INTERIM REPORT 2004 Hammerson plc 100 Park Lane London W1K 7AR Telephone +44 (0) Facsimile +44 (0)

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1 INTERIM REPORT 2004

2 02 Financial Highlights 04 Operational Highlights 06 Chairman s Statement 13 Independent Review Report 14 Consolidated Profit and Loss Account 15 Consolidated Balance Sheet 16 Statement of Total Recognised Gains and Losses 16 Note of Historical Cost Profits and Losses 16 Reconciliation of Movements in Shareholders Funds 17 Consolidated Cash Flow Statement 17 Reconciliation of Net Cash Flow to Movement in Net Debt 18 Notes to the Accounts 27 Property Portfolio Information 28 Shareholder Information ibc Glossary

3 Hammerson is a leading European property company, with operations in the UK, France and Germany. Its high quality portfolio of nearly 1,000,000 m 2 of retail space and 200,000 m 2 of prime offices is valued at 4 billion. Hammerson s objective is to build on its position as one of Europe s most successful property companies, by exploiting its key competitive advantages, including its reputation for innovation, the quality of its relationships and its financial strength. 01

4 Financial Highlights Adjusted net asset value per share rose by 5.1% to 844 pence in the first six months of the year > Underlying increase in portfolio valuation +4.0% > Like-for-like net rental income +5.5% > Interim dividend per share +6.4% 02

5 Six months to 30 June HALF YEAR RESULTS Change Net rental income 94.1m 97.5m -3.5% Profit before tax (1) 64.6m 47.4m +36.3% Adjusted profit before tax (2) 42.2m 43.7m -3.4% Basic earnings per share 19.9p 13.7p +45.3% Adjusted earnings per share (3) 14.4p 15.3p -5.9% Dividend per share 5.45p 5.12p +6.4% 30 June Dec 2003 Shareholders funds 2,324m 2,168m +7.2% Adjusted net asset value per share (4) 844p 803p +5.1% Gearing 61% 73% Notes: (1) In 2004 there was an exceptional profit of 22.4 million (2003: exceptional profit of 3.7 million). (2) Excluding exceptional profits. (3) Excluding exceptional profits and related tax, deferred tax and the tax charge on entry into the new French tax exempt regime. (4) Excluding deferred tax. PORTFOLIO DISTRIBUTION France 28% UK 68% Offices 31% Shopping Centres 56% Developments 13% Germany 4% Retail Parks 13% Investment properties 87% Total portfolio 4.0 billion 03

6 Operational Highlights The group took advantage of the strong investment market to dispose of a number of properties for 245 million, giving rise to exceptional profits of 22 million. > Leases signed in respect of 13,500 m 2 of space in the three office developments completed towards the end of > Contracts exchanged to acquire former London Stock Exchange buildings for 68 million. > In excess of 50,000 m 2 of retail parks under development. > Proposals for major retail schemes advanced. > Property income and capital gains in French subsidiaries now tax exempt. > New medium and long term finance arranged totalling over 500 million. 04

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8 Chairman s Statement The first six months of 2004 was an active period for Hammerson. The group took advantage of the continued buoyant conditions in the UK property investment markets by raising over 245 million from disposals. Progress was made in letting space in the group s office properties and in advancing the current developments. The group also secured tax exempt status for its French subsidiaries. 06

9 The first six months of 2004 was an active period for Hammerson. The group took advantage of the continued buoyant conditions in the UK property investment markets by raising over 245 million from disposals. Progress was made in letting space in the group s office properties and in advancing the current developments. The group also secured tax exempt status for its French subsidiaries. income yield higher than the financing cost. The proceeds are being reinvested in assets offering better growth prospects. Adjusted earnings per share decreased by 0.9 pence to 14.4 pence. The directors have declared an interim dividend of 5.45 pence per share payable on 29 October 2004, an increase of 6.4%. Chairman s Statement RESULTS AND DIVIDEND Net rental income for the six months to 30 June 2004 was 94.1 million, compared with 97.5 million for the corresponding period in On a like-for-like basis, net rental income increased by 5.5%. An analysis of net rental income is shown below: Six months to Six months to 30 June June 2003 m m Properties owned throughout Acquisitions Developments Properties sold Exchange translation and other Principally reflecting a reduction in borrowings, the net cost of finance charged to the profit and loss account in the first six months decreased by 2.7 million to 39.0 million. Administration costs increased by 0.9 million to 12.9 million, which included a one-off charge of 0.8 million in respect of the closure of the group s Berlin office. Profit before tax was 64.6 million, compared with 47.4 million in the first half of In 2004, there was an exceptional profit of 22.4 million in respect of property sales, compared with an exceptional profit of 3.7 million in Excluding these exceptional items, adjusted profit before tax decreased by 1.5 million to 42.2 million. Profits were reduced by 6.7 million compared with the first half of 2003 due to finance and void costs at the three office developments completed towards the end of Additionally, profits were reduced by 5.2 million as a result of a number of disposals of properties with an BALANCE SHEET, CASH FLOW AND FINANCING Shareholders funds increased by 156 million to 2,324 million in the six months to 30 June 2004, principally due to a valuation uplift of 155 million. As described below, provision has been made for the exit tax arising on Hammerson s election for tax exempt status in France. However, the latter was largely offset by a release of deferred tax, profits in the period, and exchange translation movements. Adjusted net asset value per share increased by 41 pence, or 5.1%, to 844 pence in the first six months of the year. The exit tax reduced adjusted net asset value per share by 25 pence. Excluding this, the increase in adjusted net asset value per share would be 8.2%. During the first half of the year, capital expenditure was 118 million, compared with 245 million realised from property disposals. Overall, there was a net cash inflow before financing of 107 million in the first half of 2004, after taking account of operating cash flow, interest and dividends paid. Reflecting the net cash inflow and increase in shareholders funds, gearing reduced by 12 percentage points to 61% at 30 June The group s financing structure was further strengthened in the first half of the year by the issue of 300 million 6% unsecured bonds maturing in In addition, Hammerson signed a 230 million five year revolving credit facility in June. As a result of these financings, the average maturity of the group s debt has increased to over eleven years. Hammerson s liquidity is strong, with cash, short term deposits and unutilised committed bank facilities of 781 million at 30 June 2004, excluding a 165 million facility which expired in July. The group s high quality investment portfolio offers good potential for growth, whilst the development programme will generate substantial new income streams. Hammerson is well placed to take advantage of future opportunities and benefit from the continuing demand from investors for prime properties of the type owned by the company. 07

10 Chairman s Statement (continued) TAX In March, Hammerson plc obtained a secondary listing for its shares on Euronext Paris, the French Stock Exchange, enabling the group to elect into the new Sociétés d Investissements Immobiliers Côtées ( SIIC ) tax regime. The group s income and capital gains in the French subsidiaries are now tax exempt, although intercompany dividends receivable in the UK will be taxable. Full provision has been made for the 71 million entry charge, which is payable in four annual instalments. This has been partly offset by the write back of deferred tax of 45 million, giving rise to a net charge of 26 million. Furthermore, the contingent tax liability in respect of Hammerson s French business was reduced by 121 million. Earlier this year, the UK Treasury issued a consultation paper Promoting More Flexible Investment In Property regarding the introduction of tax transparent vehicles for property ownership in this country. Hammerson welcomes this initiative and has submitted its formal response to the Treasury. Dependent on the detailed legislation, the introduction of UK tax transparent vehicles for property ownership should prove beneficial to Hammerson s shareholders. of the year. The vacancy rate within Hammerson s portfolio decreased from 9.2% at 31 December 2003 to 8.1% at 30 June 2004, primarily as a result of the letting of space at the three office developments completed towards the end of During the first half of 2004, leases were signed in respect of a total of 13,500 m 2 of space at these completed office properties and the group s share of the income from these leases, after the expiry of rent free periods, will amount to 3.9 million per annum. During the first six months of the year, there was an underlying increase in the value of the group s portfolio of 4.0%, with the value of the retail and office portfolios increasing by 4.1% and 3.8% respectively. The valuation performance was strongest in the UK, with the retail park and shopping centre portfolios showing underlying increases of 10.7% and 5.7% respectively, and the office portfolio increasing by 5.4%. The decline in value of the group s three remaining properties in Germany was disappointing, reflecting poor market conditions and lower rental values. Hammerson has outsourced the management of these assets, thereby reducing overhead costs, and is working with the external managers to optimise the returns from these properties. PORTFOLIO The group s property portfolio was valued at 4.0 billion at 30 June 2004, with little change in the overall distribution of the portfolio, either by country or sector, in the first six months During the first half of the year, the principal portfolio transactions were the sale for a total of 195 million of three London office properties, 21 Moorfields, Euston Square and Latham House, all of which had limited growth potential. In April, Hammerson committed part of the disposal proceeds by exchanging contracts to acquire the freehold interest in the A table of property valuations and movements for the six months to 30 June 2004 is shown below: Shopping Centres Retail Parks Offices Group Percentage Percentage Percentage Percentage Value change Value change Value change Value change m % m % m % m % UK 1, , France , Germany 157 (18.7) 157 (18.7) Total 2, , ,

11 former London Stock Exchange buildings in the City for 68 million. These assets offer substantial potential for value creation. Since 30 June 2004, the group has sold Parc Fforestfach Retail Park, Swansea, for 88 million. The property was acquired by Hammerson in August 2002 for 58 million. In addition, the group has exchanged contracts for the sale of its one third interest in Martineau Place, Birmingham, for 31 million. CURRENT DEVELOPMENTS At present six major developments are underway, four of them in joint ventures. Hammerson s share of the cumulative costs of these developments at 30 June 2004 was 310 million and its estimated additional cost to complete them is 237 million. Hammerson s share of the future income from these schemes, for which leases have already been signed or agreed, amounts to 30 million per annum. Brent Cross Retail Park in north London is a joint venture with Standard Life Investments. Hammerson s capital commitment for its 40.6% interest is 31 million. The scheme, where completion is due at the end of this year, is 76% let or under offer, with tenants including Borders, DFS and Next. At the beginning of the year, Hammerson started the Cyfarthfa Retail Park development in Merthyr Tydfil. Completion is expected in January 2005 at an estimated cost of 35 million. Some 69% of the rental income has been secured. St Oswald s Retail Park in Gloucester is a 35,000 m 2 mixed-use scheme, involving a retail park, leisure facilities, business space and 450 residential units. This scheme will be developed on a phased basis, with the initial 20,500 m 2 retail and leisure phase starting imminently. The estimated cost of this element of the scheme, which is 70% let or under offer, is 44 million, excluding the residential component where Hammerson envisages working with a specialist residential partner. Hammerson currently has three office schemes underway. At Bishops Square, a 75,000 m 2 scheme in the City of London, the letting risk has been largely eliminated with the office space having been pre-let to leading international lawyers, Allen & Overy. Work is progressing well and a handover to the tenant for fitting out works is scheduled for June Hammerson has a one third interest in Moor House Limited Partnership, which is carrying out the major office development at Moorhouse in London EC2. Completion is scheduled for November of this year and Hammerson's estimated total development cost is 67 million. The partners have adopted a multi-letting strategy and marketing of the office accommodation will begin early in Details of the group s major current developments are shown below: Net Cost at lettable 30 June Estimated Amount let Anticipated Ownership area 2004 total cost or under completion Current Projects interest m 2 m m offer by area date Retail Parks Brent Cross, London NW2 40.6% 8,600 20* 31* 76% Dec 2004 Cyfarthfa, Merthyr Tydfil 100% 23, % Jan 2005 St Oswald s, Gloucester (Phase 1) 100% 20, % Sept 2005 Offices Moorhouse, London EC2 33.3% 30,500 58* 67* 0% Nov 2004 Bishops Square, London E1 75% 75, * 280* 95% Jun place Vendôme, Paris 1er 50% 27,700 56* 90* 0% Apr 2006 * Hammerson s share in respect of joint ventures The group secured tax exempt status for its French subsidiaries. 09

12 Chairman s Statement (continued) In central Paris, work started earlier this year on 9 place Vendôme, where Hammerson is in a 50:50 joint venture with AXA, to create 22,200 m 2 of high quality office accommodation and 5,500 m 2 of prime retail space on the prestigious rue Saint-Honoré. Completion is scheduled for DEVELOPMENT PIPELINE In addition to the current developments, Hammerson has created and successfully advanced opportunities for several other schemes, which can be progressed over the next few years in the light of market conditions. Retail Schemes In Leicester, Hammerson and Hermes are involved in a joint venture to undertake a major expansion of their existing shopping centre, The Shires. The scheme will include 60,000 m 2 of additional retail space, leisure facilities, and a residential component. The John Lewis Partnership has agreed terms to anchor the centre. It is anticipated that construction of Shires West will begin during 2005, with completion in The total cost of Shires West is estimated at 285 million, of which Hammerson s 60% share is 171 million. Broadmead, Bristol, has detailed planning consent for a mixed-use scheme totalling 139,000 m 2, including 84,000 m 2 of retail space. The Bristol Alliance is now a 50:50 joint venture between Hammerson and Land Securities Group PLC, following the acquisition by the partners of the interests previously owned by Henderson Global Investors and Morley Fund Management. The total development cost to Hammerson of the Broadmead redevelopment is estimated at 210 million and a start on site could be made in the second half of In addition, the Bristol Alliance also owns 72 retail units in Broadmead, with a current value of approximately 107 million. Union Square, Aberdeen, which was part of the portfolio acquired by Hammerson from the former Railtrack, is a 50:50 joint venture with Stannifer (now part of Chelsfield). The scheme has planning consent for 50,000 m 2 of mixed-use space, incorporating a retail park, retail mall and leisure facilities. Leasing is underway with heads of terms agreed with several retailers. Construction could start in the second half of 2005 at an estimated total cost to Hammerson of 75 million. 10

13 At Westwood and East Kent Retail Parks in Thanet, Hammerson received planning consent, in January of this year, for a 7,500 m 2 extension to its existing 16,600 m 2 retail park. The estimated development cost is 15 million and a start on site is anticipated in December The group has let 65% of the scheme to Homebase. The group is also working in partnership with local authorities and councils to advance several other major mixed-use retail schemes and retail parks. These include developments in London, Leeds, Peterborough, Sheffield, Sittingbourne and Southampton. In addition, in France the group is evaluating extensions to a number of its retail schemes and exploring opportunities to enter the retail parks sector. Offices In April 2004, Hammerson exchanged contracts to purchase the freehold of the former London Stock Exchange buildings, with planning consent for 45,500 m 2 of office and retail accommodation. Later this year, the group intends to submit a revised planning application to expand and enhance the scheme. Depending on market conditions, it is anticipated that a start on the first phase, the tower building, will be made during Opéra Capucines, Paris 2ème, is a 50:50 joint venture with MAAF, to create 5,800 m 2 of office and 4,600 m 2 of retail accommodation in the centre of Paris. The group intends to submit a planning application later this year. MARKETS AND OUTLOOK Over the past two years, demand from investors for property in the UK and France has been strong, leading to increases in property values, notwithstanding that the demand from occupiers for accommodation has been variable. The strong investment demand reflects the attractions of property, which generally offers a secure income stream and the potential for growth over the longer term. It is also a consequence of uncertainties over the outlook for equities and bonds. Retail Property In the UK, retail sales growth was strong in the first half of There was good demand from retailers for space in dominant centres and retail parks. Investor sentiment towards the retail sector remained positive, leading to a further increase in values. Some slowdown in the rate of retail sales growth may occur in the second half of 2004 and in Nevertheless, rental values of prime retail assets are expected to show continuing growth. In France, retail sales growth improved in the first half of 2004, recovering from the slowdown in This has led to an increase in enquiries from retailers for space in the group s centres and is supporting current rental levels. Investment demand remains strong. However, with existing investors reluctant to dispose of major shopping centres, there have been few transactions. In Germany, retail sales have continued to decline, unemployment remains high and confidence is low. Rents and values for retail properties have weakened. Although there are signs of economic recovery, the German retail property market is likely to remain difficult. Office Property Sentiment in the central London office markets showed a marked improvement in the first half of the year, with an improvement in demand for office space. However, due to the amount of space available in the City of London, rental values showed a marginal decrease. In the West End, good demand for office space has led to an increase in rents of between 5% and 10% from their levels at the end of Investment demand for central London offices remained buoyant, leading to an improvement in values. Looking ahead, sustained occupational demand and a reduction in development completions should lead to a gradual recovery in net effective rents in the City and further increases in the West End. In central Paris, although there was an increase in the level of enquiries from potential occupiers in the first six months of 2004, the overall vacancy rate rose slightly and prime rents softened. Nevertheless, in central Paris the vacancy rate is still relatively low at around 6%, offering the prospect of a recovery in rents towards the end of Good investment demand continues to support yields on well-let offices. The strong investment demand reflects the attractions of property, which generally offers a secure income stream and the potential for growth over the longer term. 11

14 Chairman s Statement (continued) INTERNATIONAL FINANCIAL REPORTING STANDARDS In 2005, Hammerson will be reporting its interim financial results under International Financial Reporting Standards (IFRS). These will require property revaluation surpluses and deficits to be included in the income statement; contingent tax to be deducted from shareholders funds; and certain leasehold properties to be accounted for as finance leases, increasing both the group s assets and liabilities. There will be other changes of less significance to Hammerson. The company will provide additional information during 2005 on the effects of these changes. CONCLUSION The group s high quality investment portfolio offers good potential for growth, whilst the development programme will generate substantial new income streams. Hammerson is well placed to take advantage of future opportunities and benefit from the continuing demand from investors for prime properties of the type owned by the company. Ronald Spinney Chairman 24 August 2004 Hammerson s liquidity is strong, with cash, short term deposits and unutilised committed bank facilities of 781 million. 12

15 Independent Review Report to Hammerson plc INTRODUCTION We have been instructed by the company to review the financial information for the six months ended 30 June 2004 which comprises the consolidated profit and loss account, the consolidated balance sheet, the statement of total recognised gains and losses, the note of historical cost profits and losses, the reconciliation of movements in shareholders funds, the consolidated cash flow statement, the reconciliation of net cash flow to movement in net debt and related notes 1 to 17. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial 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 financial 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 which require that the accounting policies and presentation applied to the interim figures 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 financial information and underlying financial 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 verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. REVIEW CONCLUSION On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June Deloitte & Touche LLP Chartered Accountants London 24 August

16 Consolidated Profit and Loss Account Year ended Six months ended Six months ended Audited Unaudited Unaudited m Notes m m Gross rental income, after rents payable (25.8) Property outgoings (10.4) (10.8) Net rental income (0.1) Loss on disposal of properties held for resale (0.1) 3.3 Management fees receivable (15.8) Cost of property activities (8.6) (8.1) (12.3) Corporate expenses (6.4) (5.4) (24.8) Administration expenses (12.9) (12.0) Operating profit (18.8) Exceptional items: Profit/(Loss) on the sale of investment properties Profit on ordinary activities before interest (78.7) Cost of finance (net) 2 (39.0) (41.7) 67.1 Profit on ordinary activities before tax (1.7) Current tax 3(a) (49.7) (0.7) (13.1) Deferred tax 3(a) 41.1 (8.3) (14.8) Tax charge on profit on ordinary activities (8.6) (9.0) 52.3 Profit on ordinary activities after tax (2.0) Equity minority interests (1.1) (0.8) 50.3 Profit for the period (46.4) Dividends 4 (15.1) (14.1) 3.9 Retained profit for the period p Basic earnings per share p 13.7p 18.2p Diluted earnings per share p 13.7p 29.8p Adjusted earnings per share p 15.3p 14

17 Consolidated Balance Sheet Audited Unaudited Unaudited Restated* m Notes m m Fixed assets 3,955.5 Land and buildings 6 4, , Fixtures, fittings and equipment ,956.8 Tangible assets 4, , Investments , , ,949.0 Current assets Debtors: Due within one year Due after more than one year Cash and short term deposits Creditors falling due within one year (249.0) Borrowings 10 (156.2) (75.3) (253.8) Other 11 (285.0) (270.8) (173.3) Net current (liabilities)/assets (91.4) ,824.2 Total assets less current liabilities 3, ,057.3 Creditors falling due after more than one year (1,523.2) Borrowings 10 (1,497.8) (1,826.8) (36.0) Other 11 (86.2) (32.3) Financial Review Provisions for liabilities and charges (58.7) Deferred tax 3(b) (15.8) (51.4) (38.1) Equity minority interests (37.0) (42.4) 2, , ,104.4 Capital and reserves 69.1 Called up share capital Share premium account Revaluation reserve Capital redemption reserve Other reserves Profit and loss account (2.2) Investment in own shares 14 (1.7) (1.8) 2,168.2 Equity shareholders funds 2, , p Diluted net asset value per share 5 839p 761p 803p Adjusted net asset value per share 5 844p 778p * UITF 38 was adopted at 31 December Comparative figures at 30 June 2003 have been restated (see note 14). 15

18 Statement of Total Recognised Gains and Losses Year ended Six months ended Six months ended Audited Unaudited Unaudited 50.3 Profit for the period Unrealised surplus on revaluation of properties Unrealised surplus/(deficit) on revaluation of investments and minority interests 2.4 (1.1) 1.5 Unrealised surplus on acquisition of minority interest 1.5 (0.3) Current tax on property disposals relating to prior year revaluations (3.7) (0.3) (4.7) Deferred tax on property disposals relating to prior year revaluations (2.6) French exit tax payable on election for SIIC status relating to prior year revaluations (27.2) 16.4 Exchange translation movements (9.3) Total recognised gains and losses for the period Note of Historical Cost Profits and Losses Year ended Six months ended Six months ended Audited Unaudited Unaudited 67.1 Profit on ordinary activities before tax Realisation of previous years revaluation gains Historical cost profit on ordinary activities before tax Historical cost profit for the period after tax, equity minority interests and dividends Reconciliation of Movements in Shareholders Funds Year ended Six months ended Six months ended Audited Unaudited Unaudited Restated* 3.9 Retained profit for the period Amortisation of investment in own shares Other recognised gains and losses Issue of shares Net increase in shareholders funds ,038.2 Shareholders funds at 1 January (restated*) 2, , ,168.2 Closing shareholders funds 2, ,104.4 * UITF 38 was adopted at 31 December Comparative figures at 30 June 2003 have been restated (see note 14). 16

19 Consolidated Cash Flow Statement Year ended Six months ended Six months ended Audited Unaudited Unaudited m Notes m m Net cash flow from operating activities (104.6) Returns on investment and servicing of finance 15 (60.4) (75.0) (0.5) Tax paid (2.2) (0.1) Capital expenditure and investment (60.9) Acquisitions and disposals 15 (60.9) (44.4) Equity dividends paid (32.3) (30.3) Cash inflow (Increase)/Decrease in short term deposits (36.4) 25.6 (195.2) Net cash outflow from financing 16 (62.6) (52.3) (5.1) Increase/(Decrease) in cash in the period Reconciliation of Net Cash Flow to Movement in Net Debt Year ended Six months ended Six months ended Audited Unaudited Unaudited (5.1) Increase/(Decrease) in cash in the period Net decrease in debt (50.9) Increase/(Decrease) in short term deposits 36.4 (25.6) Change in net debt resulting from cash flows (84.9) Exchange adjustment 53.2 (70.8) 56.2 Movement in net debt in the period (1,641.4) Net debt at 1 January (1,585.2) (1,641.4) (1,585.2) Closing net debt (1,423.6) (1,582.7) 17

20 Notes to the Accounts 1 NET RENTAL INCOME Year ended Six months ended Six months ended United Kingdom France Germany COST OF FINANCE (NET) Year ended Six months ended Six months ended Interest payable on: 22.9 Bank loans and overdrafts Other loans Other interest payable Interest payable and similar charges Less: (25.1) Interest payable capitalised (8.6) (13.1) (9.9) Interest receivable (8.7) (4.6) 78.7 Cost of finance (net) TAX (a) Tax charge Year ended Six months ended Six months ended Current tax 1.1 UK corporation tax on profits before exceptional items Foreign tax on profits before exceptional items UK corporation tax on exceptional items 5.0 French exit tax payable on election for SIIC status Deferred tax 13.1 Deferred tax on profits before exceptional items Deferred tax released on election for SIIC status (44.8) 13.1 (41.1) Tax charge on profits on ordinary activities The current tax charge on profits before exceptional items for the six months ended 30 June 2004 is based on the projected effective tax rate for the full year. Current tax is reduced by the French tax exemption and by capital allowances and tax relief for capitalised interest.

21 Notes to the Accounts 3 TAX (continued) (b) Deferred tax m Movement in year Notes m m 34.8 Opening provision (Credit)/Charge in profit and loss account (41.1) Charge on realisation of revaluation gains on property disposals 2.6 (0.5) Corporate acquisitions and disposals 0.1 (0.6) 2.7 Exchange differences Closing provision m Net deferred tax provision m m UK 27.1 Capital allowances Other timing differences Dividends receivable from France 2.2 (18.6) Tax losses (18.9) (23.0) 10.0 Net UK deferred tax provision France 35.9 Tax depreciation Other timing differences France deferred tax provision Net deferred tax provision Analysed as: (3.9) Deferred tax asset 8 (2.0) (4.0) 58.7 Deferred tax provision Net deferred tax provision (c) Contingent tax Should the group s properties and investments be sold at book value, it is estimated that the maximum tax liabilities arising, in addition to the deferred tax provided in the balance sheet, would be: 99.0 UK UK tax on dividends receivable from France France The tax arising may be reduced depending on how sales are structured. In particular, if the group retains all capital allowances on disposals, the liability would be 42.0m (31 December 2003: 45.0m) less than the total disclosed deferred and contingent tax. 19

22 Notes to the Accounts 3 TAX (continued) (d) Effects of French SIIC elections In April 2004 the group elected for the whole of its French business, with the exception of 9 place Vendôme, to enter the French SIIC tax exempt regime with effect from 1 January Exit taxes totalling 70.6m, equivalent to 25 pence per share on an adjusted net asset value basis, arose on the conversion and will be payable in four equal annual instalments starting in December The part of the exit taxes relating to prior year revaluations ( 27.2m) is included in the statement of total recognised gains and losses with the balance of 43.4m dealt with in the profit and loss account. Deferred tax of 44.8m has been written back and 121.0m of contingent tax released. The SIIC rules require Hammerson s French subsidiaries to distribute a proportion of their profits to Hammerson plc and allowance is made within deferred tax and contingent tax for the UK tax that may arise when dividends are received. 4 DIVIDENDS The directors have declared an interim dividend of 5.45 pence per share (30 June 2003: 5.12 pence per share) payable on 29 October 2004 to shareholders on the register at the close of business on 24 September EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE The calculations for earnings per share, diluted earnings per share and adjusted earnings per share, based on the weighted average number of shares, are shown in the table below. The weighted average number of shares shown exclude those shares held in the Hammerson Employee Share Ownership Plan (note 14) which are treated as cancelled. Year ended 31 December 2003 Six months ended 30 June 2004 Six months ended 30 June 2003 Earnings Shares Pence Earnings Shares Pence Earnings Shares Pence m million per share m million per share m million per share Basic Adjustments: 0.3 (0.1) Dilutive share options Diluted Adjustments: Exceptional items (22.4) (8.1) (3.7) (1.4) Tax on exceptional items SIIC exit tax Deferred tax (41.1) (14.9) Adjusted

23 Notes to the Accounts 5 EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE (continued) The calculations for basic, diluted and adjusted net asset value per share are shown in the table below: 30 June 2004 Net asset Shareholders value funds Shares per share m million pence Basic 2, Company s own shares held in Employee Share Ownership Plan (0.6) n/a Unexercised share options n/a Diluted 2, Deferred tax 13.8 n/a Adjusted 2, LAND AND BUILDINGS Properties held for or in Fully developed properties the course of development Total Valuation Cost Valuation Cost Valuation Cost Movements in the period Balance at 1 January , , , ,184.4 Exchange adjustment (62.6) (55.5) (2.9) (2.6) (65.5) (58.1) Additions Disposals (218.5) (203.2) (218.5) (203.2) Transfers (3.7) (3.8) Capitalised interest Revaluation surplus Balance at 30 June , , , ,108.2 All properties are stated at market value as at 30 June 2004, valued by professionally qualified external valuers. In the United Kingdom, office properties and the group s interests in the Birmingham Alliance properties were valued by DTZ Debenham Tie Leung, Chartered Surveyors, and all other retail properties were valued by Donaldsons, Chartered Surveyors. In France and Germany the group s properties were valued by Cushman & Wakefield Healey & Baker, Chartered Surveyors. The valuations have been prepared in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. At 30 June 2004 the total amount of interest included in development properties was 16.6m (31 December 2003: 8.6m) and is calculated based on the group s average cost of borrowings. 21

24 Notes to the Accounts 7 INVESTMENTS Restated* 25.3 Value Retail Investors Limited Partnerships Interests in Value Retail plc and related companies Other investments * UITF 38 was adopted at 31 December Comparative figures at 30 June 2003 have been restated (see note 14). The shares of Hammerson plc, which were included in investments at an unamortised cost of 1.8m at 30 June 2003, are now shown as a deduction from equity shareholders funds. 8 DEBTORS m Notes m m Due within one year 39.5 Trade debtors Other debtors Corporation tax Prepayments Due after more than one year 28.9 Other debtors Deferred tax 3(b) Other debtors due after more than one year comprised a loan of 11.0m (31 December 2003: 11.0m) advanced to Value Retail European Holdings BV bearing interest at 13% and maturing on 31 July 2005 and a loan of 30.0m (31 December 2003: 30.0m) to Value Retail plc bearing interest based on EURIBOR and maturing on 10 October

25 Notes to the Accounts 9 CASH AND SHORT TERM DEPOSITS 29.6 Cash at bank Short term deposits Analysis by currency Sterling Euro At 30 June 2004 short term deposits mainly comprised deposits placed on money markets with rates linked to LIBOR. 10 BORROWINGS Bank loans and overdrafts: Unsecured Secured ,199.0 Other loans: Unsecured 1, , , , ,909.9 Exchange difference on currency swaps 0.3 (7.8) 1, , ,902.1 Analysis by currency Sterling ,117.6 Euro , , , ,902.1 As part of the group s foreign currency hedging programme, at 30 June 2004 the group had also sold 545.0m forward against sterling for value on 1 July 2004, at a spot rate of 1 = Undrawn committed facilities 0.5 Expiring within 1 year 9.0 Expiring within 1 2 years Expiring after more than 2 years

26 Notes to the Accounts 11 CREDITORS OTHER Falling due within one year 64.7 Trade creditors Tax Other creditors Accruals Dividends payable Falling due after more than one year Tax Other creditors FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Book value Fair value Book value Fair value Book value Fair value (250.6) (250.6) Overdrafts and short term borrowings (157.6) (157.6) (84.7) (85.6) (1,536.9) (1,704.4) Gross long term borrowings (1,514.8) (1,624.6) (1,841.3) (2,018.0) Unamortised borrowing costs (0.5) Interest rate swaps (5.7) 7.6 Currency swaps (0.3) (0.3) (1,772.2) (1,940.2) Total borrowings (1,654.0) (1,769.5) (1,902.1) (2,067.9) The fair values of the group s long term borrowings have been estimated on the basis of quoted market prices. The fair values of the group s outstanding interest rate swaps have been estimated by calculating the present value of future cash flows, using appropriate market discount rates. The adjustment on interest rate swaps is a liability of 5.7m (31 December 2003: 0.5m), which includes a gain of 0.1m (31 December 2003: liability of 0.5m) relating to swaps maturing in less than one year. At 30 June 2004 the fair value of financial liabilities exceeded their book value by 115.5m (31 December 2003: 168.0m), equivalent to 41 pence per share (31 December 2003: 60 pence per share) on an adjusted net asset value per share basis. On a post tax basis, using a tax rate of 30%, the difference was equivalent to 29 pence per share (31 December 2003: 42 pence per share). 24

27 Notes to the Accounts 13 RESERVES Share Capital Profit premium Revaluation redemption Other and loss account reserve reserve reserves account m m Balance at 1 January Exchange adjustment (6.9) (0.2) (2.2) Premium on issue of shares 1.5 Surplus arising on revaluation of investments and minority interests 2.4 Surplus arising on revaluation of properties Current tax on property disposals relating to prior year revaluations (3.7) French exit tax payable on election for SIIC status relating to prior year revaluations (27.2) Transfer to profit and loss account on disposal (15.3) 15.3 Retained profit for the period 39.8 Balance at 30 June INVESTMENT IN OWN SHARES Restated* 2.2 Ordinary shares of Hammerson plc * Comparative figures have been restated following the adoption of UITF Abstract 38 ( UITF 38 ) Accounting for ESOP trusts, which requires that a company s own shares held through an ESOP trust be shown as a deduction from shareholders funds. UITF 38 was adopted in preparing the financial statements of the company for the year ended 31 December The impact of the adoption of UITF 38 on the previously reported shareholders funds at 30 June 2003 is shown below. There is no effect on the profit and loss account. Shareholders funds m As at 30 June 2003 As previously stated 2,106.2 Adjustment (1.8) As restated 2,

28 Notes to the Accounts 15 ANALYSIS OF CASH FLOWS Year ended Six months ended Six months ended Reconciliation of operating profit to net cash inflow from operating activities Operating profit Depreciation and amortisation (8.8) Increase in accrued rents receivable (0.9) (5.3) 11.8 Decrease in debtors (Decrease)/Increase in creditors (20.1) Returns on investment and servicing of finance 7.4 Interest received (110.8) Interest paid (68.8) (79.4) (1.2) Dividends paid to minorities (104.6) (60.4) (75.0) Capital expenditure and investment (363.8) Purchase and development of property (117.7) (147.2) (16.3) Purchase of investments (16.7) Sale of property Acquisitions and disposals (60.9) Purchase of subsidiary companies (60.9) 16 ANALYSIS OF CASH FLOW FROM FINANCING Year ended Six months ended Six months ended 1.9 Issue of shares (354.0) Increase/(Decrease) in medium and long term borrowings 16.5 (37.2) (Decrease)/Increase in short term borrowings (80.7) (15.7) (195.2) Net cash outflow from financing (62.6) (52.3) 17 OTHER INFORMATION The financial information contained in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act The results for the year ended 31 December 2003 are an abridged version of the full accounts for that year which received an unqualified report from the auditors and did not contain a statement under s237(2) or (3) of the Companies Act The full accounts for the year ended 31 December 2003 have been filed with the Registrar of Companies. The unaudited financial information contained in this report has been prepared on the basis of the accounting policies set out in the full accounts for the year ended 31 December The exchange rate used to translate euro denominated amounts is that prevailing on 30 June 2004, 1 = The interim report was approved by the Board on 24 August

29 Property Portfolio Information For the six months ended 30 June 2004 Net True Underlying Estimated rental Properties equivalent valuation Vacancy Rents rental Reversionary/ income at valuation yield change rate passing value (Over-rented) m m % % % m m % Notes (1) (2) (3) (4) United Kingdom Retail: Shopping centres , Retail parks , Office: City (32.6) West End (6.0) Docklands & other (16.9) (23.8) Total United Kingdom , Continental Europe Retail: France Germany (18.7) (0.5) (2.4) Office: France Total Continental Europe , (1.2) Group Retail , Office , (12.0) Total Group , Selected information at 31 December 2003 Group Retail 2, Office 1, (11.9) Total Group 3, Notes (1) True equivalent yield is based on rents passing and estimated rental values. The calculation excludes properties in the course of development. (2) Rents passing after deducting head and equity rents post any rent free periods. (3) Estimated rental value including vacant space and after deducting head and equity rents. (4) The amount by which the estimated rental value exceeds or falls short of the rents passing, together with the estimated rental value of vacant space, after any rent free period. 27

30 Shareholder Information DIRECTORS R R Spinney CBE, FRICS Chairman* G F Pimlott MA Deputy Chairman* R J G Richards BSc, FRICS Chief Executive R J O Barton CA, MBA* J A Bywater FRICS J C Clare BSc* P W B Cole BSc, MRICS G Devaux HEC, FRICS D A Edmonds CBE, LL.d* J R Hirst BA, FCA, ACT, CCMI* S R Melliss BA, FCA J F Nelson FCA* * non-executive SECRETARY S J Haydon FCIS PRINCIPAL GROUP ADDRESSES United Kingdom Hammerson plc, 100 Park Lane, London W1K 7AR Tel +44 (20) Fax +44 (20) France Hammerson SA, Washington Plaza Immeuble Artois, 44 rue Washington, Paris CEDEX 08, France Tel +33 (1) Fax +33 (1) Registered office 100 Park Lane, London W1K 7AR Registered in England No WEBSITE The 2004 Interim Report, 2003 Annual Review and Summary Financial Statements, 2003 Directors Report and Financial Statements and other information are available on the company s website, The company operates a service whereby all registered users of the company s website can choose to receive, via , notice of all company announcements which can be viewed on the website. FINANCIAL CALENDAR Final dividend for 2003 paid 13 May 2004 Ex dividend date 22 September 2004 Record date 24 September 2004 Interim dividend payable 29 October

31 Glossary of Terms Adjusted figures Average cost of borrowing Earnings per share ERV Gearing Interest rate swap or currency swap Like-for-like/Underlying net rental income Like-for-like/Underlying property valuations Net asset value per share Over-rented Passing rent Pre-let Reversionary or under-rented SIIC Vacancy rate Reported amount adjusted to exclude, where applicable, exceptional items and deferred tax. The cost of finance expressed as a percentage of the weighted average of borrowings during the period. Profit for the period divided by the average number of shares in issue during the period. The estimated market rental value of accommodation in a property. Net debt expressed as a percentage of shareholders funds. An agreement with another party to exchange an interest or currency rate obligation for a pre-determined period of time. The percentage change in rental income for completed properties owned throughout both periods, after taking account of exchange translation movements. The percentage change in property valuations since the previous balance sheet date, after taking account of capital expenditure and exchange translation movements. Shareholders funds divided by the number of shares in issue at the balance sheet date. Accommodation that is let at a rent above its ERV. The annual rental income receivable from a property at the balance sheet date. A lease signed with a tenant prior to completion of a development. Accommodation where passing rent is below the ERV. Sociétés d Investissements Immobiliers Côtées. A French tax exempt regime available to property companies listed in France. Represents the area in a property, or the portfolio, which is currently available for letting, expressed as a percentage of the total area of the property or portfolio. Design and Produced by MAGEE Printed by the colourhouse

32 Hammerson plc 100 Park Lane London W1K 7AR Telephone +44 (0) Facsimile +44 (0)