between geographic segments. 3. NET FINANCE COSTS 2005 2004 Â£m Â£m ------------------------------------------------------ ---------- --------- Interest on bank loans and overdrafts 16.8 11.7 Interest on other loans 102.0 98.6 Interest on obligations under finance leases 3.2 3.2 Other interest payable 1.3 3.9 ------------------------------------------------------ ---------- --------- Gross interest costs 123.3 117.4 Less: Interest capitalised (21.2) (19.7) ------------------------------------------------------ ---------- --------- Finance costs 102.1 97.7 Finance income (12.6) (18.0) Change in fair value of interest rate swaps (1.6) - ------------------------------------------------------ ---------- --------- Net finance costs 87.9 79.7 ------------------------------------------------------ ---------- --------- 4. TAX (a) Tax charge/(credit) 2005 2004 Â£m Â£m ------------------------------------------------------ ---------- --------- UK current tax On net income before revaluations and disposals 1.0 0.5 On revaluations and disposals - 8.4 ------------------------------------------------------ ---------- --------- 1.0 8.9 ------------------------------------------------------ ---------- --------- Foreign current tax On net income before revaluations and disposals 2.0 1.2 Credit in respect of prior years (4.0) - French exit tax payable on election for SIIC status - 70.8 ------------------------------------------------------ ---------- --------- (2.0) 72.0 ------------------------------------------------------ ---------- --------- Total current tax (1.0) 80.9 ------------------------------------------------------ ---------- --------- Deferred tax On net income before revaluations and disposals 21.5 12.9 On revaluations and disposals 129.6 48.9 Credit in respect of prior years (17.2) - French provisions released on election for SIIC status - (166.0) ------------------------------------------------------ ---------- --------- 133.9 (104.2) ------------------------------------------------------ ---------- --------- ------------------------------------------------------ ---------- --------- Tax charge/(credit) 132.9 (23.3) ------------------------------------------------------ ---------- --------- NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 4. TAX (continued) (b) Tax charge reconciliation 2005 2004 Â£m Â£m ------------------------------------------------------ ---------- --------- Profit before tax 698.6 413.4 ------------------------------------------------------ ---------- --------- Profit multiplied by the UK corporation tax rate of 30% 209.6 124.0 Benefit of SIIC tax exemption net of deferred tax on SIIC dividends (34.6) (17.1) Prior year adjustments (21.2) - Indexation relief on UK investment properties (18.4) (21.1) Losses in Germany not relieved 3.9 13.5 Surpluses on UK investment properties sheltered by capital losses (3.6) (21.9) Deferred tax written back in excess of tax payable on election for SIIC - (95.2) status UK capital allowances not recaptured on sales - (7.9) Other items (2.8) 2.4 ------------------------------------------------------ ---------- --------- Tax charge/(credit) 132.9 (23.3) ------------------------------------------------------ ---------- --------- (c) Tax recognised directly in equity 2005 2004 Â£m Â£m ------------------------------------------------------ ---------- --------- Deferred tax charge on revaluations 57.0 19.0 Deferred tax credit on actuarial losses on pension schemes (1.5) (1.3) ------------------------------------------------------ ---------- --------- 55.5 17.7 Deferred tax charge on interest rate swaps 1.7 - ------------------------------------------------------ ---------- --------- Tax recognised directly in equity 57.2 17.7 ------------------------------------------------------ ---------- --------- (d) Deferred tax movements 1 January Recognised Recognised Corporate Foreign 31 December 2005 in income in equity acquisition exchange 2005 Â£m Â£m Â£m Â£m Â£m Â£m -------------------------------- --------- ---------- ---------- --------- --------- --------- UK Capital gains net of capital 185.5 98.6 45.0 - - 329.1 losses Capital allowances 25.5 10.6 - - - 36.1 Other timing differences (2.3) (0.2) 0.2 - - (2.3) Dividends receivable from France 18.6 41.4 - 2.4 (0.4) 62.0 Revenue tax losses (16.6) (16.5) - - - (33.1) -------------------------------- --------- ---------- ---------- --------- --------- --------- 210.7 133.9 45.2 2.4 (0.4) 391.8 -------------------------------- --------- ---------- ---------- --------- --------- --------- France 2.7 - 12.0 - (0.1) 14.6 -------------------------------- --------- ---------- ---------- --------- --------- --------- Net deferred tax provision 213.4 133.9 57.2 2.4 (0.5) 406.4 -------------------------------- --------- ---------- ---------- --------- --------- --------- NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 4. TAX (continued) (e) Commentary UK corporation tax and deferred tax is calculated at a rate of 30% (2004: 30%) and foreign tax is calculated using appropriate local rates. Current tax is reduced by the French tax exemption, capital allowances, tax relief for capitalised interest and a prior year credit relating to Germany. In 2004, Hammerson's French properties, with the exception of 9 place Vendome, were elected into the SIIC tax exempt regime, when exit taxes totalling Â£70.8 million were incurred and deferred tax of Â£166.0 million was written back. In 2005 an election was made in respect of the Villebon companies, for which Â£10.1 million of exit tax was provided on acquisition. The SIIC rules require Hammerson's French subsidiaries to distribute a proportion of their profits to Hammerson plc and allowance is made within deferred tax for the UK tax that may arise when dividends are received. The tax on disposals may be reduced depending on how sales are structured. In particular, if the group retains all capital allowances on UK disposals, the liability would be reduced by Â£65.0 million (31 December 2004: Â£45.0 million). Current tax in the future will depend on whether there are disposals of properties with gains, but the group should continue to benefit from French SIIC status, capital allowances, tax relief for capitalised interest and brought forward tax losses. The group's tax position will change substantially if UK REITs are introduced and Hammerson elects for REIT status, in which event it is anticipated that a conversion charge will be payable and most of the group's deferred tax will be written back. 5. DIVIDENDS The proposed final dividend of 13.91 pence per share (2004: 12.47 pence per share) was approved by the Board on 27 February 2006 and is payable on 17 May 2006 to shareholders on the register at the close of business on 18 April 2006. The dividend has not been included as a liability at 31 December 2005. The Â£51.0 million dividend included in the Reconciliation of Equity comprises the 2004 final dividend of Â£34.5 million, which was paid on 12 May 2005, together with the 2005 interim dividend of Â£16.5 million paid on 21 October 2005. NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 6. EARNINGS PER SHARE, NET ASSET VALUE PER SHARE AND TRIPLE NET ASSET VALUE The calculations for earnings per share, based on the weighted average number of shares, are shown in the table below. The weighted average number of shares shown exclude those shares held in the Hammerson Employee Share Ownership Plan (note 17), which are treated as cancelled. The European Public Real Estate Association ('EPRA') has issued recommended bases for the calculation of certain per share information and these are included in the following tables. 2005 2004 Pence Pence Earnings Shares per Earnings Shares per Â£m million share Â£m million share ------------------------------------------ -------- ------- ------ -------- --------- ------- Basic 554.4 280.0 198.0 431.4 276.1 156.2 Adjustments: Dilutive share options - 0.5 (0.4) - 0.6 (0.3) ------------------------------------------ -------- ------- ------ -------- --------- ------- Diluted 554.4 280.5 197.6 431.4 276.7 155.9 ------------------------------------------ -------- ------- ------ -------- --------- ------- Adjustments: Revaluation movement on investment (575.5) (205.1) (283.7) (102.5) properties Profits on disposal of properties (32.1) (11.4) (40.3) (14.6) Tax on property disposals - - 8.4 3.0 Negative goodwill - - (6.2) (2.2) Movement in fair value of interest rate (1.6) (0.6) - - swaps Deferred tax charge 133.9 47.7 (104.2) (37.6) Minority interests in respect of the 8.4 3.0 3.1 1.1 above ------------------------------------------ -------- ------- ------ -------- --------- ------- EPRA, diluted 87.5 31.2 8.5 3.1 ------------------------------------------ -------- ------- ------ -------- --------- ------- SIIC exit tax - - 70.8 25.6 ------------------------------------------ -------- ------- ------ -------- --------- ------- Adjusted 87.5 31.2 79.3 28.7 ------------------------------------------ -------- ------- ------ -------- --------- ------- The calculations for net asset value per share are shown in the table below: 2005 2004 Equity Net asset Equity Net shareholders' value shareholders' asset funds Shares per share funds Shares value per share Â£m million pence Â£m million pence ---------------------------------- ----------- -------- ------- ------------- --------- ------- Basic 3,125.8 285.0 1,097 2,410.2 277.3 869 Company's own shares held in Employee Share Ownership Plan - (0.7) n/a - (0.6) n/a Unexercised share options 8.5 1.4 n/a 8.8 1.8 n/a ---------------------------------- ----------- -------- ------- ------------- --------- ------- Diluted 3,134.3 285.7 1,097 2,419.0 278.5 869 ---------------------------------- ----------- -------- ------- ------------- --------- ------- Fair value adjustment to borrowings (net of tax) (144.6) (51) (122.2) (44) ---------------------------------- ----------- -------- ------- ------------- --------- ------- EPRA triple net, diluted 2,989.7 1,046 2,296.8 825 ---------------------------------- ----------- -------- ------- ------------- --------- ------- Fair value of interest rate (7.3) (2) - swaps Fair value adjustment to borrowings (net of tax) 144.6 51 122.2 44 Deferred tax 406.4 142 213.4 76 ---------------------------------- ----------- -------- ------- ------------- --------- ------- EPRA, diluted 3,533.4 1,237 2,632.4 945 ---------------------------------- ----------- -------- ------- ------------- --------- ------- NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 7. INVESTMENT AND DEVELOPMENT PROPERTIES Investment Development Total properties properties Valuation Cost Valuation Cost Valuation Cost Â£m Â£m Â£m Â£m Â£m Â£m ------------------------------------ ------------------- ------------------- ----------------------- Balance at 1 January 2005 4,082.5 3,085.7 520.5 420.5 4,603.0 3,506.2 Exchange adjustment (39.0) (32.6) (2.3) (2.2) (41.3) (34.8) ------------------- ------------------- ----------------------- Additions - Capital expenditure ! 77.9 ! 77.9 ! ! 130.8 ! 130.8 ! ! 208.7 ! 208.7 ! - Asset acquisitions ! 279.6 ! 279.6 ! ! 2.1 ! 2.1 ! ! 281.7 ! 281.7 ! - Corporate acquisitions ! 104.3 ! 104.3 ! ! - ! - ! ! 104.3 ! 104.3 ! ------------------- ------------------- ----------------------- 461.8 461.8 132.9 132.9 594.7 594.7 Disposals (193.3) (214.9) - - (193.3) (214.9) Transfers 95.9 59.8 (95.9) (59.8) - - Transfer to owner-occupied property (25.6) (11.8) - - (25.6) (11.8) Capitalised interest 0.2 0.2 21.0 21.0 21.2 21.2 Revaluation adjustment 575.5 - 197.5 - 773.0 - ------------------------------------ ------------------- ------------------- ----------------------- Balance at 31 December 2005 4,958.0 3,348.2 773.7 512.4 5,731.7 3,860.6 ------------------------------------ ------------------- ------------------- ----------------------- Investment Development Total properties properties Valuation Cost Valuation Cost Valuation Cost Â£m Â£m Â£m Â£m Â£m Â£m ------------------------------------ ------------------- ------------------- ----------------------- Balance at 1 January 2004 3,650.0 2,911.3 300.5 262.1 3,950.5 3,173.4 Exchange adjustment 4.9 4.7 0.3 0.3 5.2 5.0 ------------------- ------------------- ----------------------- Additions - Capital expenditure ! 129.4 ! 129.4 ! ! 129.8 ! 129.8 ! ! 259.2 ! 259.2 ! - Asset acquisitions ! 8.2 ! 8.2 ! ! 77.6 ! 77.6 ! ! 85.8 ! 85.8 ! - Corporate acquisitions ! 285.5 ! 285.5 ! ! - ! - ! ! 285.5 ! 285.5 ! ------------------- ------------------- ----------------------- 423.1 423.1 207.4 207.4 630.5 630.5 Disposals (348.2) (322.4) - - (348.2) (322.4) Transfers 63.6 63.6 (63.6) (63.6) - - Capitalised interest 5.4 5.4 14.3 14.3 19.7 19.7 Revaluation adjustment 283.7 - 61.6 - 345.3 - ------------------------------------ ------------------- ------------------- ----------------------- Balance at 31 December 2004 4,082.5 3,085.7 520.5 420.5 4,603.0 3,506.2 ------------------------------------ ------------------- ------------------- ----------------------- All properties are stated at market value as at 31 December 2005, valued by professionally qualified external valuers. In the United Kingdom, office properties and the group's interests in the Birmingham Alliance properties were valued by DTZ Debenham Tie Leung, Chartered Surveyors, and all other retail properties were valued by Donaldsons, Chartered Surveyors. In France and Germany, the group's properties were valued by Cushman & Wakefield Healey & Baker, Chartered Surveyors. The valuations have been prepared in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors and with IVA1 of the International Valuation Standards. Valuation fees are based on a fixed amount agreed between the group and the valuers and are independent of the portfolio value. 2005 2004 Â£m Â£m ------------------- ----- ------- Capital commitments 540.1 287.8 ------------------- ----- ------- NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 8. PLANT, EQUIPMENT AND OWNER-OCCUPIED PROPERTIES Owner-occupied Plant and properties equipment Total Â£m Â£m Â£m --------------------------------------- ------------- --------- ------ Carrying amount at 31 December 2005 42.4 1.9 44.3 --------------------------------------- ------------- --------- ------ Carrying amount at 31 December 2004 5.1 1.1 6.2 --------------------------------------- ------------- --------- ------ Owner occupied property at 31 December 2005 includes 100 Park Lane and that part of 10 Grosvenor Street to be occupied by Hammerson. 9. JOINT INVESTMENTS AND DEVELOPMENTS As at 31 December 2005 certain property and corporate interests have been proportionately consolidated, and these are set out in the following table: Group share % --------------------------------------- -------------- Investments Brent Cross Shopping Centre 41.2 Brent Cross Shopping Park 40.6 Bristol Alliance Limited Partnership 50 Cricklewood Regeneration Limited 50 Opera Capucines SCI 50 Queensgate Limited Partnership 50 Shires Limited Partnership 60 The Bull Ring Limited Partnership 33.33 The Grosvenor Street Limited Partnership 50 The London Wall Limited Partnership 50 The Martineau Galleries Limited Partnership 33.33 The Moor House Limited Partnership 66.67 The Oracle Limited Partnership 50 Developments 9 place Vendome SCI 50 Bishopsgate Goodsyard Regeneration Limited 50 Paddington Triangle 50 Union Square Developments Limited 50 Wensum Developments Limited 50 --------------------------------------- -------------- The group's interest in Shires Limited Partnership and The Moor House Limited Partnership do not confer the majority of voting rights nor the right to exercise dominant influence over the partnerships. Instead the partnerships are under the joint control of Hammerson and its respective partners. Consequently, the group's interests are accounted for by proportional consolidation and not treated as subsidiaries. NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 9. JOINT INVESTMENTS AND DEVELOPMENTS (continued) The following summarised income statements and balance sheets show the proportion of the group's results, assets and liabilities which are derived from its joint investments and developments: Income statement for the year ended 31 December 2005 Bristol Queens- The Moor Alliance Bullring Oracle gate Shires House Limited Limited Limited Limited Limited Limited 9 place Brent Partner- Partner- Partner- Partner- Partner- Partner- Vendome Total Cross* ship ship ship ship ship ship SCI Other 2005 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- Net rental income 15.9 3.1 12.1 11.9 1.0 7.6 (0.5) (0.2) 2.3 53.2 Administration expenses - (0.2) (0.1) - - - - - - (0.3) -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- Operating profit before gain on investment properties 15.9 2.9 12.0 11.9 1.0 7.6 (0.5) (0.2) 2.3 52.9 Gain on investment properties 52.7 3.1 27.4 36.5 3.5 8.5 22.0 - 18.4 172.0 Net finance costs - 0.1 0.1 0.1 - - (4.9) - (0.4) (5.0) -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- Profit before tax 68.6 6.1 39.5 48.5 4.5 16.1 16.6 (0.2) 20.3 219.9 -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- Balance sheet at 31 December 2005 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Non-current assets Investment and development properties at valuation 409.3 106.0 297.0 266.4 159.6 172.9 129.3 121.2 174.1 1,835.8 Interests in leasehold properties - 0.3 - - - - 1.9 - 10.0 12.2 -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- 409.3 106.3 297.0 266.4 159.6 172.9 131.2 121.2 184.1 1,848.0 Current assets Other current assets 4.5 1.6 1.6 1.2 - 0.6 - 2.9 4.5 16.9 Cash and deposits - 5.9 3.7 3.2 2.6 2.4 0.3 1.8 1.7 21.6 -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- 4.5 7.5 5.3 4.4 2.6 3.0 0.3 4.7 6.2 38.5 Current liabilities Borrowings - - - - - - - (0.5) (0.5) Other liabilities (12.0) (3.0) (5.0) (7.5) (2.4) (2.1) (1.4) (1.7) (2.7) (37.8) -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- Net current (liabilities) /assets (7.5) 4.5 0.3 (3.1) 0.2 0.9 (1.1) 3.0 3.0 0.2 -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- Total assets less current liabilities 401.8 110.8 297.3 263.3 159.8 173.8 130.1 124.2 187.1 1,848.2 -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- Non-current liabilities Borrowings - - - - - - (69.1) - - (69.1) Other liabilities - (0.3) - (1.3) - - (1.9) - (10.1) (13.6) -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- Net assets 401.8 110.5 297.3 262.0 159.8 173.8 59.1 124.2 177.0 1,765.5 -------------- ------ -------- -------- --------- -------- -------- -------- ------- ---- ----- The borrowings of Â£69.6 million (2004: Â£64.8 million) principally arise in The Moor House Limited Partnership. The other joint investments and developments are funded by the Company and the relevant partners. *Includes Brent Cross Shopping Centre and Brent Cross Shopping Park. NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 9. JOINT INVESTMENTS AND DEVELOPMENTS (continued) Income statement for the year ended 31 December 2004 Bristol The Moor Alliance Bullring Oracle Shires House Limited Limited Limited Limited Limited 9 place Brent Partner- Partner- Partner- Partner- Partner- Vendome Total Cross* ship ship ship ship ship SCI Other 2005 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Net rental income 14.7 2.6 12.7 10.7 8.2 (0.1) (0.3) 13.9 62.4 Administration expenses - - - - - - - (0.1) (0.1) -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Operating profit before gain on investment properties 14.7 2.6 12.7 10.7 8.2 (0.1) (0.3) 13.8 62.3 Gain on investment properties 34.2 3.7 22.4 19.1 10.8 6.0 0.3 40.7 137.2 Net finance costs (0.1) - 0.1 0.2 - (0.6) - (0.3) (0.7) -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Profit before tax 48.8 6.3 35.2 30.0 19.0 5.3 - 54.2 198.8 -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Balance sheet at 31 December 2004 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Non-current assets Investment and development properties at valuation 348.9 77.6 268.7 229.7 144.3 104.9 72.1 136.7 1,382.9 Interests in leasehold properties - 0.3 - - - 0.9 - 10.0 11.2 -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ 348.9 77.9 268.7 229.7 144.3 105.8 72.1 146.7 1,394.1 Current assets Other current assets 2.3 1.5 0.8 0.3 0.5 0.2 2.5 3.5 11.6 Cash and deposits - 1.7 4.1 2.2 1.3 - 2.3 5.3 16.9 -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ 2.3 3.2 4.9 2.5 1.8 0.2 4.8 8.8 28.5 Current liabilities Borrowings - - - - - - - (0.5) (0.5) Other liabilities (10.9) (1.2) (3.8) (2.9) (3.3) (1.5) (1.1) (3.4) (28.1) -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Net current (liabilities) /assets (8.6) 2.0 1.1 (0.4) (1.5) (1.3) 3.7 4.9 (0.1) -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Total assets less current liabilities 340.3 79.9 269.8 229.3 142.8 104.5 75.8 151.6 1,394.0 -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Non-current liabilities Borrowings - - - - - (64.3) - - (64.3) Other liabilities - (0.3) - (7.1) - (0.9) - (10.1) (18.4) -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ Net assets 340.3 79.6 269.8 222.2 142.8 39.3 75.8 141.5 1,311.3 -------------- ------ -------- -------- --------- -------- -------- -------- ------ ------ *Includes Brent Cross Shopping Centre and Brent Cross Shopping Park. NOTES TO THE ACCOUNTS CONTINUED ------------------------------ 10. INVESTMENTS 2005 2004 Available for sale investments Â£m Â£m --------------------------------------------------- ------ ----- Value Retail Investors Limited Partnerships 34.1 31.4 Interests in Value Retail plc and related companies 14.3 13.8 Other investments 1.1 1.2 --------------------------------------------------- ------ ----- 49.5 46.4 --------------------------------------------------- ------ ----- The group has an effective 33.5% interest in Value Retail Investors Limited Partnership I and an effective 27.5% interest in Value Retail Investors Limited Partnership II, both of which have interests in a designer outlet centre in Bicester, in the United Kingdom. The total cost of the interests was Â£15.7 million and they are included at a total value, based on the market value of the underlying property, at 31 December 2005 of Â£34.1 million, the property elements of which have been reviewed by Donaldsons, Chartered Surveyors. These investments have not been consolidated within the group accounts as the group does not have significant influence over the management of the partnerships. Investments in Value Retail plc and certain related companies are included at fair value, which equates to their cost. Other investments include the group's 15% stake in Stonemartin plc, which was acquired for a total cost of Â£4.4 million. Stonemartin plc, which operates serviced offices under the brand name of the Institute of Directors, is listed on the Alternative Investment Market ('AIM') and at the balance sheet date the investment has been included at market value. 11. RECEIVABLES - CURRENT ASSETS 2005 2004 Â£m Â£m --------------------------------------------------- ------ ----- Trade receivables 34.3 27.8 Loans receivable 20.6 - Other receivables 78.6 55.0 Corporation tax 0.5 0.4 Prepayments 2.9 2.3 Fair value of interest rate swaps 7.3 - --------------------------------------------------- ------ ----- 144.2 85.5 --------------------------------------------------- ------ ----- Loans receivable comprised a loan of â‚¬30.0 million (Â£20.6 million) (2004: â‚¬30.0 million (Â£21.2 million)) to Value Retail plc bearing interest based on EURIBOR and maturing on 10 October 2006. The loan is classified as 'available for sale' and is included in the balance sheet at fair value, which equates to cost. 12. CASH AND DEPOSITS 2005 2004 Â£m Â£m --------------------------------------------------- ------ ----- Cash at bank 23.1 23.9 Short term deposits 22.4 29.8 --------------------------------------------------- ------ ----- Cash and deposits 45.5 53.7 --------------------------------------------------- ------ ----- Analysis by currency Sterling 29.4 49.7 Euro 16.1 4.0 --------------------------------------------------- ------ ----- 45.5 53.7 --------------------------------------------------- ------ ----- At 31 December 2005 short term deposits principally comprised deposits placed on money markets with rates linked to LIBOR for maturities of not more than one month, at an average rate of 3.54% (2004: 4.36%). Such deposits are considered to be cash equivalents. NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 13. PAYABLES - CURRENT LIABILITIES 2005 2004 Â£m Â£m --------------------------------------------------- ------ ------ Trade payables 46.7 45.7 Other payables 154.3 147.2 Accruals 19.7 16.5 --------------------------------------------------- ------ ------ 220.7 209.4 --------------------------------------------------- ------ ------ 14. BORROWINGS 2005 2004 Â£m Â£m --------------------------------------------------- ------ ------ Unsecured Â£200 million 7.25% Sterling bonds due 2028 197.4 197.4 Â£300 million 6% Sterling bonds due 2026 296.4 296.3 Â£250 million 6.875% Sterling bonds due 2020 246.9 246.7 Â£200 million 10.75% Sterling bonds due 2013 195.6 195.2 â‚¬500 million 6.25% Euro bonds due 2008 342.4 352.2 â‚¬300 million 5% Euro bonds due 2007 205.6 211.5 Bank loans and overdrafts 540.9 235.2 --------------------------------------------------- ------ ------ 2,025.2 1,734.5 Exchange difference on currency swaps - 0.2 --------------------------------------------------- ------ ------ 2,025.2 1,734.7 --------------------------------------------------- ------ ------ Secured Sterling variable rate mortgages due 2007 69.1 64.3 Sterling variable rate loans due within one year 0.5 0.5 --------------------------------------------------- ------ ------ 69.6 64.8 --------------------------------------------------- ------ ------ 2,094.8 1,799.5 --------------------------------------------------- ------ ------ Security for secured borrowings as at 31 December 2005 is provided by charges on property. Maturity Bank loans Other 2005 2004 and overdrafts loans Total Total Â£m Â£m Â£m Â£m ----------------------------------- ---------------- ------ ------ -------- After five years - 936.3 936.3 935.6 From two to five years 540.9 342.4 883.3 863.2 From one to two years 69.1 205.6 274.7 - ----------------------------------- ---------------- ------ ------ -------- Due after more than one year 610.0 1,484.3 2,094.3 1,798.8 Due within one year 0.5 - 0.5 0.7 ----------------------------------- ---------------- ------ ------ -------- 610.5 1,484.3 2,094.8 1,799.5 ----------------------------------- ---------------- ------ ------ -------- At 31 December 2004 and 2005 no loans due after five years were repayable by instalments. Undrawn committed facilities 2005 2004 Â£m Â£m ----------------------------------- ------ -------- Expiring within one year - 250.0 Expiring between one and two years 225.9 - Expiring after more than two years 57.7 225.4 ----------------------------------- ------ -------- 283.6 475.4 ----------------------------------- ------ -------- NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 14. BORROWINGS (continued) Interest rate and currency profile Floating rate 2005 Fixed rate borrowings borrowings Total % Years Â£m Â£m Â£m ----------------------------------- ---- -------- ------ ------ -------- Sterling 7.83 16 759.9 244.6 1,004.5 Euro 5.78 2 548.0 542.3 1,090.3 ----------------------------------- ---- -------- ------ ------ -------- 6.97 11 1,307.9 786.9 2,094.8 ----------------------------------- ---- -------- ------ ------ -------- Floating rate 2004 Fixed rate borrowings borrowings Total % Years Â£m Â£m Â£m ----------------------------------- ---- -------- ------ ------ -------- Sterling 7.66 15 822.6 176.8 999.4 Euro 5.78 3 563.7 236.4 800.1 ----------------------------------- ---- -------- ------ ------ -------- 6.90 10 1,386.3 413.2 1,799.5 ----------------------------------- ---- -------- ------ ------ -------- Rates at which interest is charged on borrowings due after one year 2005 2004 Â£m Â£m ----------------------------- ------ ------- Up to 7% 914.9 993.7 7% to 10% 197.4 197.4 Over 10% 195.6 195.2 ----------------------------- ------ ------- 1,307.9 1,386.3 Variable rates 786.4 412.5 ----------------------------- ------ ------- 2,094.3 1,798.8 ----------------------------- ------ ------- Floating rate borrowings bear interest based on LIBOR, with the exception of certain euro borrowings whose interest costs are linked to EURIBOR. The above analysis reflects the effect of currency and interest rate swaps in place at 31 December 2004 and 2005. Fair values of financial instruments The fair values of borrowings together with their carrying amounts shown in the balance sheet are as follows: 2005 2004 Book Book value Fair value value Fair value Â£m Â£m Â£m Â£m ----------------------------------------- --------- ---------- ---------- ---------- Overdrafts and current borrowings (0.5) (0.5) (0.5) (0.5) Non-current borrowings (2,111.2) (2,317.8) (1,816.8) (1,997.0) Unamortised borrowing costs 16.9 16.9 18.0 18.0 Currency swaps - - (0.2) (0.2) ----------------------------------------- --------- ---------- ---------- ---------- Total borrowings (2,094.8) (2,301.4) (1,799.5) (1,979.7) ----------------------------------------- --------- ---------- ---------- ---------- Interest rate swaps 7.3 7.3 - 5.7 ----------------------------------------- --------- ---------- ---------- ---------- At 31 December 2005, the fair value of financial liabilities exceeded their book value by Â£206.6 million (2004: Â£180.2 million), equivalent to 72 pence per share (2004: 65 pence per share) on an adjusted net asset value per share basis. On a post tax basis, using a tax rate of 30%, the difference was equivalent to 51 pence per share (2004: 46 pence per share). NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 15. SHARE CAPITAL Called up, allotted and Authorised fully paid 2005 2004 2005 2004 Â£m Â£m Â£m Â£m ------------------------------ ------ ----- ----- ----- Ordinary shares of 25p each 94.8 94.8 71.2 69.3 ------------------------------ ------ ----- ----- ----- Number ------------------------------------------------------------- ----------- Movements in issued share capital Number of shares in issue at 1 January 2005 277,252,593 Shares issued in consideration for corporate acquisition 7,071,967 Exercise of share options - Share option scheme 631,144 - Save As You Earn 29,736 ------------------------------------------------------------- ----------- Number of shares in issue at 31 December 2005 284,985,440 ------------------------------------------------------------- ----------- 16. RESERVES Share Capital premium Translation Hedging redemption Other account reserve reserve reserve reserves Â£m Â£m Â£m Â£m Â£m --------------------------------------- --------- ---------- ------- ---------- -------- Balance at 1 January 2005 - as previously reported 597.8 5.4 - 7.2 4.4 - effect of change in accounting policy (note 17) - - - - 0.9 --------------------------------------- --------- ---------- ------- ---------- -------- Balance at 1 January 2005 as 597.8 5.4 - 7.2 5.3 restated Exchange adjustment - (38.2) - - - Gain on hedging activities - - 32.9 - - Premium on issue of shares 61.7 - - - - Share-based employee remuneration - - - - 2.1 Cost of shares awarded to employees - - - - (0.7) --------------------------------------- --------- ---------- ------- ---------- -------- Balance at 31 December 2005 659.5 (32.8) 32.9 7.2 6.7 --------------------------------------- --------- ---------- ------- ---------- -------- Revaluation reserve Retained earnings Notes Â£m Â£m --------------------------------------- ---------- ----------------- -------------- Balance at 1 January 2005 89.4 1,638.6 Transitional adjustment on adoption of IAS 39 20 - 5.7 Deferred tax thereon 20 - (1.7) Exchange adjustment - 0.1 Revaluation gains on development properties 197.5 - Revaluation gains on owner-occupied properties 11.6 - Revaluation gains on investments 2.7 - Transfer on completion of development properties (36.1) 36.1 Transfer from investment properties to owner-occupied 13.7 (13.7) property Actuarial losses on pension schemes - (6.3) Dividends paid - (51.0) Deferred tax recognised directly in equity (57.0) 1.5 Profit for the year attributable to equity shareholders - 554.4 --------------------------------------- ---------- ----------------- -------------- Balance at 31 December 2005 221.8 2,163.7 --------------------------------------- ---------- ----------------- -------------- NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 17. INVESTMENT IN OWN SHARES 2005 2004* At cost Â£m Â£m -------------------------------------------------------------------------------- ---------- ---------- Opening balance - as previously reported 2.8 2.2 - effect of change in accounting policy (see below) - 0.9 -------------------------------------------------------------------------------- ---------- ---------- Opening balance as restated 2.8 3.1 Purchase of own shares 2.3 - Transfer to other reserves - cost of shares awarded to employees (0.7) (0.3) -------------------------------------------------------------------------------- ---------- ---------- Closing balance 4.4 2.8 -------------------------------------------------------------------------------- ---------- ---------- *Restated to reflect change in accounting policy, as set out below. The Trustees of the Hammerson Employee Share Ownership Plan acquire the Company's own shares to award to participants in accordance with the terms of the Plan. In 2005, the group clarified its accounting policy in respect of this reserve, such that it now only includes the Company's investment in own shares at cost. The difference between cost and the carrying value as previously reported, being the credit entry in respect of the IFRS2 charge for share awards under the ESOP, has been transferred to other reserves (see note 16). This prior year adjustment has no effect on equity shareholders' funds or the reported result for 2004. The expense related to share-based employee remuneration is calculated in accordance with IFRS2 and the terms of the Plan, and recognised in the income statement within administration expenses. The corresponding credit is included in other reserves. When the Company's shares are awarded to employees as part of their remuneration, the cost of the shares is transferred to other reserves. Should this not equal the credit previously recorded against other reserves the balance is adjusted against retained earnings. The number of shares held as at 31 December 2005 was 740,083 (2004: 605,408) following awards to participants during the year of 140,325 shares (2004: 37,006). 18. ADJUSTMENTS FOR NON-CASH ITEMS IN THE CASH FLOW STATEMENT 2005 2004 Â£m Â£m ------------------------------------------------------------------------------ --------- ----- Depreciation 0.5 0.6 Share-based employee remuneration 2.1 1.4 Unrealised foreign exchange losses 0.4 2.2 Amortisation of lease inducements and other direct costs 4.4 3.1 Increase in accrued rents receivable (5.6) (5.5) ------------------------------------------------------------------------------ --------- ----- 1.8 1.8 ------------------------------------------------------------------------------ --------- ----- NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 19. ACQUISITIONS Fair value Book value adjustments Fair value Â£m Â£m Â£m ------------------------------------------------- -------------- --------- ------ Investment properties 27.3 77.7 105.0 Current receivables 4.7 (0.1) 4.6 Cash and deposits 7.2 - 7.2 Current payables (2.9) 0.2 (2.7) Current borrowings (39.2) - (39.2) Non-current payables (1.4) - (1.4) Non-current deferred tax - (12.5) (12.5) ------------------------------------------------- -------------- --------- ------ Net (liabilities)/assets acquired (4.3) 65.3 61.0 ------------------------------------------------- -------------- --------- ------ Satisfied by: Hammerson plc ordinary shares 60.6 Costs paid 0.4 ------ 61.0 ------ On 25 July 2005, the group acquired the Villebon group of companies and the consideration for the acquisition was settled through the issue of 7.1 million ordinary shares in Hammerson plc. The fair values of investment properties and deferred tax liabilities were determined by the directors. The profit of the Villebon group between the date of acquisition and 31 December 2005 was Â£1.3 million. The table above used the exchange rate prevailing on the date of the transaction. The value of the Villebon property at 31 December 2005, at the exchange rate prevailing at that date, was Â£104 million. In 2004 the negative goodwill credited to the income statement was the discount received on the purchase by the group of 50% of West Quay Shopping Centre Limited and a further one-third interest in The Moor House Limited Partnership. 20. EXPLANATION OF THE TRANSITION TO IFRS 2005 is the first year in which the group has presented its financial statements under IFRS. The last financial statements presented under UK GAAP were for the year ended 31 December 2004. As IFRS comparative figures must be prepared for the year ended 31 December 2004, the date of transition to IFRS was 1 January 2004, with the exception of the adoption of IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement', as explained below. The group has taken advantage of the exemption in IFRS 1 'First-time Adoption of International Financial Reporting Standards', which allows the deferral of the accounting and disclosure requirements of IAS 32 and IAS 39. As such the effective date of transition to IFRS in relation to these standards is 1 January 2005. The effect of the change is to include the fair value of interest rate swaps in the balance sheet at fair value and to recognise changes in their fair value in the income statement. As at 1 January 2005, retained earnings and equity shareholders' funds were increased by Â£4.0 million, being Â£5.7 million representing the fair value of interest rate swaps at that time, less the related deferred tax of Â£1.7 million. Reconciliations of equity at 1 January 2004, 31 December 2004 and profit for the year ended 31 December 2004 reported under UK GAAP and IFRS have previously been published and are available on the Company's website, www.hammerson.co.uk. Further reconciliations are presented below to enable a comparison of the 2005 published year end figures with those that would have been published under UK GAAP existing at 31 December 2004, had IFRS not been adopted. IFRS 1 requires an explanation of major adjustments to cash flows under IFRS. Whilst the format of the cash flow statement is different from UK GAAP, there are no material changes to cash flows from operations, investment or financing. NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 20(a). Reconciliation between equity shareholders' funds and adjusted net asset value per share under UK GAAP and IFRS 31 December 2005 31 December 2004 Equity Adjusted net Equity Adjusted net shareholders' asset value shareholders' asset value Notes funds per share funds per share Â£m pence Â£m pence -------------------------------- ------- ---------------------------------------------------------- UK GAAP* 3,458.4 1,225 2,580.7 936 IFRS adjustments: Obligations under finance leases a (35.9) (13) (32.9) (12) Leasehold property interests a 35.9 13 32.9 12 Exclusion of dividend b 39.6 14 34.5 12 Change in pension deficit c (14.5) (5) (8.8) (3) Deferred tax d (365.6) - (196.2) - Fair value of interest rate swaps e 7.3 3 - - Other 0.6 - - - -------------------------------- ------- ---------------------------------------------------------- Net IFRS adjustments (332.6) 12 (170.5) 9 -------------------------------- ------- ---------------------------------------------------------- IFRS 3,125.8 1,237 2,410.2 945 -------------------------------- ------- ---------------------------------------------------------- Notes ----- * UK GAAP referred to above is that existing at 31 December 2004 and does not reflect any changes to UK GAAP extant at 31 December 2005. The principal reasons for the adjustments shown in the reconciliations between UK GAAP and IFRS are set out below. a. Interests in leasehold properties are accounted for as finance leases under IFRS, and the obligation to the freeholder or superior leaseholder is included within non-current liabilities, calculated as the present value of the minimum lease payments at the inception of the lease. Investment and development properties are valued net of this obligation, so an amount equivalent to the obligation is included in the balance sheet as a non-current asset. An element of the rent payable is treated as interest and a part repayment of the obligation to the superior leaseholder or freeholder. b. Under IFRS unapproved dividends are not provided for. Accordingly, the UK GAAP figures for equity shareholders' funds have increased to reflect the exclusion of the proposed dividends. c. The net liabilities arising from the group's defined benefit pension schemes are included in the balance sheet under IFRS. d. Under IFRS, deferred tax provisions are made for the tax that would potentially be payable on the sale of investment or development properties and other assets, whereas UK GAAP requires that this potential liability is disclosed as contingent tax but not provided in the balance sheet. e. As explained above, the fair value of interest rate swaps is included in the balance sheet with effect from 1 January 2005. NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 20(b). Reconciliation between profit for the year and adjusted earnings per share under UK GAAP and IFRS 31 December 2005 31 December 2004 Profit Profit attributable attributable to equity Adjusted to equity Adjusted Notes shareholders earnings per shareholders earnings per share share Â£m pence Â£m pence ----------------------------------------- ------------------------------------------------------- UK GAAP* 97.9 31.8 116.3 30.0 IFRS adjustments: Revaluation gains on investment properties f 575.5 - 283.7 - Deferred tax g (110.3) - 32.0 - Allocation of rent free periods h 3.3 1.2 3.1 1.1 Amortisation of lease incentives and letting costs h (3.5) (1.2) (1.5) (0.5) Marketing costs h (0.3) (0.1) (1.1) (0.4) Capitalised interest i (0.7) (0.2) (1.2) (0.4) Negative goodwill j - - 6.2 - Employee share-based remuneration (0.8) (0.3) (1.1) (0.4) Foreign exchange k (0.2) (0.1) (2.7) (1.0) Change in fair value of interest rate swaps e 1.6 - - - Minority interests (8.4) - (3.1) - Other 0.3 0.1 0.8 0.3 ----------------------------------------- ------------------------------------------------------- Net IFRS adjustments 456.5 (0.6) 315.1 (1.3) ----------------------------------------- ------------------------------------------------------- IFRS 554.4 31.2 431.4 28.7 ----------------------------------------- ------------------------------------------------------- Notes ----- * UK GAAP referred to above is that existing at 31 December 2004 and does not reflect any changes to UK GAAP extant at 31 December 2005. f. IFRS requires that valuation changes on investment properties are included in the income statement. g. Deferred tax arising on valuation changes and other items is included in the IFRS income statement. h. There are a number of other adjustments which affect profit for the year: - Under UK GAAP, rent free periods are allocated over the period to the first rent review. Under IFRS, rent free periods are allocated over the period to the first break option or, if the probability that the break option will be exercised is considered low, over the full lease term. - Under UK GAAP, other lease incentives such as cash inducements and contributions to tenant fit out are either written off, capitalised, or capitalised and amortised, depending on their nature. Under IFRS, all such costs are capitalised and amortised over the period to the first break option or, if the probability that the break option will be exercised is considered low, over the full lease term. - Letting costs are capitalised on developments and written off for investment properties under UK GAAP. Under IFRS, all such costs are capitalised and amortised over the period to the first break option or, if the probability that the break option will be exercised is considered low, over the full lease term. - Under UK GAAP, marketing costs are capitalised for development properties and expensed as incurred for investment properties. IFRS requires that all marketing costs be expensed as incurred. i. Under UK GAAP, where an existing investment property is redeveloped, interest is capitalised on the total cost of the property, including its value prior to redevelopment. Under IFRS, interest is only capitalised on the new expenditure incurred, resulting in an increase in the net cost of finance and a reduction in interest capitalised. j. Negative goodwill arose on the purchase of West Quay Shopping Centre Limited in 2004. Under IFRS negative goodwill is recognised immediately in the income statement. k. Under IFRS the income statements of the group's foreign operations are translated at rates approximating the exchange rate on the date of each transaction. For practical purposes this is regarded as the average exchange rate for the year. UK GAAP allowed the year-end exchange rate to be used for the translation of both the income statement and balance sheet. NOTES TO THE ACCOUNTS CONTINUED ------------------------------- 21. OTHER INFORMATION The financial information set out in the announcement does not constitute the group's statutory accounts for the years ended 31 December 2005 or 2004. The financial information for the year ended 31 December 2004 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies, as subsequently restated under IFRS as published on the group's website on 26 April 2005. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s.237(2) or (3) Companies Act 1985. The statutory accounts for the year ended 31 December 2005 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies. PORTFOLIO REVIEW ---------------- Investment property rental data for the year ended 31 December 2005 Gross Net Estimated rental rental Vacancy Rents rental Reversionary/ income income rate passing value (Over-rented) Â£m Â£m % Â£m Â£m % ---------------------------- ----------------- ------------------------------------------------ Notes (1) (2) (3) (4) ---------------------------- ----------------- ------------------------------------------------ United Kingdom Retail: Shopping 100.5 85.4 0.6 104.0 117.4 11.9 centres Retail parks 27.0 26.0 3.7 27.8 33.2 11.0 ---------------------------- ----------------- ------------------------------------------------ 127.5 111.4 1.3 131.8 150.6 11.7 ---------------------------- ----------------- ------------------------------------------------ Office: City 25.1 19.3 38.0 16.6 23.7 (15.8) West End 1.6 0.5 5.3 5.8 6.9 11.7 Docklands & 11.6 9.0 17.7 12.5 12.3 (18.1) other ---------------------------- ----------------- ------------------------------------------------ 38.3 28.8 27.8 34.9 42.9 (12.2) ---------------------------- ----------------- ------------------------------------------------ Total United Kingdom 165.8 140.2 7.8 166.7 193.5 5.8 ---------------------------- ----------------- ------------------------------------------------ Continental Europe France Retail 50.7 46.6 2.1 54.8 63.0 10.9 Office 17.8 16.1 18.9 14.3 17.2 (1.8) ---------------------------- ----------------- ------------------------------------------------ Total France 68.5 62.7 4.7 69.1 80.2 7.9 ---------------------------- ----------------- ------------------------------------------------ Germany Retail 10.0 5.2 4.9 7.9 11.3 (1.0) ---------------------------- ----------------- ------------------------------------------------ Total Continental Europe 78.5 67.9 4.7 77.0 91.5 6.7 ---------------------------- ----------------- ------------------------------------------------ Group Retail 188.2 163.2 1.7 194.5 224.9 10.8 Office 56.1 44.9 26.0 49.2 60.1 (9.2) ---------------------------- ----------------- ------------------------------------------------ Total Group Investment Properties 244.3 208.1 6.8 243.7 285.0 6.1 ---------------------------- ------------------------------------------------ Income on developments and other sources not analysed above 4.9 2.2 ----------------- As disclosed in income statement 249.2 210.3 ----------------- Notes ----- (1) The ERV of the area in a property, or portfolio, excluding developments, which is currently available for letting, expressed as a percentage of the total ERV of the property or portfolio. (2) The annual rental income receivable from an investment property, after any rent free periods and after deducting head and equity rents. (3) The estimated market rental value of lettable space in a property after deducting head and equity rents, calculated by the group's valuers. (4) The percentage by which ERV exceeds, or falls short of, rents passing, together with the estimated rental value of vacant space. PORTFOLIO REVIEW ---------------- Investment property valuation data for the year ended 31 December 2005 True Properties Revaluation Capital Initial equivalent Total at in the year return yield yield return valuation Â£m Â£m % % % % ---------------------------- ---------------------------------------- ------------------------------------ Notes (1) (2) ---------------------------- ---------------------------------------- ------------------------------------ United Kingdom Retail: Shopping centres 2,134 215 12.1 4.7 5.2 17.4 Retail parks 690 102 18.9 3.4 5.1 24.1 ---------------------------- ---------------------------------------- ------------------------------------ 2,824 317 13.7 4.4 5.2 18.9 ---------------------------- ---------------------------------------- ------------------------------------ Office: City 362 41 12.7 2.3 5.7 18.5 West End 95 30 36.0 0.1 5.1 36.5 Docklands & other 173 12 7.7 5.3 6.6 13.6 ---------------------------- ---------------------------------------- ------------------------------------ 630 83 14.9 2.7 5.9 19.9 ---------------------------- ---------------------------------------- ------------------------------------ Total United Kingdom 3,454 400 13.9 4.1 5.3 19.1 ---------------------------- ---------------------------------------- ------------------------------------ Continental Europe France Retail 1,038 153 19.0 4.6 5.5 25.7 Office 322 46 22.1 3.9 5.3 27.5 ---------------------------- ---------------------------------------- ------------------------------------ Total France 1,360 199 20.4 4.5 5.4 26.8 ---------------------------- ---------------------------------------- ------------------------------------ Germany Retail 144 (24) (15.1) 4.2 6.8 (11.9) ---------------------------- ---------------------------------------- ------------------------------------ Total Continental Europe 1,504 175 16.5 4.4 5.6 22.0 ---------------------------- ---------------------------------------- ------------------------------------ Group Retail 4,006 446 13.6 4.4 5.3 19.1 Office 952 129 18.0 3.1 5.7 23.2 ---------------------------- ---------------------------------------- ------------------------------------ Total Group Investment Properties 4,958 575 14.6 4.2 5.4 20.0 ---------------------------- -------------------------- Developments 774 198 42.2 42.3 ---------------------------- ---------------------------------------- Total Group including 5,732 773 17.6 22.5 developments ---------------------------- ---------------------------------------- -------- Notes (1) Rents passing, net of head and equity rents, as a percentage of property value. (2) The potential income return, calculated using the ERV of future rental increases resulting lease renewals and rent reviews, assuming rents are received quarterly in advance. Hammerson's Ten Highest Value Properties at 31 December 2005 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- Property Ownership interest Area Value Passing rent % let by income % m(2) Â£m Â£m ---------------------------- ---------------- -------------- ---------- ------------- ----------------- WestQuay, Southampton 100 76,300 520 22.8 99 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- Bishops Square, London E1 75 75,900 401* 25.4 * 99 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- Brent Cross, London NW4 41 81,600 * 370 16.2 * 100 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- Bullring, Birmingham 33 124,900 * 297 14.5 * 99 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- The Oracle, Reading 50 71,000 * 266 13.2 * 99 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- Italie 2, Paris 13eme 100 56,600 242 12.7 99 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- Liberty Shopping Centre, 100 48,600 229 11.6 99 Romford ---------------------------- ---------------- -------------- ---------- ------------- ----------------- Les Trois Quartiers, Paris 100 29,700 195 8.8 79 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- Parinor, Aulnay-Sous-Bois 100 84,100 178 8.1 96 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- The Shires, Leicester 60 49,200 173 * 8.5 * 100 ---------------------------- ---------------- -------------- ---------- ------------- ----------------- * Hammerson's share PORTFOLIO REVIEW ---------------- Investment property - like for like net rental income for the year ended 31 December 2005 Current Year Net Rental Income Prior Year Net Rental Income Proper- Acquisi- Dispo- Develop- Total Proper- Acquisi- Dispo- Develop- Exchange Total ties tions sals ments net ties tions sals ments trans- net owned rental owned lation rental through- income through- differ- income out out ence 2004/05 2004/05 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m ----------- ---------------------------------------- ------------------------------------------------- United Kingdom Retail 88.1 17.9 0.1 5.3 111.4 83.7 3.3 4.8 0.6 - 92.4 Office 29.0 0.5 - (0.7) 28.8 28.6 - 7.8 (0.4) - 36.0 ----------- ---------------------------------------- ------------------------------------------------- Total 117.1 18.4 0.1 4.6 140.2 112.3 3.3 12.6 0.2 - 128.4 United Kingdom ----------- ---------------------------------------- ------------------------------------------------- Continental Europe France 58.6 2.5 1.3 0.3 62.7 52.7 - (0.2) 0.4 (0.5) 52.4 Germany 6.3 - - (1.1) 5.2 6.7 - - - - 6.7 ----------- ---------------------------------------- ------------------------------------------------- Total 64.9 2.5 1.3 (0.8) 67.9 59.4 - (0.2) 0.4 (0.5) 59.1 Continental Europe ----------- ---------------------------------------- ------------------------------------------------- Group Retail 138.6 20.4 0.1 4.2 163.3 129.9 3.3 4.9 0.6 (0.4) 138.3 Office 43.4 0.5 1.3 (0.4) 44.8 41.8 - 7.5 - (0.1) 49.2 ----------- ---------------------------------------- ------------------------------------------------- Total Group Investment Properties 182.0 20.9 1.4 3.8 208.1 171.7 3.3 12.4 0.6 (0.5) 187.5 ----------- -------------------------------- ---------------------------------------- Income from developments and other sources 2.2 2.0 not analysed above ----- ----- As disclosed in income statement 210.3 189.5 ----- ----- PORTFOLIO REVIEW ----------------- SECURITY OF INCOME/REVERSION as at 31 December 2005 Average unexpired Rents passing that expire/break in ERV of leases that expire/break in lease term 2006 2007 2008 - 2006 2007 2008 - 2010 to break to 2010 expiry Â£m Â£m Â£m Â£m Â£m Â£m years years --------------------------- ------------------------------- ------------------------------- ------------------ Notes (1) (1) (1) (2) (2) (2) --------------------------- ------------------------------- ------------------------------- ------------------ United Kingdom Retail: Shopping 5.5 3.6 7.6 7.4 4.2 8.2 11.5 11.9 centres Retail parks 0.2 0.1 0.5 0.4 0.2 1.0 16.9 17.1 --------------------------- ------------------------------- ------------------------------- ------------------ 5.7 3.7 8.1 7.8 4.4 9.2 12.8 13.1 --------------------------- ------------------------------- ------------------------------- ------------------ Office: City - - 2.4 - - 1.9 9.4 10.8 West End - - 2.9 - - 2.9 8.1 10.8 Docklands & 1.5 1.1 4.2 1.2 0.9 3.9 6.7 8.4 other --------------------------- ------------------------------- ------------------------------- ------------------ 1.5 1.1 9.5 1.2 0.9 8.7 8.4 10.1 --------------------------- ------------------------------- ------------------------------- ------------------ Total United Kingdom 7.2 4.8 17.6 9.0 5.3 17.9 11.7 12.4 --------------------------- ------------------------------- ------------------------------- ------------------ Continental Europe France: Retail 5.6 3.2 13.4 6.9 4.0 15.7 1.5 5.2 Office 3.3 1.3 2.1 3.4 1.4 2.0 2.2 5.1 --------------------------- ------------------------------- ------------------------------- ------------------ 8.9 4.5 15.5 10.3 5.4 17.7 1.6 5.2 --------------------------- ------------------------------- ------------------------------- ------------------ Germany: Retail 1.0 0.8 2.7 1.0 0.9 2.6 4.3 4.6 --------------------------- ------------------------------- ------------------------------- ------------------ Total Continental Europe 9.9 5.3 18.2 11.3 6.3 20.3 1.9 5.1 --------------------------- ------------------------------- ------------------------------- ------------------ Group Retail 12.3 7.7 24.2 15.7 9.3 27.5 9.1 10.5 Office 4.8 2.4 11.6 4.6 2.3 10.7 6.7 8.7 --------------------------- ------------------------------- ------------------------------- ------------------ Total Group 17.1 10.1 35.8 20.3 11.6 38.2 8.6 10.1 --------------------------- ------------------------------- ------------------------------- ------------------ Notes ----- (1) These figures show the amount by which rental income, based on rents passing at 31 December 2005, could fall in the event that occupational leases due to expire are not renewed or replaced by new leases. For the UK it includes tenants' break options. For France and Germany, it is based on the earliest date of lease expiry. (2) The ERV at 31 December 2005 for space that expires or breaks in each year, after deducting head and equity rents and ignoring the impact of rental growth and any rent free periods. RENT REVIEWS as at 31 December 2005 Projected rent at current ERV of leases Rents passing subject to review in subject to review in Outstanding 2006 2007 2008 Outstanding 2006 2007 2008 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m --------------------------- ------------------------------------------ ------------------------------------------ Notes (3) (3) (3) (3) (4) (4) (4) (4) United Kingdom Retail: Shopping centres 20.6 13.8 6.7 17.0 26.2 15.3 7.6 18.0 Retail parks 4.8 0.4 6.9 3.4 6.1 0.4 7.8 3.9 --------------------------- ------------------------------------------ ------------------------------------------ 25.4 14.2 13.6 20.4 32.3 15.7 15.4 21.9 --------------------------- ------------------------------------------ ------------------------------------------ Office: City 0.6 10.4 0.6 - 0.6 10.4 0.6 - West End 0.8 - - - 0.8 - - - Docklands & 4.8 1.4 0.2 1.0 4.8 1.4 0.2 1.0 other --------------------------- ------------------------------------------ ------------------------------------------ 6.2 11.8 0.8 1.0 6.2 11.8 0.8 1.0 --------------------------- ------------------------------------------ ------------------------------------------ Total United Kingdom 31.6 26.0 14.4 21.4 38.5 27.5 16.2 22.9 --------------------------- ------------------------------------------ ------------------------------------------ The majority of rents in France and Germany are subject to annual indexation Notes ----- (3) These figures show the rental income passing at 31 December 2005, after deducting head and equity rents, which is subject to review in each year. (4) These figures are the projected rents for space that is subject to review in each year and are based on the higher of the current rental income and the ERV as at 31 December 2005, after deducting head and equity rents and ignoring the impact of changes in rental values before the review date. PORTFOLIO REVIEW ---------------- PROPERTY PORTFOLIO INFORMATION Development property Property Notional current ERV Lettable Forecast Cost to Costs to Forecast on area completion date complete total completion cost m(2) date Â£m Â£m Â£m % Let Â£m --------------------------------- ---------------------------------------------------------------------- Notes (1) (1) (1) (2) --------------------------------- ---------------------------------------------------------------------- Merchants Quarter, Bristol 140,000 Sep 2008 33 197 230 35 16 New Shires, Leicester 60,000 Sep 2008 16 174 190 26 12 Bishops Square, London E1 75,900 Jul 2005 (3) 244 46 290 99 26 125 Old Broad Street, London 30,700 Dec 2007 52 108 160 - 18 EC2 9 place Vendome, Paris 1er 27,700 Apr 2006 79 11 90 83 7 --------------------------------- ---------------------------------------------------------------------- Total development properties 424 618 1,070 90 --------------------------------- ----------------------- ---------------------------------------- Costs to date of other development projects 89 Add: Revaluation surplus already taken 261 ----- Total development properties (note 7). 774 ----- Notes ------ (1) Capital costs including capitalised interest. (2) Amount let or under offer by income. (3) Bishops Square completed in July 2005 and is currently being fitted out by the tenant, Allen & Overy LLP. SHAREHOLDER INFORMATION Financial Calendar Full year results announced 27 February 2006 Annual General Meeting 4 May 2006 Recommended final dividend - Ex dividend date 12 April 2006 - Record date 18 April 2006 - Payable on 17 May 2006 Anticipated 2006 interim November 2006 dividend payable Registered Office 100 Park Lane, London W1K 7AR Registered in England No. 360632 Website The 2005 Annual Review and Summary Financial Statements, 2005 Directors' Report and Financial Statements and other information will be available on the Company's website, www.hammerson.co.uk, on when posted to shareholders. The Company operates a service whereby all registered users of the Company's website can choose to receive, via e-mail, notice of all Company announcements which can also be viewed on the website. Appendix 1 SIGNIFICANT ACCOUNTING POLICIES Set out below are extracts from the group's accounting policies. While the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The group expects to publish full financial statements that comply with IFRS in March 2006. The accounting policies below are included in those that are being applied in producing the financial statements of the group. Basis of preparation -------------------- The financial statements are presented in sterling. They are prepared on the historical cost basis except that investment and development properties, owner-occupied property and derivative financial instruments are stated at fair value. The accounting policies have been consistently applied to the results, other gains and losses, assets, liabilities and cash flows of entities included in the consolidated financial statements. The preparation of financial statements requires management to make judgments, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Management believes that the estimates and associated assumptions used in the preparation of the financial statements are reasonable. However, actual outcomes may differ from those anticipated. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period. If the revision affects both current and future periods, the change is recognised over those periods. Basis of consolidation ---------------------- Subsidiaries Subsidiaries are those entities controlled by the group. Control is assumed when the group has the power to govern the financial and operating policies of an entity, or business, to benefit from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where properties are acquired through corporate acquisitions and there are no significant assets or liabilities other than property, the acquisition is treated as an asset acquisition, in other cases the acquisition method is used. Joint ventures Joint ventures are those entities over whose activities the group has joint control, established by contractual agreement. The consolidated financial statements include the group's proportionate share of assets, liabilities, results and cash flows of joint ventures. Goodwill Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the acquired entity over the group's interest in the fair value of the assets, liabilities and contingent liabilities acquired. Where the fair value of the assets, liabilities and contingent liabilities acquired is greater than the cost, the excess, known as negative goodwill, is recognised immediately in the income statement. Foreign currency ---------------- Foreign currency transactions Transactions in foreign currencies are translated into sterling at exchange rates approximating to the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to sterling at the exchange rate ruling at that date and, unless they relate to the hedging of the net investment in foreign operations, differences arising on translation are recognised in the income statement. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into sterling at the exchange rates ruling at the balance sheet date. The operating income and expenses of foreign operations are translated into sterling at the average exchange rates for the period. Significant transactions, such as property sales, are translated at the foreign exchange rate ruling at the date of each transaction. The principal exchange rate used to translate foreign currency denominated amounts in the balance sheet is the rate at the end of the year, Â£1 = â‚¬1.455 (2004: Â£1 = â‚¬1.413). The principal exchange rate used for the income statement is the average rate, Â£1 = â‚¬1.463 (2004: Â£1 = â‚¬1.474). Net investment in foreign operations Exchange differences arising from the translation of the net investment in foreign operations, including the effective portions of related foreign currency hedges, are taken to the translation reserve. They are released to the income statement upon disposal of the foreign operation. Borrowings, interest and derivatives ------------------------------------ Borrowings Borrowings are held at amortised cost. They are recognised initially at fair value, after taking account of any discount on issue and attributable transaction costs. Subsequently, such discounts and costs are charged to the income statement over the term of the borrowing at a constant return on the carrying amount of the liability. Derivative financial instruments (policy effective from 1 January 2005) The group uses derivative financial instruments to hedge its exposure to foreign currency movements and interest rate risks. Derivative financial instruments are recognised initially at cost and subsequently at fair value, with changes in fair value being included in the income statement, except that a gain or loss on the portion of an instrument that is an effective hedge for the net investment in a foreign operation is recognised in equity. Net finance costs Net finance costs include interest payable on borrowings, net of interest capitalised, interest receivable on funds invested, and changes in the fair value of derivative financial instruments. Capitalisation of interest Interest is capitalised if it is directly attributable to the acquisition, construction or production of development properties or the redevelopment of investment properties. Capitalisation commences when the activities to develop the property start and continues until the property is substantially ready for its intended use. Capitalised interest is calculated with reference to the actual rate payable on borrowings for development purposes or, for that part of the development cost financed out of general funds, to the average rate. Property portfolio ------------------ Development properties Properties acquired with the intention of redevelopment are classified as development properties and stated at fair value. Changes in fair value above cost are recognised in equity, and changes in fair value below cost are recognised in the income statement. All costs directly associated with the purchase and construction of a development property are capitalised. When development properties are completed, they are reclassified as investment properties and any accumulated revaluation surplus or deficit is transferred to retained earnings. SIGNIFICANT ACCOUNTING POLICIES (continued) Investment properties Investment properties are stated at fair value, being market value determined by professionally qualified external valuers, with changes in fair value being included in the income statement. Depreciation In accordance with IAS 40 'Investment Property', no depreciation is provided in respect of investment or development properties. Leasehold properties Leasehold properties that are leased out to tenants under operating leases are classified as investment properties or development properties, as appropriate, and included in the balance sheet at fair value. The obligation to the freeholder or superior leaseholder for the buildings element of the leasehold is included in the balance sheet at the present value of the minimum lease payments at inception. Payments to the freeholder or superior leaseholder are apportioned between a finance charge and a reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents payable, such as rent reviews or those related to rental income, are charged as an expense in the periods in which they are incurred. Net rental income Rental income from investment property leased out under an operating lease is recognised in the income statement on a straight-line basis over the term of the lease. Contingent rents, such as turnover rents, rent reviews and indexation, are recorded as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants. Lease incentives and costs associated with entering into tenant leases are amortised over the period to the first break option or, if the probability that the break option will be exercised is considered low, over the lease term. Property operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to the income statement. Profits on sale of properties Profits on sale of properties are taken into account on the completion of contract, and are calculated by reference to the carrying value at the end of the previous year, adjusted for subsequent capital expenditure. Plant, equipment and owner-occupied property Owner-occupied property held under a finance lease is stated at fair value with changes in fair value recognised directly in equity. The cost of owner-occupied property is depreciated through the income statement over the period to the end of the lease on a straight-line basis having due regard to its estimated residual value. Plant and equipment are stated at cost less accumulated depreciation. Depreciation is charged to the income statement on a straight-line basis over the estimated useful life, which is generally between three and five years. Investments Investments for which the fair value can be reliably determined are classified as 'available for sale' and carried at fair value with changes in fair value recognised directly in equity. Other investments are carried at cost. SIGNIFICANT ACCOUNTING POLICIES (continued) Employee benefits ----------------- Defined contribution pension plans Obligations for contributions to defined contribution pension plans are charged to the income statement as incurred. Defined benefit pension plans The group's net obligation in respect of defined benefit pension plans comprises the amount of future benefit that employees have earned, discounted to determine a present value, less the fair value of the pension plan assets. The discount rate used is the yield on AAA credit rated bonds that have maturity dates approximating to the terms of the group's obligations. The calculation is performed by a qualified actuary using the projected unit credit method. Actuarial gains and losses are recognised in equity. Where the assets of a plan are greater than its obligation, the asset included in the balance sheet is limited to the present value of any future refunds from the plan or reduction in future contributions to the plan. Share-based employee remuneration Share-based employee remuneration is determined with reference to the fair value of the equity instruments at the date at which they are granted, and charged to the income statement over the vesting period on a straight-line basis. The fair value of share-based employee remuneration is calculated using the binominal option pricing model and is dependent on factors including the exercise price, expected volatility, option life and the risk free interest rate. IFRS 2 Share-based Payment has been applied to share options granted from November 2002. Tax --- Tax is included in the income statement except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates applicable at the balance sheet date, together with any adjustment in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates applicable at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Appendix 2 Glossary of Terms ----------------- Adjusted earnings Reported earnings (per share) adjusted to exclude gains (per share) on investment properties, the change in the fair value of interest rate swaps, deferred tax and related minority interests. Adjusted net asset Reported net asset value (per share) adjusted to exclude value (per share) deferred tax and the fair value of interest rate swaps. Anchor store A major store, usually a department store or supermarket, occupying a large unit within a shopping centre or retail park, which serves as a draw to other retailers and consumers. Average cost of The cost of finance expressed as a percentage of the borrowing weighted average of borrowings during the period. Capital return The change in value during the period for properties held at the balance sheet date, after taking account of capital expenditure and exchange translation movements, calculated on a monthly time weighted basis. Earnings per share Profit for the period attributable to equity (or 'EPS') shareholders divided by the average number of shares in issue during the period. EPRA European Public Real Estate Association. This organisation has issued recommended bases for the calculation of earnings per share and net asset value per share. ERV The estimated market rental value of lettable space in a property after deducting head and equity rents, calculated by the group's valuers. Gearing Net debt expressed as a percentage of equity shareholders' funds. IAS International Accounting Standards. IFRS International Financial Reporting Standards. Initial yield Rents passing, net of head and equity rents, as a percentage of property value. Interest cover Net rental income divided by net cost of finance before capitalised interest and the change in fair value of interest rate swaps. Interest rate and An agreement with another party to exchange an interest currency swap or currency exchange rate obligation for a pre-determined period of time. Like-for-like / The percentage change in rental income for completed underlying net investment properties owned throughout both current and rental income prior periods, after taking account of exchange translation movements. Loan to value ratio Borrowings and foreign currency swaps expressed as a percentage of the total value of investment and development properties. Net asset value per Equity shareholders' funds divided by the number of share shares in issue at the balance sheet date. (or 'NAV') Over-rented The percentage by which ERV falls short of rents passing, together with the estimated rental value of vacant space. Pre-let A lease signed with a tenant prior to completion of a development. REITs Real estate investment trusts. Rents passing The annual rental income receivable from an investment property, after any rent free periods and after deducting head and equity rents. This may be more or less than the ERV (see over-rented and reversionary or under-rented). Return on Capital growth and profit for the year expressed as a shareholders' percentage of shareholders' funds at the beginning of equity the year, all excluding deferred tax. For 2004, the calculation also excludes the effects of entry into the SIIC regime. Reversionary or The percentage by which ERV exceeds rents passing, under-rented together with the estimated rental value of vacant space. SIC 15 A statement of accounting practice, which requires certain lease incentives to be amortised through the income statement. SIIC Societes d'Investissements Immobiliers Cotees. A French tax exempt regime available to property companies listed in France. Total development All capital expenditure on a development project, cost including capitalised interest. Total return Net rental income and capital return expressed as a percentage of opening book value of property adjusted for capital expenditure and exchange translation movements, calculated on a monthly time weighted basis. True equivalent The potential income return, calculated using the ERV of yield future rental increases resulting from lease renewals and rent reviews, assuming rents are received quarterly in advance. Turnover rent Rental income which is related to an occupier's turnover. UK GAAP United Kingdom Generally Accepted Accounting Practice. Vacancy rate The ERV of the area in a property, or portfolio, excluding developments, which is currently available for letting, expressed as a percentage of the total ERV of the property or portfolio. Yield on cost Rents passing expressed as a percentage of the total development cost of a property. This information is provided by RNS The company news service from the London Stock Exchange

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