Interim Results
Hammerson PLC
04 September 2007
HAMMERSON HALF-YEAR RESULTS
Hammerson plc, the European REIT, announces its unaudited results for the six
months to 30 June 2007.
Six months to:
30 June 30 June Change
2007 2006
Net rental income £138.3m £109.3m +26.5%
Profit before tax £367.8m £384.8m -4.4%
Adjusted profit before tax(1) £54.8m £44.8m +22.3%
Basic earnings per share(1) 126.8p 112.3p +12.9%
Adjusted earnings per share(1) 18.4p 15.1p +21.9%
Interim dividend per share 12.0p 6.38p +88%
30 June 2007 31 Dec 2006
Equity shareholders' funds £4,649m £4,165m +11.6%
Adjusted net asset value per share, EPRA basis(1) £16.35 £15.00 +9.0%
Note
(1) Details of the calculations for basic and adjusted data are shown on page 5 and in note 7 on page
24.
Key points
• Adjusted earnings per share up 22% compared with the first half of 2006,
reflecting increased rental income from lettings, asset management
initiatives, rent reviews, indexation of rent from leases in France and
development completions.
• Strong growth in net asset value per share, reflecting a portfolio capital
return of 5.9%.
• The group invested £389 million in the first half of 2007. Since 30 June
the sale of two major assets raised over £500 million, some £40 million in
excess of their value at 31 December 2006.
• Good progress made with the current development programme and in advancing
the substantial development pipeline.
• Strong balance sheet with gearing of 54%, since reduced by disposals to
43% on a pro-forma basis.
• The Directors intend to recommend an increase in the total dividend for
2007 of around 25% compared with 2006. The interim dividend has been
increased by 88% to provide a better balance between the interim and final
dividends.
The Chairman, John Nelson, said today:
'Against a background of greater uncertainty in financial markets, we are
maintaining our strategy of creating value through asset management, development
activity and capital recycling in key property markets in the UK and France. We
have an investment portfolio of exceptional quality which, coupled with our
outstanding development programme and pipeline, will enable us to continue to
drive the performance of the business. I have great confidence in Hammerson's
future.'
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 half-year results to investors and
analysts at 9.30 a.m. today at the City Presentation Centre, 4 Chiswell Street,
London, EC1Y 4UP. A live webcast will be available on the morning of the
announcement on the Company's website (www.hammerson.com).
Financial calendar:
Ex dividend date 19 September 2007
Record date 21 September 2007
Interim dividend payable 19 October 2007
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 announce excellent results for the six months to 30 June 2007.
Adjusted net asset value per share increased by 9.0% to £16.35, principally
reflecting a capital return of 5.9% on the portfolio. Adjusted earnings per
share of 18.4 pence were 21.9% higher than in the first half of 2006, reflecting
increased rental income from asset management initiatives, rent reviews,
indexation of rent from leases in France and the completion last year of two
major developments.
Earlier this year, I stated our intention to recommend a total dividend for 2007
around 25% higher than the total for 2006. This remains the case. The Board has
decided that it is also appropriate to provide a more balanced profile between
the interim and final dividends and has therefore declared an interim dividend
of 12 pence per share, an increase of 88% over the interim dividend paid in
2006.
On 1 January 2007 we took advantage of the new tax-exempt regime for property
companies in the UK by converting to a Real Estate Investment Trust (REIT). We
continue to benefit from tax-exempt status in France following our entry three
years ago into the similar SIIC tax regime. It is therefore anticipated that
Hammerson will bear minimal tax in the future.
This has been an active year for Hammerson. We have continued our policy of
recycling capital, achieving growth in rents from the existing portfolio,
advancing developments and ensuring that the group remains in robust financial
shape. In the first half of the year, we invested £389 million, principally on
property acquisitions and our development programme. The six major developments
currently underway should demonstrate further substantial capital growth over
the next two years as they are completed and let. Progress has been maintained
since 30 June with two major disposals, which raised over £500 million, some £40
million in excess of the value of the assets at 31 December 2006.
In the first half of the year, demand for office accommodation both in central
London and Paris strengthened further, leading to increased rental values.
Conditions for retailers remained somewhat challenging, particularly in the UK,
but we continued to attract retailers to our existing schemes and developments.
After several years of rising values, investment activity in commercial property
in the UK showed signs of slowing in the second quarter, whilst in France,
property investment markets remained robust.
Looking ahead, in both the UK and France, we anticipate modest increases in
rents at our shopping centres and retail parks. In relation to the office
markets, with vacancy rates at their lowest level for five years and limited
availability in both markets, the fundamentals are positive. Nevertheless,
recent weakness in global financial markets may affect demand for office space,
with the impact in the City of London likely to be greater than in Paris. With
regard to investment markets, higher borrowing costs and concerns about risk are
likely to have a greater effect on the values of secondary property than on
prime property of the type owned by Hammerson.
Against this background, I believe that there are several reasons why Hammerson
remains extremely well placed to continue its out-performance over the
medium-term.
First, we have an investment portfolio of the highest quality, diversified
between the retail and office sectors in both the UK and France. It generates a
robust and growing income stream from a wide range of tenants, providing more
resilience than secondary property.
Second, we have a current development programme of nearly £1 billion and a
future pipeline providing the potential for capital investment of a further £5
billion over the next ten years. Our management team has consistently
demonstrated its ability to achieve excellent returns from development.
Third, we have a strong balance sheet, with only one major borrowing facility
maturing in the next four years. This will enable us to withstand any short-term
market weakness and continue to pursue attractive acquisition and development
opportunities.
In conclusion, we are maintaining our strategy of creating value through asset
management, development activity and capital recycling in key property markets
in the UK and France. We have an investment portfolio of exceptional quality
which, coupled with our outstanding development programme and pipeline, will
enable us to continue to drive the performance of the business. I have great
confidence in Hammerson's future.
John Nelson, Chairman
4 September 2007
BUSINESS AND FINANCIAL REVIEW
The financial information contained in this review is extracted or calculated
from the attached income statement, balance sheet, cash flow statement, other
statements, notes and glossary of terms.
Profit before tax
For the six months to 30 June 2007, profit before tax, which includes property
revaluation gains, was £367.8 million, compared with £384.8 million in 2006. The
table below shows adjusted profit before tax, which rose by £10.0 million to
£54.8 million compared with the equivalent period in 2006. During the first half
of the year the group benefited from letting activity, rent reviews, rental
indexation in France and income following the completion in 2006 of two major
developments at Bishops Square in London and 9 place Vendome in Paris. These
were partly offset by an increase in administration and finance costs.
Analysis of profit before tax Six months to Six months to Year to
30 June 2007 30 June 2006 31 December 2006
£m £m £m
Profit before tax 367.8 384.8 792.4
Adjustments:
Loss/(Profit) on the sale of investment
properties 0.5 (0.9) (95.8)
Revaluation gains on investment properties (323.4) (382.5) (664.8)
Goodwill impairment - - 12.6
Bond redemption costs 0.1 33.7 34.0
Change in fair value of interest rate swaps 9.8 9.7 16.1
Adjusted profit before tax 54.8 44.8 94.5
Adjusted earnings per share increased by 21.9% to 18.4 pence, reflecting the
underlying profit growth discussed above. Details of the calculations for
earnings per share are provided in note 7 on page 24.
The Directors have declared an interim dividend of 12 pence per share, an
increase of 88%, payable on 19 October 2007, reflecting a decision to provide a
more even balance between the interim and final dividends.
Net rental income
Net rental income for the six months to 30 June 2007 was £138.3 million,
compared with £109.3 million for the corresponding period in 2006. For
properties owned throughout both periods, there was an increase of £11.7 million
to £111.7 million. An analysis of net rental income is shown below.
Net rental income Six months to Six months to
30 June 2007 30 June
2006
£m £m
Properties owned throughout 111.7 100.0
Acquisitions 10.2 -
Developments 16.3 0.9
Properties sold - 8.6
Exchange translation and other 0.1 (0.2)
Total net rental income 138.3 109.3
Administration costs
Administration costs totalled £21.4 million for the six months to 30 June 2007
compared with £16.8 million for the equivalent period in 2006. The increase
principally reflected higher staffing costs resulting from increased business
activity and performance related remuneration.
Finance costs
Net finance costs at £72.0 million were £19.1 million lower than in the first
six months of 2006, reflecting the £33.7 million premium paid to redeem bonds
last year. An increase in the group's net debt and higher interest rates
partially offset this reduction. Interest capitalised totalled £11.7 million,
some £2.9 million lower than the equivalent figure during 2006 following
completion of two major developments in 2006. The group's average cost of
borrowing in the first half of 2007 was 6.1%, compared with 5.7% for the
corresponding period in 2006.
Tax
The current tax charge of £17.8 million for the six months to 30 June 2007
included £17.4 million in respect of the capital gain arising on the sale of 9
place Vendome, which was completed in July 2007. This was Hammerson's only
French property outside the SIIC regime. The related deferred tax provision of
£28.8 million has been released.
As a UK REIT and French SIIC, it is anticipated that the group will bear minimal
tax.
Balance sheet and financing
Hammerson's property portfolio was valued at £7.5 billion at 30 June 2007,
compared with £6.7 billion at 31 December 2006. The increase arose principally
from capital additions, including capitalised interest, of £389 million and a
revaluation surplus of £396 million.
At 30 June, group borrowings amounted to £2.6 billion, whilst cash and
short-term deposits were £76 million. Gearing was 54%.
Equity shareholders' funds increased by £484 million to £4.6 billion in the six
months to 30 June 2007, due mainly to the property valuation uplift of £396
million and the issue of five million shares in connection with the acquisition
of Ravenhead Retail Park, St Helens, which increased net assets by £79 million.
During the first half of the year, adjusted net asset value per share increased
by £1.35, or 9.0%, to £16.35. An analysis of adjusted net asset value per share
is shown below.
At 30 June 2007 At 31 December 2006
Analysis of net asset value £m £ per share £m £ per share
Basic 4,649 16.00 4,165 14.60
Effect of dilution:
On exercise of share options 6 n/a 9 n/a
Diluted 4,655 15.99 4,174 14.61
Adjustments:
Fair value of interest rate swaps 19 0.06 9 0.03
Deferred tax on revaluation surpluses and other items 85 0.30 103 0.36
EPRA, diluted 4,759 16.35 4,286 15.00
Basic shares in issue used for calculation (million) 290.6 285.2
Diluted shares used for calculation (million) 291.1 285.7
In April a new £340 million five-year bank facility was arranged, further
strengthening Hammerson's financial resources. At 30 June 2007, the average
maturity of the group's borrowings was nearly nine years with only £402 million
maturing in the next four years. In July we received proceeds of £506 million
from the sale of two properties. On a pro-forma basis the latter reduced net
debt to £2.0 billion and gearing to 43%.
Also in July, we made a tender offer for the £106 million 10.75% 2013 sterling
bonds outstanding. Following this, these bonds were redeemed and cancelled at a
premium of £26 million, including costs. The transaction will reduce future
annual interest costs by approximately £3.5 million.
Cash flow
There was a net cash inflow from operating activities of £46 million for the six
months ended 30 June 2007, compared with an outflow of £33 million for the same
period last year. The principal reasons for the change were the payment in 2006
of bond redemption costs, the timing of working capital receipts and payments,
particularly VAT and increased rental income in 2007. Capital expenditure in the
first half of this year totalled £285 million and overall there was a net cash
inflow, after financing, of £37 million.
Key performance indicators
Return on shareholders' equity
Hammerson achieved a return on shareholders' equity of 10.5% for the six months
ended 30 June 2007. Our estimated cost of equity is 8.5% per annum.
Ungeared portfolio returns relative to IPD
In the UK, Hammerson achieved a total ungeared property return of 6.0% in the
first six months of 2007, compared with the IPD UK property benchmark of 4.9%.
We aim to exceed the IPD benchmark by 1.0%.
In France, Hammerson showed a return of 13.4%. IPD does not publish an index for
France for the first six months of the year.
Occupancy levels
At 30 June 2007, the overall occupancy level in the investment portfolio was
96.8%. This compares with 96.6% at 31 December 2006 and a target of 97.0%.
Real estate portfolio
At 30 June 2007, Hammerson's portfolio was valued at £7.5 billion, of which
investment properties accounted for £6.7 billion or 89%. Our objective for the
investment portfolio is to achieve good growth in both capital and income and
outperform comparable benchmark indices. We pursue an active management policy
aimed at minimising vacancy rates in the portfolio and enhancing rental values.
We also follow a policy of actively recycling capital from mature assets into
properties and development projects offering the potential for higher returns.
At 30 June 2007, approximately 30% of the total portfolio was in respect of our
interests in ten major properties held in joint ventures. In most instances,
Hammerson has management responsibility for these assets and receives management
fees, which enhance our overall profitability.
Hammerson made two major acquisitions in the first six months of 2007. In March,
we acquired Ravenhead Retail Park, near St Helens town centre, for £120 million.
It provides 27,500m(2) of retail accommodation with a current annual net rental
income of £4.5 million. We anticipate starting construction of a £12 million
extension early in 2008.
In May, we acquired the freehold of Stockley House, London SW1 for a total of
£71 million. Completed in 1985, the 6,500m2 eight-storey office building
generates an annual net rental income of £3.1 million from leases expiring in
2010 and 2011. The property is adjacent to Victoria Station where we have
existing ownerships and are in discussions with Network Rail for the
regeneration of the station, which will include a major mixed-use development of
up to 100,000m(2). We intend to incorporate proposals for Stockley House into
our broader masterplan for Victoria.
A table of property valuations and capital returns for the six months to 30 June
2007 is shown below.
Shopping Centres Retail Parks Offices Total
Value Capital Value Capital Value Capital Value Capital
return return return return
£m % £m % £m % £m %
UK 2,508 2.9 1,391 3.3 1,593 6.9 5,492 4.0
France 1,247 11.6 107 (13.1) 573 16.3 1,927 11.2
Germany 80 8.3 - - - - 80 8.3
Total 3,835 5.6 1,498 1.9 2,166 9.2 7,499 5.9
The capital return from the group's portfolio overall was 5.9%, with returns
from the retail and office portfolios of 4.5% and 9.2% respectively. In the UK,
the capital return was 4.0%, which compares with an increase of 2.6% in the IPD
All Property Capital Growth Index. In France there was a strong uplift in the
values of the group's shopping centres, although the value of the retail park at
Villebon decreased as rental values were revised downwards. The value of the
French office portfolio includes 9 place Vendome at the agreed sale price.
Overall the vacancy rate decreased marginally from 3.4% at the end of 2006 to
3.2% at 30 June 2007. Success in letting empty space in the office portfolio was
offset by a slight increase in vacancy in the retail portfolio.
Several transactions initiated in the first six months of the year have been
completed since 30 June. In July, we entered into agreements to acquire two
retail park developments in France. Contracts were exchanged for the acquisition
of the freehold of a proposed development, St Omer Retail Park, for £20 million.
The site is located 2 km south of St Omer, between Calais and Lille. Hammerson's
ownership upon completion will be 19,300m(2). Around 89% of the scheme is
pre-let and the estimated net rental income upon completion in mid-2009 is £1.2
million per annum, representing an initial yield of 5.9%.
Hammerson has also signed heads of terms to acquire the development site of Cap
Malo Retail Park, near Rennes. Hammerson will pay £7 million for the five
hectare site. A planning application has been submitted for 10,700m(2) of retail
park accommodation and the decision is expected shortly. Additional development
costs are estimated at £7 million, with work on site expected to start in April
2008 for completion in April 2009.The forecast initial yield on completion is
6.2%.
A contract to purchase Grand Maine shopping mall, Angers, Maine et Loire, for
£44 million has been signed, with completion expected in October 2007. The
centre is anchored by a Carrefour hypermarket and produces an annual net rental
income of £1.9 million. There are opportunities to increase the income and value
of the centre.
In July, we concluded the sale of our 50% interest in 9 place Vendome, Paris
1er, a major office building developed in joint venture with AXA REIM France.
Hammerson's net sale proceeds amounted to £207 million giving rise to a
development profit of £117 million on our £90 million share of the total
development cost. Taking into account acquisition fees, the net yield to the
purchaser was below 3.5%, demonstrating the continuing strength of the
investment market in France.
Also in July, we sold a 50% interest in WestQuay Shopping Centre, Southampton
for £299 million. Opened in 2000, WestQuay was developed by Hammerson in a 50:50
joint venture with Barclays. We acquired the latter's 50% interest in December
2004 for £203 million. The scheme provides 76,200m(2) of high quality retail
accommodation anchored by John Lewis and Marks & Spencer. Hammerson and GIC Real
Estate, the purchaser, will each hold their respective 50% interests in WestQuay
in a joint venture partnership, with Hammerson retained as asset manager.
Current developments
Our strategy is to maintain a development programme with the objectives of
achieving good returns and creating high quality properties of a type which are
not generally available in the open market.
At 30 June 2007, six major projects were underway with a current cost of £377
million and an estimated cost on completion of £920 million. At 30 June,
development profits of £191 million were reflected in the overall portfolio
value. In addition, a further £46 million was realised on the sale in 2006 of a
50% interest in 125 Old Broad Street. The table below summarises these schemes,
which are forecast to generate aggregate net rental income of £73 million when
completed and fully let. Based on current valuation yields for comparable
completed investment properties, the additional total development profits from
these schemes could be of the order of £250 million, equivalent to a further
NAV uplift of 86 pence per share.
Current Ownership Lettable Cost at Value at Costs to Forecast Projected Let Forecast
developments interest area 30/6/07 30/6/07 complete total annual at completion
cost rent 31/8/07 date
% m(2) £m £m £m £m £m %
Notes (1) (2) (1) (2) (1) (2) (1) (2) (2) (3)
Retail
Cabot Circus, 50 92,000 134 158 111 245 18 66 Sep 2008
Bristol
Highcross, 60 60,000 101 149 109 210 13 49 Sep 2008
Leicester
Union Square, 100 49,000 58 68 162 220 15 21 Sep 2009
Aberdeen
Parinor 100 24,000 31 60 44 75 6 48 Apr 2008
extension,
Aulnay-sous-Bois
Offices
125 Old Broad 50 31,000 11 106 34 45 9 - Dec 2007
Street, London
EC2(4)
60 Threadneedle 100 20,400 42 73 83 125 12 - Nov 2008
Street, London
EC2
TOTAL 377 614 543 920 73
Other development properties 206 199
Profit realised on 50% disposal of 125 46 -
Old Broad Street in 2006
Total development properties (note 8 629 813
to the accounts)
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 2007.
(4) Cost to 30 June 2007 and forecast total cost shown net of disposal profit of £46 million arising in 2006.
Cabot Circus in Bristol is a major retail-led regeneration project we are
carrying out in a joint venture with Land Securities. Construction and letting
are progressing well with leases for 66% of the projected scheme income either
signed or under offer. Hammerson's estimated total development cost is £245
million and our share of the projected income is £18 million. On opening in
September 2008, the scheme will re-establish Bristol as a top ten UK retail
destination.
In Leicester, we are carrying out an expansion of the existing Shires shopping
centre, which will more than double its size to 100,000m(2). The anchor store
will be handed over soon to John Lewis for its fit out. Leases for 49% of the
projected scheme income have either been signed or are under offer. Hammerson's
share of the total development cost is £210 million, whilst our share of the
projected annual income is around £13 million. We believe this project will
prove to be the catalyst for an increase in rental values within the refurbished
existing scheme.
With 12 months to opening at the schemes in both Bristol and Leicester our
letting progress is consistent with our experience at other major retail
developments. We are achieving our target rents but there is pressure from
retailers for greater lease incentives, which have increased over the last year
to the equivalent of a rent-free period averaging 18 months.
At Union Square in Aberdeen, we are creating almost 50,000m(2) of retail park
and mall type space. Pre-letting is at an early stage but we are seeing good
demand from retailers seeking large units at cost-effective rents in a city with
a shortage of such space. The anticipated total development cost is £220
million with projected net rental income of approximately £15 million per annum.
Completion is scheduled for autumn 2009.
In France, work is progressing well on a 24,000m(2) extension and restructuring
project at Parinor, our existing shopping centre to the north of Paris. The
works will increase the size of the scheme to over 90,000m2, making it the
largest shopping centre serving the north of Paris. The programme will be
completed in April 2008, at an estimated development cost of £75 million. Around
48% of the forecast annual rental income of £6 million has been secured or is
under offer.
We are currently carrying out two major developments on the site of the former
London Stock Exchange in the City of London. Work is well underway on the first
building, 125 Old Broad Street, where we are creating 29,400m(2) of office
accommodation and 1,600m(2) of retail units with completion due at the end of
this year. Following the sale of a 50% interest in this scheme in November 2006,
Hammerson's share of the total costs will amount to £45 million, whilst our
share of the forecast rental income is £9 million, a potential yield on cost of
20%. The second project on this site is 60 Threadneedle Street, where we are
building a nine-storey office building of 20,400m(2) with completion scheduled
for November 2008. The original site purchase cost was low and we anticipate an
attractive profit on this development.
Development pipeline
The developments now underway have all been brought forward through Hammerson's
development pipeline. Future schemes can be advanced when we consider it
appropriate. At present, the pipeline includes more than 20 schemes, providing
the potential for capital investment of over £5 billion during the next ten
years, in addition to the cost of the current developments. The pipeline covers
all areas of our business and includes major retail-led mixed-use schemes,
extensions to our existing retail centres, retail parks and offices. The total
investment made by Hammerson in land and work up fees to secure these
opportunities now amounts to £206 million and they currently provide an income
of around £5 million per annum.
Within the development pipeline there are six schemes where a start on site is
possible within the next two years. These schemes, which have an estimated total
development cost of over £2 billion, are summarised in the table on the
following page.
Future development starts
Projects Ownership Area Cost at Forecast Earliest
30/6/07 total cost potential
% m(2) £m(1) £m(1) start
Shopping Centres
New Retail Quarter, Sheffield 100 105,000 31 600 2008
Eastgate & Harewood Quarters, Leeds 90 100,000 50 600 2009
Retail Parks
Fife Central Retail Park, Kirkcaldy 100 13,000 - 30 2007
Westmorland Retail Park and Manor
Walks, Cramlington, Northumberland 100 29,000 - 150 2008
Offices
Bishops Place, London E1 100 100,000 17 650 2008
The Triangle, Paddington, London W2 50 20,000 5 70 2008
Total 103 2,100
Note
(1) Indicates Hammerson's share of costs.
The New Retail Quarter in Sheffield is a major retail-led mixed-use regeneration
project on a site of over eight hectares in the heart of the city. Totalling
around 105,000m(2), the scheme will be anchored by a John Lewis department
store. We are already seeing encouraging interest from other retailers as the
city centre has suffered a lack of new retail space over the last 20 years. We
received planning consent for our proposals in August 2006 and enabling works
are underway.
In Leeds, the Council granted planning consent for our proposed 100,000m(2)
shopping centre earlier this year. Leeds has been an extremely successful retail
destination, but in recent years has been slipping down the rankings as it
suffers from a lack of the large high quality shops required by retailers. Our
Eastgate site, which comprises eight hectares on the Headrow and adjoining
Bargate, is the natural direction for the retail core to expand. The scheme, in
which our interest is 90%, will also be anchored by a new store for John Lewis
and a second department store. The majority of the site is controlled by
Hammerson and site assembly will be completed by a compulsory purchase order
later this year.
In Scotland, Hammerson has recently received planning permission to create
13,000m(2) of retail warehousing and 360 car parking spaces on a site adjacent
to its existing retail park in Kirkcaldy, Fife. Approximately 50% of the new
accommodation has been pre-let to B&Q and Argos. A start on site is imminent.
Also within the retail parks sector, we are planning a major expansion of our
existing interests in Cramlington town centre, which we purchased for £164
million in August 2006. Situated 16 km north of Newcastle, Cramlington currently
provides just over 50,000m(2) of retail space. We will be making a planning
application later this year to increase the size of the centre by over 50%.
In central London, we have a number of interesting future developments. The most
immediate of these is Bishops Place on a one hectare site we have assembled just
north of Liverpool Street station in the City. A planning application will be
submitted later this year for a mixed-use scheme of around 100,000m(2),
including some 60,000m(2) of offices, a hotel and around 300 residential units.
In Paddington we are preparing a planning application for a 20,000m(2) office
tower, on a site adjoining Paddington Station acquired with our purchase five
years ago of the former Railtrack property portfolio. This is an improving
office location where we see significant growth potential. The scheme will be
carried out in a 50:50 joint venture with Ballymore, possibly starting at the
end of 2008.
In May this year we announced that Hammerson, together with its partner the City
Corporation of London, had entered into an exclusivity agreement with leading
international bank, JPMorgan Chase, to develop a new European headquarters
building for the bank. We are working with our partners to create a building of
around 100,000m(2) on the site of an existing building, St Alphage House, owned
by the City Corporation of London. We aim to submit a planning application later
this year for a start on site in 2008. JPMorgan Chase will own the building.
PROPERTY MARKETS AND OUTLOOK
Retail property
In the first half of the year, UK consumer expenditure grew solidly, in line
with the economy. However, in the light of rising interest rates and increased
constraints on disposable income, conditions for retailers are somewhat
challenging. Nevertheless retailers continue to seek representation in the best
shopping centres and retail parks where we anticipate modest growth both in
retail sales and rents over the next 18 months.
In France, a reduction in unemployment and more positive sentiment following the
Presidential elections in May has led to an upturn in consumer spending. With a
more favourable outlook for French consumer spending, steady rental growth is
expected.
Office property
The central London office market has continued to benefit from the City's
growing dominance as an international financial centre. Strong rental growth in
2006 was followed by further increases in the first half of the year, reflecting
the highest levels of take up of space since 2000. With vacancy rates at their
lowest level for five years and limited supply, the fundamentals remain
positive. However, continued weakness in financial markets could adversely
affect occupier demand from the financial services sector.
The central Paris office occupational market remains buoyant with strong demand
both from the private and the public sectors. The limited supply of prime
accommodation has led to historically low vacancy rates in the CBD and record
rents.
Investment markets
Demand from investors for UK real estate has been strong, particularly for
London offices, but slowed in the second quarter. Yields for prime retail
property remained broadly unchanged in the first half of 2007, with increases in
capital values due principally to rental growth. Yields for London offices
reduced slightly. However, higher interest rates have resulted in many
debt-backed investors being unable to use high levels of leverage to fund
property acquisitions. This has been a factor behind the re-establishment of a
risk premium and weaker demand for secondary property.
In France, investment activity reached a record level in the first half of the
year, driven predominantly by international buyers. Office investment accounted
for the majority of transactions, with few prime assets coming to the market in
the retail sector. However, after a period of very strong growth and in the
light of increased interest rates, it is likely that yields will now stabilise.
If the recent volatility in financial markets continues, investors are likely to
become more cautious about property investment in the short-term. Nevertheless,
property will remain an important part of a diversified investment portfolio
and, with interest rates now believed to be near their peak in this cycle, the
medium-term outlook for the real estate markets in both the UK and France
remains favourable.
Property portfolio information
RENTAL DATA: INVESTMENT PROPERTY
For the six months ended 30 June 2007
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 53.6 47.4 1.7 93.3 104.5 9.1
Retail parks 24.6 23.5 3.8 49.4 59.5 15.2
78.2 70.9 2.5 142.7 164.0 11.2
Office: City 27.7 23.9 1.4 53.6 53.3 (3.4)
Other 5.9 5.2 5.5 18.2 20.4 6.9
33.6 29.1 2.5 71.8 73.7 (0.7)
Total United Kingdom 111.8 100.0 2.5 214.5 237.7 7.3
Continental Europe
France
Retail 29.4 26.3 3.2 59.0 64.2 5.2
Office 10.4 9.6 8.7 23.3 24.4 (3.7)
Total France 39.8 35.9 4.3 82.3 88.6 2.6
Germany
Retail 1.6 0.7 19.8 3.4 4.7 7.8
Total Continental Europe 41.4 36.6 5.1 85.7 93.3 2.9
Group
Retail 109.2 97.9 3.1 205.1 232.9 9.4
Office 44.0 38.7 3.6 95.1 98.1 (1.4)
Total Investment Portfolio 153.2 136.6 3.2 300.2 331.0 6.0
Developments and other
sources not analysed above 2.4 1.7
As disclosed in note 2 to
the accounts 155.6 138.3
Selected information at 31 December 2006
Group
Retail 2.4 200.9 225.9 9.3
Office 5.6 87.7 91.7 (3.9)
Total Investment 3.4 288.6 317.6 5.2
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 together with the
estimated rental value of vacant space.
Property portfolio information continued
VALUATION DATA: INVESTMENT PROPERTY
For the six months ended 30 June 2007
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 2,107 43 2.1 4.3 4.3 4.8
Retail parks 1,273 29 2.4 4.4 3.7 4.7
3,380 72 2.2 4.3 4.1 4.8
Office: City 1,057 49 4.8 7.3 3.9 5.0
Other 307 23 11.1 13.4 3.9 5.5
1,364 72 6.0 8.4 3.9 5.1
Total United Kingdom 4,744 144 3.3 5.5 4.0 4.8
Continental Europe
France
Retail 1,289 93 7.7 10.0 4.4 4.6
Office 573 81 16.3 18.4 3.1 4.1
Total France 1,862 174 10.3 12.5 3.8 4.4
Germany
Retail 80 6 8.3 9.2 4.5 6.5
Total Continental Europe 1,942 180 10.2 12.4 3.8 4.5
Group
Retail 4,749 171 3.7 5.8 4.1 4.7
Office 1,937 153 8.8 11.2 3.7 4.8
Total Investment Portfolio 6,686 324 5.1 7.3 4.0 4.7
Developments 813 72 13.1 13.3
Total Group including
developments 7,499 396 5.9 7.9
Selected information at 31 December 2006
Group
Retail 4,483 4.2 4.9
Office 1,698 2.8 5.0
Total Investment Portfolio 6,181 3.8 4.9
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.
Consolidated income statement
Year ended Six months Six months
31 December ended ended
2006 30 June 2007 30 June 2006
Audited Unaudited Unaudited
£m Notes £m £m
278.2 Gross rental income 2 155.6 129.6
201.3 Operating profit before gains on investment 2 116.9 92.5
properties
748.0 Gains on investment properties 2 322.9 383.4
949.3 Operating profit 2 439.8 475.9
(118.0) Finance costs (68.4) (55.7)
(34.0) Bond redemption costs (0.1) (33.7)
(16.1) Change in fair value of interest rate swaps (9.8) (9.7)
11.2 Finance income 6.3 8.0
(156.9) Net finance costs 4 (72.0) (91.1)
792.4 Profit before tax 367.8 384.8
(99.4) Current tax 5A (17.8) (0.7)
333.8 Deferred tax 5A 22.7 (61.1)
234.4 Tax credit/(charge) 4.9 (61.8)
1,026.8 Profit for the period 372.7 323.0
Attributable to:
1,016.9 Equity shareholders 365.1 319.3
9.9 Minority interests 7.6 3.7
1,026.8 Profit for the period 372.7 323.0
357.5p Basic earnings per share 7 126.8p 112.3p
356.9p Diluted earnings per share 7 126.6p 112.1p
Adjusted earnings per share are shown in note 7. All results derive from
continuing operations.
Consolidated balance sheet
*31 December 2006 30 June 2007 30 June 2006
Audited Unaudited Unaudited
£m Notes £m £m
Non-current assets
6,716.0 Investment and development properties 8 7,498.5 6,253.2
32.4 Interests in leasehold properties 32.4 34.3
42.2 Plant, equipment and owner-occupied property 45.4 36.9
64.9 Investments 9 89.3 57.2
13.6 Receivables 10 11.3 2.8
6,869.1 7,676.9 6,384.4
Current assets
148.0 Receivables 11 108.7 93.2
39.4 Cash and deposits 12 76.4 293.0
187.4 185.1 386.2
7,056.5 Total assets 7,862.0 6,770.6
Current liabilities
218.2 Payables 13 219.4 161.7
111.1 Tax liabilities 180.0 60.1
210.2 Borrowings 14 331.9 277.1
539.5 731.3 498.9
Non-current liabilities
2,072.4 Borrowings 14 2,267.0 2,173.2
103.3 Deferred tax 5C 84.6 477.1
55.1 Tax liabilities 4.8 25.6
32.3 Obligations under finance leases 32.3 34.2
11.2 Net pension liability 16 9.1 7.2
21.0 Other payables 19.9 18.5
2,295.3 2,417.7 2,735.8
2,834.8 Total liabilities 3,149.0 3,234.7
4,221.7 Net assets 4,713.0 3,535.9
Equity
71.3 Share capital 72.6 71.3
660.5 Share premium account 17 740.0 660.2
(62.9) Translation reserve 17 (64.9) (38.6)
59.9 Hedging reserve 17 62.9 39.1
7.2 Capital redemption reserve 17 7.2 7.2
8.9 Other reserves 17 9.5 8.0
78.9 Revaluation reserve 17 153.8 234.7
3,348.3 Retained earnings 17 3,671.8 2,504.1
(7.0) Investment in own shares 18 (4.0) (4.0)
4,165.1 Equity shareholders' funds 4,648.9 3,482.0
56.6 Equity minority interests 64.1 53.9
4,221.7 Total equity 4,713.0 3,535.9
£14.61 Diluted net asset value per share 7 £15.99 £12.21
£15.00 EPRA net asset value per share 7 £16.35 £13.89
Consolidated statement of recognised income and expense
Year ended Six months Six months
31 December ended ended
2006 30 June 2007 30 June 2006
Audited Unaudited Unaudited
£m Notes £m £m
(31.1) Foreign exchange translation differences (2.1) (5.5)
Net gain on hedge of net investment in foreign
subsidiaries
27.0 17 3.0 6.2
67.0 Revaluation gains on development properties 17 72.3 70.0
7.6 Revaluation gains on owner-occupied property 17 3.2 3.4
14.4 Revaluation gains on investments 17 2.8 6.1
(2.2) Acquisition of minority interests - -
(0.9) Actuarial gains/(losses) on pension schemes 17 3.7 3.2
(4.0) Tax recognised directly in equity 5B (4.3) (9.4)
77.8 Net gain recognised directly in equity 78.6 74.0
1,026.8 Profit for the period 372.7 323.0
1,104.6 Total recognised income and expense 451.3 397.0
Attributable to:
1,095.7 Equity shareholders 443.8 393.0
8.9 Minority interests 7.5 4.0
1,104.6 Total recognised income and expense 451.3 397.0
Reconciliation of equity
Year ended Six months Six months
31 December 2006 ended ended
30 June 2007 30 June 2006
Audited Unaudited Unaudited
£m Notes £m £m
3,125.8 Opening equity shareholders' funds 4,165.1 3,125.8
1.1 Issue of shares 80.8 0.8
(4.0) Purchase of own shares - -
3.8 Share-based employee remuneration 17 3.3 1.7
0.4 Gain on award of own shares to employees 17 0.2 0.3
3,127.1 4,249.4 3,128.6
1,095.7 Total recognised income and expense 443.8 393.0
4,222.8 4,693.2 3,521.6
(57.7) Dividends (44.3) (39.6)
4,165.1 Closing equity shareholders' funds 4,648.9 3,482.0
Consolidated cash flow statement
Six months Six months
Year ended ended ended
31 December 2006 30 June 2007 30 June 2006
Audited Unaudited Unaudited
£m Notes £m £m
Operating activities
201.3 Operating profit before gains on investment 2 116.9 92.5
properties
(12.7) Adjustment for non-cash items 19 (11.4) (0.2)
14.1 Decrease in receivables 40.8 38.8
(31.9) Increase/(Decrease) in payables 4.0 (40.5)
170.8 Cash generated from operations 150.3 90.6
(155.2) Interest and bond redemption costs paid (109.1) (128.8)
11.0 Interest received 5.9 6.4
(21.1) Tax paid (1.2) (1.1)
5.5 Cash flows from operating activities 45.9 (32.9)
Investing activities
(116.4) Purchase of property and capital expenditure (131.4) (33.1)
(250.5) Development of properties (133.6) (133.2)
628.0 Sale of properties - 137.7
(132.7) Purchase of interests in subsidiary companies - -
(1.0) Purchase of investments (19.5) (1.4)
(9.2) Decrease/(Increase) in non-current receivables - 1.7
118.2 Cash flows from investing activities (284.5) (28.3)
Financing activities
1.1 Issue of shares 1.7 0.8
(4.0) Purchase of own shares 18 - -
0.2 Proceeds from award of own shares 0.2 0.2
(277.7) Increase/(Decrease) in non-current borrowings 195.7 71.0
211.0 Increase in current borrowings 122.3 276.2
(2.4) Dividends paid to minorities - -
(57.7) Equity dividends paid (44.3) (39.6)
(129.5) Cash flows from financing activities 275.6 308.6
(5.8) Net increase/(decrease) in cash and deposits 37.0 247.4
45.5 Opening cash and deposits 39.4 45.5
(0.3) Exchange translation movement - 0.1
39.4 Closing cash and deposits 12 76.4 293.0
Analysis of movement in net debt
For the six months ended 30 June 2007
Short-term Cash at Current Non-current Net debt
deposits bank borrowings borrowings
£m £m £m £m £m
Balance at 1 January 2007 13.1 26.3 (210.2) (2,072.4) (2,243.2)
Cash flow 3.3 33.7 (122.3) (195.7) (281.0)
Exchange - - 0.6 1.1 1.7
Balance at 30 June 2007 16.4 60.0 (331.9) (2,267.0) (2,522.5)
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. The
results for the year ended 31 December 2006 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 2006. This half-year 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 half-year period.
There have been no material changes in reportable contingent liabilities since
31 December 2006.
The principal exchange rates used to translate foreign currency denominated
amounts are:
Balance sheet: £1 = €1.486
Income statement: £1 = €1.482
The half-year report was approved by the Board on 4 September 2007.
2. OPERATING PROFIT
Six months Six months
Year ended ended ended
31 December 2006 30 June 2007 30 June 2006
£m £m £m
278.2 Gross rental income 155.6 129.6
(5.1) Rents payable (2.6) (2.3)
273.1 Gross rental income, after rents payable 153.0 127.3
45.4 Service charge income 25.6 22.4
(53.0) Service charge expenses (27.9) (26.7)
(7.6) Net service charge expenses (2.3) (4.3)
(28.1) Other property outgoings (12.4) (13.7)
(35.7) Property outgoings (14.7) (18.0)
237.4 Net rental income 138.3 109.3
4.1 Management fees receivable 2.0 2.3
(20.9) Cost of property activities (12.6) (10.3)
(19.3) Corporate expenses (10.8) (8.8)
(36.1) Administration expenses (21.4) (16.8)
Operating profit before gains on investment
properties
201.3 116.9 92.5
95.8 (Loss)/Profit on the sale of investment (0.5) 0.9
properties
664.8 Revaluation gains on investment properties 323.4 382.5
(12.6) Goodwill impairment - -
748.0 Gains on investment properties 322.9 383.4
949.3 Operating profit 439.8 475.9
Notes to the accounts continued
3. SEGMENTAL ANALYSIS
The group's primary segments are the geographical locations of its properties.
The properties in Continental Europe are located principally in France, with one
property located in Germany.
Six months Six months
Year ended ended ended
31 December 2006 30 June 2007 30 June 2006
£m £m £m
200.9 Gross rental income UK 114.1 90.7
77.3 Continental Europe 41.5 38.9
278.2 155.6 129.6
689.3 Segment result UK 238.3 354.0
279.3 Continental Europe 212.3 130.7
(19.3) Unallocated corporate costs (10.8) (8.8)
949.3 Operating profit 439.8 475.9
4. NET FINANCE COSTS
Six months Six months
Year ended ended ended
31 December 2006 30 June 2007 30 June 2006
£m £m £m
13.7 Interest on bank loans and overdrafts 7.6 8.9
121.5 Interest on other loans 67.2 57.7
3.1 Interest on obligations under finance leases 1.6 1.6
6.3 Other interest payable 3.7 2.1
144.6 Gross interest costs 80.1 70.3
(26.6) Less: Interest capitalised (11.7) (14.6)
118.0 Finance costs 68.4 55.7
34.0 Bond redemption costs 0.1 33.7
16.1 Change in fair value of interest rate swaps 9.8 9.7
(11.2) Finance income (6.3) (8.0)
156.9 Net finance costs 72.0 91.1
In May 2006, £93.8 million of the £200 million 10.75% 2013 sterling bonds were
redeemed, leaving £106.2 million outstanding as at 31 December 2006. In April
2007 a further £0.4 million of these bonds were redeemed, and the remaining
£105.8 million were redeemed in July 2007.
Notes to the accounts continued
5. TAX
A. TAX (CREDIT)/CHARGE
Six months Six months
Year ended ended ended
31 December 2006 30 June 2007 30 June 2006
£m Notes £m £m
UK current tax
0.2 On net income before revaluations and disposals 0.1 0.2
(0.5) Credit in respect of prior years - -
100.5 Entry charge payable on election for UK REIT - -
status
100.2 0.1 0.2
Foreign current tax
1.1 On net income before revaluations and disposals 0.3 0.5
(1.9) Credit in respect of prior years - -
- On revaluations and disposals 5F 17.4 -
(0.8) 17.7 0.5
99.4 Total current tax charge 17.8 0.7
Deferred tax
17.9 On net income before revaluations and disposals (5.2) 10.4
127.6 On revaluations and disposals (9.7) 53.6
(10.2) On bond redemption costs - -
(4.8) On movements in fair value of interest rate swaps (2.8) (2.9)
(15.7) Credit in respect of prior years - -
- Effect of reduction in UK corporation tax rate (5.0) -
(448.6) Released on election for UK REIT status - -
(333.8) (22.7) 61.1
(234.4) Tax (credit)/charge (4.9) 61.8
B. TAX RECOGNISED DIRECTLY IN EQUITY
Six months Six months
Year ended ended ended
31 December 2006 30 June 2007 30 June 2006
£m £m £m
12.1 Deferred tax charge on revaluations 3.3 8.6
(8.5) Deferred tax released on election for UK REIT status - -
0.4 Deferred tax charge on actuarial gains on pension schemes 1.0 0.8
4.0 Tax recognised directly in equity 4.3 9.4
C. DEFERRED TAX MOVEMENTS
1 January Recognised Recognised Foreign
2007 in income in equity exchange 30 June 2007
£m £m £m £m £m
UK
Dividends receivable from France 97.2 17.1 2.8 (0.2) 116.9
Surpluses in trading subsidiaries 17.7 (1.0) - - 16.7
Other timing differences (3.2) (2.7) 1.5 - (4.4)
Revenue tax losses (37.2) (7.4) - - (44.6)
74.5 6.0 4.3 (0.2) 84.6
France 28.8 (28.7) - (0.1) -
Net deferred tax provision 103.3 (22.7) 4.3 (0.3) 84.6
Notes to the accounts continued
5. TAX continued
D. UK REIT STATUS
The group elected to be treated as a UK REIT with effect from 1 January 2007.
The UK REIT rules exempt the profits of the group's UK property rental business
from corporation tax. Gains on UK properties are also exempt from tax, provided
they are not held for trading or, for properties completed after 1 January 2007,
sold in the three years after completion of development. The group is otherwise
subject to UK corporation tax.
As a REIT, Hammerson plc is required to pay Property Income Distributions equal
to at least 90% of the group's exempted net income.
On entering the REIT regime, entry tax became payable equal to 2% of the market
value of the group's qualifying UK properties at 31 December 2006. The financial
statements for the year ended 31 December 2006 provided for this entry charge
and showed the corresponding release of deferred tax relating to UK capital
gains and UK capital allowances. The total entry charge of £100.5 million is
being paid in quarterly instalments between July 2007 and April 2008.
E. FRENCH SIIC STATUS
Hammerson plc has been a French SIIC since 1 January 2004 and all the French
properties with the exception of 9 place Vendome are within the SIIC tax exempt
regime. Income and gains are exempted from French tax but the French
subsidiaries are required to distribute a proportion of their profits to
Hammerson plc, which will then pay UK dividends to its shareholders. Under
current UK tax rules, Hammerson plc will be taxed on dividends received from
France, subject to available UK tax losses. If all the properties were realised
at their 30 June 2007 values, a total of £418 million of dividends would arise
(31 December 2006: £324 million), and deferred tax is provided for the potential
UK tax thereon.
F. COMMENTARY
Current tax is reduced by the UK REIT and French SIIC tax exemptions.
UK deferred tax has been recalculated at a rate of 28% rather than 30%,
reflecting the reduction in the UK corporation tax rate that will apply from 1
April 2008.
Provision has been made in current tax for the £17.4 million of French tax
arising on the sale of the company owning 9 place Vendome, which completed on 6
July 2007. Deferred tax of £28.7 million, which had been calculated on the basis
of a sale of the property, has been written back.
6. DIVIDENDS
The interim dividend of 12.0 pence per share (30 June 2006: 6.38 pence per
share) was approved by the Board on
4 September 2007 and is payable on 19 October 2007 to shareholders on the
register at the close of business on 21 September 2007.
The interim dividend will be paid as a Property Income Distribution and will be
subject to withholding tax at a rate
of 22%.
The £44.3 million dividend included in the reconciliation of equity on page 18
is the 2006 final dividend, representing 15.3 pence per share, which was paid on
14 May 2007.
Notes to the accounts continued
7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE
The European Public Real Estate Association (EPRA) has issued recommended bases
for the calculation of certain per share information and these are included in
the following tables.
EARNINGS PER SHARE
The calculations for earnings per share use the weighted average number of
shares, which excludes those shares held in the Hammerson Employee Share
Ownership Plan (note 18), which are treated as cancelled.
Year ended 31 December 2006 Six months ended 30 June 2007 Six months ended 30 June 2006
Pence Pence Pence
Earnings Shares per Earnings Shares per Earnings Shares per
£m million share £m million share £m million share
1,016.9 284.4 357.5 Basic 365.1 287.9 126.8 319.3 284.4 112.3
Adjustments:
- 0.5 (0.6) Dilutive share - 0.4 (0.2) - 0.5 (0.2)
options
1,016.9 284.9 356.9 Diluted 365.1 288.3 126.6 319.3 284.9 112.1
Adjustments:
Revaluation gains
on investment
(664.8) (233.3) properties (323.4) (112.2) (382.5) (134.2)
Loss/(Profit) on
the sale of
(95.8) (33.6) investment 0.5 0.2 (0.9) (0.3)
properties
12.6 4.4 Goodwill - - - -
impairment
Change in fair
value of interest
16.1 5.7 rate swaps 9.8 3.5 9.7 3.4
(333.8) (117.2) Deferred tax (22.7) (7.9) 61.1 21.4
(credit)/charge
100.5 35.3 UK REIT entry tax - - - -
charge
- - Tax on property 17.4 6.0 - -
disposals
Minority interests
in respect of the
7.8 2.7 above 6.3 2.2 2.6 0.9
59.5 20.9 EPRA, diluted 53.0 18.4 9.3 3.3
34.0 11.9 Bond redemption 0.1 - 33.7 11.8
costs
93.5 32.8 Adjusted, diluted 53.1 18.4 43.0 15.1
NET ASSET VALUE PER SHARE
31 30 June 30 June
December 2007 2006
2006
Net asset Equity Net asset Net asset
value shareholders' value value
per share funds Shares per share per share
£ £m million £ £
14.60 Basic 4,648.9 290.6 16.00 12.21
Company's own shares held in Employee Share
Ownership Plan
n/a - (0.3) n/a n/a
n/a Unexercised share options 6.7 0.8 n/a n/a
14.61 Diluted 4,655.6 291.1 15.99 12.21
(0.22) Fair value adjustment to borrowings (net of 2.5 0.01 (0.24)
tax)
14.39 EPRA triple net, diluted 4,658.1 16.00 11.97
0.03 Fair value of interest rate swaps 18.6 0.06 0.01
0.22 Fair value adjustment to borrowings (net of (2.5) (0.01) 0.24
tax)
0.36 Deferred tax 84.6 0.30 1.67
15.00 EPRA, diluted 4,758.8 16.35 13.89
Notes to the accounts continued
8. INVESTMENT AND DEVELOPMENT PROPERTIES
Investment Development properties Total
properties
Valuation Cost Valuation Cost Valuation Cost
£m £m £m £m £m £m
Balance at 1 January 2007 6,181.2 3,820.5 534.8 423.3 6,716.0 4,243.8
Exchange adjustment (2.3) (1.4) - - (2.3) (1.4)
Additions 183.7 183.7 193.8 193.8 377.5 377.5
Disposals (0.1) (0.1) - - (0.1) (0.1)
Capitalised interest - - 11.7 11.7 11.7 11.7
Revaluation adjustment 323.4 - 72.3 - 395.7 -
Balance at 30 June 2007 6,685.9 4,002.7 812.6 628.8 7,498.5 4,631.5
Properties are stated at market value as at 30 June 2007, 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. Since 30 June 2007,
DTZ Debenham Tie Leung and Donaldsons have merged.
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 2007 the total amount of interest included in development properties
was £23.8 million (31 December 2006: £12.1 million) calculated using the group's
average cost of borrowings.
9. INVESTMENTS
Available for sale investments
31 December 2006 30 June 2007 30 June 2006
£m £m £m
47.3 Value Retail Investors Limited Partnerships 50.1 38.8
16.1 Interests in Value Retail plc and related companies 37.9 17.1
1.5 Other investments 1.3 1.3
64.9 89.3 57.2
10. RECEIVABLES: NON-CURRENT ASSETS
31 December 2006 30 June 2007 30 June 2006
£m £m £m
10.8 Loans receivable 10.8 -
2.8 Other receivables 0.5 2.8
13.6 11.3 2.8
Loans receivable comprised a loan of €16.0 million (£10.8 million) to Value
Retail plc bearing interest based on EURIBOR and maturing on 22 August 2008. The
loan is classified as 'available for sale' and is included in the balance sheet
at fair value, which equates to cost.
Notes to the accounts continued
11. RECEIVABLES: CURRENT ASSETS
31 December 2006 30 June 2007 30 June 2006
£m £m £m
57.1 Trade receivables 42.4 39.5
- Loans receivable - 20.7
87.0 Other receivables 57.7 30.9
0.6 Corporation tax 0.3 0.2
3.3 Prepayments 8.3 1.9
148.0 108.7 93.2
12. CASH AND DEPOSITS
31 December 2006 30 June 2007 30 June 2006
£m £m £m
26.3 Cash at bank 60.0 16.1
13.1 Short-term deposits 16.4 276.9
39.4 76.4 293.0
Analysis by currency
27.3 Sterling 59.0 36.0
12.1 Euro 17.4 257.0
39.4 76.4 293.0
Short-term deposits principally comprised deposits placed on money markets with
rates linked to LIBOR.
13. PAYABLES: CURRENT LIABILITIES
31 December 2006 30 June 2007 30 June 2006
£m £m £m
48.7 Trade payables 63.7 49.5
137.3 Other payables 121.9 91.5
23.4 Accruals 15.2 18.3
8.8 Fair value of interest rate swaps 18.6 2.4
218.2 219.4 161.7
14. BORROWINGS
31 December 2006 30 June 2007 30 June 2006
£m £m £m
90.8 Bank loans and overdrafts: Unsecured 590.7 205.7
15.5 Secured 39.7 71.7
2,175.3 Other loans: Unsecured 1,972.6 2,174.5
2,281.6 2,603.0 2,451.9
1.0 Exchange difference on currency swaps (4.1) (1.6)
2,282.6 2,598.9 2,450.3
In June 2007, the group's unsecured €300 million 5% euro bond was redeemed on
maturity by drawing down existing committed banking facilities, which were
repaid in July 2007 following the disposal of the group's interest in 9 place
Vendome.
Notes to the accounts continued
14. BORROWINGS continued
ANALYSIS BY CURRENCY
31 December 2006 30 June 2007 30 June 2006
£m £m £m
1,274.1 Sterling 1,440.9 1,211.5
1,008.5 Euro 1,158.0 1,238.8
2,282.6 2,598.9 2,450.3
As part of the group's foreign currency hedging programme, at 30 June 2007 the
group had sold €594.2 million (31 December 2006: €369.2 million) forward against
sterling: €225 million for value in December 2007, at a rate of £1 = €1.462;
and €369.2 million for value in July 2007, at a rate of £1 = €1.487, which was
rolled for value in December 2007, at a rate of £1 = €1.464.
UNDRAWN COMMITTED FACILITIES
31 December 2006 30 June 2007 30 June 2006
£m £m £m
- Expiring within one year - 8.8
845.0 Expiring after more than two years 497.9 722.7
845.0 497.9 731.5
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
31 December 2006 30 June 2007 30 June 2006
Book value Fair value Book value Fair value Book value Fair value
£m £m £m £m £m £m
(209.4) (210.4) Current borrowings (336.5) (340.8) (279.1) (282.0)
(2,091.3) (2,181.0) Non-current borrowings (2,285.4) (2,277.5) (2,193.1) (2,286.7)
19.1 19.1 Unamortised borrowing costs 18.9 18.9 20.3 20.3
(1.0) (1.0) Currency swaps 4.1 4.1 1.6 1.6
(2,282.6) (2,373.3) Total borrowings (2,598.9) (2,595.3) (2,450.3) (2,546.8)
(8.8) (8.8) Interest rate swaps (18.6) (18.6) (2.4) (2.4)
The fair values of the group's 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 12.
Their fair values and those of other financial assets and liabilities equate to
their book values.
At 30 June 2007, the book value of financial liabilities exceeded their fair
value by £3.6 million (31 December 2006: book value £90.7 million less than fair
value), equivalent to 1 pence per share (31 December 2006: 32 pence per share)
on an adjusted net asset value per share basis. On a post-tax basis, the
difference was equivalent to 1 pence per share (31 December 2006: 22 pence per
share).
16. NET PENSION LIABILITY
The net pension liability of £9.1 million (31 December 2006: £12.0 million)
includes £nil (31 December 2006: £0.8 million) analysed within current payables.
The liability has reduced since 31 December 2006 principally due to actuarial
gains.
Notes to the accounts continued
17. RESERVES
Share Capital
premium redemption
account Translation Hedging reserve
reserve reserve
£m £m £m £m
Balance at 1 January 2007 660.5 (62.9) 59.9 7.2
Exchange adjustment - (2.0) - -
Net gain on hedging activities - - 3.0 -
Premium on issue of shares 79.5 - - -
Balance at 30 June 2007 740.0 (64.9) 62.9 7.2
Other Revaluation Retained
reserves reserve earnings
£m £m £m
Balance at 1 January 2007 8.9 78.9 3,348.3
Share-based employee remuneration 3.3 - -
Cost of shares awarded to employees (3.0) - -
Transfer on award of own shares to employees 0.3 - (0.3)
Revaluation gains on development properties - 72.3 -
Revaluation gains on owner-occupied property - 3.2 -
Revaluation gains on investments - 2.8 -
Transfer on sale of investments - (0.1) 0.1
Actuarial gains on pension schemes - - 3.7
Gain on award of own shares to employees - - 0.2
Dividends paid - - (44.3)
Deferred tax recognised directly in equity - (3.3) (1.0)
Profit for the period attributable to equity shareholders - - 365.1
Balance at 30 June 2007 9.5 153.8 3,671.8
The revaluation reserve and £2,659 million of retained earnings represent
unrealised revaluation gains and do not constitute distributable reserves.
18. INVESTMENT IN OWN SHARES
At cost
31 December 2006 30 June 2007 30 June
2006
£m £m £m
4.4 Opening balance 7.0 4.4
4.0 Purchase of own shares - -
(1.4) Cost of shares awarded to employees (3.0) (0.4)
7.0 Closing balance 4.0 4.0
The Trustees of the Hammerson Employee Share Ownership Plan acquire the
Company's own shares to award to participants in accordance with the terms of
the Plan. 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.
Notes to the accounts continued
19. ADJUSTMENTS FOR NON-CASH ITEMS IN THE CASH FLOW STATEMENT
Six months Six months
ended ended
Year ended 30 June 30 June
31 December 2006 2007 2006
£m £m £m
0.8 Depreciation 0.6 0.4
3.8 Share-based employee remuneration 3.3 1.7
1.2 Amortisation of lease inducements and other direct 0.7 2.1
costs
(17.5) Increase in accrued rents receivable (15.4) (4.5)
(1.0) Other items (0.6) 0.1
(12.7) (11.4) (0.2)
20. ACQUISITIONS
On 8 March 2007 the group acquired the company owning Ravenhead Retail Park. The
acquisition cost of the property was £120 million, including costs, which was
satisfied through the issue of 5,019,875 ordinary shares in Hammerson plc, with
a value of £79 million and the assumption and immediate repayment of debt of £39
million. No other significant assets or liabilities were acquired and the
transaction has been accounted for as an asset acquisition.
Other information
UK REIT TAXATION
As a UK REIT, Hammerson plc is exempted from corporation tax on rental income
and gains on UK investment properties but is required to pay Property Income
Distributions (PIDs). UK shareholders will be taxed on PIDs received at their
full marginal tax rates. A REIT may in addition pay normal dividends and
Hammerson currently expects that its interim dividends will be paid entirely as
PIDs while its final dividends will have both a PID and a normal dividend
element.
For most shareholders, PIDs will be paid after deducting withholding tax at the
basic rate. However, certain categories of shareholder are entitled to receive
PIDs without withholding tax, principally: UK resident companies; UK public
bodies; UK pension funds; and managers of ISAs, PEPs and Child Trust Funds. As
was announced on 13 August 2007, Hammerson's website includes a form to be used
by shareholders to certify if they qualify to receive PIDs without withholding
tax. Completed forms need to be received by the Company's registrar by 21
September 2007 for the 2007 interim dividend. Further information on UK REITs
is available on the Company's website.
WEBSITE
This half-year report, the most recent annual report and other current and
historic information are available on the Company's website, www.hammerson.com.
The Company operates a service whereby all registered users of the Company's
website can choose to receive, via e-mail, notice of all Company announcements
which can be viewed on the website.
DISCLAIMER
This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking in nature and are subject to risks and uncertainties. Actual
future results may differ materially from those expressed in or implied by these
statements.
Many of these risks and uncertainties relate to factors that are beyond
Hammerson's ability to control or estimate precisely, such as future market
conditions, currency fluctuations, the behaviour of other market participants,
the actions of governmental regulators and other risk factors such as the
Company's ability to continue to obtain financing to meet its liquidity needs,
changes in the political, social and regulatory framework in which the Company
operates or in economic or technological trends or conditions, including
inflation and consumer confidence, on a global, regional or national basis.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this document. Hammerson does not
undertake any obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date of this
document. Information contained in this announcement relating to the Company
should not be relied upon as a guide to future performance.
Glossary of terms
Adjusted figures (per share) Reported amounts adjusted to exclude certain items as set out in note 7 to
the accounts.
Anchor store A major store, usually a department store or supermarket, occupying a
large unit within a shopping centre or retail park, which serves as a draw
to other retailers and consumers.
Average cost of borrowing The cost of finance expressed as a percentage of the weighted average of
borrowings during the period.
Capital return The change in value during the period for properties held at the balance
sheet date, after taking account of capital expenditure and exchange
translation movements, calculated on a monthly time weighted basis.
Earnings per share (EPS) Profit for the period attributable to equity shareholders divided by the
average number of shares in issue during the period.
EPRA European Public Real Estate Association. This organisation has issued
recommended bases for the calculation of earnings per share and net asset
value per share.
ERV The estimated market rental value of the total 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 Standard.
IFRS International Financial Reporting Standard.
IPD Investment Property Databank. An organisation supplying independent market
indices and portfolio benchmarks to the property industry.
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 amount 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 tax regime which in the UK exempts
participants from corporation tax both on UK rental income and gains
arising on UK investment property sales, subject to certain requirements.
Rents passing The annual rental income receivable from an investment, 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).
Glossary of terms continued
Return on shareholders' equity Capital growth and profit for the period expressed as a percentage of
(ROE) equity shareholders' funds at the beginning of the period, all excluding
deferred tax.
Reversionary or under-rented The amount by which the ERV exceeds the rents passing, together with the
estimated rental value of vacant space.
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 project, 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.
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.
This information is provided by RNS
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