Interim Results

Hammerson PLC 04 September 2006 HAMMERSON HALF YEAR RESULTS Hammerson plc announces its unaudited results for the six months to 30 June 2006. Six months to 30 June 2006 2005 Change Net rental income £109.3m £101.3m +7.9% Profit before tax £384.8m £247.3m +55.6% Adjusted profit before tax(1) £44.8m £42.8m +4.7% Basic earnings per share(2) 112.3p 72.2p +55.5% Adjusted earnings per share, EPRA basis(3) 3.3p 14.3p -76.9% Adjusted earnings per share(4) 15.1p 14.3p +5.6% Interim dividend per share 6.38p 5.80p +10.0% 30 Jun 2006 31 Dec 2005 Equity shareholders' funds £3,482m £3,126m +11.4% Adjusted net asset value per share, EPRA basis(3) £13.89 £12.37 +12.3% Gearing 62% 66% Notes: (1) Excluding gains on investment properties, the change in the fair value of interest rate swaps and bond redemption costs totalling £340 million (2005: £205 million). (See page 4) Includes the items listed above in note (1). (2) The European Public Real Estate Association ('EPRA') has issued recommended bases for the (3) calculation of certain adjusted data. Further details of these calculations are provided in note 7 to the accounts. (See page 22) Excluding gains on investment properties, the change in the fair value of interest rate swaps, bond redemption costs, deferred tax and related minority interests, as set out in note 7 to the accounts. (4) Key points • Adjusted net asset value per share increased by 12.3% to £13.89. • Strong portfolio capital return of 8.1% in the first six months of 2006. • During the first half of the year, the group invested £168 million and raised £138 million from disposals. Several major transactions have been contracted since 30 June 2006, including the acquisition of a portfolio of retail parks in the UK for £425 million and the sale of Liberty Shopping Centre, Romford, for £281 million. • The redevelopment of 9 place Vendome in Paris was successfully completed; two major developments were started at an estimated total cost of £360 million. • In May, Hammerson announced its intention to become a REIT in January 2007, following which the group will be exempt from corporation tax both on UK rental income and gains arising on UK investment property sales. The Chairman, John Nelson, said today: 'I am delighted to report an excellent set of results for the first six months of 2006. Adjusted net asset value per share increased by 12.3% to £13.89, whilst adjusted earnings per share of 15.1 pence were 5.6% higher than in the first half of 2005. The interim dividend has been raised by 10.0%. This year has been one of vigorous activity. We made good progress in letting space within the office portfolio and maintaining high occupancy levels at our retail schemes. We completed a very profitable development at 9 place Vendome in Paris, advanced the two major retail schemes currently underway in Bristol and Leicester, and enhanced our development pipeline. In addition, we have continued our active recycling of capital. Some £550 million has been raised from disposals this year and over £600 million invested in properties and development projects offering the potential for higher returns. We are maintaining our strategy of focusing on key property markets in the UK and France and adding value through asset management, development activity and capital recycling. The group has an investment portfolio and development programme of exceptional quality and I have great confidence in Hammerson's future performance.' Copies of the Chairman's statement, income statement, balance sheet, cash flow statement and notes are attached. The terms used in the commentary that follows, and in the key points above, are defined in the glossary of terms at the end of the document. Presentation Hammerson is making a presentation on the interim results to investors and analysts at 9.30 a.m. today at New Broad Street House, 35 New Broad Street, London, EC2. A conference call facility is available for those unable to attend the presentation by dialling + 44 (0) 1296 480180 and entering PIN number 056977 #. A copy of the slide presentation will be posted simultaneously on the Company's website (www.hammerson.com). Financial calendar Ex dividend date 20 September 2006 Record date 22 September 2006 Interim dividend payable 20 October 2006 Further information: John Richards, Chief Executive Tel: +44 (0) 20 7887 1000 Simon Melliss, Group Finance Director Tel: +44 (0) 20 7887 1000 Christopher Smith, Director of Corporate Affairs Tel: +44 (0) 20 7887 1019 Email: christopher.smith@hammerson.com CHAIRMAN'S STATEMENT I am delighted to report an excellent set of results for the first six months of 2006. Adjusted net asset value per share increased by 12.3% to £13.89, whilst adjusted earnings per share of 15.1 pence were 5.6% higher than in the first half of 2005. The interim dividend has been raised by 10.0%. This year has been one of vigorous activity. We made good progress in letting space within the office portfolio and maintaining high occupancy levels at our retail schemes. We completed a very profitable development at 9 place Vendome in Paris, advanced the two major retail schemes currently underway in Bristol and Leicester, and enhanced our development pipeline. We continued to focus on recycling capital from mature assets into properties and development projects offering the potential for higher returns. In the first six months, some £138 million was raised from disposals, whilst new investment totalled £168 million. Momentum has been maintained since 30 June, with the acquisition of a portfolio of five retail parks in the UK for £425 million and the imminent start on site of a major expansion of the group's Parinor shopping centre near Paris. A further £414 million has been raised from disposals, including £281 million from the sale of Liberty Shopping Centre in Romford. Demand for office accommodation both in central London and Paris improved further in 2006. Conditions for retailers have remained challenging, particularly in the UK. However, Hammerson has continued to attract retailers to its schemes and developments. Property investment markets in which the group operates remain strong. Looking ahead, I anticipate that investors will increasingly favour properties which combine a secure and growing rental income, the characteristics displayed by Hammerson's portfolio, as these offer the prospects of superior returns and greater resilience if markets weaken. The group's balance sheet and financial resources were further strengthened during the first half of 2006 with three major new medium term financings. At 30 June, the group's gearing was 62% and the group had over £1 billion of undrawn committed facilities and cash. In May, we announced that Hammerson intends to enter the new tax-exempt REIT regime to take effect on 1 January 2007. This will involve the payment by the group of a one-off entry charge of 2% of the value of its UK properties at 31 December 2006. Based on their 30 June 2006 values, the charge would have been around £96 million, whilst some £410 million of the group's provision for deferred tax on unrealised UK capital gains and capital allowances would no longer have been required. Following conversion, the group will be exempt from corporation tax both on UK rental income and gains arising on UK investment property sales. The group continues to benefit from its tax exempt status in France following its entry in 2004 into the similar SIIC tax regime. Further detailed regulations regarding UK REITs are due this Autumn. Following this, it is anticipated that the Company will hold an Extraordinary General Meeting to consider changes that may be required to Hammerson's Articles of Association in order for it to convert. Rental income from several recently completed developments, both in the UK and France, is not yet fully reflected in the income statement. Rents from these schemes are projected to increase by some £24 million in 2007, contributing to higher earnings. We anticipate this will provide the capacity for continuing strong dividend growth. We are maintaining our strategy of focusing on key property markets in the UK and France and adding value through asset management, development activity and capital recycling. The group has an investment portfolio and development programme of exceptional quality and I have great confidence in Hammerson's future performance. John Nelson, Chairman 4 September 2006 BUSINESS AND FINANCIAL REVIEW Results and dividend Net rental income for the six months to 30 June 2006 was £109.3 million, compared with £101.3 million for the corresponding period in 2005. For properties owned throughout, there was an increase of £1.5 million to £94.9 million. The corresponding figure of £93.4 million for the six months to 30 June 2005 included some £2.4 million in respect of lease surrender premiums. An analysis of net rental income is shown below. Six months to Six months to 30 June 2006 30 June 2005 £m £m Properties owned throughout 94.9 93.4 Acquisitions 9.0 0.9 Developments 4.1 4.2 Properties sold 1.3 3.1 Exchange translation and other - (0.3) Total net rental income 109.3 101.3 Profit before tax was £384.8 million, compared with £247.3 million in the first half of 2005. In 2006, there were gains on the revaluation of investment properties of £382.5 million. In May 2006, the group made a tender offer for its 10.75% 2013 bonds, following which approximately half their nominal value, or £93.8 million, was redeemed and cancelled at a premium, including costs, of £33.7 million. The transaction will reduce Hammerson's annual interest cost by approximately £3 million. An analysis of profit before tax is shown below. Six months to Six months to Year ended 30 June 2006 30 June 2005 31 Dec 2005 £m £m £m Profit before tax 384.8 247.3 698.6 Adjustments: Profit on sale of properties (0.9) (31.5) (32.1) Revaluation gains on investment properties (382.5) (169.2) (575.5) Bond redemption costs 33.7 - - Change in fair value of interest rate swaps 9.7 (3.8) (1.6) Adjusted profit before tax 44.8 42.8 89.4 Adjusted profit before tax rose by £2.0 million, or 4.7%, compared with the equivalent period last year. Increased net rental income was partially offset by higher administration and finance costs. There was a current tax charge of £0.7 million for the six months to 30 June 2006, compared with £1.9 million for the equivalent period of 2005. The deferred tax charge has increased from £42.2 million to £61.1 million, principally reflecting the investment property revaluation surplus. Adjusted earnings per share increased by 5.6% to 15.1 pence, reflecting the underlying profit growth discussed above. The directors have declared an interim dividend of 6.38 pence per share payable on 20 October 2006, an increase of 10.0%. Balance sheet and financing Hammerson's property portfolio was valued at £6,253 million at 30 June 2006, compared with £5,732 million at the end of 2005. The increase arose from capital additions of £180 million, a revaluation surplus of £453 million, exchange translation gains of £9 million, partially offset by the disposal of properties with a book value of £121 million. The group's borrowings at 30 June totalled £2,450 million and cash and deposits amounted to £293 million. There was an increase in net debt of £108 million in the first six months of the year to £2,157 million, principally reflecting net capital expenditure and the premium on the redemption of bonds. Gearing at 30 June 2006 was 62%, or 54% excluding the provision for deferred tax from shareholders' funds. The group's balance sheet and financial resources were further strengthened during the first half of 2006 with three major new financings: - £300 million 5.25% unsecured bonds due 2016; - £330 million five year sterling bank facility; and - €700 million 4.875% unsecured bonds due 2015. At 30 June 2006, Hammerson had cash, short term deposits and unutilised committed bank facilities totalling just over £1 billion. The average maturity of the group's debt is nearly ten years. Equity shareholders' funds, adjusted on an EPRA basis, increased by £438 million to £3,971 million in the six months to 30 June 2006, due mainly to the property valuation uplift. During the first half of the year, adjusted net asset value per share increased by £1.52, or 12.3%, to £13.89. An analysis of adjusted net asset value per share is shown below: As at As at 30 June 2006 31 December 2005 £m £m Basic net asset value 3,482 3,126 Dilution on exercise of options 10 8 Diluted net asset value 3,492 3,134 Adjustments: Fair value of interest rate swaps 2 (7) Deferred tax on revaluation surpluses and other items 437 370 Deferred tax on capital allowances 41 36 Adjusted net asset value 3,972 3,533 Basic net assets per share £12.21 £10.97 Adjusted net assets per share, EPRA basis £13.89 £12.37 Basic shares in issue used for calculation (million) 285.2 285.0 Diluted shares used for calculation (million) 286.0 285.7 Cash flow There was a cash outflow from operating activities for the six months to 30 June 2006 of £33 million, compared with an inflow of £45 million for the same period last year. The decrease principally reflected bond redemption payments and the timing of working capital receipts and payments, which in 2005 included the receipt of VAT on the disposal of 14 boulevard Haussmann, in Paris which was subsequently paid to the French tax authorities in July 2005. Interest paid includes £32 million relating to the bond redemption referred to above, but excludes the interest on the new bonds issued, which is payable annually in arrears. Capital expenditure of £168 million was largely offset by the proceeds of property sales of £138 million. Overall there was a net cash inflow, after financing, of £247 million for the first six months of the year. Portfolio At 30 June 2006, Hammerson's portfolio was valued at £6.3 billion, of which investment properties accounted for £5.4 billion or 86%. The group's objective for the investment portfolio is to achieve good growth in both capital and income and outperform comparable benchmark indices. Hammerson pursues an active management policy aimed at minimising vacancy rates in the portfolio and enhancing rental values. The group maintains a policy of actively recycling capital from mature assets into properties and development projects offering the potential for higher returns. A table of property valuations and capital returns for the six months to 30 June 2006 is shown below: Shopping Centres Retail Parks Offices Total £m % return £m % return £m % return £m % return UK 2,452 7.2 757 5.6 1,376 13.5 4,585 8.8 France 1,018 6.5 113 5.6 468 9.9 1,599 7.6 Germany 69 (6.3) - - - - 69 (6.3) Total 3,539 6.5 870 5.6 1,844 12.5 6,253 8.1 The capital return from the group's portfolio overall was 8.1%, with returns from the retail and office portfolios of 6.3% and 12.5% respectively. Both in the UK and France, lower valuation yields accounted for approximately two thirds of the capital return, whilst the remainder arose from rental growth and development surpluses. In the UK, the capital return was 8.8%, which compares with an increase of 7.1% in the IPD All Property Capital Growth Index. In April, the redevelopment of 9 place Vendome in Paris 1er was completed providing 22,200 m(2) of high quality office accommodation and 5,500 m(2) of prime retail space. The principal office occupier is Clifford Chance, a major international firm of lawyers. The property is now 90% let and Hammerson's share of the income from this 50:50 joint venture with AXA will amount to £7.5 million following the expiry of rent free periods. At 30 June, Hammerson's interest in the property was valued at £162 million, a surplus of £76 million over the group's cost of £86 million. During the first half of the year, the group disposed of three properties in continental Europe. In France, Hammerson sold its 50% interest in a development project, 4 place de l'Opera in Paris, to the joint venture partner for £27 million. Two retail properties in Berlin were sold for £75 million, leaving the group with only one property, Forum Steglitz, in Germany. A refurbishment of this building will be completed in September 2006. The group also sold its long leasehold interest in 100 Park Lane, Hammerson's London headquarters, prior to the Company's relocation to 10 Grosvenor Street in June of this year. The latter was developed as a 50:50 joint venture with Grosvenor. Hammerson's relocation provides it with modern efficient space to meet both its immediate and future requirements. Several transactions initiated in the first six months of the year have been contracted since 30 June. In August, Hammerson acquired a portfolio of retail parks for £425 million through the purchase of LxB Holdings Limited. The portfolio provides a combined floorspace of 116,000 m(2) and generates rents of £16.1 million per annum, compared with a current ERV of £19.4 million. There are excellent opportunities to extend and redevelop the schemes to increase the floorspace and enhance rental values. The group also increased its interest from 50% to 100% in the proposed Union Square retail development in Aberdeen by acquiring for £20 million the former joint venture partner's interest. Two office buildings, 83/85 Pall Mall, London SW1 and 18/19 Hanover Square, London W1 were sold for £37 million and £58 million respectively. Liberty Shopping Centre, Romford was sold for £281 million and Avenue Retail Park in Cardiff was sold for £38 million. Within the group's retail portfolio, which accounts for 78% of the investment portfolio, the vacancy level remains very low at 2.6%. The retail portfolio is 10% reversionary overall. In the UK shopping centre portfolio, 21 units were vacated in the first six months of the year. Ten of these units were re-let, resulting in a like-for-like rental uplift of £0.5 million, and there is good interest in the remaining units. Additionally, the uplift from rent reviews secured in the UK was £2.8 million per annum. In France, retail rents were little changed in the first six months of the year. The vacancy rate in the London office portfolio decreased from 29% at the year end to 17% at 30 June 2006. In the UK, 13 new leases were signed in the first half. Including space under offer, One London Wall and Moorhouse, London EC2 are now respectively 100% and 95% let and the group is in discussions with potential tenants for the remaining space. Demand has also improved at Exchange Tower in Docklands, where leases have been signed with three tenants in respect of 5,000 m(2) of accommodation. New contracted income As at 31 August 2006, the group had secured a substantial and rising income stream reflecting leasing activity referred to above and leases which have been signed in respect of recently completed and current developments, as shown in the table below. The group's cash flow from these schemes will increase by £21 million in 2007 over the figure for 2006 and by a further £22 million in 2008. Rents passing 2006 2007 2008 2009 £m £m £m £m Bishops Square, London E1 0.4 13.3 25.5 25.5 Other completed offices 1.1 5.0 10.4 11.7 Retail parks 8.6 10.9 11.5 11.5 9 place Vendome, Paris 0.4 2.4 6.0 6.4 Total - cash flow 10.5 31.6 53.4 55.1 - SIC 15 basis 28.3 51.9 51.6 51.7 Notes (1) The figures include Hammerson's share of income in respect of joint ventures and do not include the income from two properties sold since 30 June 2006. (2) Income is included according to when rent payments commence, with the allocation to rent free periods, as required by SIC 15, also shown. Current developments Hammerson maintains an active development programme with the objectives of achieving good returns and creating high quality properties of a type not generally available in the open market. The group continues to build on its excellent reputation for its approach to urban regeneration, its ability to forge strong relationships with local authorities and its skills in delivering complex development projects. Current projects Ownership Area Cost at Value at Estimated total Projected Let Forecast interest m(2) 30/6/06 30/6/06 development annual % completion % £m (1) £m cost (1) income date £m £m Shopping centres (2) (2) (2) (2) (3) Broadmead, Bristol 50 140,000 61 84 230 17 42 Sep 2008 New Shires, 60 60,000 43 60 200 13 38 Sep 2008 Leicester Parinor, Aulnay-Sous-Bois 100 24,000 14 14 75 5 8 Apr 2008 Offices 125 Old Broad Street, London EC2 100 30,700 64 116 160 18 - Dec 2007 Notes (1) Capital costs including capitalised interest. (2) Indicates Hammerson's share of costs, value and income. (3) Amount let or under offer by income at 31 August 2006. Three developments, with an estimated total cost of £590 million, were in progress in the UK at 30 June. Broadmead in Bristol is a mixed-use retail-led scheme of 140,000 m(2), which is being developed by the Bristol Alliance, a 50: 50 joint venture between Hammerson and Land Securities Group PLC. Good progress is being made with letting the scheme, but retailers are seeking slightly longer rent free periods. The principal anchor stores will be House of Fraser and Harvey Nichols. In Leicester, work started in January 2006 on a major expansion of the existing shopping centre, which will more than double its size to 110,000 m(2). Lettings are progressing well but, as with the scheme in Bristol, rent free periods have increased. The scheme, to be anchored by John Lewis Partnership, is being carried out in a joint venture, in which Hammerson has a 60% interest with Hermes. In February, Hammerson started construction work on the redevelopment of the former London Stock Exchange tower building, 125 Old Broad Street, to provide 30,100 m(2) of office accommodation and 600 m(2) of retail units with completion scheduled for December 2007. At 30 June, the scheme had a cost of £64 million and was valued at £116 million. A fourth scheme, a major expansion to the group's Parinor shopping centre near Paris, will commence imminently at an estimated cost of £75 million. The 24,000 m(2) redevelopment will increase the size of Parinor to 90,000 m(2), making it the largest shopping centre serving the north of Paris. The extension will be anchored by Planete Saturn, which has agreed a lease on a 4,600 m(2) store. An extension of 5,600 m(2) to Villebon 2, near Paris, is also underway. Potential development starts 2006/2007 It is anticipated that four further development projects with an estimated total cost of £362 million could start during the remainder of 2006 and 2007. Future projects Area Cost at 30/6/06 Estimated total cost m(2) £m £m Retail Union Square, Aberdeen 50,000 9 190 Fife Central Retail Park, Kirkcaldy 11,000 8 32 West Berkshire Retail Park, Theale 11,000 12 25 Offices 60 Threadneedle Street, London EC2 20,600 28 115 Total 92,600 57 362 Union Square, Aberdeen, has planning consent for 50,000 m(2) of mixed-use space, incorporating a retail park, retail mall and leisure facilities. In July, Hammerson increased its interest in the scheme to 100% with the acquisition for £20 million of a further 50% interest from the former joint venture partner. The estimated total development cost of the scheme is approximately £190 million and the projected net rental income is £14 million per annum. The first phase of the development is expected to begin later this year and around 40% of the forecast income from the scheme is pre-let or in solicitors' hands. In Scotland, Hammerson has applied for planning consent for 11,000 m(2) of retail warehousing and 360 car parking spaces on a site adjacent to the group's existing retail park in Kirkcaldy, Fife. Approximately 50% of the new accommodation has been pre-let to B&Q. Hammerson has also submitted a planning application for a proposed 11,000 m(2) standalone retail warehouse with 230 car parking spaces in Theale, Berkshire. A lease has been signed with Danish retailer, ILVA to occupy the entire building. It is anticipated that the scheme will start early next year at an estimated total development cost of £25 million. The group also plans to start a redevelopment of 60 Threadneedle Street in the City of London. The scheme has consent for a 20,600 m(2) nine-storey office building, incorporating 1,000 m(2) of retail space. Future developments In addition to the schemes outlined above, Hammerson has invested approximately £170 million to secure and advance further development opportunities. The projects currently generate an interim income of around £5 million per annum and fall into four principal categories: major retail-led, mixed-use schemes; extensions to existing shopping centres; retail parks; and offices. Firstly, Hammerson is working in partnership with local authorities and councils in several towns and cities to advance major retail-led city centre schemes. These include potential developments in Kingston-upon-Thames, Leeds, Milton Keynes and Sheffield, with phased start dates from 2008 onwards. Since 30 June, Hammerson has received planning consent for its proposed 105,000 m(2) mixed-use scheme in Sheffield city centre. Anchored by John Lewis, the scheme will also include 100 smaller unit stores, up to 200 apartments, and 2,200 car parking spaces. Construction of the first phase could begin in 2008. In Leeds, a planning application has recently been submitted for a 100,000 m(2) retail-led development in the city centre. The development will also be anchored by John Lewis and include 100 smaller unit stores, up to 600 residential units and 2,700 car parking spaces. Secondly, within Hammerson's portfolio there are opportunities to extend and enhance a number of its existing shopping centres, including Brent Cross in north London, WestQuay in Southampton and The Oracle in Reading. In February of this year, Hammerson entered into a development agreement with Peterborough City Council for a major expansion and refurbishment of the Queensgate scheme in which the group holds a 50% interest. Similarly, in France, Hammerson has plans for improvements to three of its shopping centres near Paris, Espace Saint Quentin, Les 3 Fontaines and Italie 2. Thirdly, the group has a number of opportunities to develop and expand its existing retail parks portfolio. Within the recently acquired LxB portfolio, expansion and improvement programmes are planned for the schemes in Belfast, Didcot and Newcastle. Fourthly, Hammerson has the potential to expand its portfolio in central London by around 400,000 m(2), including nearly 200,000 m(2) of offices. The group is currently progressing a project in Bishopsgate, London EC1, having acquired an option to purchase a development site adjoining its existing Norton Folgate site. Hammerson intends to submit a planning application during 2007 for a mixed-use development totalling 100,000 m(2) incorporating 67,000 m(2) of offices. The group has also appointed a master planner for the nearby Bishopsgate Goodsyard site, for up to 195,000 m(2) of offices, retail and residential accommodation and is advancing a major mixed-use scheme at Shoreditch High Street. In Paddington, planning consent is anticipated shortly for an 18,400 m(2) office development. Hammerson has a 50% interest in each of these three schemes. MARKETS AND OUTLOOK Economic environment The international environment has generally been benign in recent quarters. In the UK, economic growth improved in the first half of 2006, after a period of more modest growth in 2005. Although unemployment has risen, disposable incomes continue to grow and the housing market has picked up. In France, economic growth also increased in the first half of 2006, helping to reduce unemployment and support stronger growth in disposable incomes. UK retail UK non-food retail sales growth improved in the first half of 2006, although deflation continues to put pressure on retailers' margins. Modest increases in headline rents are being partially offset by increased tenants' incentives. To drive performance, it is anticipated that retailers will focus demand for additional space on profitable locations, including those offering the potential for good turnover growth or the opportunity to restrain costs. This trend should continue to favour prime regional shopping centres and retail parks. London offices In central London, take-up of office space in the first half of 2006 was robust and above the average level seen over the past decade. This contributed to a further reduction in the vacancy rate, from 9% at the start of the year to 7.5% by the end of June, resulting in an increase in rents. Although the number of new office developments has risen since the start of 2006, particularly in the City, little of this new supply will come to the market before the beginning of 2008. Current forecasts for office demand suggest that the additional supply can be absorbed by the market without increasing the vacancy rate during 2008. France retail French non-food retail sales growth improved in the first half of 2006 and further growth is projected for the rest of this year, which should result in higher shopping centre rents on new leases. Existing leases are subject to annual indexation linked to the cost of construction index, which for 2006 is 0.7%. However, indications are that the index from 1 January 2007 will rise to around 5%. Paris offices Economic recovery is leading to higher levels of office take-up in central Paris and a gradual reduction in vacancy, currently around 5%. This is exerting upward pressure on headline rents and leading to a reduction in tenant incentives. Rents for new leases are forecast to rise further over the next 18 months. Existing leases are generally subject to indexation, as referred to in the previous paragraph. Investment markets Property investment markets in both the UK and France have continued to see strong increases in capital values, with existing investors increasing their allocation to the sector and new investors entering the market. This process has so far benefited both prime and secondary assets. It is anticipated that future capital growth will be driven more by underlying rental growth than by a further reduction in yields. This trend should favour prime property over secondary assets, the latter also being more vulnerable to an increase in interest rates. PROPERTY PORTFOLIO INFORMATION Investment Property Rental Data for the six months ended 30 June 2006 Gross Net Estimated rental rental Vacancy Rents rental Reversionary/ income income rate passing value (Over-rented) £m £m % £m £m % Notes (1) (2) (3) (4) United Kingdom Retail: Shopping centres 54.1 46.9 1.2 105.2 117.4 10.3 Retail parks 14.0 13.5 4.2 29.4 34.3 10.8 68.1 60.4 2.0 134.6 151.7 10.4 Office: City 11.4 8.7 22.5 21.7 25.4 (11.8) West End 2.0 1.6 0.4 6.5 7.7 17.4 Docklands and 5.7 4.5 12.6 12.9 12.7 (13.6) other 19.1 14.8 16.4 41.1 45.8 (7.8) Total United Kingdom 87.2 75.2 5.9 175.7 197.5 5.7 Continental Europe Retail 31.6 26.8 3.9 58.9 68.1 9.6 Office 7.3 6.4 18.6 21.0 23.8 (3.2) Total Continental Europe 38.9 33.2 6.8 79.9 91.9 6.0 Group Retail 99.7 87.2 2.6 193.5 219.8 10.1 Office 26.4 21.2 16.9 62.1 69.6 (6.2) Total Investment Portfolio 126.1 108.4 6.2 255.6 289.4 5.8 Income on developments and other sources not analysed above 3.5 0.9 As disclosed in note 2 to the accounts 129.6 109.3 Selected information at 31 December 2005 Group Retail 1.7 194.5 224.9 10.8 Office 26.0 49.2 60.1 (9.2) Total Investment 6.8 243.7 285.0 6.1 Portfolio 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 the ERV exceeds, or falls short of, rents passing and the estimated rental value of vacant space. PROPERTY PORTFOLIO INFORMATION (CONTINUED) Investment Property Valuation Data for the six months ended 30 June 2006 True Properties Revaluation Capital Total Initial equivalent at valuation in the period return return yield yield £m £m % % % % Notes (1) (2) United Kingdom Retail: Shopping centres 2,271 146 7.0 9.3 4.5 5.0 Retail parks 738 35 5.0 7.0 3.3 4.9 3,009 181 6.5 8.7 4.2 5.0 Office: City 442 67 18.2 20.4 2.3 5.2 West End 109 13 13.1 14.9 2.0 4.9 Docklands and other 181 17 10.1 13.0 5.5 6.0 732 97 15.2 17.5 3.0 5.3 Total United Kingdom 3,741 278 8.2 10.4 3.9 5.0 Continental Europe Retail 1,186 60 5.0 7.3 4.2 5.3 Office 468 45 9.9 11.5 2.7 4.8 Total Continental Europe 1,654 105 6.4 8.5 3.8 5.2 Group Retail 4,195 241 6.1 8.3 4.2 5.1 Office 1,200 142 13.1 15.0 3.1 5.1 Total Investment Portfolio 5,395 383 7.6 9.8 3.9 5.1 Developments 858 70 11.4 11.3 Total Group including developments 6,253 453 8.1 10.0 Selected information at 31 December 2005 Group Retail 4,006 4.4 5.3 Office 952 3.1 5.7 Total Investment Portfolio 4,958 4.2 5.4 Notes (1) Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of property value. (2) The average income return, reflecting the timing of future rental increases, based on current ERV, resulting from lettings, lease renewals and rent reviews, assuming rents are received quarterly in advance. PROPERTY PORTFOLIO INFORMATION (CONTINUED) Development Property Data As at 30 June 2006 Estimated Cost Cost total Projected Forecast Ownership to to development annual completion Property interest Area date Value complete cost income Let date % m2 £m £m £m £m £m % Notes (1) (1) (1) (1) (1) (2) Broadmead, Bristol 50 140,000 61 84 169 230 17 42 Sep 2008 New Shires, Leicester 60 60,000 43 60 157 200 13 38 Sep 2008 Parinor, Aulnay-Sous-Bois 100 24,000 14 14 61 75 5 8 Apr 2008 125 Old Broad Street, London 100 30,700 64 116 96 160 18 - Dec 2007 EC2 Total current developments 182 274 483 665 53 Bishops Square, London E1(3) 279 11 290 26 100 Jul 2005 Cost to date of other 112 developments Revaluation gains on 285 developments Total development properties (note 8 to the accounts) 858 Notes (1) Capital costs including capitalised interest. Indicates Hammerson's share of the costs, value and income. (2) Amount let or under offer by income at 31 August 2006. (3) Practical completion of Bishops Square was achieved in July 2005. It is anticipated that this property will be transferred to the investment portfolio in September 2006 when it will be ready for its intended use. Consolidated Income Statement Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m 249.2 Gross rental income 129.6 119.6 Operating profit before gains on investment 178.9 properties 2 92.5 87.1 607.6 Gains on investment properties 2 383.4 200.7 786.5 Operating profit 2 475.9 287.8 (102.1) Finance costs (55.7) (50.8) - Bond redemption costs (33.7) - 12.6 Finance income 8.0 6.5 1.6 Change in fair value of interest rate swaps (9.7) 3.8 (87.9) Net finance costs 4 (91.1) (40.5) 698.6 Profit before tax 384.8 247.3 1.0 Current tax 5(a) (0.7) (1.9) (133.9) Deferred tax 5(a) (61.1) (42.2) (132.9) Tax charge (61.8) (44.1) 565.7 Profit for the period 323.0 203.2 Attributable to: 554.4 Equity shareholders 319.3 199.7 11.3 Minority interests 3.7 3.5 565.7 Profit for the period 323.0 203.2 198.0p Basic earnings per share 7 112.3p 72.2p 197.6p Diluted earnings per share 7 112.1p 72.0p Adjusted earnings per share are shown in note 7. All results derive from continuing operations. Consolidated Balance Sheet *31 December 2005 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m Non-current assets 5,731.7 Investment and development properties 8 6,253.2 4,766.7 35.6 Interests in leasehold properties 34.3 32.6 44.3 Plant, equipment and owner-occupied properties 36.9 6.2 49.5 Investments 9 57.2 47.9 - Loans receivable 10 - 20.3 4.5 Other receivables 2.8 2.5 5,865.6 6,384.4 4,876.2 Current assets 144.2 Receivables 10 93.2 71.9 45.5 Cash and deposits 11 293.0 233.6 189.7 386.2 305.5 6,055.3 Total assets 6,770.6 5,181.7 Current liabilities 220.7 Payables 12 161.7 190.3 60.5 Tax liabilities 60.1 61.6 0.5 Borrowings 13 277.1 1.9 281.7 498.9 253.8 Non-current liabilities 2,094.3 Borrowings 13 2,173.2 1,882.5 406.4 Deferred tax 5(c) 477.1 273.1 25.5 Tax liabilities 25.6 33.7 35.9 Obligations under finance leases 34.2 32.9 16.9 Net pension liability 15 7.2 17.1 18.9 Other payables 18.5 30.6 2,597.9 2,735.8 2,269.9 2,879.6 Total liabilities 3,234.7 2,523.7 3,175.7 Net assets 3,535.9 2,658.0 Equity 71.2 Called up share capital 71.3 69.4 659.5 Share premium account 16 660.2 599.5 (32.8) Translation reserve 16 (38.6) (55.6) 32.9 Hedging reserve 16 39.1 53.7 7.2 Capital redemption reserve 16 7.2 7.2 6.7 Other reserves 16 8.0 5.4 * 221.8 Revaluation reserve 16 234.7 108.2 2,163.7 Retained earnings 16 2,504.1 1,831.4 (4.4) Investment in own shares 17 (4.0) (4.4) * 3,125.8 Equity shareholders' funds 3,482.0 2,614.8 49.9 Equity minority interests 53.9 43.2 3,175.7 Total equity 3,535.9 2,658.0 £10.97 Diluted net asset value per share 7 £12.21 £9.42 £12.37 EPRA net asset value per share 7 £13.89 £10.36 *Restated (see note 17). Consolidated Statement of Recognised Income and Expense Year ended Six months Six months 31 December ended ended 2005 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m (39.3) Foreign exchange translation differences (5.5) (63.1) Net gain on hedge of net investment in foreign 32.9 subsidiaries 16 6.2 53.7 197.5 Revaluation gains on development properties 16 70.0 61.3 11.6 Revaluation gains on owner-occupied properties 16 3.4 - 2.7 Revaluation gains on investments 16 6.1 1.5 (6.3) Actuarial gains/(losses) on pension schemes 15, 16 3.2 (3.5) (55.5) Tax on items taken directly to equity 5(b) (9.4) (16.7) 143.6 Net gain recognised directly in equity 74.0 33.2 565.7 Profit for the period 323.0 203.2 709.3 Total recognised income and expense 397.0 236.4 Attributable to: 699.2 Equity shareholders 393.0 234.8 10.1 Minority interests 4.0 1.6 709.3 Total recognised income and expense 397.0 236.4 Reconciliation of Equity Year ended Six months Six months 31 December 2005 ended ended 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m 2,414.2 Opening equity shareholders' funds 3,125.8 2,414.2 63.6 Issue of shares 0.8 1.8 (2.3) Purchase of own shares 17 - (2.3) 2.1 Share-based employee remuneration 16 1.7 0.8 * - Gain on award of own shares to employees 16 0.3 - 2,477.6 3,128.6 2,414.5 699.2 Total recognised income and expense 393.0 234.8 3,176.8 3,521.6 2,649.3 (51.0) Dividends 6 (39.6) (34.5) 3,125.8 Closing equity shareholders' funds 3,482.0 2,614.8 *Restated (see note 17). Consolidated Cash Flow Statement Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m Operating activities 178.9 Operating profit before gains on investment 92.5 87.1 properties 1.8 Adjustment for non-cash items 18 (0.2) 0.9 (44.4) Decrease/(Increase) in receivables 38.8 24.4 38.9 (Decrease)/Increase in payables (40.5) 16.6 175.2 Cash generated from operations 90.6 129.0 (123.6) Interest and bond redemption costs paid (128.8) (89.0) 13.1 Interest received 6.4 7.0 (19.8) Tax paid (1.1) (1.8) 44.9 Cash flows from operating activities (32.9) 45.2 Investing activities (314.9) Purchase of property (33.1) (86.7) (223.2) Development of property (133.2) (96.2) 224.4 Sale of property 137.7 217.2 Purchase of interests in joint ventures and subsidiary companies 6.8 - - (0.5) Purchase of investments (1.4) - 18.2 Decrease/(Increase) in other long term receivables 1.7 (0.5) (289.2) Cash flows from investing activities (28.3) 33.8 Financing activities 3.0 Issue of shares 0.8 1.8 (2.3) Purchase of own shares 17 - (2.3) - Proceeds from award of own shares 0.2 - 318.6 Increase in medium and long term borrowings 71.0 120.4 (30.3) Increase/(Decrease) in short term borrowings 276.2 15.7 (1.8) Dividends paid to minorities - - (51.0) Equity dividends paid (39.6) (34.5) 236.2 Cash flows from financing activities 308.6 101.1 (8.1) Net increase/(decrease) in cash and deposits 247.4 180.1 53.7 Opening cash and deposits 45.5 53.7 (0.1) Exchange translation movements 0.1 (0.2) 45.5 Closing cash and deposits 11 293.0 233.6 Analysis of Movement in Net Debt Borrowings Borrowings Short term Cash at due within due after deposits bank one year one year Net debt £m £m £m £m £m Balance at 1 January 2006 22.4 23.1 (0.5) (2,094.3) (2,049.3) Unamortised bond issue costs written - - - (2.0) (2.0) off Cash flow 254.5 (7.1) (276.2) (71.0) (99.8) Exchange - 0.1 (0.4) (5.9) (6.2) Balance at 30 June 2006 276.9 16.1 (277.1) (2,173.2) (2,157.3) Notes to the Accounts 1. FINANCIAL INFORMATION The financial information contained in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985, or complete financial statements under IAS 1 'Presentation of Financial Statements'. The results for the year ended 31 December 2005 are an abridged version of the full accounts for that year, which received an unqualified report from the auditors, did not contain a statement under s237(2) or (3) of the Companies Act 1985 and have been filed with the Registrar of Companies. The unaudited financial information contained in this report has been prepared on the basis of the accounting policies set out in the full accounts for the year ended 31 December 2005. This interim financial report has been prepared using accounting policies consistent with IFRS and in accordance with IAS 34 'Interim Financial Reporting'. The group's financial performance does not suffer materially from seasonal fluctuations. There have been no changes in estimates of amounts reported in prior periods which have a material impact on the current interim period. There have been no material changes in reportable contingent liabilities since 31 December 2005. The principal exchange rates used to translate foreign currency denominated amounts are: Balance sheet: £1 = €1.45 Income statement: £1 = €1.46 The interim report was approved by the Board on 4 September 2006. Notes to the Accounts 2. OPERATING PROFIT Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 £m £m £m 249.2 Gross rental income 129.6 119.6 (4.0) Rents payable (2.3) (2.4) 245.2 Gross rental income, after rents payable 127.3 117.2 43.2 Service charge income 22.4 21.0 (52.3) Service charge expenses (26.7) (25.3) (9.1) Net service charge expenses (4.3) (4.3) (25.8) Other property outgoings (13.7) (11.6) (34.9) Property outgoings (18.0) (15.9) 210.3 Net rental income 109.3 101.3 3.0 Management fees receivable 2.3 1.1 (17.5) Cost of property activities (10.3) (7.8) (16.9) Corporate expenses (8.8) (7.5) (31.4) Administration expenses (16.8) (14.2) Operating profit before gains on investment 178.9 properties 92.5 87.1 32.1 Profit on the sale of investment properties 0.9 31.5 575.5 Revaluation gains on investment properties 382.5 169.2 607.6 Gains on investment properties 383.4 200.7 786.5 Operating profit 475.9 287.8 3. SEGMENTAL ANALYSIS The group's primary segments are the geographical locations of its properties. Following the disposal of two properties in Germany, the properties in Continental Europe are located principally in France. Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 £m £m £m 170.2 Gross rental income UK 90.7 80.8 79.0 Continental Europe 38.9 38.8 249.2 129.6 119.6 532.2 Segment result UK 354.0 201.9 268.3 Continental Europe 130.7 92.2 (14.0) Unallocated corporate costs (8.8) (6.3) 786.5 Operating profit 475.9 287.8 Notes to the Accounts 4. NET FINANCE COSTS Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 £m £m £m 16.8 Interest on bank loans and overdrafts 8.9 7.6 102.0 Interest on other loans 57.7 50.6 3.2 Interest on obligations under finance leases 1.6 1.4 1.3 Other interest payable 2.1 1.2 123.3 Gross interest costs 70.3 60.8 (21.2) Less: Capitalised interest (14.6) (10.0) 102.1 Finance costs 55.7 50.8 - Bond redemption costs 33.7 - (12.6) Finance income (8.0) (6.5) (1.6) Change in fair value of interest rate swaps 9.7 (3.8) 87.9 Net finance costs 91.1 40.5 In May 2006, £93.8 million of the £200.0 million 10.75% sterling bonds due 2013 were redeemed. Bond redemption costs include a redemption premium of £31.7 million and unamortised issue costs of £2.0 million. 5. TAX (a) Tax Charge Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 £m £m £m UK current tax 1.0 On net income before revaluations and disposals 0.2 0.7 Foreign current tax 2.0 On net income before revaluations and disposals 0.5 1.2 (4.0) Credit in respect of prior years - - (2.0) 0.5 1.2 (1.0) Total current tax charge/(credit) 0.7 1.9 Deferred tax 21.5 On net income before revaluations and disposals 7.5 9.8 129.6 On revaluations and disposals 53.6 32.4 (17.2) Credit in respect of prior years - - 133.9 61.1 42.2 132.9 Tax charge 61.8 44.1 (b) Tax Recognised Directly in Equity Six months Six months ended ended Year ended 30 June 2006 30 June 2005 31 December 2005 £m £m £m 57.0 Deferred tax charge on revaluations 8.6 17.8 Deferred tax charge/(credit) on actuarial gains/ (1.5) (losses) on pension schemes 0.8 (1.1) 55.5 9.4 16.7 1.7 Deferred tax charge on interest rate swaps - 1.7 57.2 Tax recognised directly in equity 9.4 18.4 Notes to the Accounts 5. TAX (continued) (c) Deferred Tax Movements 1 January Recognised Recognised Foreign 2006 in income in equity exchange 30 June 2006 £m £m £m £m £m UK Capital gains net of capital losses 329.1 45.4 8.6 - 383.1 Capital allowances 36.1 4.5 - - 40.6 Other timing differences (2.3) (1.5) 0.8 - (3.0) Dividends receivable from France 62.0 14.3 - 0.2 76.5 Revenue tax losses (33.1) (11.5) - - (44.6) 391.8 51.2 9.4 0.2 452.6 France 14.6 9.9 - - 24.5 Net deferred tax provision 406.4 61.1 9.4 0.2 477.1 (d) Commentary Current tax is reduced by the French tax exemption, capital allowances and tax relief for capitalised interest. Under IAS 12, deferred tax provisions are made for the tax that would potentially be payable on the realisation of investment properties and other assets at book value. For UK investment properties, deferred tax is calculated on the basis that properties will be realised predominantly through sale so that capital gains are reduced by indexation. Hammerson's French properties, with the exception of 9 place Vendome, have been elected into the SIIC tax exempt regime. 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. (e) UK REITs The tax charge does not reflect the current expectation that the Company will elect for UK REIT status with effect from 1 January 2007. Under UK REIT rules, UK rental income and capital gains on investment properties will be exempted from tax subject to Hammerson paying 'Property Income Dividends' of at least 90% of the exempted rental income, which will be taxable on shareholders depending on their circumstances. On electing, the Company will pay a conversion charge of 2% of UK property values. If the Company elects for REIT status, the 31 December 2006 accounts will show the conversion charge and the write back of almost all deferred tax relating to UK capital gains and capital allowances. Actual amounts will depend on the 31 December 2006 property values, but based on the 30 June 2006 figures, the conversion charge would be approximately £96 million and around £410 million of the deferred tax provision would be released. Notes to the Accounts 6. DIVIDENDS The interim dividend of 6.38 pence per share (30 June 2005: 5.80 pence per share) was approved by the Board on 4 September 2006 and is payable on 20 October 2006 to shareholders on the register at the close of business on 22 September 2006. The dividend has not been included as a liability as at 30 June 2006. The 2005 final dividend of £39.6 million, representing 13.91 pence per share, was paid on 17 May 2006 and is included in the Reconciliation of Equity. 7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE 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 excludes 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 shown in the following tables. Year ended 31 December 2005 Six months ended 30 June 2006 Six months ended 30 June 2005 Pence Pence Earnings Shares Pence per Earnings Shares per share Earnings Shares per share £m million share £m million £m million 554.4 280.0 198.0 Basic 319.3 284.4 112.3 199.7 276.7 72.2 Adjustments: Dilutive share - 0.5 (0.4) options - 0.5 (0.2) - 0.6 (0.2) 554.4 280.5 197.6 Diluted 319.3 284.9 112.1 199.7 277.3 72.0 Adjustments: Revaluation movement on investment (575.5) (205.1) properties (382.5) (134.2) (200.7) (72.4) Profit on disposal of investment (32.1) (11.4) properties (0.9) (0.3) - - Movement in fair value of interest (1.6) (0.6) rate swaps 9.7 3.4 (3.8) (1.4) 133.9 47.7 Deferred tax charge 61.1 21.4 42.2 15.2 Minority interests in respect of the 8.4 3.0 above 2.6 0.9 2.3 0.9 87.5 31.2 EPRA, diluted 9.3 3.3 39.7 14.3 Bond redemption - - costs 33.7 11.8 - - 87.5 31.2 Adjusted, diluted 43.0 15.1 39.7 14.3 Notes to the Accounts 7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE (continued) The calculations for net asset value per share are shown in the table below: 31 December 30 June 30 June 2006 2005 2005 Net asset Equity Net asset Net asset value shareholders' value value per share funds Shares per share per share £ £m million £ £ 10.97 Basic 3,482.0 285.2 12.21 9.42 Company's own shares held in Employee Share n/a Ownership Plan - (0.6) n/a n/a n/a Unexercised share options 10.1 1.4 n/a n/a 10.97 Diluted 3,492.1 286.0 12.21 9.42 (0.51) Fair value adjustment to borrowings (net of (67.6) (0.24) (0.54) tax) 10.46 EPRA triple net, diluted 3,424.5 11.97 8.88 (0.02) Fair value of interest rate swaps 2.4 0.01 (0.03) 0.51 Fair value adjustment to borrowings (net of 67.6 0.24 0.54 tax) 1.42 Deferred tax 477.1 1.67 0.97 12.37 EPRA, diluted 3,971.6 13.89 10.36 8. INVESTMENT AND DEVELOPMENT PROPERTIES Investment properties Development Total properties Valuation Cost Valuation Cost Valuation Cost £m £m £m £m £m £m Balance at 1 January 2006 4,958.0 3,348.2 773.7 512.4 5,731.7 3,860.6 Exchange adjustment 8.3 6.0 0.8 0.5 9.1 6.5 Additions 36.7 36.7 130.0 130.0 166.7 166.7 Disposals (119.9) (161.1) (1.5) (0.6) (121.4) (161.7) Transfers 129.0 83.4 (129.0) (83.4) - - Capitalised interest 0.3 0.3 14.3 14.3 14.6 14.6 Revaluation adjustment 382.5 - 70.0 - 452.5 - Balance at 30 June 2006 5,394.9 3,313.5 858.3 573.2 6,253.2 3,886.7 All properties are stated at market value as at 30 June 2006, 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, Chartered Surveyors. The valuations have been prepared in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors and with IVA 1 of the International Valuation Standards. At 30 June 2006 the total amount of capitalised interest included in development properties was £41.7 million (31 December 2005: £34.7 million) calculated using the group's average cost of borrowings. Notes to the Accounts 9. INVESTMENTS Available for sale investments 31 December 2005 30 June 2006 30 June 2005 £m £m £m 34.1 Value Retail Investors Limited Partnerships 38.8 33.1 14.3 Interests in Value Retail plc and related companies 17.1 13.8 1.1 Other investments 1.3 1.0 49.5 57.2 47.9 10. RECEIVABLES - CURRENT ASSETS 31 December 2005 30 June 2006 30 June 2005 £m £m £m 34.3 Trade receivables 39.5 26.3 20.6 Loans receivable 20.7 - 78.6 Other receivables 30.9 33.9 0.5 Corporation tax 0.2 0.3 2.9 Prepayments 1.9 1.9 7.3 Fair value of interest rate - 9.5 swaps 144.2 93.2 71.9 Loans receivable comprised a loan of €30.0 million (£20.7 million) to Value Retail plc bearing interest based on EURIBOR and maturing on 10 October 2006. The loan was classified as 'available for sale' and included at fair value, which equates to cost. At 30 June 2005 the loan was included within non-current receivables. 11. CASH AND DEPOSITS 31 December 2005 30 June 2006 30 June 2005 £m £m £m 23.1 Cash at bank 16.1 225.4 22.4 Short term deposits 276.9 8.2 45.5 293.0 233.6 Analysis by currency 29.4 Sterling 36.0 189.3 16.1 Euro 257.0 44.3 45.5 293.0 233.6 Short term deposits principally comprised deposits placed on money markets with rates linked to LIBOR. 12. PAYABLES - CURRENT LIABILITIES 31 December 2005 30 June 2006 30 June 2005 £m £m £m 46.7 Trade payables 49.5 44.5 154.3 Other payables 91.5 132.7 19.7 Accruals 18.3 13.1 - Fair value of interest rate swaps 2.4 - 220.7 161.7 190.3 Notes to the Accounts 13. BORROWINGS 31 December 2005 30 June 2006 30 June 2005 £m £m £m 540.9 Bank loans and overdrafts: Unsecured 205.7 341.9 69.6 Secured 71.7 67.2 1,484.3 Other loans: Unsecured 2,174.5 1,473.9 2,094.8 2,451.9 1,883.0 - Exchange difference on currency swaps (1.6) 1.4 2,094.8 2,450.3 1,884.4 During the six months ended 30 June 2006, £93.8 million of the group's £200 million 10.75% sterling bonds due 2013 were redeemed and unsecured bonds of £300 million 5.25% due 2016 and €700 million 4.875% due 2015 were issued. Analysis by currency 31 December 2005 30 June 2006 30 June 2005 £m £m £m 1,004.5 Sterling 1,211.5 1,001.6 1,090.3 Euro 1,238.8 882.8 2,094.8 2,450.3 1,884.4 As part of the group's foreign currency hedging programme, at 30 June 2006 the group had currency swaps of £290.6 million being €418.0 million sold forward against sterling for value on 31 July 2006, at a spot rate of £1 = €1.44. Undrawn committed facilities 31 December 2005 30 June 2006 30 June 2005 £m £m £m - Expiring within one year 8.8 - 225.9 Expiring between one and two years - 228.4 57.7 Expiring after more than two years 722.7 256.6 283.6 731.5 485.0 14. FAIR VALUE OF FINANCIAL INSTRUMENTS 31 December 2005 30 June 2006 30 June 2005 Book value Fair value Book value Fair value Book value Fair value £m £m £m £m £m £m (0.5) (0.5) Current borrowings (279.1) (282.0) (0.5) (0.5) (2,111.2) (2,317.8) Non-current borrowings (2,193.1) (2,286.7) (1,900.2) (2,113.8) 16.9 16.9 Unamortised borrowing costs 20.3 20.3 17.7 17.7 - - Currency swaps 1.6 1.6 (1.4) (1.4) (2,094.8) (2,301.4) Total borrowings (2,450.3) (2,546.8) (1,884.4) (2,098.0) 7.3 7.3 Interest rate swaps (2.4) (2.4) 9.5 9.5 Notes to the Accounts 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The fair values of the group's long-term borrowings have been estimated on the basis of quoted market prices. The fair values of the group's outstanding interest rate swaps have been estimated by calculating the present value of future cash flows, using appropriate market discount rates. Details of the group's cash and short term deposits are set out in note 11. Their fair values and those of other receivables and payables equate to their book values. At 30 June 2006, the fair value of borrowings exceeded their book value by £96.5 million (31 December 2005: £206.6 million), equivalent to 34 pence per share (31 December 2005: 72 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 24 pence per share (31 December 2005: 51 pence per share). 15. NET PENSION LIABILITY The net pension liability has reduced since 31 December 2005 following employer contributions to the group's funded defined benefit scheme of £7.0 million and actuarial gains of £3.2 million. 16. RESERVES Share Capital premium redemption account Translation Hedging reserve Other reserve reserve reserves £m £m £m £m £m Balance at 1 January 2006 659.5 (32.8) 32.9 7.2 6.7 Exchange adjustment - (5.8) - - - Net gain on hedging activities - - 6.2 - - Premium on issue of shares 0.7 - - - - Share-based employee remuneration - - - - 1.7 Cost of shares awarded to employees - - - - (0.4) Balance at 30 June 2006 660.2 (38.6) 39.1 7.2 8.0 Revaluation Retained reserve earnings £m £m Balance at 1 January 2006 221.8 2,163.7 Revaluation gains on development properties 70.0 - Revaluation gains on owner-occupied properties 3.4 - Revaluation gains on investments 6.1 - Transfer on completion of development properties (45.6) 45.6 Transfer on sale of development and owner-occupied properties (12.4) 12.4 Actuarial gains on pension schemes - 3.2 Gain on award of own shares to employees - 0.3 Dividends paid - (39.6) Deferred tax recognised directly in equity (8.6) (0.8) Profit for the period attributable to equity shareholders - 319.3 Balance at 30 June 2006 234.7 2,504.1 The revaluation reserve and £2,058 million of retained earnings represent unrealised revaluation gains and do not constitute distributable reserves. Notes to the Accounts 17. INVESTMENT IN OWN SHARES 31 December 2005 30 June 2006 30 June 2005 * £m £m £m 2.8 Opening balance 4.4 2.8 2.3 Purchase of own shares - 2.3 Transfer to other reserves - cost of shares awarded (0.7) to employees (0.4) (0.7) 4.4 Closing balance 4.0 4.4 *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 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 of £0.5 million between cost and the carrying value as previously reported at 30 June 2005, has been transferred to other reserves. The expense related to share-based employee remuneration is calculated in accordance with IFRS 2 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. 18. ADJUSTMENTS FOR NON CASH ITEMS IN THE CASH FLOW STATEMENT Six months Six months ended ended Year ended 30 June 2006 30 June 2005 31 December 2005 £m £m £m 0.5 Depreciation 0.4 1.3 2.1 Share-based employee remuneration 1.7 0.5 0.4 Unrealised foreign exchange losses/(gains) 0.1 (0.6) 4.4 Amortisation of lease incentives and other direct 2.1 1.5 costs (5.6) Increase in accrued rents receivable (4.5) (1.8) 1.8 (0.2) 0.9 Glossary of Terms Adjusted net asset value ('NAV') NAV per share adjusted to exclude deferred tax and the fair value of interest per share rate swaps. Adjusted earnings per share EPS adjusted to exclude deferred tax, the gain on revaluation of investment properties, profits on disposal of investment properties and related tax, the change in fair value of interest rate swaps and, in 2006, the costs of bond redemption. Book value The amount at which assets and liabilities are reported in the financial statements. 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. Development pipeline The group's current and potential development programme. Earnings per share ('EPS') Profit for the period divided by the weighted 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 Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of property value. Interest rate and currency swap An agreement with another party to exchange an interest or currency rate obligation for a pre-determined period of time. Like-for-like / underlying net The percentage change in rental income for completed investment properties rental income owned throughout both current and prior periods, after taking account of exchange translation movements. Net asset value per share Equity shareholders' funds divided by the number of shares in issue at the balance sheet date. ('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. REIT Real Estate Investment Trust. A UK tax exempt regime for publicly quoted companies engaged in property rentals. 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). Reversionary or under-rented The percentage by which the ERV exceeds rents passing, 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 cost All capital expenditure on a development, including capitalised interest. Total return Net rental income and capital return expressed as a percentage of the opening book value of property, adjusted for capital expenditure and exchange translation movements, calculated on a monthly time weighted basis. True equivalent yield The average income return, reflecting the timing of future rental increases, based on current ERV, resulting from lettings, lease renewals and rent reviews, assuming rents are received quarterly in advance. Underlying valuation change The percentage change in property values for properties owned at the balance sheet date since the previous balance sheet date after taking into account capital expenditure, capitalised interest and exchange translation movements. 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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