We create environments that people love. Nous créons des espaces appréciés de tous.

Transcription

1 We create environments that people love. Nous créons des espaces appréciés de tous. Interim Report 2006

2 A taste of the Mediterranean at Spitalfields C est un des meilleurs centres de la région Modern space to meet the needs of a leading international law firm ESTELLE GUNDOGBU, FRANCK PROVOST ANGELA NEWBY, ALLEN & OVERY CECILE JOBARB, O+CO My shop suits me! The place to be Global food, world music, all day dining Un véritable lieu de vie pour les équipes BERNARD ANNUSCHAT, GIRAFFE IKRAAM HASSAN, THE WHITE COMPANY YVES WERHLI, CLIFFORD CHANCE T.M. Lewin shirt makers now at Brent Cross Il fallait que nous soyons là Dynamic space for a 21st century business SANDRINE LEGRAND, H&M SIMON RENDELL, OSBORNE CLARKE JANA FRISTAKOVA, T.M. LEWIN

3 OUR PERFORMANCE IN THE FIRST HALF OF 2006 Hammerson is a leading European real estate company operating principally in the retail sector. It owns an outstanding portfolio and has a proven track record of successful property development. Net rental income 109.3m 7.9% Adjusted earnings per share 15.1p 5.6% Interim dividend per share 6.38p 10.0% Adjusted net asset value per share % CONTENTS 01 Our Performance in the First Half 23 Consolidated Income Statement of Consolidated Balance Sheet 02 Financial Highlights 25 Consolidated Statement 03 Business Highlights of Recognised Income and Expense 06 Chairman s Statement 25 Reconciliation of Equity 08 Business and Financial Review 26 Consolidated Cash Flow Statement 18 Markets and Outlook 26 Analysis of Movement in Net Debt 19 Property Portfolio Information 27 Notes to the Accounts 22 Independent Review Report ibc Other Information to Hammerson plc ibc Glossary of Terms 1

4 FINANCIAL HIGHLIGHTS Six months to 30 June change Hammerson Half Year Results Net rental income 109.3m 101.3m +7.9% Profi t before tax 384.8m 247.3m +55.6% Adjusted profi t before tax (1) 44.8m 42.8m +4.7% Basic earnings per share (2) 112.3p 72.2p +55.5% Adjusted earnings per share (3) 15.1p 14.3p +5.6% Interim dividend per share 6.38p 5.80p +10.0% 30 June 31 December change Equity shareholders funds 3,482m 3,126m +11.4% Adjusted net asset value per share, EPRA basis (4) % 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 9). (2) Includes the items listed above in note (1). (3) 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. (See page 31). (4) The European Public Real Estate Association ( EPRA ) has issued recommended bases for the calculation of certain adjusted data. Further details of these calculations are provided in note 7 to the accounts. (See page 31). The group has an investment portfolio and development programme of exceptional quality. 2

5 BUSINESS HIGHLIGHTS > Continued active recycling of capital > Completed redevelopment of 9 place Vendôme, Paris > Excellent progress in letting space in the offi ce portfolio > Existing development programme of over 1 billion > Proposed conversion to REIT status in January 2007 Portfolio Total: 6,253 million At 30 June 2006 UK 73% Retail parks 14% Shopping centres 57% Developments 14% France 26% Offi ces 29% Germany 1% Investments 86% 3

6 BULLRING, BIRMINGHAM PORTFOLIO > High quality 6.3 billion portfolio. > Capital return of 8.1% in the fi rst six months of > Capital recycling totalled 306 million in fi rst half. > Five retail parks acquired in UK for 425 million since 30 June. > Liberty Shopping Centre, Romford, sold for 281 million since 30 June. ONE LONDON WALL, EC2 ASSET MANAGEMENT > Low vacancy rate of 2.6% in retail portfolio. > Retail portfolio 10% reversionary overall. > Leases signed for over 20,000m² in the London offi ce portfolio. > Major expansion and refurbishment programmes planned at French shopping centres. NEW SHIRES, LEICESTER DEVELOPMENT > Successful completion of major Paris development at 9 place Vendôme. > Four major schemes underway at an estimated total cost of 665 million. > Further four developments anticipated to start by end > Planning permission gained for 105,000m² retail-led scheme in Sheffi eld city centre. > Substantial pipeline of around 20 future major development schemes. 4 9 PLACE VENDÔME, PARIS CYFARTHFA RETAIL PARK, MERTHYR TYDFIL BROADMEAD, BRISTOL

7 Hammerson maintains a policy of actively recycling capital from mature assets into properties and development projects offering the potential for higher returns. CURRENT DEVELOPMENT PROJECTS Estimated Cost at Value at total Projected Ownership 30 June 30 June development annual Forecast interest Area cost income Let completion % m 2 m (1) m m (1) m % date NOTES (2) (2) (2) (2) (3) SHOPPING CENTRES BROADMEAD, BRISTOL , Sep 2008 NEW SHIRES, LEICESTER 60 60, Sep 2008 PARINOR, AULNAY-SOUS-BOIS , Apr 2008 OFFICES 125 OLD BROAD STREET, LONDON EC , 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 The group has an excellent reputation for its approach to urban regeneration, its ability to forge strong relationships with local authorities and its skill in carrying out complex, sustainable developments. 5

8 CHAIRMAN S STATEMENT 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. I am delighted to report an excellent set of results for the first six months of 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 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 offi ce portfolio and maintaining high occupancy levels at our retail schemes. We completed a very profi table development at 9 place Vendôme 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 fi rst 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 fi ve 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 offi ce accommodation both in central London and Paris improved further in 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 fi nancial resources were further strengthened during the fi rst half of 2006 with three major new medium term fi nancings. 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 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 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 6

9 Following conversion to REIT status, the group will be exempt from corporation tax both on UK rental income and gains arising on UK investment property sales. 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 benefi t 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 refl ected 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 confi dence in Hammerson s future performance. John Nelson, Chairman 4 September

10 BUSINESS AND FINANCIAL REVIEW JOHN RICHARDS, CHIEF EXECUTIVE Hammerson pursues an active management policy aimed at minimising vacancy rates in the portfolio and enhancing rental values. RESULTS AND DIVIDEND Net rental income for the six months to 30 June 2006 was million, compared with million for the corresponding period in For properties owned throughout, there was an increase of 1.5 million to 94.9 million. The corresponding fi gure 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. Profi t before tax was million, compared with million in the fi rst half of In 2006, there were gains on the revaluation of investment properties of 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. Six months to Six months to 30 June 30 June m m Properties owned throughout Acquisitions Developments Properties sold Exchange translation and other (0.3) Total net rental income

11 Returns from Hammerson s UK portfolio have exceeded the IPD index in nine out of the last ten years. An analysis of profi t before tax is shown below. Adjusted profi t 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 fi nance 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 The deferred tax charge has increased from 42.2 million to 61.1 million, principally refl ecting the investment property revaluation surplus. Adjusted earnings per share increased by 5.6% to 15.1 pence, refl ecting the underlying profi t 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 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 fi rst six months of the year to 2,157 million, principally refl ecting 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. Six months to Six months to Year ended 30 June 30 June 31 December m m m Profit before tax Adjustments: Profi t 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

12 BUSINESS AND FINANCIAL REVIEW CONTINUED Hammerson s new head offi ce at 10 Grosvenor Street in London W1 (right and below). The group s balance sheet and fi nancial resources were further strengthened during the fi rst half of 2006 with three major new fi nancings: > 300 million 5.25% unsecured bonds due 2016; > 330 million fi ve year sterling bank facility; and > 700 million 4.875% unsecured bonds due 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 fi rst half of the year, adjusted net asset value per share increased by 1.52, or 12.3%, to An analysis of adjusted net asset value per share is shown below: As at As at 30 June 31 December 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 Deferred tax on capital allowances Adjusted net asset value 3,972 3,533 Basic net assets per share Adjusted net assets per share, EPRA basis Basic shares in issue used for calculation (million) Diluted shares used for calculation (million)

13 Hammerson completed the development of 9 place Vendôme, Paris 1 er in April The group s balance sheet and fi nancial resources were further strengthened during the fi rst half of 2006 with three major new fi nancings. CASH FLOW There was a cash outfl ow from operating activities for the six months to 30 June 2006 of 33 million, compared with an infl ow of 45 million for the same period last year. The decrease principally refl ected 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 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 infl ow, after fi nancing, of 247 million for the fi rst 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 Capital Capital Capital Capital Value return Value return Value return Value return m % m % m % m % UK 2, , , France 1, , Germany 69 (6.3) 69 (6.3) Total 3, , ,

14 BUSINESS AND FINANCIAL REVIEW CONTINUED Quakers Friars, part of the 140,000m 2 development of Broadmead, Bristol. The capital return from the group s portfolio overall was 8.1%, with returns from the retail and offi ce portfolios of 6.3% and 12.5% respectively. Both in the UK and France, lower valuation yields accounted for 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 Vendôme in Paris 1 er was completed providing 22,200m 2 of high quality offi ce accommodation and 5,500m 2 of prime retail space. The principal offi ce occupier is Clifford Chance, a major international fi rm 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 fi rst 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 Opéra 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 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 effi cient space to meet both its immediate and future requirements. 12

15 Moorhouse, London EC2: The 30,100m 2 building is now 95% let. Hammerson made good progress in letting space within the offi ce portfolio and maintaining high occupancy levels at its retail schemes. Several transactions initiated in the fi rst 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 fl oorspace of 116,000m 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 fl oorspace 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 offi ce 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 fi rst 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 fi rst six months of the year. The vacancy rate in the London offi ce portfolio decreased from 29% at the year end to 17% at 30 June In the UK, 13 new leases were signed in the fi rst 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 5,000m 2 of accommodation. 13

16 BUSINESS AND FINANCIAL REVIEW CONTINUED Brent South Shopping Park, London NW2: Retail parks now account for 20% of Hammerson s business. NEW CONTRACTED INCOME As at 31 August 2006, the group had secured a substantial and rising income stream refl ecting leasing activity referred to earlier and leases which have been signed in respect of recently completed and current developments, as shown in the table below. The group s cash fl ow from these schemes will increase by 21 million in 2007 over the fi gure for 2006 and by a further 22 million in One of the 21 retailers trading at Bishops Square, London E1. RENTS PASSING m m m m Bishops Square, London E Other completed offi ces Retail parks place Vendôme, Paris Total cash flow SIC 15 basis Notes The fi gures include Hammerson s share of income in respect of joint ventures and do not include the income from two properties sold since 30 June Income is included according to when rent payments commence, with the allocation to rent free periods, as required by SIC 15, also shown. 14

17 Work started in January 2006 on a major expansion of the Shires shopping centre, Leicester. 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. 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. 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 140,000m 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 110,000m 2. Lettings are progressing well but, as with the scheme in Bristol, rent free periods have lengthened. 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 30,100m 2 of offi ce accommodation and 600m 2 of retail units with completion scheduled for December 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 24,000m 2 redevelopment will increase the size of Parinor to 90,000m 2, making it the largest shopping centre serving the north of Paris. The extension will be anchored by Planète Saturn, which has agreed a lease on a 4,600m 2 store. An extension of 5,600m 2 to Villebon 2, near Paris, is also underway. 15

18 BUSINESS AND FINANCIAL REVIEW CONTINUED In February 2006, work started on the redevelopment of the former London Stock Exchange building at 125 Old Broad Street, EC2. Preliminary works are underway for the redevelopment of 60 Threadneedle Street, London EC2 in 2006/2007. 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 Union Square, Aberdeen, has planning consent for 50,000m 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 fi rst 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 11,000m 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 11,000m 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 20,600m 2 ninestorey offi ce building, incorporating 1,000m 2 of retail space. FUTURE PROJECTS Cost at 30 June Estimated Area 2006 total cost m 2 m m Retail Union Square, Aberdeen 50, Fife Central Retail Park, Kirkcaldy 11, West Berkshire Retail Park, Theale 11, Offices 60 Threadneedle Street, London EC2 20, Total 92,

19 A major expansion of Parinor, near Paris, will increase the size of the centre to 90,000m 2. Fashion retailing is the mainstay of the retail mix at Hammerson shopping centres. FUTURE DEVELOPMENTS In addition to the schemes outlined, 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 offi ces. 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 Sheffi eld, with phased start dates from 2008 onwards. Since 30 June, Hammerson has received planning consent for its proposed 105,000m 2 mixed-use scheme in Sheffi eld 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 fi rst phase could begin in In Leeds, a planning application has recently been submitted for a 100,000m 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 to the schemes in Belfast, Didcot and Newcastle. Fourthly, Hammerson has the potential to expand its portfolio in central London by around 400,000m 2, including nearly 200,000m 2 of offi ces. 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 100,000m 2 incorporating 67,000m 2 of offi ces. The group has also appointed a master planner for the nearby Bishopsgate Goodsyard site, for up to 195,000m 2 of offi ces, 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 18,400m 2 office development. Hammerson has a 50% interest in each of these three schemes. 17

20 MARKETS AND OUTLOOK In central London, take-up of offi ce space in the fi rst half of 2006 was robust and above the average level seen over the past decade. ECONOMIC ENVIRONMENT The international environment has generally been benign in recent quarters. In the UK, economic growth improved in the fi rst half of 2006, after a period of more modest growth in Although unemployment has risen, disposable incomes continue to grow and the housing market has picked up. In France, economic growth also increased in the fi rst 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 fi rst half of 2006, although defl ation 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 profi table 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 offi ce space in the fi rst 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 offi ce 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 Current forecasts for offi ce demand suggest that the additional supply can be absorbed by the market without increasing the vacancy rate during FRANCE RETAIL French non-food retail sales growth improved in the fi rst 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 level from 1 January 2007 will rise to around 5%. PARIS OFFICES Economic recovery is leading to higher levels of offi ce 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 benefi ted 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. 18

21 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 Retail parks Offi ce: City (11.8) West End Docklands and other (13.6) (7.8) Total United Kingdom Continental Europe Retail Offi ce (3.2) Total Continental Europe Group Retail Offi ce (6.2) Total Investment Portfolio Income on developments and other sources not analysed above As disclosed in note 2 to the accounts Selected Information at 31 December 2005 Group Retail Offi ce (9.2) Total Investment 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. 19

22 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, Retail parks , Offi ce: City West End Docklands and other Total United Kingdom 3, Continental Europe Retail 1, Offi ce Total Continental Europe 1, Group Retail 4, Offi ce 1, Total Investment Portfolio 5, Developments Total Group including developments 6, Selected Information at 31 December 2005 Group Retail 4, Offi ce Total Investment Portfolio 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, refl ecting 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. 20

23 DEVELOPMENT PROPERTY DATA As at 30 June 2006 Estimated total Projected Ownership Cost to Cost to development annual Forecast interest Area date Value complete cost income Let completion Property % m 2 m m m m m % date Notes (1) (1) (1) (1) (1) (2) Broadmead, Bristol , Sep 2008 New Shires, Leicester 60 60, Sep 2008 Parinor, Aulnay-Sous-Bois , Apr Old Broad Street, London EC , Dec 2007 Total current developments Bishops Square, London E1 (3) Jul 2005 Cost to date of other developments 112 Revaluation gains on developments 285 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 (3) Practical completion of Bishops Square was achieved in July 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. 21

24 INDEPENDENT REVIEW REPORT TO HAMMERSON PLC Introduction We have been instructed by the Company to review the fi nancial information for the six months ended 30 June 2006, which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of recognised income and expense, the reconciliation of equity, the consolidated cash fl ow statement and related notes 1 to 18. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the fi nancial information. This report is made solely to the Company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors Responsibilities The interim report, including the fi nancial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority and the requirements of IAS 34 which require that the accounting policies and presentation applied to the interim fi gures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review Work Performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the fi nancial information and underlying fi nancial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verifi cation of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the fi nancial information. Review Conclusion On the basis of our review we are not aware of any material modifi cations that should be made to the fi nancial information as presented for the six months ended 30 June Deloitte & Touche LLP Chartered Accountants London 4 September

25 CONSOLIDATED INCOME STATEMENT Six months Six months Year ended ended ended 31 December 30 June 30 June Audited Unaudited Unaudited m Notes m m Gross rental income Operating profit before gains on investment properties Gains on investment properties Operating profit (102.1) Finance costs (55.7) (50.8) Bond redemption costs (33.7) 12.6 Finance income Change in fair value of interest rate swaps (9.7) 3.8 (87.9) Net fi nance costs 4 (91.1) (40.5) Profit before tax 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) Profit for the period Attributable to: Equity shareholders Minority interests Profit for the period p Basic earnings per share p 72.2p 197.6p Diluted earnings per share p 72.0p Adjusted earnings per share are shown in note 7. All results derive from continuing operations. 23

26 CONSOLIDATED BALANCE SHEET 31 December 30 June 30 June Audited Unaudited Unaudited m Notes m m Non-current assets 5,731.7 Investment and development properties 8 6, , Interests in leasehold properties Plant, equipment and owner-occupied properties Investments Loans receivable Other receivables , , ,876.2 Current assets Receivables Cash and deposits ,055.3 Total assets 6, ,181.7 Current liabilities Payables Tax liabilities Borrowings Non-current liabilities 2,094.3 Borrowings 13 2, , Deferred tax 5(c) Tax liabilities Obligations under fi nance leases Net pension liability Other payables , , , ,879.6 Total liabilities 3, , ,175.7 Net assets 3, ,658.0 Equity 71.2 Called up share capital Share premium account (32.8) Translation reserve 16 (38.6) (55.6) 32.9 Hedging reserve Capital redemption reserve Other reserves * Revaluation reserve ,163.7 Retained earnings 16 2, ,831.4 (4.4) Investment in own shares 17 (4.0) (4.4)* 3,125.8 Equity shareholders funds 3, , Equity minority interests ,175.7 Total equity 3, , Diluted net asset value per share EPRA net asset value per share *Restated (see note 17). 24

27 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months Six months Year ended ended ended 31 December 30 June 30 June Audited Unaudited Unaudited m Notes m m (39.3) Foreign exchange translation differences (5.5) (63.1) 32.9 Net gain on hedge of net investment in foreign subsidiaries Revaluation gains on development properties Revaluation gains on owner-occupied properties Revaluation gains on investments (6.3) Actuarial gains/(losses) on pension schemes 15, (3.5) (55.5) Tax on items taken directly to equity 5(b) (9.4) (16.7) Net gain recognised directly in equity Profi t for the period Total recognised income and expense Attributable to: Equity shareholders Minority interests Total recognised income and expense RECONCILIATION OF EQUITY Six months Six months Year ended ended ended 31 December 30 June 30 June Audited Unaudited Unaudited m Notes m m 2,414.2 Opening equity shareholders funds 3, , Issue of shares (2.3) Purchase of own shares 17 (2.3) 2.1 Share-based employee remuneration * Gain on award of own shares to employees , , , Total recognised income and expense , , ,649.3 (51.0) Dividends 6 (39.6) (34.5) 3,125.8 Closing equity shareholders funds 3, ,614.8 *Restated (see note 17). 25

28 CONSOLIDATED CASH FLOW STATEMENT Six months Six months Year ended ended ended 31 December 30 June 30 June Audited Unaudited Unaudited m Notes m m Operating activities Operating profi t before gains on investment properties Adjustment for non-cash items 18 (0.2) 0.9 (44.4) Decrease/(Increase) in receivables (Decrease)/Increase in payables (40.5) Cash generated from operations (123.6) Interest and bond redemption costs paid (128.8) (89.0) 13.1 Interest received (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) Sale of property Purchase of interests in joint ventures and subsidiary companies (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 (2.3) Purchase of own shares 17 (2.3) Proceeds from award of own shares Increase in medium and long term borrowings (30.3) Increase/(Decrease) in short term borrowings (1.8) Dividends paid to minorities (51.0) Equity dividends paid (39.6) (34.5) Cash flows from financing activities (8.1) Net increase/(decrease) in cash and deposits Opening cash and deposits (0.1) Exchange translation movements 0.1 (0.2) 45.5 Closing cash and deposits ANALYSIS OF MOVEMENT IN NET DEBT Borrowings Borrowings Short term Cash due within due after deposits at bank one year one year Net debt m m m m m Balance at 1 January (0.5) (2,094.3) (2,049.3) Unamortised bond issue costs written off (2.0) (2.0) Cash fl ow (7.1) (276.2) (71.0) (99.8) Exchange 0.1 (0.4) (5.9) (6.2) Balance at 30 June (277.1) (2,173.2) (2,157.3) 26

29 NOTES TO THE ACCOUNTS 1 FINANCIAL INFORMATION The fi nancial information contained in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985, or complete fi nancial 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 unqualifi ed report from the auditors, did not contain a statement under s237(2) or (3) of the Companies Act 1985 and have been fi led with the Registrar of Companies. The unaudited fi nancial 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 This interim fi nancial report has been prepared using accounting policies consistent with IFRS and in accordance with IAS 34 Interim Financial Reporting. The group s fi nancial performance does not suffer materially from seasonal fl uctuations. 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 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 OPERATING PROFIT Six months Six months Year ended ended ended 31 December 30 June 30 June m m m Gross rental income (4.0) Rents payable (2.3) (2.4) Gross rental income, after rents payable Service charge income (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) Net rental income Management fees receivable (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 properties Profi t on the sale of investment properties Revaluation gains on investment properties Gains on investment properties Operating profit

30 NOTES TO THE ACCOUNTS CONTINUED 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 30 June 30 June m m m Gross rental income UK Continental Europe Segment result UK Continental Europe (14.0) Unallocated corporate costs (8.8) (6.3) Operating profit NET FINANCE COSTS Six months Six months Year ended ended ended 31 December 30 June 30 June m m m 16.8 Interest on bank loans and overdrafts Interest on other loans Interest on obligations under fi nance leases Other interest payable Gross interest costs (21.2) Less: Capitalised interest (14.6) (10.0) Finance costs 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 In May 2006, 93.8 million of the 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. 28