RESULTS Monday, 26 February 2007

Transcription

1 RESULTS 2006 Monday, 26 February

2 FINANCIAL PERFORMANCE Total portfolio return 18.8% EPRA NAV per share % Adjusted earnings per share 32.8 pence +5.1% Return on shareholders equity 25.3% Total dividend per share pence +10.0% 1 Good morning. As John Nelson said, it was an another excellent year for Hammerson. We achieved an ungeared total portfolio return of 18.8%. Adjusted net asset value per share increased by 21% to Adjusted earnings per share increased by 5.1% to 32.8 pence. And our return on shareholders equity last year was 25%. Reflecting this strong performance and our confidence in the future, we are proposing a 10% increase in the dividend. As you can see in the statement, we have also flagged an increase in dividend of around 25% for

3 OVERVIEW 2006 Capital recycling totalled over 1.4 billion Completion of 9 place Vendôme development showed 81 million profit or 94% above cost Active asset management halved vacancy rate to 3.4% Strong projected income growth from signed leases at recent developments Major current development programme of nearly 1 billion Substantial development pipeline with potential investment of 5 billion over next decade 2 It was a very active year and we continued our policy of recycling capital, with capital expenditure of over 800 million and over 600 million raised from disposals. We completed the very successful redevelopment of 9 place Vendôme in Paris to show a development surplus of 81 million on our costs of 86 million. Our vacancy rate halved to 3.4%. Over the next two years Hammerson s income will show substantial growth from recently completed developments. We have a current development programme with a projected total cost of nearly 1 billion and a substantial pipeline beyond that which could enable us to almost double the size of the company over the next decade. 3

4 STRATEGY IN A REIT ENVIRONMENT Tax exempt businesses in both UK and France Existing business model delivering outperformance Focus on two European markets and two sectors Substantial development programme Continued recycling of capital 3 We do not envisage any fundamental change to our strategy, which is well suited to the new environment. We have substantial businesses both in the UK and France which are now taxexempt and which are delivering outperformance. We shall continue to focus on two sectors, retail and offices, in both the UK and France. We shall capitalise on our development skills to generate capital profits and attractive yields on cost from newly created assets. We shall continue to seek to enhance returns by recycling capital. 4

5 CAPITAL ALLOCATION AND RECYCLING million Existing portfolio Developments Acquisitions Disposals LxB Acquisition 4 This shows activity over the last five years. The purple bar in 2006 represents the acquisition of the LxB portfolio for 427 million. Disposals are shown in blue. The principal sale last year was the Liberty Shopping centre for 281 million in August. That sale was at a price some 23% higher than its value at the previous year end. 5

6 PORTFOLIO As at 31 December 2006 France 25% Offices 28% Shopping centres 52% Developments 8% Germany 1% UK 74% Retail parks 20% Investment properties 92% Total portfolio: 6.7 billion 5 This is the shape of the portfolio which has a current value of 6.7 billion. It is a portfolio of the highest quality offering the potential for substantial growth in both income and capital. That is a very good base from which to take the business forward. Now over to Simon. 6

7 FINANCIAL REVIEW Thank you John. I would like to highlight the key points of the results for

8 NET RENTAL INCOME ( million) Properties owned throughout 2006 and Acquisitions Properties sold Developments Exchange translation and other (0.2) Net rental income This slide compares rental income for last year with On the top line you will see that for properties owned throughout the two years income increased by 5.7 million, or 3.2% to million. Like for like growth in the UK was 7.7%. In France, there was a decline of 6.0%. However, this was directly attributable to office vacancies at Les 3 Quartiers, now largely relet, and Parinor where we incurred costs related to the major development that has now started. 8

9 INCOME STATEMENT Reported 2006 ( million) Reported 2005 ( million) Adjusted profit before tax Gains on properties revaluation Bond redemption costs Profit on sale of properties Fair value of swaps Goodwill impairment Profit before tax Current tax Deferred tax Minority interests Profit for the period (34.0) 95.8 (16.1) (12.6) (99.4) (9.9) 1, (133.9) (11.3) EPS (pence) Dividend per share (pence) This slide shows the summarised income statement. A few words of explanation. First, we wrote off 12 million of goodwill on the acquisition of the LxB portfolio. This was principally deferred tax provided in respect of one property in the portfolio. Second, taxation. You will see two large items. The current tax of 99 million includes a charge of 101 million for the REIT conversion tax charge. The deferred tax credit of 334 million represents a write back of deferred tax of 448 million on conversion to a REIT, partly offset by the deferred tax charge for the year of 114 million. Removing these oneoff items and revaluations 9

10 INCOME STATEMENT Adjusted profit before tax Gains on properties revaluation Bond redemption costs Profit on sale of properties Fair value of swaps Goodwill impairment Profit before tax Reported (34.0) 95.8 (16.1) (12.6) ( million) Adjusted earnings Reported ( million) Adjusted earnings Current tax Deferred tax Minority interests Profit for the period (99.4) (9.9) 1, (2.1) (133.9) (11.3) (2.9) 87.5 EPS (pence) Dividend per share (pence) Columns 2 and 4 show adjusted profits and earnings for the two years. Adjusted profit before tax increased by 5 million to 94.5 million. The main reasons for this increase were: Contributions from developments, including Bishops Square and Moorhouse + 8m Rent reviews at West Quay + 5m Net effect of sales/acquisitions over 2005/6 + 4m These were partially offset by: Increased interest cost due to early refinancing of 2007 maturities and higher interest rates 7m Higher staff and administrative costs 5m 10

11 TAXATION REIT election effective 1 January 2007 Entry tax provision 101 million Deferred tax writeback 457 million Net 1.1 million current tax credit in year Closing deferred tax balance of 103 million 10 I have already mentioned the write back of deferred tax on REIT election. Overall, the write back was 457 million, of which 9 million is recognised directly in equity and 448 million in the income statement. At the end of the year we had a deferred tax balance of 103 million. This principally relates to UK corporation tax potentially payable on dividends receivable from France. The latter is calculated on a liquidation basis, and is therefore quite remote. 11

12 DIVIDEND (pence) 25 CAGR: 8.2% We are proposing an increase in the final dividend of 10%. Over the past five years the dividend has grown at a compound annual rate of 8.2%. A few words about our policy for 2007 and beyond. In 2007 we expect earnings to increase as income is received from recent developments. This, coupled with REIT status, should enable an increase in the dividend of around 25% for Following this stepup, we would expect annual increases more in line with recent years. In relation to the level of the property income dividend, I believe our total dividend will be greater than the mandatory PID for the foreseeable future. This reflects a number of points, including the fact that Hammerson s French income is not subject to the distribution requirement under UK REIT rules. Turning to cash flow 12

13 CASH FLOW ( million) Cash generated from operations Net interest (112) (110) Bond redemption costs (32) Tax (21) (20) Cash flows from operating activities 6 45 Acquisitions (249) (308) Capital expenditure (251) (223) Disposals (307) Dividends (58) (51) Other cash flows (15) 18 Net cash flow before financing 61 (295) 12 Cash flow from operating activities reduced by 39 million to 6 million in This was almost entirely explained by the one off bond redemption premium paid in the year. Overall you will see a cash inflow of 61 million. However, we also assumed borrowings on acquisitions of 275 million. After taking this and exchange translation movements into account, net debt rose in the year by 194 million. 13

14 BALANCE SHEET 31 Dec 2006 ( million) 31 Dec 2005 Property assets 6,716 5,732 Net debt (2,243) (2,049) Other net liabilities (205) (151) 4,268 3,532 Deferred tax (103) (406) Equity shareholders funds 4,165 3,126 EPRA NAV per share Gearing 54% 66% 13 Reflecting that increase, net debt rose to 2.2 billion, although gearing fell as property values increased. Net asset value per share was up by 21.3% to The increase is analysed on the next slide. 14

15 NAV ANALYSIS Shareholders funds* ( million) EPRA NAV* ( per share) 31 December , UK REIT conversion charge (101) (0.35) Bond redemption (34) (0.12) Dividend (58) (0.20) Revaluation equity changes income changes Retained profit (excluding revaluations and bond redemption) Exchange loss and other movements December , * Excluding deferred tax and fair value of interest rate swaps 14 The REIT conversion tax charge reduced adjusted NAV by 35 pence per share. Without this, the increase in NAV would have been 24% and 25% without the oneoff bond redemption premium. Revaluations in Hammerson s accounts are split between developments, where valuation changes are taken directly to equity, and investment properties, where revaluations are included in the income statement. These are shown in the middle of this slide and together increased NAV by 2.64 per share. The next slide analyses the capital value increases in more detail. 15

16 CAPITAL RETURNS Year to 31 December 2006 Shopping Centres Retail Parks Offices Total Value m Return % Value m Return % Value m Return % Value m Return % UK 2, , , , France 1, , Germany 72 (5.8) 72 (5.8) Total 3, , , , This shows the capital returns by sector and by country. Overall the portfolio showed an underlying capital return of 14.6%, with strong growth in most areas. However, there are divergent trends. In the UK, the increase for shopping centres slowed in the second half of 2006, whilst office values were strong throughout the year. We saw good valuations uplift in our London portfolio particularly notable was the 38% increase in value of Moorhouse. In relation to retail parks, the LxB acquisition was completed in August and the value of the properties was unchanged for the four months of ownership. In France the performance was better in the second half of the year, with strong growth in both the retail and office sectors. Demonstrating the somewhat different cycle in that market. 16

17 FINANCING Three new financings: 300 million 5.25% bonds due million fiveyear sterling bank facility 700 million 4.875% bonds due 2015 Cash and undrawn facilities totalled 900 million at 31 Dec 2006 Weighted average maturity of debt 10 years 99% of debt unsecured 16 In 2006 we raised 1.1 billion of additional medium and long term finance at attractive rates. Cash and undrawn facilities at the end of the year were substantial at 900 million, our strategy being to refinance expiring facilities well in advance. This puts us in a strong financial position as we move through 2007 and into

18 FINANCIAL SUMMARY REIT conversion charge of 101 million Deferred tax written back 457 million Capital return of 14.6% Strong financial position 17 To summarise. As a REIT we will benefit from the removal of tax on capital gains. In the future, disposal decisions can be made without the fetter of tax. We saw good capital growth in 2006 and ended the year in a strong financial position. 18

19 MARKETS Thank you Simon. I would like to say a few words now about our markets. 19

20 OCCUPATIONAL MARKETS RETAIL UK: Modest rental growth in 2006 at prime shopping centres with retailers looking for additional incentives. We expect retailers generally to see positive sales growth in 2007 at the strongest trading locations, leading to further increases in rental levels. France: Demand for space improved at the best locations, supporting higher rents for new leases, a trend we expect to continue in Rents on existing leases in France are linked annually to a cost of construction index. Index applicable from 1 January 2007 is 7.1%. 19 The key to the retail occupational markets is consumer confidence. In the UK this improved last year, following weakness in Sales for nonfood retailers increased by 2.2%, compared to a fall of 0.7% the previous year. Our experience is that there are some clear winners and losers in retailing. The successful brands are expanding and keen to take stores in prime shopping centres and in mixed or open retail parks. They are also using the generally subdued market conditions to obtain additional incentives, including longer rentfree periods. Looking forward, we expect retailers generally to see positive sales growth continuing at the strongest trading locations and this will lead to further increases in rental levels this year. In France nonfood retail sales grew by 3.7% in 2006 compared to 3.4% the previous year. Demand from retailers for space improved at the best locations and this supported higher rents for new leases, a trend we expect to continue in Rents on existing leases in France are linked annually to a cost of construction index. The index, applicable from January 1, is 7.1%. Now, the office markets. 20

21 OCCUPATIONAL MARKETS OFFICES Central London: Buoyant market in 2006 with increased takeup and limited supply leading to strong rental growth and a reduction in rentfree periods. Continued demand for space and further reductions in vacancy are anticipated to lead to higher rents in 2007 despite increased development starts. Central Paris: Substantial increase in leasing activity in 2006 with many office occupiers seeking to consolidate their businesses into single locations offering more efficient accommodation. This trend is expected to continue into 2007, leading to further growth in rental levels. 20 Demand for office accommodation followed similar trends in both the City of London and Paris, with buoyant levels of letting activity. The central London office market enjoyed its best year for five years, reflecting the strength of the financial sector and employment growth. Rentfree periods shortened and rents saw strong growth, particularly for prime office accommodation. Although there has been an increase in the level of development activity during 2006, continued demand for space and further reductions in vacancy will to lead to higher rents in In the central Paris office market, there was a significant increase in leasing activity in 2006 with many office occupiers looking to consolidate their businesses into efficient accommodation in single locations. Supply in the CBD is very constrained so 2007 is expected to show further rental growth. 21

22 PROPERTY INVESTMENT MARKETS Further strong increases in capital values in UK and France in 2006 Borrowing costs now at or above prime property yields in UK and France Future capital growth in UK likely to be driven more by asset management initiatives and underlying rental growth than by further yield reduction Potential for further modest inward yield shift in France in 2007 Secondary assets more vulnerable to any market weakness 21 You will know that 2006 saw record levels of investment transactions in the UK and France. Institutional investors sought to increase their allocations to real estate and retail funds saw substantial inflows. Across Europe yields have converged and, in my view, in many cases no longer adequately reflect the very different risks between markets, sectors and individual properties. In the UK, however, we are beginning to see signs of differentiation. For example, top quality shopping centres and retail parks with critical mass remain in demand. However, secondary retail properties and bulky goods retail parks with restrictive planning consents are attracting less interest and I expect values to drift. On the other hand, in France investment demand has been, and continues to be, strong across both the office and retail sectors. As in 2005, there were very few investment transactions in retail, reflecting the lack of sellers. So, I believe we should see further general reductions in investment yields and therefore capital growth in the French market. I d like to turn more specifically now to Hammerson s operations. 22

23 OPERATIONAL REVIEW and start with a look at our performance in the UK against the IPD benchmark. 23

24 HAMMERSON UK PERFORMANCE vs IPD % 25 %5 20 Hammerson average 15.1% 15 IPD average 13.8% Hammerson UK IPD Annual Universe (except quarterly universe for 2006) Investment 23 This chart shows Hammerson s performance in the UK versus IPD. As you can see, Hammerson s UK business has exceeded the benchmark in nine out of the last ten years on average by around 130 basis points. For a large fund to consistently outperform over 10 years is a real measure of success. It places Hammerson around the top decile of all IPD measured funds in the UK over that period. IPD have not yet published 2006 data for France. However, we ve exceeded the benchmark in France for previous five years. There are three reasons for this good performance. We are in two key markets, two key sectors and have a major development programme. Now an update on our shopping centres. 24

25 SHOPPING CENTRE PERFORMANCE Diversified tenant base Average unexpired lease term eight years Occupancy 97.7% UK shopping centres 8% reversionary French shopping centres 7% reversionary Rental indexation in France 7.1% from January Hammerson s shopping centres in the UK and France account for around 50% of the group s total portfolio and provide a very high quality income stream from a broad spectrum of retailers. In total we have almost 1,000 different shopping centre occupiers. The leases have a weighted average unexpired lease term of eight years. During 2006, 8 units became vacant because of tenants administration and another 49 from lease expiries or breaks. Of these 57 units, 52 are relet and the annual rent roll is up 100,000. Overall the vacancy rate in this part of the portfolio is 2.3%. The group s UK shopping centre portfolio is 7.7% reversionary. Now looking at retail parks. 25

26 RETAIL PARKS UPDATE Three developments completed Five retail parks acquired for 427 million in August 2006 Development potential Occupancy 97.1% Average unexpired lease term 15 years Portfolio 15% reversionary 25 In the first half of the year, we successfully completed three retail park developments. One of these, Avenue Retail Park in Cardiff, has subsequently been sold resulting in a profit on cost of 42%. A few words now about LxB which we acquired for 427 million, largely financed by the sale of liberty. The five schemes have a total floorspace of 124,000 m². The current passing rents are 14.7 million, whilst the ERV is 19.1 million. The reason we bought the portfolio was the significant development potential. All benefit from an open A1 planning consent. We have effectively bought into around 200 million of potential developments and we have already made significant progress on two projects. These are the edge of town schemes in Didcot and Cramlington where we have already established a very encouraging dialogues with the local councils. As with the shopping centre portfolio, I am confident that we shall be able to capture the reversionary income potential across the existing retail parks portfolio. Turning now to offices. 26

27 OFFICE LETTING UPDATE Scheme Size Percentage let or under offer 31 Dec 2006 Cash rents contracted at 31 Dec 2006 Cash rents under offer 31 Dec 2006 m² % m m One London Wall, London EC2 18, Moorhouse, London EC2 30, Bishopsgate, London EC2 31, Exchange Tower, London E14 44, place Vendôme, Paris 1er 27, Note Rental income shown before deducting head and equity rents 26 We also made excellent progress in 2006 in reducing the vacancy within our office portfolio. We signed new leases in respect of a total of 34,000 m² of space. This will deliver 12 million of additional rent per annum after rentfree periods. The chart shows the position at the year end. However, our progress has continued into Bishopsgate is now fully let and we achieved per ft² on the letting of the final floor that was with 13 months rentfree. 27

28 ADDITIONAL CONTRACTED INCOME million UK completed offices Bishops Square Retail parks 9 place Vendôme Notes: (1) Hammerson s share of income shown for joint ventures (2) The bar chart shows rent receivable and not income smoothing under IFRS 27 I am going to leave you with an update on additional income we have already contracted. In 2006 we received just 2 million of new income from our share of the rents from completed office schemes and retail parks. This is going to grow to 47 million per annum by On an accounting basis, and after smoothing rents, the profit and loss account included 19 million of rental income in respect of these leases. Of course, by 2009 we shall also be benefiting from rental income from our current developments, which is not included in this chart. Now, I d like to hand over to Peter Cole to talk about development activities. 28

29 DEVELOPMENT As John has shown, development has made a major contribution to Hammerson s outperformance over the last ten years. 29

30 HAMMERSON S DEVELOPMENT USPs Track record of profitable schemes Retailer relationships Excellent reputation with city councils/ local authorities Outstanding longterm development pipeline Strength and depth in development team 29 We have a good track record of creating profitable schemes within the retail and office sectors. We enjoy good relationships with retailers and this is undoubtedly part of the reason that we have become a partner of choice for many city councils and local authorities. Our track record and the outstanding pipeline of future developments we have secured is also a reflection of the skills of Hammerson s development teams both in the UK and France. 30

31 9 PLACE VENDOME, PARIS 1ER 50:50 JV with AXA REIM Completed in April 2006 Hammerson cost 86 million Year end valuation 167 million Development surplus 94% 30 The major development completion in 2006 was 9 place Vendôme. Some of you will have seen it on our investors tour last year. This was substantially prelet to Clifford Chance. It was a very complex project on a sensitive site in this prime location. At the year end the development surplus was 81 million, a profit on cost of over 90%. Looking now at current developments. 31

32 CURRENT DEVELOPMENTS Current projects Ownership interest % Area m² Cost at 31 Dec 06 (1) m Value at 31 Dec 06 m Estimated total development cost (1) m Projected annual income m Let or under offer at 26 Feb 06 % Forecast completion date Shopping centres (2) (2) (2) (2) Cabot Circus, Bristol 50 92, Sep 2008 Highcross Quarter, Leicester 60 60, Sep 2008 Parinor, AulnaySousBois , Apr 2008 Retail Parks Union Square, Aberdeen , Sep 2009 Offices 125 Old Broad Street, London EC ,000 (3) Dec Threadneedle Street, London EC , Nov 2008 Total Notes (1) Capital costs including capitalised interest (2) Includes Hammerson share of costs, value and income (3) Net of disposal profit on cost of 46 million 31 Six developments are currently underway with an estimated total cost to Hammerson of 915 million. The projected income is 71 million, an overall yield on cost of 7.3%. Our costs to date amount to 252 million and the valuation surplus on these schemes was 167 million at the year end. The total return from developments in 2006 was 31%. The values shown here reflect the valuer s allowance for profit and purchaser s costs and also reflect a higher yield than for completed investments. So, we anticipate further gains as the projects progress and on completion. Looking at these schemes in further detail. Firstly, Bristol 32

33 CABOT CIRCUS, BRISTOL 92,000 m² retail and leisure scheme 50:50 JV with Land Securities Anchored by House of Fraser and Harvey Nichols Completion Sep % let or under offer 32 Construction and letting are progressing well at Cabot Circus with leases for around 51% of the projected scheme income either signed or under offer. Completion is due in September Hammerson s estimated total development cost is 245 million and the group s share of the projected income is around 18 million to give an estimated yield on cost of 7.3%. In Leicester... 33

34 HIGHCROSS QUARTER, LEICESTER 60,000 m² extension Totalling over 105,000 m² on completion 60:40 JV with Hermes Anchored by John Lewis Completion Sep % let or under offer 33 We are carrying out a major expansion of the existing Shires shopping centre. Completion is also scheduled for September Hammerson s total development cost will be 210 million and our share of the projected income is around 12 million to give a yield on cost of 5.7%. We are now 42% let or under offer by income. In Bristol and Leicester, we expect the majority of leases to be signed in the 12 months run up to opening, a similar pattern to our previous schemes at WestQuay and Bullring. I am confident that Bristol and Leicester will be strong regional centres, which will enhance our UK portfolio and generate good future returns. 34

35 UNION SQUARE, ABERDEEN Interest increased to 100% in July 2006 Hybrid retail scheme totalling 49,000 m² Estimated total development cost 215 million Completion Sep % let or under offer 34 At Union Square in Aberdeen we secured 100% control by buying out our joint venture partner in July. Construction has now commenced with completion scheduled for October The scheme provides an attractive mix of retail park and mall type space. Preletting is underway and we are seeing good demand from retailers seeking large shop units at costeffective rents in a city with a shortage of such space. The anticipated total development cost is 215 million. The estimated net rental income is approximately 14 million per annum, a yield on cost of 6.5%. 35

36 125 OLD BROAD STREET, LONDON EC2 Office 29,400 m² Retail 1,600 m² Completion Dec 2007 Sale of 50% interest in Nov 2006 Profit on cost of 46 million already crystalised Hammerson s total development costs 45 million Hammerson s projected annual income 9 million 35 At the beginning of 2006 we started the major office redevelopment, of 125 Old Broad Street, the site of the former London Stock Exchange tower building. We sold a 50% interest in the project in November for 73 million which crystalised a profit on cost of 46 million. Effectively this now means that for our remaining 50% share, our costs will amount to only 45 million. The projected rents will provide a very attractive income return of over 20%. With the continuing improvement in the City market, I believe this 26 storey tower project has substantial further potential. 36

37 60 THREADNEEDLE STREET, LONDON EC2 Hammerson ownership 100% 18,800 m² of offices 1,000 m² of retail space Demolition work started Aug 2006 Completion Nov The other major City development is 60 Threadneedle Street, which is adjacent to 125 Old Broad Street. We have retained 100% ownership. This is a ninestorey office building which will provide excellent accommodation in one of the best locations in the City. Because of our low land cost on the purchase we will make a profit on this development at rents above 40 per ft 2. Given the current strength of the market and the favorable outlook, I am confident this will be very profitable for us. 37

38 PARINOR EXPANSION, PARIS 24,100 m² retail redevelopment Parinor will total over 90,000 m² Started Oct 2006 Phased completion Apr/ Nov % let or under offer 37 Turning now to Paris, where we are undertaking a major extension and improvement programme at Parinor. The total development cost is 75 million and the projected income is around 6 million. Retail leasing has commenced and we have had strong interest with 21% let or under offer. The redevelopment will increase the size of Parinor to some 90,000 m². This will make it one of the largest shopping centres serving the north of Paris. The expansion will have a beneficial effect on rental values throughout the scheme and enhance the returns from the existing asset. That s our current schemes. Beyond these we have a very substantial pipeline of future development opportunities. 38

39 FUTURE DEVELOPMENT PIPELINE Major retailled schemes New Retail Quarter, Sheffield Eastgate & Harewood Quarters, Leeds Queensgate, Peterborough Eden Quarter, KingstonuponThames Brent Cross and Cricklewood, London NW2 Central Area, Milton Keynes Retail extensions Espace St Quentin, St QuentinYvelines Italie 2, Paris Les 3 Fontaines, Cergy Pontoise WestQuay III, Southampton Retail parks Berkshire Retail Park, Theale Fife Central Retail Park, Kirkcaldy Abbey Retail Park, Belfast The Orchard Centre, Didcot Manor Walks, Cramlington Nice Lingostière, Nice Offices Northgate, London E1 Shoreditch High Street, London E1 Bishopsgate Goodsyard, London E1 Paddington Triangle, London W2 Harbour Quay, London E14 38 These cover all areas of our business. They include major retailled schemes; extensions to existing retail centres; retail parks; and offices. Our approach is to bring these schemes forward through feasibility, planning, site assembly phases to start on site. The total investment made by Hammerson to secure these amounts to approximately 200 million which currently generates an income of around 5 million per annum. The investment cost obviously does not include the existing incomeproducing assets in the retail sector such as Brent Cross, where major extensions are planned. Overall, these represent the opportunity to invest perhaps 5 billion over the next decade in some exciting schemes. I d just like to highlight the potential of four of these projects. 39

40 NEW RETAIL QUARTER, SHEFFIELD 39 In Sheffield our 105,000 m² city centre development received planning consent last August. John Lewis will anchor the scheme and we will now progress site assembly through a CPO with an inquiry to take place later this year. We are already seeing very good interest from retailers for Sheffield which currently has very poor provision of prime retail space. 40

41 EASTGATE & HAREWOOD QUARTERS, LEEDS 40 In Leeds, the council passed a resolution to grant planning consent for our proposed 100,000 m² development this month. This scheme, in which our interest is 90%, will also be anchored by a new store for John Lewis. The majority of the site is controlled by us and site assembly will be completed by compulsory purchase. Both Sheffield and Leeds provide potential for two high quality regional shopping centre developments to progress once the major risks at Bristol and Leicester are managed out. 41

42 NORTHGATE, LONDON E1 41 Northgate is just to the north of Broadgate and Spitalfields. Over the last year we have been advancing our scheme proposals to create a mixeduse development totalling 100,000 m². Approximately 65,000 m² will now be offices and the balance, a hotel and apartments. A planning application will be submitted later this year and we could be on site in Hammerson also has two other potential office and mixeduse schemes in the area at Bishopsgate Goodsyard and on Shoreditch High Street. These give us some very exciting options to participate in the future expansion of the City. Turning now to France. 42

43 LES 3 FONTAINES, CERGYPONTOISE 42 At our existing centre at CergyPontoise, we are in discussions with coowners to develop a 30,000 m² extension, of which Hammerson s ownership would be 18,000 m². The project could start on site in These four schemes illustrate the potential of our pipeline. Development has served Hammerson very well, generating high returns and enhancing the quality of our portfolio. As I said earlier, the cost of the current programme is around 1 billion. Beyond this I am confident that we shall be able to bring forward the projects in the longer term pipeline, representing a potential investment of perhaps another 5 billion, which will secure profitable growth for Hammerson well into the future. Now back to John. 43

44 SUMMARY High quality 6.7 billion portfolio Strong performance in 2006 Substantial future growth from new contracted income, reviews and indexation Development programme and pipeline generating excellent returns Strategy well suited to REIT environment Good dividend growth potential 43 So in summary Hammerson has a high quality portfolio which has helped us to a strong performance in Our rental income will grow substantially over the next two years from contracted deals, rent reviews and indexation. Our development programme is generating excellent returns and we have what I believe to be an outstanding development pipeline. Our business model is well suited to the new REIT regime. We have the potential to continue to show strong dividend growth as we have already flagged. I have every confidence in Hammerson s future. 44

45 45

46 APPENDICES 46

47 EARNINGS PER SHARE (EPS) 2006 Pence per share Diluted EPS per income statement (ii) (iii) (iv) (v) (vi) (vii) Revaluation movement on investment properties Profits on disposal of investment and development properties Goodwill impairment Movement in fair value of financial instruments Deferred tax UK REIT entry charge Minority interests in respect of the above Bond redemption costs Adjusted EPS (233.3) (33.6) (117.2)

48 NET ASSET VALUE (NAV) 31 December 2006 per share NAV per share per the financial statements Effect of exercise of options and ESOP shares Diluted NAV (ii) (iii) Fair value of financial instruments Deferred tax Diluted EPRA NAV Triple net NAV

49 TOP TEN PROPERTIES Valuation 31/12/06 Passing rent** Total return 2006 Let by income m m % % WestQuay Bishops Square Brent Cross Bullring The Oracle Italie 2 Les 3 Quartiers Moorhouse 99 Bishopsgate Parinor, Paris (excl. extension) * 395* 318* 281* * * 17.1* 15.1* 13.2* * *Hammerson s share in respect of joint ventures **Passing rents are post rent free periods 48 49

50 ERV OF VACANT SPACE UK shopping centres ERV vacant at 31 Dec 06 m 1.1 Occupancy % 98.9 UK retail parks UK offices French retail French offices Germany Group Total

51 RENT REVIEWS Outstanding m 2007 m 2008 m 2009 m Total m Rents passing from leases subject to review Projected rent after review at current ERV Potential rent increases

52 LEASE EXPIRIES AND BREAKS 2007 m 2008 m 2009 m Total m Rents passing from leases subject to expiries or break Current ERV Potential rent increases

53 ADDITIONAL CONTRACTED INCOME Scheme 2006 m 2007 m 2008 m 2009 m Bishops Square, London E Other completed UK offices Retail parks place Vendôme, Paris Cabot Circus, Bristol Highcross Quarter, Leicester Union Square, Aberdeen 0.1 Current developments France Total cash flow SIC 15 basis Note: Figures show Hammerson s share of the income in respect of joint ventures. 53

54 DISCLAIMER This presentation contains certain statements that are neither reported financial results nor other historical information. These statements are forwardlooking 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 forwardlooking statements, which speak only as of the date of this document. Hammerson does not undertake any obligation to publicly release any revisions to these forwardlooking statements to reflect events or circumstances after the date of these materials. Information contained in this presentation relating to the Company or its share price, or the yield on its shares, should not be relied upon as a guide to future performance. 54