Good morning everyone, and welcome to our 2010 results.

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Silvester Bruce
5 years ago
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1 Good morning everyone, and welcome to our 2010 results. I hope that as you arrived you appreciated that we are holding this presentation at a Hammerson development - Bishops Square is a great example of Hammerson in action When we secured the site in 2000 everybody thought that this area was city fringe. We successfully secured a prelet, and created a grade A office complex in a vibrant, open environment exactly the sort of approach that we intend to take with London Wall Place and Bishops Place, our two major office development schemes nearby. Then, as you know, we sold our remaining stake in the building late last year, recycling capital into other opportunities. 1

2 Now to this morning s presentation itself I ll give a quick summary before Simon runs through the financials, and I will give an update on how we are responding to current markets and an overview of progress we are making with developments. Now turning to the results 2

3 This is a good set of figures Profit is up 11% NAV is up 18% to 4.95 and there has been further continued growth in the dividend. So turning to the key drivers behind the numbers 3

4 We have a clear strategy for the business and you can see that we have made excellent progress with its implementation. A focus on customers sales and cost control has lead to growth in our like-forlike income of 3.5%, and our targeted approach to securing tenants has increased occupancy to over 97%. The ongoing review of each of our assets and rigorous portfolio management has lead to us executing nearly 800 million of acquisitions and disposals, equivalent to 15% of the total portfolio, and we have further enhanced our growth prospects by progressing developments. Looking forward, our financial flexibility will allow is to secure acquisition opportunities without having to sell first. And we have created new partnerships in the year, working with both the National Pension Service of Korea and Allianz, forming joint ventures in two our French centres. Now looking specifically at some of our transactions

5 In 2010 we realised over 550 million through the disposal of mature assets, and reinvested some 220 million. Portfolio management is a continuous exercise, and therefore you should expect to see further transaction activity from Hammerson. A couple of weeks ago we announced the acquisition of SQY Ouest, a shopping centre adjacent to our Espace Saint Quentin centre near Paris. We secured it at an attractive price from a motivated seller. Our French team can use their local expertise to improve the tenant mix and restructure the centre. Plus, we can provide a common marketing and management approach to both SQY Ouest and Espace Saint Quentin. Furthermore, I d expect SQYOuest to show very good returns, well above the 9% cash yield on purchase, and I think that it is a good indication of the type of deal that we are looking for. I should also note that at the end of the last week we agreed terms to buy out Teachers at Falkirk retail park, a 70m deal at 6%. Let me say a few words about the background in which we are operating, and why despite a challenging macro environment Hammerson is in a strong position 5

6 1. There is strong investor demand for property, driven by the attractive pricing in comparison to other asset classes. However, investors are very much focused on the quality income streams that prime property provides. By contrast secondary properties are suffering structural high vacancy which has an impact on rentals levels and thus values. Of course this in itself may create selective opportunities for Hammerson. 2. Banks are unwilling holders of property, and are keen to reduce their exposure. There is a consequent lack of finance available for property transaction. However, Hammerson s unsecured financing and industry expertise, puts us in a strong position. 3. Despite the mixed economic backdrop many retailers are doing well, and hence looking for space in strong trading locations. A lack of new retail supply is encouraging them to look at reconfigured space in the best existing centres or moving to high quality retail parks. Against this backdrop, we have the right properties to attract thriving businesses, management expertise to identify and capitalise on changing trends, particularly in retail, and that s why we have negligible vacancy compared to the market in general. I ll expand on how we are doing this in practice after Simon s presentation 6

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8 For properties that we have owned throughout the last two years, like for like growth in rental income was 3.5%. Our French portfolio showed a small decline whilst we saw strong growth in our UK Shopping Centres. Although we benefited from the fact that both Bristol and Leicester are maturing, established centres such as Brent Cross and The Oracle also showed good growth in at around 8.5%. There is clearly a differentiation in the UK between strong trading locations and retail sector averages.

9 Adjusted Profit before tax increased by 14.5 million to million. The main reasons for this increase were: m Lower interest costs including fees 12 Lower overhead costs, net of management fees 4 Rent reviews, reduced vacancy and higher 7 carpark and commercial income Partly offset by Net effect of disposals and acquisitions (6) Prior year developments change and other factors (2) 15m We recognise that disposals may dilute earnings in the short-term, pending reinvestment. The dividend for the year is pence, well covered by adjusted earnings per share of 19.9 pence.

10 Net debt reduced by 330 million in 2010 to 1.8 billion at the end of the year. This reduction reflected the fact that we realised 190 million more from disposals than we spent on acquisition and development; our operating cash flow was strong and exchange translation movements were favourable. Net asset value per share at the end of 2010 was 4.95 an increase of 17.6% or 74 pence per share.

11 is analysed here. The portfolio revaluation generated an increase of 63 pence per share across the portfolio. 11

12 Strengthening demand during 2010 from investors for prime property has been reflected in lower yields in every sector. As you can see our average yields improved by 80 basis points in the UK and 30 basis points in France 12

13 In the year the capital return was 9.3% and the total return 15.0%. In the UK, 90% of the uplift in value was attributable to lower yields but encouragingly we also benefited slightly from improved rental values. The capital return of 13.2% from UK shopping centres compared with 10.2 % for IPD and the 12.4% growth in retail parks compared with 9.6% for IPD. You will see that our capital return in France was 1.9%. This was reduced by two things. First, the loss of 19 million on the Parinor and St Quentin disposals. Secondly, our valuers have allowed 20 million for the cost of planned refurbishment expenditure. Turning now to our financing.

14 In the short term we have very little debt maturing, 38 million in 2012 and 175 in However, our three principal bank facilities, which are currently largely undrawn, mature in 2012 and We will start to refinance these in the first half of In 2011, capital expenditure on development, will be around 145 million with a further 180 million next year, although the latter would increase if we are successful in securing a prelet at either of our City projects.

15 Both our balance sheet and our cash flow credit measures are healthy. Interest cover in 2010 was 2.6 times and the ratio of net debt to EBITDA was 7.2 Around 80% of the value of French assets is hedged. Importantly we do not rely on the secured debt market, which continues to be difficult, but borrow on an unsecured basis. Accordingly, we start the new year in a strong financial position. 15

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17 Thanks Simon A moment ago I talked about our strong position, particularly because of the quality of our assets. As you can see here we are nearly 90% retail focused, with some of the very best shopping centres and parks in the UK and France. We also have some excellent offices in London, which we will add to as we take forward developments over the next few years. In both our retail and office portfolio in the UK and France, we have a well diversified range of successful tenants on long leases. 17

18 As you know I have a strong personal focus on growing income from our portfolio and this starts with letting space. Over the course of the last year we have halved vacancy in our UK portfolio, and kept occupancy at very high levels in the French portfolio. These vacancy figures remain significantly below the industry average, particularly in UK retail where market vacancy remains well over 10% and rising. Our approach is helping us not only improve occupancy levels, but we have been signing leases at robust rental levels. In the second half overall UK leases were signed 1% below ERV, with those in France 2% above. Putting that into context we secured overall new rents of 11.5 million up by 55,000 above last ERV. Where we have completed rent reviews in the UK retail portfolio, the average uplift was 20%, generating 2.3 million of additional annual income. So how are we creating this retailer demand? 18

I mentioned to you before that we had reorganised our leasing teams in the UK to become more customer focused, and this approach is starting to bear fruit.

19 I mentioned to you before that we had reorganised our leasing teams in the UK to become more customer focused, and this approach is starting to bear fruit. We have strengthened relationships with some of our existing customers, many of whom are trading well and looking for new space. In addition, our customer focus has allowed us to forge new relationships with expanding, dynamic formats such as Forever 21, where we successfully secured their first European store at Bullring. Our UK and French leasing teams are now collaborating more effectively much better to ensure that we have a combined leasing approach to international tenants such as Apple and Hollister. Turning to the management of the assets themselves 19

Retail is a fast moving, dynamic sector, and in order to continue to attract quality tenants, and help them grow their sales, we are working hard to continually refresh centres and improve their

20 Retail is a fast moving, dynamic sector, and in order to continue to attract quality tenants, and help them grow their sales, we are working hard to continually refresh centres and improve their appeal. In turn this will increase the financial returns of each property We re actively improving the catering offer at many centres, for example we will create a new restaurant quarter at Bullring. Through a targeted marketing approach we secured eleven bids for the three new catering units. At Queensgate, we have put in place a three year plan to improve sales, footfall and rents. We re investing 20 million with our partner Aviva on a programme which will include the creation of a new 5,500 square metre Primark store. And we continue to extend and refurbish existing centres and parks. We secured consent for a 7,700 square meter extension at Silverburn, and I d like to talk in more detail about the retail parks portfolio and French properties over the next few slides 20

21 The French portfolio has shown excellent performance over the last 5 years, outperforming the UK portfolio by 22%. In order that we can ensure that the existing assets are in a position to continue performing well, we re undertaking a refurbishment programme at the majority of our French centres. The cost of the refurbishment programme is already being reflected by our valuers at the year end. We ve also sold mature assets and commenced development to increase the growth prospects of the portfolio, plus we are looking at acquisitions such as SQY Ouest which allow us to use our skills to enhance value. Given our plans for greater activity and development, we made two significant hires in the year. Andre Bentze is our new Director of Finance and Vincent Ravat, who is here today, is our new Director of Operations. Turning to our UK retail parks 21

22 Our 16 UK retail parks, worth roughly 1billion have, 98% occupancy, the majority (60% by space) have open A1 consent, and affordable rents, at an average of 18 per square foot. We continue to work with a number of successful sub sectors, for example, the home improvement businesses who are the bedrock of the retail parks portfolio, and are continuing to thrive. In addition, expanding retailers are taking space at parks, as well as those retailers, particularly fashion brands, who are continuing to see opportunities in retail parks. Following the growth of fashion on retail parks, catering is a growing market as the parks increasingly become destinations in their own right a trend which mirrors what has happened in shopping centres. I m convinced that retail parks will perform very well over the coming years, and to ensure that we capitalise on these trends 22

23 We continue to invest to keep the parks fresh and attractive to tenants, thus maintaining vacancy and supporting rents. We are proposing an extension programme over the next few years which in total is worth some 50 million, and as you can see from the examples on the slide, they will show good profitability. So, turning to the trading performance for the year 23

24 Our hard work has led to increased footfall and sales in both countries. Our retail centres in the UK and France generate over 230 million visits each year, so increases of one or two per cent equate to over 2 million extra visitors, and clearly that s good for our retailers. The job of our marketing teams is to attract people who will also spend money, and I m pleased that in the UK a 3.5% increase in sales off a base of over two billion pounds is an extra 70 million pounds spent in our centres. In France our tenants have a sales base of 1.8 billion euros, so again a 0.7% increase is a significant amount of money. That growth in sales has led to a small improvement in the rent:sales ratios in both countries. You ll note that we also have a significant additional non-rental income stream worth over 15 million Now looking at our rental performance in more detail 24

25 In France, this slide shows how like-for-like passing rents have moved over two years. Rents have been sustained over a tough period for tenants, and looking forward we should benefit from indexation, especially if there are rises in inflation. Looking at the UK 25

26 We ve more than compensated for terminations and expiries, and increased rents at review, so that our like-for-like passing rents increased over the period. So that s the existing portfolio, let me turn now to developments 26

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28 Hammerson has a strong reputation as a developer, an activity which remains an important element of our portfolio management, with the ability to enhance returns. We have a substantial pipeline of opportunities, however we will only commence these if they meet our financial criteria, and they will be managed in a phased programme. We have developments underway right now, we have projects which we could start over the next couple of years, but also a pipeline of opportunities which will allow us to create value over the medium to long term. Our pipeline is spread across UK retail (both shopping centres and retail parks), French retail and London offices. Including Brent Cross Cricklewood it would represent, in total, something like 8 billion of investment, and although clearly we won t undertake that all by ourselves it provides a foundation for future growth and profit for the business. 28

29 As I said, we are on-site with two developments in France. Les Terrasses du Port, will be one the largest retail developments in France over the next few years and as you can see, construction of this significant development has now begun. Since purchasing the site we redesigned the project and optimised the retail layout. We renegotiated building contracts at fixed costs, and secured anticipated cost savings. This a major part of the government backed regeneration of the area, and will be a significant development for Hammerson, with total development cost of 430 million, although we will probably bring in a partner at the appropriate time. The redevelopment of Faubourg Saint Honoré is effectively complete, with the Bally store open and other retailers fitting out. This is an excellent scheme in one of the most prestigious areas of Paris. We have invested 36 million euros in the refurbishment, and in total the property is valued at 42 million euros over cost. Looking out over the next few years 29

30 We have a number of projects where we have made significant progress and could start on site in the next year or two. We ve revised our major UK retail schemes at Sevenstone in Sheffield and Eastgate Quarters in Leeds. To improve the viability and suitability we have simplified the schemes, thus taking out costs. I m pleased to say retailers are showing an encouraging level of interest. In London our proposed schemes at Bishops Place and London Wall Place offer a differentiated product. We are able to offer flexible buildings with large floor plates which can accommodate trading floors if required. Because of the modest land costs involved, we can progress these schemes at very competitive rental levels. And looking at some of our other proposals, at Beauvais and Didcot to name two, we are bringing forward schemes which are ideally suited to retail demand in their particular location. Those are some of the projects on which we will focus over the next five to seven years, but looking a little further out 30

We have two major projects which we continue to progress. These are two of the largest schemes proposed for London, and have significant longer-term value.

31 We have two major projects which we continue to progress. These are two of the largest schemes proposed for London, and have significant longer-term value. At Brent Cross Cricklewood, which in its entirety is a 4 billion project, we bought out Brookfield s share of the Cricklewood element, giving us greater ability to manage the progress of this complex scheme with our Brent Cross partner, Standard Life. And Bishopsgate Goodsyard is a 1 billion, 12 acre project which has the potential to provide a vibrant office, retail and residential area just north of here, opposite the Bishops Place scheme. This is a thriving area akin to the meat-packing district of New York offering a great opportunity for Hammerson. 31

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33 The retail landscape is polarising, and Hammerson has the quality of assets and the dynamic management to capitalise on this trend, thus maintaining occupancy and growing income. We have recycled capital and invested in developments and acquisitions to enhance the growth prospects of the portfolio. And we will continue to take advantage of opportunities that exist for those with the combination of a strong balance sheet and sector expertise. In summary, it has been an active year, and we are well positioned for the future. I believe that our high quality portfolio, operational excellence, and financial flexibility will lead to good shareholders returns. With that I ll hand to questions, but first just a few words on Simon 33

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2011 H al a f l - f Y - e Y a e r a Res e u s lt l s t 1 August 2011

2011 H al a f l - f Y - e Y a e r a Res e u s lt l s t 1 August 2011 2011 Half-Year Results 1 August 2011 Agenda Introduction Financial Results Portfolio Review Development Update Summary and Conclusion 2 Headline Results 30 June 2011 31 Dec 2010 30 June 2010 EPS 9.6p 9.7p