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.
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