Final Results

26th Feb 2007 07:01

Hammerson PLC26 February 2007 Hammerson plc - Results for the year ended 31 December 2006 Financial Highlights 2006 2005 Change Net rental income £237.4m £210.3m +12.9%Profit before tax £792.4m £698.6m +13.4%Adjusted profit before tax(1) £94.5m £89.4m +5.7% Basic earnings per share 357.5p 198.0p +80.6%Adjusted earnings per share(2) 32.8p 31.2p +5.1%Dividend per share(3) 21.68p 19.71p +10.0% Equity shareholders' funds £4,165m £3,126m +33.2%Net asset value per share, EPRA basis(4) £15.00 £12.37 +21.3%Return on shareholders' equity(5) 25.3% 34.0% Notes (1) Excluding net gains on investment properties, the changes in the fair value of interest rate swaps and costs of bond redemption totalling £697.9 million (2005: £609.2 million). (2) Excluding gains on investment properties, the changes in the fair value of interest rate swaps, costs of bond redemption, the UK REIT entry charge, deferred tax and related minority interests. (3) Recommended final dividend of 15.3 p per share (2005: 13.91p) making a total for the year of 21.68p. (4) The European Public Real Estate Association ('EPRA') has issued recommended bases for the calculation of certain data. Further details of these calculations are provided in note 6 to the accounts on pages 27 and 28. (5) Excluding deferred tax and the UK REIT entry charge. Key points • Hammerson became a REIT on 1 January 2007; provision of £101 million made at 31 December 2006 for REIT entry tax charge • Hammerson's high quality £6.7 billion portfolio in the UK and France generated a total return of 18.8% in 2006 giving rise to an increase in EPRA NAV of 21.3% • Capital recycling totalled over £1.4 billion, with expenditure of over £800 million, including the acquisition of five retail parks in the UK for £427 million, and disposals of £628 million • UK office lettings totalling nearly 34,000m2 contributed to a substantial reduction in overall vacancy to 3.4% • Completion of 9 place Vendome, Paris, showing a development profit of £81 million • Strong projected income growth from signed leases at recent developments • Developments currently underway have an estimated total cost of over £900 million and include four major retail schemes and two London office projects • Development pipeline with potential investment of around £5 billion over the next decade Commenting on the results, John Nelson, Chairman of Hammerson, said: "I am pleased to report on another year of outstanding progress by Hammerson.Our focus on prime real estate assets in the UK and France continues to offershareholders attractive returns. In 2006 the Company showed an increase in netasset value per share of 21.3% to £15.00 and generated a return on shareholders'equity of 25.3%. "We have demonstrated strong performance in recent years, benefiting fromcapital growth and a rising income stream from our investment portfolio andcompleted developments. "The Company now has major tax-exempt businesses both in the UK and France.Looking ahead, our rental income is projected to show substantial growth in 2007with continued growth thereafter enhanced by one of the most extensivedevelopment programmes in the sector. Against this background, the Boardexpects to be able to recommend an increase of around 25% in the total dividendfor 2007 over the proposed level for 2006. "We have a strong base from which to take Hammerson forward and I have everyconfidence that the Company will continue to thrive." Enquiries: John Richards, Chief Executive Tel: 020 7887 1000Simon Melliss, Group Finance Director Tel: 020 7887 1000Christopher Smith, Director of Corporate Affairs Tel: 020 7887 1019 [email protected] Results presentation today: Time 9.30 a.m.Venue New Broad Street House, 35 New Broad Street, London EC2 Webcast: There will be a webcast of Hammerson's results presentation broadcast live todayat 9.30 a.m. via the Company's website at www.hammerson.com. An archive versionwill be available to replay from 12.00 noon. Financial calendar: Ex-dividend date 11 April 2007Record date 13 April 2007Dividend payable 14 May 2007Annual General Meeting 3 May 2007 Copies of the Chairman's statement, preliminary results statement, incomestatement, balance sheet, statement of recognised income and expense,reconciliation of equity, cash flow statement and notes are attached. The termsin the commentary that follows are defined in the glossary on page 38 of thisdocument. CHAIRMAN'S STATEMENT I am pleased to report on another year of outstanding progress by Hammerson.Our focus on prime real estate assets in the UK and France continues to offershareholders attractive returns. In 2006 the Company showed an increase in netasset value per share of 21.3% to £15.00 and generated a return on shareholders'equity of 25.3%. Adjusted earnings per share increased by 5.1% to 32.8 pence, primarilyreflecting additional rental income. The Board is recommending a final dividend of 15.3 pence per share, making atotal for 2006 of 21.68 pence per share, an increase of 10% on last year. Progress in 2006 Hammerson enjoyed another very active year in 2006, maintaining momentum acrossthe business. We continued our policy of active recycling of capital to enhancereturns. We invested over £800 million, principally on acquiring assets and onour development programme. Highlights were the acquisition in August of aportfolio of retail parks in the UK for £427 million and the completion in Mayof the redevelopment of 9 place Vendome in Paris, with the latter generating adevelopment profit to Hammerson of £81 million on our cost of £86 million.Disposals during 2006 raised £628 million and included the sale of LibertyShopping Centre, Romford, two assets in Germany and a 50% stake in 125 OldBroad Street, London EC2. Excellent progress has been made on the major city centre retail-ledregeneration schemes in Leicester and Bristol, both of which are scheduled toopen in Autumn 2008. I am particularly encouraged by the level of lettings wehave achieved and this augurs well for the future success of both projects. During 2006 we started the redevelopments of 125 Old Broad Street, previouslythe London Stock Exchange, and the adjacent site, 60 Threadneedle Street. InNovember we sold a 50% interest in the former scheme to show a very high return.We also commenced work on a substantial retail development in Aberdeen and amajor expansion and refurbishment of the group's Parinor retail centre on theoutskirts of Paris. Good progress was made in advancing a number of other major retail-led citycentre schemes. Planning permission was obtained for the New Retail Quarter inSheffield in August, whilst in February 2007 a resolution to grant planningconsent was passed for Eastgate & Harewood Quarters, Leeds. Both of these aremedium-term projects that we shall advance over the next few years. Taxation and REITs The UK Government introduced the tax-exempt Real Estate Investment Trust ("REIT") regime in January 2007. I believe that the REIT environment will lead to greater liquidity and transparency in the real estate market and attract newcapital to the industry, resulting in an improvement to the nation's commercialproperty stock. This is likely to benefit investors in real estate companiesand the wider UK economy. Following approval by shareholders at the Extraordinary General Meeting inDecember 2006, Hammerson elected for REIT status. From 1 January 2007 Hammersonis exempt from corporation tax on its property income and capital gains ondisposals of UK investment properties. Starting in July 2007 Hammerson willmake four quarterly payments totalling £101 million, representing the entrycharge, to the Treasury. The Company has been able to write-back deferred taxno longer required amounting to £457 million in respect of unrealised capitalgains, thereby increasing equity shareholders' funds. Property markets and outlook Retail Property UK consumer confidence improved in 2006, following weakness in 2005. Sales fornon-food retailers increased by 2.2% in 2006, compared to a fall of 0.7% theprevious year. Against this backdrop, there was modest rental growth at primeshopping centres and retail parks, but retailers are looking for additionalincentives, including longer rent-free periods. We expect retailers generallyto see positive sales growth in 2007 at the strongest trading locations, leadingto further increases in rental levels. In France non-food retail sales grew by 3.7% in 2006 compared to 3.4% theprevious year. Demand from retailers for space improved at the best locations,supporting higher rents for new leases, a trend we expect to continue in 2007.Rents on existing leases in France are linked annually to a cost of constructionindex. The latest index, applicable from 1 January 2007, is 7.1%. Office Property Demand for office accommodation followed similar trends in the City of Londonand Paris, with buoyant levels of letting activity. The central London officemarket saw a substantial increase in the take-up of space during 2006 comparedto the previous year, with a combination of sustained demand and littleadditional supply leading to a reduction in the overall market vacancy rate.Rent-free periods shortened dramatically and rents saw strong growth,particularly for prime office accommodation. Although there has been anincrease in the level of development activity during 2006, continued demand forspace and further reductions in vacancy are anticipated to lead to higher rentsin 2007. In the central Paris office market, there was a substantial increase in leasingactivity in 2006 over the previous year with many office occupiers seeking toconsolidate their businesses into single locations offering more efficientoffice accommodation. This trend is expected to continue into 2007, leading tofurther rental growth. Investment markets During 2006 demand from investors for real estate in the UK and France wasbuoyant, particularly during the first half of the year, leading to furtherincreases in capital values. We expect continued demand from a broad range ofinvestors for prime investment properties. However, following the recent risesin interest rates in both countries, the positive differential between propertyinvestment yields and borrowing costs has been largely eliminated or reversed,reducing the attractions of property to some debt financed investors. Againstthis background, we believe that capital growth in 2007 will depend more onasset management initiatives and increases in rental income than a furtherdownward movement in investment yields. In France continuing demand should leadto further capital growth. Secondary property remains potentially morevulnerable to any market weakness. Board changes I am delighted that David Atkins was appointed to the Board as an executivedirector in January 2007. David is a Chartered Surveyor and joined Hammerson inFebruary 1998. He retains responsibility for the management of the group'sretail property business in the UK. I am pleased to announce that Jacques Espinasse has agreed to join the Board asa non-executive director with effect from 1 May 2007. Jacques is a member ofthe Management Board and Chief Financial Officer of Vivendi Universal. Hisoutstanding career in the management of major international companies means thathe brings a wealth of experience and I am confident he will make a majorcontribution to Hammerson. John Bywater, currently Managing Director of Hammerson's UK business, will standdown from the Board in March 2007 on reaching his normal retirement age. Onbehalf of the Board I would like to thank John for his leadership, enthusiasmand contribution to Hammerson over the past nine years. I would also like topay tribute to John Barton who will stand down from the Board at the AGM in May2007. John has served as a non-executive director since 1998, latterly asSenior Independent Director, and I would like to take this opportunity to thankhim for his wise counsel. I am also pleased to announce that John Clare will become Hammerson's new SeniorIndependent Director at the AGM in May. Summary and outlook Hammerson has a portfolio of real estate assets of the highest quality in the UKand France. We have a very experienced and entrepreneurial management teamfocusing on prime retail and office assets and creating value throughdevelopments. We have achieved strong returns in recent years and this isdemonstrated by our outperformance in the UK of the IPD index in nine out of thelast ten years, making us one of the best-performing large real estateinvestors. Our financing model is efficient and provides operationalflexibility. The Company now has major tax-exempt businesses both in the UK and France.Looking ahead, our rental income is projected to show substantial growth in 2007with continued growth thereafter enhanced by one of the most extensivedevelopment programmes in the sector. Against this background, the Boardexpects to be able to recommend an increase of around 25% in the total dividendfor 2007 over the proposed level for 2006. We have a strong base from which to take Hammerson forward and I have everyconfidence that the Company will continue to thrive. John Nelson 26 February 2007 FINANCIAL REVIEW The financial information contained in this review is extracted or calculatedfrom the attached income statement, balance sheet, cash flow statement, otherstatements, notes and glossary of terms. Profit before tax and dividend For the year ended 31 December 2006, profit before tax, which includes propertyrevaluation gains, was £792.4 million, compared with £698.6 million in 2005. Thetable below shows how adjusted profit before tax, which rose by £5.1 million to£94.5 million, is calculated. Analysis of profit before tax 2006 2005 £m £m______________________________________________________________________________________________________________ Profit before tax 792.4 698.6 Adjustments: Profit on the sale of investment properties (95.8) (32.1) Revaluation gains on investment properties (664.8) (575.5) Goodwill impairment 12.6 - Bond redemption costs 34.0 - Change in fair value of interest rate swaps 16.1 (1.6)_______________________________________________________________________________________________________________ Adjusted profit before tax 94.5 89.4_______________________________________________________________________________________________________________ Adjusted earnings per share in 2006 increased by 1.6 pence, or 5.1%, to 32.8pence, as the growth in net rental income more than offset increased finance andadministrative costs. Details of the calculations for earnings per share areprovided in note 6 to the accounts. A final dividend of 15.3 pence per share is proposed which, together with theinterim dividend of 6.38 pence per share, makes a total of 21.68 pence per sharefor the year. This is an increase of 10.0% over the total dividend for 2005. The following paragraphs explain the principal movements for each of thecomponents of adjusted profit before tax, and the profit for the year. Net rental income Net rental income for the year ended 31 December 2006 was £237.4 million,compared with £210.3 million in 2005. Approximately half of the increase was theresult of lettings at recently completed developments. The balance principallyreflected the contributions from properties acquired over the last two years, inparticular the LxB portfolio, and a full year's rent from Queensgate ShoppingCentre, Peterborough, all of which more than offset the rent foregone fromproperties sold. During 2006 net rental income related to retail tenants' turnover accounted for£3.2 million of the total, which also included net income of £7.7 million fromshopping centre car parks. Rent receivable of £17.5 million has been accrued andallocated to rent-free periods in 2006, including £6.6 million for BishopsSquare, which was transferred to the investment portfolio following completionof the tenant's fit out. The investment portfolio showed a like-for-like increase in net rental income of3.9% which is analysed on the following page. Like-for-like net rental income: investment property For the year ended 31 December 2006 Current year net rental income Prior year net rental income Proper- Proper- ties ties Ex- owned Total owned change Total through- Acquisi- Dis- Develop- net through- Acquisit- Dis- Develop- trans- net out tions posals ments rental out ions posals ments lation ren- 2005/ income 2005/ differ- tal 06 06 ence income £m £m £m £m £m £m £m £m £m £m £m________________________________________________________________________________________________________ United Kingdom Retail 97.6 17.6 8.1 7.9 131.2 89.6 3.5 11.7 7.1 - 111.9 Office 29.2 0.8 1.4 6.8 38.2 27.6 0.7 (0.2) 0.2 - 28.3 _______________________________________________________________________________________________________ Total United 126.8 18.4 9.5 14.7 169.4 117.2 4.2 11.5 7.3 - 140.2 Kingdom _______________________________________________________________________________________________________ Continental Europe France 56.1 6.6 0.1 2.3 65.1 58.9 2.4 1.7 (0.1) (0.2) 62.7 Germany - - 0.9 (0.1) 0.8 - - 2.9 2.3 - 5.2 _______________________________________________________________________________________________________ Total 56.1 6.6 1.0 2.2 65.9 58.9 2.4 4.6 2.2 (0.2) 67.9 Continental Europe _______________________________________________________________________________________________________ Group Retail 141.2 24.2 9.0 7.8 182.2 134.0 5.9 14.4 9.5 (0.2) 163.6 Office 41.7 0.8 1.5 9.1 53.1 42.1 0.7 1.7 - - 44.5 _______________________________________________________________________________________________________ Total 182.9 25.0 10.5 16.9 235.3 176.1 6.6 16.1 9.5 (0.2) 208.1 Investment Portfolio _______________________________________________________________________________________________________ Income on 2.4 - (0.9) 0.6 2.1 3.5 (0.1) (0.4) (0.8) - 2.2 developments and other sources not analysed above _______________________________________________________________________________________________________ Total portfolio 185.3 25.0 9.6 17.5 237.4 179.6 6.5 15.7 8.7 (0.2) 210.3 _______________________________________________________________________________________________________ Administration expenses Administration expenses in 2006 rose by £4.7 million to £36.1 million. Increasesin staff costs and the costs of relocating our head office to 10 GrosvenorStreet, were partially offset by increased asset management and developmentmanagement fees receivable. Net finance costs Excluding the change in fair value of interest rate swaps and the bondredemption costs, net finance costs increased in 2006 by £17.3 million to £106.8million. This was primarily a result of increased borrowings drawn to fundacquisitions and the development programme. The average cost of borrowing in2006 was 5.6% and interest cover was 1.8 times in 2006 compared with 1.9 timesthe previous year. Tax In 2006 we have provided for the effects of our adoption of REIT status. Thecurrent tax charge includes the one-off entry charge of £101 million,representing approximately 2% of the value of the UK property portfolio at 31December 2006, which will be paid in four equal quarterly instalments, the firstin July of this year. We have released to the income statement deferred tax of£449 million, relating to unrealised UK capital gains and capital allowances, asthis is no longer required. Excluding the REIT impacts, there was a current tax credit of £1.1 million in2006 which resulted principally from a write-back of foreign tax from prioryears. The French tax exemption, capital allowances and capitalised interestcontinued to shelter profits from tax. Cash flow There was a cash inflow from operating activities of £6 million in 2006,compared with £45 million in the previous year. The reduction arose principallyfrom the premium and costs paid for the bond redemption. Disposals in 2006 raised £628 million, whilst acquisitions and capitalexpenditure amounted to £501 million. After the net cash outflow of £130 millionfrom financing activities, there was a net decrease in cash and short-termdeposits over the year of £6 million. Balance sheet and financing At 31 December 2006, the group's net asset value per share, calculated in linewith the recommendations of EPRA, was £15.00, representing an increase of £2.63,or 21.3% over 2005. In 2006, provision has been made for the one-off entrycharge of £101 million on adoption of REIT status and bond redemption costs of£34 million were incurred. Together these reduced adjusted net asset value pershare by 47 pence. Excluding these the increase in adjusted net assets per sharewould have been 25.1%. The tables below and on the following page show how theEPRA measure is calculated and give a breakdown of the increase. Analysis of net asset value 2006 2005 ________________________________________________ £ per share £ per share £m £m___________________________________________________________________________________________________________ Basic 4,165.1 14.60 3,125.8 10.97 Effect of dilution: On exercise of share options 8.7 n/a 8.5 n/a___________________________________________________________________________________________________________ Diluted 4,173.8 14.61 3,134.3 10.97 Adjustments: Fair value of interest rate swaps 8.8 0.03 (7.3) (0.02) Deferred tax on revaluation surpluses and other items 103.1 0.36 370.3 1.30 Deferred tax on capital allowances 0.2 - 36.1 0.12___________________________________________________________________________________________________________ EPRA, diluted 4,285.9 15.00 3,533.4 12.37___________________________________________________________________________________________________________ Basic shares in issue used for calculation (million) 285.2 285.0 Diluted shares used for calculation (million) 285.7 285.7 ___________________________________________________________________________________________________________ Equity shareholders'Movement in net asset value funds* EPRA NAV* £m £ per share_____________________________________________________________________________________________________________ 31 December 2005 3,533.4 12.37Revaluation gains - equity changes 89.0 0.31 - income changes 664.8 2.33Retained profit (excluding revaluation gains and bond redemption costs) 168.9 0.59Costs of bond redemption (34.0) (0.12)UK REIT entry charge (100.5) (0.35)Dividend (57.7) (0.20)Exchange loss and other movements 22.0 0.07_____________________________________________________________________________________________________________ 31 December 2006 4,285.9 15.00_____________________________________________________________________________________________________________* Excluding deferred tax and fair value of interest rate swaps Borrowings Hammerson's financial position remains strong. During 2006 we continued tomanage our borrowings with three major new financings: - £300 million 5.25% unsecured bonds due 2016 - £330 million five-year sterling bank facility - €700 million 4.875% unsecured bonds due 2015 In addition we made a tender offer in May for the 10.75% 2013 sterling bonds,following which almost half their nominal value, or £93.8 million, was redeemedand cancelled at a premium, including costs, of £34.0 million. At the year-end,we had undrawn committed facilities of £845 million which, when added to cashand deposits, provided liquidity of £884 million. This may be compared withbonds that mature in 2007 totalling £202 million. The weighted average maturity of debt at the year-end was ten years, 82% ofborrowings were at fixed rates of interest and virtually all debt was unsecured.With borrowings of £2,282 million and cash and deposits of £39 million, net debtamounted to £2,243 million at 31 December 2006. Gearing was 54% compared with 66% at the end of 2005 and the loan to value ratiowas 38%. The balance sheet at 31 December 2006 included a deferred tax liabilityof £103 million. If deferred tax is added back to equity shareholders' funds,gearing would have been 53%. The market value of borrowings at 31 December 2006 of £2,373 million was £91million greater than the book value, equivalent, after tax relief, to areduction in net asset value of 22 pence per share. Total shareholder returns Total shareholder return for 2006 exceeded the FTSE 350 real estate index bynearly eight percentage points. Over the last five years, Hammerson's averageannual total shareholder return has been 32.3% compared with 27.0% for the realestate index. Return % Benchmark %_______________________________________________________________________________________________________________ Total shareholder return over one year 56.9 FTSE 350 real estate index over one year 49.2Total shareholder return over three years 37.4 FTSE 350 real estate index over three years 37.4(p.a.) (p.a.)Total shareholder return over five years 32.3 FTSE 350 real estate index over five years 27.0(p.a.) (p.a.)_______________________________________________________________________________________________________________ BUSINESS REVIEW PROPERTY PORTFOLIO Hammerson owns and manages 14 major shopping centres and 18 retail parks,principally in the UK and France, providing a total of 1.3 million m2 of retailspace. The office portfolio consists of nine prime buildings, mostly located inand around the City of London and in central Paris, and provides 275,000m2 ofaccommodation. At 31 December 2006 the value of our property portfolio was £6.7 billion. Theinvestment portfolio was valued at £6.2 billion and developments at £0.5billion. Joint ventures accounted for 34% of the portfolio value, including fivemajor shopping centre investments in the UK which represented 21% of the totalportfolio. Valuation increases in 2006 amounted to £732 million and capital expenditureincluding capitalised interest totalled £810 million, principally onacquisitions and the development programme. During 2006 the weighting of theportfolio to the UK increased by three percentage points to 74%. The retail andoffice weightings remained unchanged at 72% and 28% respectively. The table below shows the capital returns for the portfolio during the yearended 31 December 2006. Shopping Centres Retail Parks Offices Total___________________________________________________________________________________________________________ Capital Capital Capital Value return Value return Value return Value Capital return £m % £m % £m % £m %___________________________________________________________________________________________________________ UK 2,350 10.9 1,203 7.8 1,384 26.0 4,937 14.5___________________________________________________________________________________________________________ France 1,100 17.4 118 9.3 489 16.9 1,707 16.7___________________________________________________________________________________________________________ Germany 72 (5.8) - - - - 72 (5.8)___________________________________________________________________________________________________________ Total 3,522 12.1 1,321 8.0 1,873 23.6 6,716 14.6___________________________________________________________________________________________________________ The property portfolio generated a capital return of 14.6%, with the investmentand development portfolios showing capital returns of 13.5% and 31.5%respectively. Approximately two thirds of the valuation uplift in the UK portfolio was theresult of a reduction in investment yields, whilst the balance reflectedincreases in rental values, development surpluses and asset managementinitiatives. In France, the capital return was 16.7%. The majority of the increase wasaccounted for by lower valuation yields and the balance from rising rentalvalues and completed developments. In August we completed the acquisition for £427 million of LxB Holdings Limited,which owns five retail assets in the UK providing total floor space of123,600m2. Each of the properties has an open A1 planning consent and there areexcellent opportunities to expand the schemes to increase the floorspace andenhance rental values. The portfolio generates annual rental income of £14.7million compared to its current ERV of £19.1 million, demonstrating itsreversionary growth potential. Bishops Square, a major office building in the City, was transferred to theinvestment portfolio in 2006 following the completion of the tenant's fit outworks. At 31 December, Hammerson's share of the property was valued at £511million, some £223 million above the cost of redevelopment. During 2006 we completed the redevelopment of 9 place Vendome, Paris 1er, our50:50 joint venture office development with AXA and this was transferred to theinvestment portfolio. The property provides 22,200m2 of high quality officeaccommodation and 5,500m2 of prime retail space and its principal officeoccupier is international law firm Clifford Chance. The property is now 91% letand Hammerson's share of the income will amount to £6.2 million after theinitial rent-free periods. At 31 December our interest in the property wasvalued at £167 million, a surplus of £81 million over the group's cost of £86million. In line with our strategy of recycling assets we sold 11 properties, orinterests in properties, raising £628 million in 2006. In aggregate, the proceeds from these sales were £96 million in excess of thebook value of the assets at 31 December 2005, of which £52 million related tothe Liberty Shopping Centre, Romford. The sales of two properties in Germanyleave Forum Steglitz as our sole German asset, the refurbishment of which wascompleted in December. Valuation data: investment propertyFor the year ended 31 December 2006 True Properties Revaluation Capital Total Initial equivalent at valuation in the year return return yield yield £m £m % % % %__________________________________________________________________________________________________________ Notes (1) (2)__________________________________________________________________________________________________________ United KingdomRetail: Shopping centres 2,090 169 10.5 15.4 4.4 4.8 Retail parks 1,131 66 7.8 12.0 3.7 4.8__________________________________________________________________________________________________________ 3,221 235 9.9 14.6 4.2 4.8__________________________________________________________________________________________________________ Office: City 997 162 22.0 25.3 2.2 5.1 Other 212 42 24.9 30.6 4.5 5.4__________________________________________________________________________________________________________ 1,209 204 22.5 26.4 2.7 5.2__________________________________________________________________________________________________________ Total United Kingdom 4,430 439 13.2 17.7 3.8 4.9__________________________________________________________________________________________________________ Continental EuropeFranceRetail 1,190 161 15.8 21.1 4.4 5.0Office 489 73 16.9 20.7 3.0 4.7__________________________________________________________________________________________________________ Total France 1,679 234 16.2 21.0 4.0 4.9__________________________________________________________________________________________________________ GermanyRetail 72 (8) (5.8) (5.5) 3.5 6.5__________________________________________________________________________________________________________ Total Continental Europe 1,751 226 14.5 19.0 4.0 4.9__________________________________________________________________________________________________________ GroupRetail 4,483 388 10.8 15.5 4.2 4.9Office 1,698 277 20.9 24.7 2.8 5.0__________________________________________________________________________________________________________ Total Investment Portfolio 6,181 665 13.5 18.0 3.8 4.9__________________________________________________________________________________________________________ Developments 535 67 31.5 31.4 _________________________________________________________________________________ Total Group including 6,716 732 14.6 18.8developments _________________________________________________________________________________ Notes(1) Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of property value.(2) The average income return, reflecting the timing of future rental increases, based on current ERV, resulting from lettings, lease renewals and rent reviews, assuming rents are received quarterly in advance. Rental income Hammerson's property portfolio generates a secure, high quality income stream.In 2006 net rental income totalled £237.4 million, whilst at the year end rentspassing from the investment portfolio amounted to £288.6 million. Rental data: investment propertyFor the year ended 31 December 2006 Gross Net Estimated rental rental Vacancy Rents rental Reversionary/ income income rate passing value (Over-rented) £m £m % £m £m %_______________________________________________________________________________________________________________ Notes (1) (2) (3) (4)_______________________________________________________________________________________________________________ United KingdomRetail: Shopping centres 112.6 96.8 1.1 95.8 104.3 7.7 Retail parks 35.9 34.4 2.7 43.5 52.7 16.7_______________________________________________________________________________________________________________ 148.5 131.2 1.7 139.3 157.0 10.6_______________________________________________________________________________________________________________ Office: City 32.3 27.0 3.3 50.9 52.7 (4.8) Other 13.9 11.2 8.3 14.8 15.3 (3.7)_______________________________________________________________________________________________________________ 46.2 38.2 4.4 65.7 68.0 (4.5)_______________________________________________________________________________________________________________ Total United Kingdom 194.7 169.4 2.6 205.0 225.0 5.6_______________________________________________________________________________________________________________ Continental EuropeFranceRetail 57.0 50.2 2.4 58.6 64.0 6.7Office 16.7 14.9 11.0 22.0 23.7 (2.1)_______________________________________________________________________________________________________________ Total France 73.7 65.1 4.2 80.6 87.7 4.2_______________________________________________________________________________________________________________ GermanyRetail 4.4 0.8 26.4 3.0 4.9 3.3_______________________________________________________________________________________________________________ Total Continental Europe 78.1 65.9 5.4 83.6 92.6 4.1_______________________________________________________________________________________________________________ GroupRetail 209.9 182.2 2.4 200.9 225.9 9.3Office 62.9 53.1 5.6 87.7 91.7 (3.9)_______________________________________________________________________________________________________________ Total Investment Portfolio 272.8 235.3 3.4 288.6 317.6 5.2_______________________________________________________________________________________________________________ Income on developments and othersources not analysed above 5.4 2.1___________________________________________________________ As disclosed in note 1 to the accounts 278.2 237.4___________________________________________________________ Notes (1) The ERV of the area in a property, or portfolio, excluding developments, which is currently available for letting, expressed as a percentage of the total ERV of the property or portfolio. (2) The annual rental income receivable from an investment property, after any rent-free periods and after deducting head and equity rents. (3) The estimated market rental value of the total lettable space in a property after deducting head and equity rents, calculated by the group's valuers. (4) The percentage by which the ERV exceeds, or falls short of, rents passing together with the estimated rental value of vacant space. During 2006 we agreed over 140 rent reviews in the UK. We agreed rent reviewsin respect of leases with passing rents of £15.6 million, giving rise to anincrease in rents of £4.5 million per annum. We anticipate that reviewsremaining to be settled from 2006 could increase annual rents by a further £5.4million. Rents for shopping centre leases in France are indexed annuallyaccording to a construction cost index. The index applicable during 2006 was0.7%, whilst the comparable figure from 1 January 2007 is 7.1%. Almost 120 leases with rents passing of £12.4 million were renewed followingexpiries in 2006. On renewal, additional annual income of £0.2 million wassecured. During 2006, 49 units became vacant within the UK shopping centreportfolio and a further eight units were occupied by retailers which enteredadministration. Of these units, new leases have been signed in respect of 52,resulting in an increase in annual rents of £0.1 million. Occupancy At 31 December 2006, the occupancy rate in the investment portfolio as a wholewas 96.6%, an increase of 3.4 percentage points in the year. The increaseresulted primarily from lettings at the London office buildings and theinclusion of Bishops Square, which is fully let, following its transfer to theinvestment portfolio during the year. Following the surrender in 2005 of the top five floors of 99 Bishopsgate, werefurbished the space vacated. Three of the floors were let during 2006 and theremaining two floors have been let since the year end. Income security and quality Hammerson's investment portfolio provides both a secure income stream andsubstantial growth potential. The weighted average unexpired lease term is 11years and the overall risk to Hammerson of individual tenant default is low aswe have a large number of tenants, generally of good financial standing, withdiverse businesses. The group's five largest retail tenants by rental income accounted for 10.3% ofthe passing rent from the investment portfolio at the year end as follows: B&Q2.8%; Pinault Printemps Redoute 2.2%; Arcadia 2.1%; H&M 1.9%; and DSG Retail1.3%. Rents passing from our three largest office tenants accounted for 13.8% ofthe total passing rent from the investment portfolio at 31 December 2006 asfollows: Allen & Overy 9.0%; Deutsche Bank 3.6%; and Clifford Chance 1.2%. Lease expiries and breaks Leases with current rents passing of £40 million are subject to expiry ortenants' break clauses during the period from 2007 to 2009 as shown in the tablebelow. Nevertheless, these expiries are spread throughout the portfolio andthere are no instances where the current rent is significantly above marketrent. We estimate that, assuming renewals take place at current rental values,additional rents of £5 million per annum would be secured. This is not aforecast and takes no account of void periods, lease incentives or possiblechanges in rental values before the relevant expiry or break dates. Lease expiries and breaksAs at 31 December 2006 Rents passing that expire/ ERV of leases that expire/break Weighted average break in in unexpired lease term 2007 2008 2009 2007 2008 2009 to break to expiry £m £m £m £m £m £m years years__________________________________________________________________________________________________________________ Notes (1) (1) (1) (2) (2) (2)__________________________________________________________________________________________________________________ United KingdomRetail: Shopping 7.9 2.5 2.1 9.0 2.7 2.4 9.9 10.6 centres Retail parks 1.0 0.3 0.3 1.3 0.3 0.4 15.3 15.5__________________________________________________________________________________________________________________ 8.9 2.8 2.4 10.3 3.0 2.8 11.8 12.3__________________________________________________________________________________________________________________ Office: City 0.4 2.4 - 0.3 2.2 - 13.9 16.7 Other 2.0 1.4 1.5 2.0 1.5 1.6 6.7 8.9__________________________________________________________________________________________________________________ 2.4 3.8 1.5 2.3 3.7 1.6 12.4 15.0__________________________________________________________________________________________________________________ Total United Kingdom 11.3 6.6 3.9 12.6 6.7 4.4 12.0 13.3__________________________________________________________________________________________________________________ Continental EuropeFrance: Retail 5.7 1.9 4.2 7.6 2.3 4.7 1.5 4.9 Office 5.2 1.0 - 5.4 1.0 - 4.4 6.5__________________________________________________________________________________________________________________ Total France 10.9 2.9 4.2 13.0 3.3 4.7 2.3 5.3__________________________________________________________________________________________________________________ Germany: Retail 0.2 0.1 0.1 0.2 0.1 0.1 6.9 8.4__________________________________________________________________________________________________________________ Total Continental Europe 11.1 3.0 4.3 13.2 3.4 4.8 2.4 5.4__________________________________________________________________________________________________________________ GroupRetail 14.8 4.8 6.7 18.1 5.4 7.6 8.5 10.0Office 7.6 4.8 1.5 7.7 4.7 1.6 10.5 13.0__________________________________________________________________________________________________________________ Total Group 22.4 9.6 8.2 25.8 10.1 9.2 9.2 11.0__________________________________________________________________________________________________________________ Notes(1) The amount by which rental income, based on rents passing at 31 December 2006, could fall in the event that occupational leases due to expire are not renewed or replaced by new leases. For the UK it includes tenants' break options. For France and Germany, it is based on the earliest date of lease expiry. (2) The ERV at 31 December 2006 for space that expires or breaks in each year, after deducting head and equity rents and ignoring the impact of rental growth and any rent free periods. Rent reviews The UK shopping centre portfolio was 7.7% reversionary at 31 December 2006 andthe retail park assets 16.7% reversionary. The office portfolio in the UK was4.5% over-rented, principally accounted for by two office buildings, 99Bishopsgate and Exchange Tower. The retail portfolio in France was 6.7%reversionary and the office portfolio 2.1% over-rented. In the UK, leases subject to rent review in the three years from 2007 to 2009have current rents passing of £59 million. We estimate that, on review, rentsreceivable in respect of these leases would increase by £6 million by 2009 ifreviewed at current rental values. This is not a forecast and takes no accountof increases or decreases in rental values before the relevant review dates. Rent reviewsAs at 31 December 2006 Projected rent at current ERV of leases Rents passing subject to review in subject to review in Outstanding 2007 2008 2009 Outstanding 2007 2008 2009 £m £m £m £m £m £m £m £m__________________________________________________________________________________________________________ Notes (1) (1) (1) (1) (2) (2) (2) (2)__________________________________________________________________________________________________________United KingdomRetail: Shopping 15.8 3.3 15.0 13.3 18.7 3.8 16.0 13.8 centres Retail parks 8.5 8.5 5.8 4.8 10.9 9.9 6.9 5.4__________________________________________________________________________________________________________ 24.3 11.8 20.8 18.1 29.6 13.7 22.9 19.2__________________________________________________________________________________________________________ Office: City 10.4 0.6 - 3.2 10.4 0.6 - 3.2 Other 5.4 0.3 1.0 2.9 5.5 0.3 1.1 3.3__________________________________________________________________________________________________________ 15.8 0.9 1.0 6.1 15.9 0.9 1.1 6.5__________________________________________________________________________________________________________ Total United Kingdom 40.1 12.7 21.8 24.2 45.5 14.6 24.0 25.7__________________________________________________________________________________________________________ The majority of rents in France and Germany are subject to annual indexation. Notes (1) The rental income passing at 31 December 2006, after deducting head and equity rents, which is subject to review in each year. (2) The projected rents for space that is subject to review in each year and are based on the higher of the current rental income and the ERV as at 31 December 2006, after deducting head and equity rents and ignoring the impact of changes in rental values before the review date. Additional contracted income Hammerson's cash flow will increase substantially in 2007 and 2008 from leasesand contracts that have already been signed. The table below shows additionalcontracted income on both cash and accounting bases. Rents Passing 2006 2007 2008 2009 £m £m £m £m___________________________________________________________________________________________________ Bishops Square, London E1 0.4 13.4 25.6 25.6___________________________________________________________________________________________________ Other completed offices - UK 0.8 4.1 11.8 13.7___________________________________________________________________________________________________ Retail parks 0.8 2.1 3.5 5.1___________________________________________________________________________________________________ 9 place Vendome, Paris 0.4 2.4 5.2 5.9___________________________________________________________________________________________________ Current retail developments - UK - - 1.0 8.7___________________________________________________________________________________________________ Current developments - France - 0.3 1.0 1.3___________________________________________________________________________________________________ Total - cash flow 2.4 22.3 48.1 60.3 - accounting basis 18.9 44.1 50.4 60.1___________________________________________________________________________________________________ Note: Figures show Hammerson's share of the income in respect of joint ventures. The increase in rental income in 2007 of £25.2 million to £44.1 million forthose assets shown in the above table, should result in an increase in profitbefore tax of approximately £10 million after taking account of the associatedcost of finance. The income contracted in respect of the current developments included in thetable above for 2009 is £10 million. On full letting we estimate that passingrents on these schemes will be £71 million, as shown in the table below. Current developments Our objective from the development programme is to create assets that generateattractive returns at a cost substantially below the price of acquiringcompleted income-producing assets on the open market. To achieve this weexploit our excellent reputation for managing complex urban regeneration schemesand forging strong links with local authorities. At 31 December 2006 six developments were underway with an estimated totaldevelopment cost of £915 million. The value of our development portfolio at 31December 2006 was £535 million, compared with its cost of £423 million. Cost to Forecast Estimated Ownership Lettable Forecast 31 Dec Costs to total passingProperty interest area completion 2006 complete cost rent % sq.m date £m £m £m % Let £m________________________________________________________________________________________________________________ Notes (1) (1) (1) (2)________________________________________________________________________________________________________________ RetailCabot Circus, Bristol 50 92,000 Sep 2008 95 150 245 51 18Highcross Quarter, Leicester 60 60,000 Sep 2008 71 139 210 42 12Union Square, Aberdeen 100 49,000 Sep 2009 40 175 215 28 14Parinor extension, 100 24,100 Apr 2008 17 58 75 21 6Aulnay-sous-BoisOffice125 Old Broad Street, London 50 31,000 Dec 2007 (3) 48 45 - 9EC2 (3)60 Threadneedle Street, 100 20,400 Nov 2008 32 93 125 - 12London EC2________________________________________________________________________________________________________________ Total development properties 252 663 915 71________________________________________________________________________________________________________________ Costs to date of other development 125propertiesAdd: Profit realised on 50% disposal of 125 Old 46Broad StreetAdd: Revaluation surplus 112_________________________________________________________________________ Total development properties (note 7 to the 535accounts)_________________________________________________________________________ Notes:(1) Capital costs including capitalised interest.(2) Amount let or under offer by income at 26 February 2007.(3) 125 Old Broad Street cost to 31 December 2006 and forecast total cost shown net of disposal profit of £46 million. We are making good progress at Cabot Circus, Bristol, the 92,000m2 retail-ledmixed-use scheme being developed in a 50:50 joint venture with Land SecuritiesGroup PLC. Over 50% of the forecast rental income has been secured. Hammerson'sshare of the estimated rental income is £18 million and its total developmentcost £245 million. When complete Cabot Circus will provide a new retail heart toBristol. The Highcross Quarter development in Leicester, a 60:40 joint venture withHermes, started on site in January 2006 and over 40% of the target income hasbeen secured or is in solicitors' hands. Work is progressing well, with openingscheduled for September 2008 at an estimated total development cost to Hammersonof £210 million. When complete, the project will more than double the size ofthe existing Shires shopping centre to over 105,000m2. In July we acquired for £20 million a further 50% interest in the Union Squaredevelopment in Aberdeen, taking our interest to 100%. The scheme, on anine-hectare site adjacent to Aberdeen railway station, is a hybrid of atraditional shopping mall and retail park, providing 49,000m2 of space includingretail units, leisure and catering and 1,700 parking spaces. The first phase ofdevelopment started in December and 28% of the development is let or insolicitors' hands. The estimated total development cost of the scheme, which isexpected to be completed in September 2009, is £215 million and the projectedrental income is £14 million per annum. A major extension to the Parinor shopping centre to the north of Paris commencedin October and is expected to be completed in two phases in April and November2008 at an estimated total development cost of £75 million. The works willincrease the area of the scheme to over 90,000m2, benefit retailers in theexisting malls and make it the largest shopping centre serving the north ofParis. Just over 20% of the forecast annual rental income of £6 million has beensecured. The extension will be anchored by Planete Saturn and Toys 'R' Us. Construction started in February 2006 on the redevelopment of the former LondonStock Exchange at 125 Old Broad Street to provide 29,400m2 of prime office spaceand 1,600m2 of retail accommodation. Completion is scheduled for December 2007.In November 2006 Hammerson sold a 50% interest in the scheme to two co-investorsand the project will now go forward as a joint venture with those investors. Thesale raised £75 million before costs and Hammerson is managing the developmentand will be retained as the asset manager when the building is completed. In August 2006 demolition work began on the adjacent site at 60 ThreadneedleStreet and construction work is now underway to create an 18,800m2 nine-storeyoffice building and 1,600m2 of retail space. When completed in November 2008 itwill provide excellent modern accommodation in one of the best locations in theCity of London. Future developments We have an excellent pipeline of future development opportunities, which aresummarised in the table below. These cover all areas of our business andinclude: major retail-led city centre regeneration schemes; extensions toexisting retail centres; retail parks; and offices. We made good progress in2006 in advancing many of these schemes through the various feasibility, siteassembly and planning stages. Future development pipeline Major retail-led schemes Retail Parks________________________ ____________ New Retail Quarter, Sheffield Fife Central Retail Park, KirkcaldyEastgate & Harewood Quarters, Leeds Abbey Retail Park, BelfastQueensgate, Peterborough The Orchard Centre, DidcotEden Quarter, Kingston-upon-Thames Manor Walks, NewcastleBrent Cross and Cricklewood, London NW Nice Lingostiere, NiceCentral Area, Milton Keynes Berkshire Retail Park, Theale Retail extensions Offices Espace St Quentin, St Quentin-en-Yvelines Northgate, London E1Italie 2, Paris Shoreditch High Street, London E1Les 3 Fontaines, Cergy Pontoise Bishopsgate Goodsyard, London E1WestQuay III, Southampton Paddington Triangle, London W2 Harbour Quay, London E14 It is anticipated that at least four of these schemes could start in the nextthree years, dependent on site assembly, planning and letting markets. Theindicative total development cost of these four projects is £1.6 billion, with aprojected yield on cost of approximately 7%. We received planning consent in August for our proposed 105,000m2 mixed-useregeneration of Sheffield city centre. The scheme will be anchored by a JohnLewis department store and will also include 100 smaller retail units, up to 200apartments and 2,200 car parking spaces. Construction of the first phase couldstart in 2008. In February 2007 a resolution to grant planning consent was passed for our100,000m2 retail-led regeneration in Leeds city centre. The scheme is centredaround the Eastgate & Harewood Quarters of the city, and is to be developed in a90:10 joint venture between Hammerson and Leeds-based Town Centre Securities. Itwill be anchored by a 24,000m2 John Lewis store and include over 100 retailunits, restaurants and bars, a hotel, office accommodation, up to 600 new homesand 2,700 car parking spaces. The group is currently progressing the Northgate project in Bishopsgate, LondonE1, having acquired an option to purchase a development site adjoining itsexisting Norton Folgate site. Hammerson intends to submit a planning applicationduring 2007 for a mixed-use development totalling 100,000m2 incorporatingapproximately 65,000m2 of offices. In France, plans are being worked up for the expansion of our shopping centre atLes 3 Fontaines in Cergy-Pontoise. The scheme will create an additional 30,000m2of space, of which Hammerson's ownership would be 18,000m2, encompassing 15stores, 50 shop units and 2,200 car parking spaces. CONSOLIDATED INCOME STATEMENT 2006 2005 For the year ended 31 December 2006 Notes £m £m ________________________________________________________________________________________________________ Gross rental income 278.2 249.2 ________________________________________________________________________________________________________ Operating profit before gains on investment properties 1 201.3 178.9 Gains on investment properties 1 748.0 607.6 ________________________________________________________________________________________________________ Operating profit 1 949.3 786.5 __________ _________ Finance costs (118.0) (102.1) Bond redemption costs (34.0) - Change in fair value of interest rate swaps (16.1) 1.6 Finance income 11.2 12.6 __________ _________ Net finance costs 3 (156.9) (87.9) ________________________________________________________________________________________________________ Profit before tax 792.4 698.6 __________ _________ Current tax (99.4) 1.0 Deferred tax 333.8 (133.9) __________ _________ Tax credit/(charge) 4(a) 234.4 (132.9) ________________________________________________________________________________________________________ Profit for the year 1,026.8 565.7 ________________________________________________________________________________________________________ Attributable to: Equity shareholders 1,016.9 554.4 Minority interests 9.9 11.3 ________________________________________________________________________________________________________ Profit for the year 1,026.8 565.7 ________________________________________________________________________________________________________ Basic earnings per share 6 357.5p 198.0p Diluted earnings per share 6 356.9p 197.6p ________________________________________________________________________________________________________ Adjusted earnings per share are shown in note 6. All results derive fromcontinuing operations. CONSOLIDATED BALANCE SHEET 2006 2005 As at 31 December 2006 Notes £m £m ______________________________________________________________________________________________________________________ Non-current assets Investment and development properties 7 6,716.0 5,731.7 Interests in leasehold properties 32.4 35.6 Plant, equipment and owner-occupied property 8 42.2 44.3 Investments 10 64.9 49.5 Receivables 11 13.6 4.5 ______________________________________________________________________________________________________________________ 6,869.1 5,865.6 Current assets Receivables 12 148.0 144.2 Cash and deposits 13 39.4 45.5 ______________________________________________________________________________________________________________________ 187.4 189.7 ______________________________________________________________________________________________________________________ Total assets 7,056.5 6,055.3 ______________________________________________________________________________________________________________________ Current liabilities Payables 14 218.2 220.7 Tax liabilities 111.1 60.5 Borrowings 15 210.2 0.5 ______________________________________________________________________________________________________________________ 539.5 281.7 Non-current liabilities Borrowings 15 2,072.4 2,094.3 Deferred tax 4(d) 103.3 406.4 Tax liabilities 55.1 25.5 Obligations under finance leases 32.3 35.9 Net pension liability 11.2 16.9 Other payables 21.0 18.9 ______________________________________________________________________________________________________________________ 2,295.3 2,597.9 ______________________________________________________________________________________________________________________ Total liabilities 2,834.8 2,879.6 ______________________________________________________________________________________________________________________ Net assets 4,221.7 3,175.7 ______________________________________________________________________________________________________________________ Equity Share capital 17 71.3 71.2 Share premium account 18 660.5 659.5 Translation reserve 18 (62.9) (32.8) Hedging reserve 18 59.9 32.9 Capital redemption reserve 18 7.2 7.2 Other reserves 18 8.9 6.7 Revaluation reserve 18 78.9 221.8 Retained earnings 18 3,348.3 2,163.7 Investment in own shares 19 (7.0) (4.4) ______________________________________________________________________________________________________________________ Equity shareholders' funds 4,165.1 3,125.8 Equity minority interests 56.6 49.9 ______________________________________________________________________________________________________________________ Total equity 4,221.7 3,175.7 ______________________________________________________________________________________________________________________ Diluted net asset value per share 6 £14.61 £10.97 EPRA net asset value per share 6 £15.00 £12.37 ______________________________________________________________________________________________________________________ CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 2006 2005 For the year ended 31 December 2006 Notes £m £m _____________________________________________________________________________________________________________ Foreign exchange translation differences (31.1) (39.3) Net gain on hedge of net investment in foreign subsidiaries 18 27.0 32.9 Revaluation gains on development properties 18 67.0 197.5 Revaluation gains on owner-occupied property 18 7.6 11.6 Revaluation gains on investments 18 14.4 2.7 Acquisition of minority interests (2.2) - Actuarial losses on pension schemes 18 (0.9) (6.3) Tax on items taken directly to equity 4(c) (4.0) (55.5) _____________________________________________________________________________________________________________ Net gain recognised directly in equity 77.8 143.6 Profit for the year 1,026.8 565.7 _____________________________________________________________________________________________________________ Total recognised income and expense 1,104.6 709.3 _____________________________________________________________________________________________________________ Attributable to: Equity shareholders 1,095.7 699.2 Minority interests 8.9 10.1 _____________________________________________________________________________________________________________ Total recognised income and expense 1,104.6 709.3 _____________________________________________________________________________________________________________ RECONCILIATION OF EQUITY 2006 2005 For the year ended 31 December 2006 Notes £m £m _____________________________________________________________________________________________________________ Opening equity shareholders' funds 3,125.8 2,414.2 Issue of shares 1.1 63.6 Purchase of own shares 19 (4.0) (2.3) Share-based employee remuneration 18 3.8 2.1 Gain on award of own shares to employees 18 0.4 - _____________________________________________________________________________________________________________ 3,127.1 2,477.6 Total recognised income and expense 1,095.7 699.2 _____________________________________________________________________________________________________________ 4,222.8 3,176.8 Dividends 5 (57.7) (51.0) _____________________________________________________________________________________________________________ Closing equity shareholders' funds 4,165.1 3,125.8 _____________________________________________________________________________________________________________ CONSOLIDATED CASH FLOW STATEMENT 2006 2005 For the year ended 31 December 2006 Notes £m £m _____________________________________________________________________________________________________________ Operating activities Operating profit before gains on investment properties 201.3 178.9 Adjustment for non-cash items 20 (12.7) 1.8 Decrease/(Increase) in receivables 14.1 (44.4) (Decrease)/Increase in payables (31.9) 38.9 _____________________________________________________________________________________________________________ Cash generated from operations 170.8 175.2 Interest and bond redemption costs paid (155.2) (123.6) Interest received 11.0 13.1 Tax paid (21.1) (19.8) _____________________________________________________________________________________________________________ Cash flows from operating activities 5.5 44.9 _____________________________________________________________________________________________________________ Investing activities Purchase of property and capital expenditure (116.4) (314.9) Development of property (250.5) (223.2) Sale of property 628.0 224.4 Purchase of interests in joint ventures and subsidiary companies (132.7) 6.8 Purchase of investments (1.0) (0.5) (Increase)/Decrease in long term receivables (9.2) 18.2 _____________________________________________________________________________________________________________ Cash flows from investing activities 118.2 (289.2) _____________________________________________________________________________________________________________ Financing activities Issue of shares 1.1 3.0 Purchase of own shares (4.0) (2.3) Proceeds from award of own shares 0.2 - (Decrease)/Increase in medium and long term borrowings (277.7) 318.6 Increase/(Decrease) in short term borrowings 211.0 (30.3) Dividends paid to minorities (2.4) (1.8) Equity dividends paid (57.7) (51.0) _____________________________________________________________________________________________________________ Cash flows from financing activities (129.5) 236.2 _____________________________________________________________________________________________________________ _____________________________________________________________________________________________________________ Net decrease in cash and deposits (5.8) (8.1) Opening cash and deposits 45.5 53.7 Exchange translation movement (0.3) (0.1) _____________________________________________________________________________________________________________ Closing cash and deposits 13 39.4 45.5 _____________________________________________________________________________________________________________ ANALYSIS OF MOVEMENT IN NET DEBT Short term Cash at Current Non-current deposits bank borrowings borrowings Net debt For the year ended 31 December 2006 £m £m £m £m £m _____________________________________________________________________________________________________________ Balance at 1 January 2006 22.4 23.1 (0.5) (2,094.3) (2,049.3) Unamortised bond issue costs written off - - - (2.0) (2.0) Acquisition of subsidiaries, including loan notes issued 40.8 3.7 - (275.1) (230.6) Cash flow (49.9) (0.4) (211.0) 277.7 16.4 Exchange (0.2) (0.1) 1.3 21.3 22.3 _____________________________________________________________________________________________________________ Balance at 31 December 2006 13.1 26.3 (210.2) (2,072.4) (2,243.2) _____________________________________________________________________________________________________________ NOTES TO THE ACCOUNTS 1 OPERATING PROFIT 2006 2005 Notes £m £m _____________________________________________________________________________________________________________ Gross rental income 278.2 249.2 Rents payable (5.1) (4.0) _____________________________________________________________________________________________________________ Gross rental income, after rents payable 273.1 245.2 _____ ______ Service charge income 45.4 43.2 Service charge expenses (53.0) (52.3) _____ ______ Net service charge expenses (7.6) (9.1) Other property outgoings (28.1) (25.8) _____________________________________________________________________________________________________________ Property outgoings (35.7) (34.9) _____________________________________________________________________________________________________________ Net rental income 2 237.4 210.3 _____ ______ Management fees receivable 4.1 3.0 Cost of property activities (20.9) (17.5) Corporate expenses (19.3) (16.9) _____ ______ Administration expenses (36.1) (31.4) _____________________________________________________________________________________________________________ Operating profit before gains on investment properties 201.3 178.9 Profit on the sale of investment properties 95.8 32.1 Revaluation gains on investment properties 664.8 575.5 Goodwill impairment 22 (12.6) - _____________________________________________________________________________________________________________ Gains on investment properties 748.0 607.6 _____________________________________________________________________________________________________________ Operating profit 949.3 786.5 _____________________________________________________________________________________________________________Included in gross rental income is £3.2 million (2005: £4.8 million) calculatedby reference to tenants' turnover. 2 SEGMENTAL ANALYSIS Primary and Secondary Segments The group's primary reporting segments are the geographiclocations of its properties. The secondary reporting segments are the businesssectors in which the group operates. Other Net Liabilities Other net liabilities include all operating assets andliabilities that can be allocated to the segment on a reasonable basis butexclude net debt. (a) Totals by Geographic Segment United Kingdom France Germany Unallocated Total 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £m________________________________________________________________________________________________________________________Gross rental income 200.9 170.2 73.6 69.0 3.7 10.0 - - 278.2 249.2Rents payable (5.1) (4.0) - - - - - - (5.1) (4.0)Property outgoings (22.8) (24.1) (9.3) (5.8) (3.6) (5.0) - - (35.7) (34.9)________________________________________________________________________________________________________________________Net rental income 173.0 142.1 64.3 63.2 0.1 5.0 - - 237.4 210.3Administrationexpenses (10.7) (11.7) (5.5) (5.2) (0.6) (0.5) (19.3) (14.0) (36.1) (31.4)________________________________________________________________________________________________________________________ Operating profitbefore gains oninvestment properties 162.3 130.4 58.8 58.0 (0.5) 4.5 (19.3) (14.0) 201.3 178.9 Gains on investmentproperties 527.0 401.8 231.4 230.3 (10.4) (24.5) - - 748.0 607.6________________________________________________________________________________________________________________________Operating profit 689.3 532.2 290.2 288.3 (10.9) (20.0) (19.3) (14.0) 949.3 786.5Net finance costs - - - - - - (156.9) (87.9) (156.9) (87.9)________________________________________________________________________________________________________________________Segment result 689.3 532.2 290.2 288.3 (10.9) (20.0) (176.2) (101.9) 792.4 698.6________________________________________________________________________________________________________________________ 4,937.2 4,093.1 1,707.0 1,494.7 71.8 143.9 - - 6,716.0 5,731.7 Property assetsNet debt - - - - - - (2,243.2) (2,049.3) (2,243.2) (2,049.3)Other net liabilities (187.7) (431.3) (113.8) (121.4) (6.2) (3.9) - - (307.7) (556.6)________________________________________________________________________________________________________________________Equity shareholders'funds 4,749.5 3,661.8 1,593.2 1,373.3 65.6 140.0 (2,243.2) (2,049.3) 4,165.1 3,125.8________________________________________________________________________________________________________________________Capital expenditure 746.1 401.9 25.4 181.5 11.6 11.3 - - 783.1 594.7________________________________________________________________________________________________________________________ (b) Totals by Business Segment Shopping centres Retail parks Offices Total 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m________________________________________________________________________________________________________________________Gross rental income 173.0 163.1 41.8 29.3 63.4 56.8 278.2 249.2Rents payable (1.8) (0.4) (0.1) - (3.2) (3.6) (5.1) (4.0)Property outgoings (26.2) (24.9) (2.4) (1.2) (7.1) (8.8) (35.7) (34.9)________________________________________________________________________________________________________________________Net rental income 145.0 137.8 39.3 28.1 53.1 44.4 237.4 210.3________________________________________________________________________________________________________________________Property assets 3,521.5 3,312.7 1,321.1 807.0 1,873.4 1,612.0 6,716.0 5,731.7________________________________________________________________________________________________________________________Capital expenditure 178.6 265.2 493.5 235.5 111.0 94.0 783.1 594.7________________________________________________________________________________________________________________________ (c) Analysis of Equity Shareholders' Funds Equity shareholders' Assets employed Net debt funds 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m________________________________________________________________________________________________________________________United Kingdom 4,749.5 3,661.8 (1,246.8) (975.1) 3,502.7 2,686.7Continental Europe 1,658.8 1,513.3 (996.4) (1,074.2) 662.4 439.1________________________________________________________________________________________________________________________ 6,408.3 5,175.1 (2,243.2) (2,049.3) 4,165.1 3,125.8________________________________________________________________________________________________________________________ As part of the group's foreign currency hedging programme, at 31 December 2006the group had sold €369.2 million (2005: €100.0 million) forward againststerling for value on 3 January 2007, at a spot rate of £1 = €1.490. Net debt cannot be allocated between countries within continental Europe. 3 NET FINANCE COSTS 2006 2005 £m £m________________________________________________________________________________________________________________________ Interest on bank loans and overdrafts 13.7 16.8 Interest on other loans 121.5 102.0 Interest on obligations under finance leases 3.1 3.2 Other interest payable 6.3 1.3________________________________________________________________________________________________________________________ Gross interest costs 144.6 123.3 Less: Interest capitalised (26.6) (21.2)________________________________________________________________________________________________________________________ Finance costs 118.0 102.1 Bond redemption costs 34.0 - Change in fair value of interest rate swaps 16.1 (1.6) Finance income (11.2) (12.6)________________________________________________________________________________________________________________________ Net finance costs 156.9 87.9________________________________________________________________________________________________________________________ In May 2006, £93.8 million of the £200 million 10.75% sterling bonds 2013 wereredeemed. Bond redemption costs include a redemption premium of £32.0 millionand unamortised issue costs of £2.0 million. 4 TAX (a) Tax (Credit)/Charge 2006 2005 £m £m________________________________________________________________________________________________________________________ UK current tax On net income before revaluations and disposals 0.2 1.0 Credit in respect of prior years (0.5) - Entry charge payable on election for UK REIT status 100.5 -________________________________________________________________________________________________________________________ 100.2 1.0________________________________________________________________________________________________________________________ Foreign current tax On net income before revaluations and disposals 1.1 2.0 Credit in respect of prior years (1.9) (4.0)________________________________________________________________________________________________________________________ (0.8) (2.0)________________________________________________________________________________________________________________________ Total current tax charge/(credit) 99.4 (1.0)________________________________________________________________________________________________________________________ Deferred tax On net income before revaluations and disposals 17.9 21.0 On revaluations and disposals 127.6 129.6 On bond redemption costs (10.2) - On movements in fair values of interest rate swaps (4.8) 0.5 Credit in respect of prior years (15.7) (17.2) Released on election for UK REIT status (448.6) -________________________________________________________________________________________________________________________ (333.8) 133.9________________________________________________________________________________________________________________________ Tax (credit)/charge (234.4) 132.9________________________________________________________________________________________________________________________ (b) Tax Charge Reconciliation 2006 2005 £m £m________________________________________________________________________________________________________________________ Profit before tax 792.4 698.6________________________________________________________________________________________________________________________ Profit multiplied by the UK corporation tax rate of 30% 237.7 209.6 Deferred tax released in excess of entry charge payable on election for UK REIT status (348.1) - Non-taxable surpluses on UK investment properties (53.5) (3.6) Benefit of SIIC tax exemption net of deferred tax on SIIC dividends (33.9) (34.6) Indexation relief on UK investment properties (30.8) (18.4) Prior year adjustments (18.1) (21.2) Other items 12.3 1.1________________________________________________________________________________________________________________________ Tax (credit)/charge (234.4) 132.9________________________________________________________________________________________________________________________ 4 TAX (continued) (c) Tax Recognised Directly in Equity 2006 2005 £m £m________________________________________________________________________________________________________________________ Deferred tax charge on revaluations 12.1 57.0 Deferred tax released on election for UK REIT status (8.5) - Deferred tax charge/(credit) on actuarial gains/(losses) on pension 0.4 (1.5) schemes________________________________________________________________________________________________________________________ Tax recognised directly in equity 4.0 55.5________________________________________________________________________________________________________________________ (d) Deferred Tax Movements 1 January Recognised Recognised Corporate Foreign 31 December 2006 in income in equity acquisitions exchange 2006 £m £m £m £m £m £m________________________________________________________________________________________________________________________UKCapital gains net of capital 328.7 (335.2) 2.1 7.0 - 2.6lossesCapital allowances 36.1 (35.9) - - - 0.2Surpluses in trading 0.4 (3.6) - 20.9 - 17.7subsidiariesOther timing differences (2.3) (4.1) 0.4 - - (6.0)Dividends receivable from 62.0 34.9 1.5 - (1.2) 97.2FranceRevenue tax losses (33.1) (4.1) - - - (37.2)________________________________________________________________________________________________________________________ 391.8 (348.0) 4.0 27.9 (1.2) 74.5________________________________________________________________________________________________________________________France 14.6 14.2 - - - 28.8________________________________________________________________________________________________________________________Net deferred tax provision 406.4 (333.8) 4.0 27.9 (1.2) 103.3________________________________________________________________________________________________________________________ (e) Unrecognised Deferred Tax Deferred tax is not provided on potential gains on investments in subsidiariesand joint ventures when the group can control whether gains crystallise and itis probable that gains will not arise in the foreseeable future. At 31 December2006 the total of such gains was £900 million and the potential tax effect £270million (2005: £490 million, potential tax effect £150 million). If a UK REIT sells a property within three years of completion of development,the REIT exemption will not apply. When such properties are expected to beretained past the three year period, provision is not made for the tax thatcould arise on an early disposal. The properties concerned had an aggregatevalue at 31 December 2006 of £1,570 million and the unprovided deferred tax was£130 million. A deferred tax asset of £8.2 million (2005: £nil), for carriedforward UK tax losses that may not be utilised, was not recognised because it isuncertain whether appropriate taxable profits will arise. (f) UK REIT Status The group has elected to be treated as a UK REIT with effect from 1 January2007. The UK REIT rules exempt the profits of the group's UK property rentalbusiness from corporation tax. Gains on UK properties are also exempt from tax,provided they are not held for trading or sold within three years ofdevelopment. The group is otherwise subject to UK corporation tax. As a REIT, Hammerson plc is required to pay property income dividends equal toat least 90% of the group's exempted net income. On entering the REIT regime, an entry charge is payable equal to 2% of themarket value of the group's qualifying UK properties at 31 December 2006. Thefinancial statements for the year ended 31 December 2006 provide for this entrycharge in current tax and show a release of deferred tax relating to UK capitalgains and UK capital allowances. The total entry charge is £100.5 million andthis will be paid in quarterly instalments between July 2007 and April 2008. Thetotal deferred tax release, including an amount recognised directly in equity,is £457.1 million. To qualify as a UK REIT there are a number of conditions to be met in respect ofthe principal company of the group, the group's qualifying activity and itsbalance of business which are set out in the UK REIT legislation in Finance Act2006. 4 TAX (continued) (g) French SIIC Status Hammerson plc has been a French SIIC since 1 January 2004 and all the Frenchproperties with the exception of 9 place Vendome are within the SIIC tax exemptregime. Income and gains are exempted from French tax but the Frenchsubsidiaries are required to distribute a proportion of their profits toHammerson plc, which will then pay UK dividends to its shareholders. Hammersonplc will be taxed in the UK on dividends received from France, subject toavailable UK tax losses. If all the properties were realised at the 31 December2006 values, a total of £324 million of dividends would arise (2005: £207million), and deferred tax is provided for the potential UK tax thereon.Dividend obligations will arise after property disposals but there will be aperiod of approximately four years after a sale before dividends are required tobe received in the UK. Under the SIIC qualifying conditions, Hammerson plc must continue to be listedin France and at least 80% of assets must be employed in property investment. Ifthe conditions are breached before 2014, the original conversion charge would berecalculated at full rates giving an additional £74 million tax cost. (h) Commentary Unless tax exemptions apply, UK corporation tax and deferred tax is calculatedat a rate of 30% (2005: 30%) and foreign tax is calculated using appropriatelocal rates. Current tax in the year, before the UK REIT entry charge, was reduced by theFrench tax exemption, capital allowances and tax relief for capitalisedinterest. Current tax in the future should generally be low because of UK REIT and FrenchSIIC status and carried forward UK tax losses. The principal taxable property is9 place Vendome. 5 DIVIDENDS The proposed final dividend of 15.3 pence per share (2005: 13.91 pence pershare) was approved by the Board on 26 February 2007 and is payable on 14 May2007 to shareholders on the register at the close of business on 13 April 2007.The dividend has not been included as a liability at 31 December 2006. The totaldividend for the year ended 31 December 2006 will be 21.68 pence per share(2005: 19.71 pence per share). The £57.7 million dividend included in the Reconciliation of Equity statementcomprises the 2005 final dividend of £39.6 million, which was paid on 17 May2006 along with the 2006 interim dividend of £18.1 million paid on 20 October2006. 6 EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE The calculations for earnings per share, based on the weighted average number ofshares, are shown in the table below. The weighted average number of sharesexcludes those shares held in the Hammerson Employee Share Ownership Plan, whichare treated as cancelled. The European Public Real Estate Association ('EPRA') has issued recommendedbases for the calculation of certain per share information and these areincluded in the following tables. 2006 2005 Pence Pence Earnings Shares per Earnings Shares per £m million share £m million share ________________________________________________________________________________________________________________________ Basic 1,016.9 284.4 357.5 554.4 280.0 198.0 Adjustments: Dilutive share options - 0.5 (0.6) - 0.5 (0.4)________________________________________________________________________________________________________________________ Diluted 1,016.9 284.9 356.9 554.4 280.5 197.6________________________________________________________________________________________________________________________ Adjustments: Revaluation gains on investment (664.8) (233.3) (575.5) (205.1) properties Profit on the sale of investment (95.8) (33.6) (32.1) (11.4) properties Goodwill impairment 12.6 4.4 - - Change in fair value of interest rate 16.1 5.7 (1.6) (0.6) swaps Deferred tax (credit)/charge (333.8) (117.2) 133.9 47.7 UK REIT entry tax charge 100.5 35.3 - - Minority interests in respect of the 7.8 2.7 8.4 3.0 above________________________________________________________________________________________________________________________ EPRA, diluted 59.5 20.9 87.5 31.2________________________________________________________________________________________________________________________ Bond redemption costs 34.0 11.9 - -________________________________________________________________________________________________________________________ Adjusted, diluted 93.5 32.8 87.5 31.2________________________________________________________________________________________________________________________ 6 EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE (continued) The calculations for net asset value per share are shown in the table below: 2006 2005 Equity Net asset Equity Net shareholders' value shareholders' asset funds Shares per share funds Shares value per share £m million £ £m million £________________________________________________________________________________________________________________________ Basic 4,165.1 285.2 14.60 3,125.8 285.0 10.97 Company's own shares held in Employee Share Ownership Plan - (0.7) n/a - (0.7) n/a Unexercised share options 8.7 1.2 n/a 8.5 1.4 n/a________________________________________________________________________________________________________________________ Diluted 4,173.8 285.7 14.61 3,134.3 285.7 10.97________________________________________________________________________________________________________________________ Fair value adjustment to borrowings (net of tax) (63.5) (0.22) (144.6) (0.51)________________________________________________________________________________________________________________________ EPRA triple net, diluted 4,110.3 14.39 2,989.7 10.46________________________________________________________________________________________________________________________ Fair value of interest rate 8.8 0.03 (7.3) (0.02) swaps Fair value adjustment to borrowings (net of tax) 63.5 0.22 144.6 0.51 Deferred tax 103.3 0.36 406.4 1.42________________________________________________________________________________________________________________________ EPRA, diluted 4,285.9 15.00 3,533.4 12.37________________________________________________________________________________________________________________________ 7 INVESTMENT AND DEVELOPMENT PROPERTIES Investment Development Total properties properties Valuation Cost Valuation Cost Valuation Cost £m £m £m £m £m £m________________________________________________________________________________________________________________________Balance at 1 January 2006 4,958.0 3,348.2 773.7 512.4 5,731.7 3,860.6Exchange adjustment (30.2) (21.2) (1.8) (1.8) (32.0) (23.0) ____________________________________________________________________Additions - Capital expenditure 79.7 79.7 200.9 200.9 280.6 280.6 - Asset acquisitions 22.9 22.9 53.1 53.1 76.0 76.0 - Corporate acquisitions 400.9 400.9 25.6 25.6 426.5 426.5 ____________________________________________________________________ 503.5 503.5 279.6 279.6 783.1 783.1Disposals (482.5) (375.5) (42.7) (28.0) (525.2) (403.5)Transfers 567.0 364.9 (567.0) (364.9) - -Capitalised interest 0.6 0.6 26.0 26.0 26.6 26.6Revaluation adjustment 664.8 - 67.0 - 731.8 -________________________________________________________________________________________________________________________Balance at 31 December 2006 6,181.2 3,820.5 534.8 423.3 6,716.0 4,243.8________________________________________________________________________________________________________________________ Investment Development Total properties properties Valuation Cost Valuation Cost Valuation Cost £m £m £m £m £m £m________________________________________________________________________________________________________________________Balance at 1 January 2005 4,082.5 3,085.7 520.5 420.5 4,603.0 3,506.2Exchange adjustment (39.0) (32.6) (2.3) (2.2) (41.3) (34.8) ____________________________________________________________________Additions - Capital expenditure 77.9 77.9 130.8 130.8 208.7 208.7 - Asset acquisitions 279.6 279.6 2.1 2.1 281.7 281.7 - Corporate acquisitions 104.3 104.3 - - 104.3 104.3 ____________________________________________________________________ 461.8 461.8 132.9 132.9 594.7 594.7Disposals (193.3) (214.9) - - (193.3) (214.9)Transfers 95.9 59.8 (95.9) (59.8) - -Transfer to owner-occupied (25.6) (11.8) - - (25.6) (11.8)propertiesCapitalised interest 0.2 0.2 21.0 21.0 21.2 21.2Revaluation adjustment 575.5 - 197.5 - 773.0 -________________________________________________________________________________________________________________________Balance at 31 December 2005 4,958.0 3,348.2 773.7 512.4 5,731.7 3,860.6________________________________________________________________________________________________________________________ Properties are stated at market value as at 31 December 2006, valued byprofessionally qualified external valuers. In the United Kingdom, officeproperties and the group's interests in the Birmingham Alliance properties werevalued by DTZ Debenham Tie Leung, Chartered Surveyors, and all other retailproperties were valued by Donaldsons, Chartered Surveyors. In France andGermany, the group's properties were valued by Cushman & Wakefield, CharteredSurveyors. The valuations have been prepared in accordance with the Appraisaland Valuation Standards of the Royal Institution of Chartered Surveyors and withIVA 1 of the International Valuation Standards. 7 INVESTMENT AND DEVELOPMENT PROPERTIES (continued) At 31 December 2006 the total amount of interest included in developmentproperties was £12.1 million (2005: £34.7 million) calculated using the group'saverage cost of borrowings. 2006 2005 £m £m_________________________________________________________________________________________________________Capital commitments 746.6 540.1_________________________________________________________________________________________________________ At 31 December 2006, Hammerson's share of the capital commitments in respect ofjoint ventures, which is included in the table above, was £334.7 million (2005:£356.1 million). 8 PLANT, EQUIPMENT AND OWNER-OCCUPIED PROPERTY Owner-occupied Plant and property equipment Total £m £m £m___________________________________________________________________________________________________________ Book value at 31 December 2006 34.9 7.3 42.2___________________________________________________________________________________________________________ Book value at 31 December 2005 42.4 1.9 44.3___________________________________________________________________________________________________________ 9 JOINT VENTURES As at 31 December 2006 certain property and corporate interests, being jointlycontrolled entities, have been proportionately consolidated, and these are setout in the following table: Group share %___________________________________________________________________________________________________________InvestmentsBrent Cross Shopping Centre 41.2Brent South Retail Park 40.6Bristol Alliance Limited Partnership 50Cricklewood Regeneration Limited 50Queensgate Limited Partnership 50Shires Limited Partnership 60The Bull Ring Limited Partnership 33.33The Grosvenor Street Limited Partnership 50The London Wall Limited Partnership 50The Martineau Galleries Limited Partnership 33.33The Moor House Limited Partnership 66.67The Oracle Limited Partnership 509 place Vendome SCI 50 Developments125 Old Broad Street Unit Trust 50Bishopsgate Goodsyard Regeneration Limited 50Paddington Triangle 50Wensum Developments Limited 50___________________________________________________________________________________________________________ The group's interest in Shires Limited Partnership and The Moor House LimitedPartnership do not confer the majority of voting rights nor the right toexercise dominant influence over the partnerships. Instead the partnerships areunder the joint control of Hammerson and its respective partners. Consequently,the group's interests are accounted for by proportional consolidation and nottreated as subsidiaries. 9 JOINT VENTURES (continued) The following summarised income statements and balance sheets show theproportion of the group's results, assets and liabilities which are derived fromits joint ventures: Income statements for the year ended 31 December 2006 Bristol Alliance Bull Ring Oracle Queensgate Shires Moorhouse 9 place Brent Limited Limited Limited Limited Limited Limited Vendome Total Cross* Partnership Partnership Partnership Partnership Partnership Partnership SCI Other 2006 £m £m £m £m £m £m £m £m £m £m________________________________________________________________________________________________________________________ Net rental income 17.2 3.2 14.8 11.9 8.0 7.5 5.0 2.5 7.0 77.1 Administration - (0.1) (0.1) (0.4) (0.7) (0.4) (0.3) - (0.2) (2.2)expenses ________________________________________________________________________________________________________________________Operating profit 17.2 3.1 14.7 11.5 7.3 7.1 4.7 2.5 6.8 74.9 before gains on investment properties Gains on investment 25.9 3.1 21.7 19.3 20.6 10.8 55.1 39.7 14.6 210.8 properties Net finance costs - 0.1 0.1 0.2 0.1 0.1 (4.5) - (2.2) (6.1)________________________________________________________________________________________________________________________Profit before tax 43.1 6.3 36.5 31.0 28.0 18.0 55.3 42.2 19.2 279.6 ________________________________________________________________________________________________________________________ Balance sheets as at 31 £m £m £m £m £m £m £m £m £m £mDecember 2006 ________________________________________________________________________________________________________________________ Non-current assets Investment and 438.7 176.2 317.9 285.2 180.0 258.1 201.3 167.7 235.3 2,260.4 development properties at valuation Interests in leasehold - 0.3 - - - - 1.9 - 10.1 12.3 properties ________________________________________________________________________________________________________________________ 438.7 176.5 317.9 285.2 180.0 258.1 203.2 167.7 245.4 2,272.7 Current assets Other current assets 4.0 1.2 2.0 3.8 1.9 1.7 0.6 3.1 17.1 35.4 Cash and deposits - 3.3 2.6 2.8 1.9 3.0 1.2 0.2 4.2 19.2 ________________________________________________________________________________________________________________________ 4.0 4.5 4.6 6.6 3.8 4.7 1.8 3.3 21.3 54.6 Current liabilities Borrowings - - - - - - - - - - Other liabilities (11.6) (3.3) (4.8) (5.3) (3.3) (4.5) (0.9) (2.3) (9.6) (45.6)________________________________________________________________________________________________________________________ (11.6) (3.3) (4.8) (5.3) (3.3) (4.5) (0.9) (2.3) (9.6) (45.6)________________________________________________________________________________________________________________________Non-current liabilities Borrowings - - - - - - - - (15.8) (15.8)Other liabilities - (0.3) - - - - (2.2) (0.2) (10.1) (12.8)________________________________________________________________________________________________________________________ - (0.3) - - - - (2.2) (0.2) (25.9) (28.6)________________________________________________________________________________________________________________________Net assets 431.1 177.4 317.7 286.5 180.5 258.3 201.9 168.5 231.2 2,253.1 ________________________________________________________________________________________________________________________Other than as shown above, the joint ventures are funded by the Company and therelevant partners. *Includes Brent Cross Shopping Centre and Brent South Retail Park. 9 JOINT VENTURES (continued) Income statements for the year ended 31 December 2005 Bristol Alliance Bull Ring Oracle Queensgate Shires Moorhouse 9 place Brent Limited Limited Limited Limited Limited Limited Vendome Total Cross* Partnership Partnership Partnership Partnership Partnership Partnership SCI Other 2005 £m £m £m £m £m £m £m £m £m £m________________________________________________________________________________________________________________________Net rental income 15.9 3.1 12.1 11.9 1.0 7.6 (0.5) (0.2) 2.3 53.2 Administration - (0.2) (0.1) - - - - - - (0.3)expenses ________________________________________________________________________________________________________________________Operating profit before gains on investment 15.9 2.9 12.0 11.9 1.0 7.6 (0.5) (0.2) 2.3 52.9 properties Gains on investment 52.7 3.1 27.4 36.5 3.5 8.5 22.0 - 18.3 172.0 properties Net finance costs - 0.1 0.1 0.1 - - (4.9) - (0.4) (5.0)________________________________________________________________________________________________________________________Profit before tax 68.6 6.1 39.5 48.5 4.5 16.1 16.6 (0.2) 20.2 219.9 ________________________________________________________________________________________________________________________ Balance sheets as at 31 December 2005 £m £m £m £m £m £m £m £m £m £m________________________________________________________________________________________________________________________ Non-current assets Investment and development properties at valuation 409.3 106.0 297.0 266.4 159.6 172.9 129.3 121.2 174.1 1,835.8 Interests in leasehold - 0.3 - - - - 1.9 - 10.0 12.2 properties ________________________________________________________________________________________________________________________ 409.3 106.3 297.0 266.4 159.6 172.9 131.2 121.2 184.1 1,848.0 Current assets Other current assets 4.5 1.6 1.6 1.2 - 0.6 - 2.9 4.5 16.9 Cash and deposits - 5.9 3.7 3.2 2.6 2.4 0.3 1.8 1.7 21.6 ________________________________________________________________________________________________________________________ 4.5 7.5 5.3 4.4 2.6 3.0 0.3 4.7 6.2 38.5 Current liabilities Borrowings - - - - - - - - (0.5) (0.5)Other liabilities (12.0) (3.0) (5.0) (7.5) (2.4) (2.1) (1.4) (1.7) (2.7) (37.8)________________________________________________________________________________________________________________________ (12.0) (3.0) (5.0) (7.5) (2.4) (2.1) (1.4) (1.7) (3.2) (38.3)________________________________________________________________________________________________________________________Non-current liabilities Borrowings - - - - - - (69.1) - - (69.1)Other liabilities - (0.3) - (1.3) - - (1.9) - (10.1) (13.6)________________________________________________________________________________________________________________________ - (0.3) - (1.3) - - (71.0) - (10.1) (82.7)________________________________________________________________________________________________________________________Net assets 401.8 110.5 297.3 262.0 159.8 173.8 59.1 124.2 177.0 1,765.5 ________________________________________________________________________________________________________________________Other than as shown above, the joint ventures are funded by the Company and therelevant partners. *Includes Brent Cross Shopping Centre and Brent South Retail Park. 10 INVESTMENTS 2006 2005 Available for sale investments £m £m_______________________________________________________________________________________________________________________ Value Retail Investors Limited Partnerships 47.3 34.1 Interests in Value Retail plc and related companies 16.1 14.3 Other investments 1.5 1.1_______________________________________________________________________________________________________________________ 64.9 49.5_______________________________________________________________________________________________________________________ The group has an effective 33.5% interest in Value Retail Investors LimitedPartnership I and an effective 27.5% interest in Value Retail Investors LimitedPartnership II, both of which have interests in a designer outlet centre inBicester, in the United Kingdom. The total cost of the interests was £15.7million and they are included at a total value, based on the market value of theunderlying property, at 31 December 2006 of £47.3 million (2005: £34.1million),the property elements of which have been reviewed by Donaldsons, CharteredSurveyors. These investments have not been consolidated within the groupaccounts as the group does not have significant influence over the management ofthe partnerships. Investments in Value Retail plc and certain related companiesare included at fair value. The cost of these investments was £14.9 million. Other investments include the group's 15% stake in Stonemartin plc, which wasacquired for a total cost of £4.4 million. Stonemartin plc, which operatesserviced offices under the brand name of the Institute of Directors, is listedon the Alternative Investment Market ("AIM") and at the balance sheet date theinvestment has been included at market value. 11 RECEIVABLES: NON-CURRENT ASSETS 2006 2005 £m £m_______________________________________________________________________________________________________________________ Loans receivable 10.8 - Other receivables 2.8 4.5_______________________________________________________________________________________________________________________ 13.6 4.5_______________________________________________________________________________________________________________________ Loans receivable comprised a loan of €16.0 million (£10.8 million) to ValueRetail plc bearing interest based on EURIBOR and maturing on 22 August 2008. Theloan is classified as 'available for sale' and is included in the balance sheetat fair value, which equates to cost. At 31 December 2005 a loan to ValueRetail plc of €30.0 million (£20.6 million) was included in receivables withincurrent assets. 12 RECEIVABLES: CURRENT ASSETS 2006 2005 £m £m_______________________________________________________________________________________________________________________ Trade receivables 57.1 34.3 Loans receivable - 20.6 Other receivables 87.0 78.6 Corporation tax 0.6 0.5 Prepayments 3.3 2.9 Fair value of interest rate swaps - 7.3_______________________________________________________________________________________________________________________ 148.0 144.2_______________________________________________________________________________________________________________________ The figures shown above are after deducting a provision for bad and doubtfuldebts of £4.3 million (2005: £2.6 million). 13 CASH AND DEPOSITS 2006 2005 £m £m_______________________________________________________________________________________________________________________ Cash at bank 26.3 23.1 Short term deposits 13.1 22.4_______________________________________________________________________________________________________________________ 39.4 45.5_______________________________________________________________________________________________________________________ Analysis by currency Sterling 27.3 29.4 Euro 12.1 16.1_______________________________________________________________________________________________________________________ 39.4 45.5_______________________________________________________________________________________________________________________ Short term deposits principally comprised deposits placed on money markets withrates linked to LIBOR for maturities of not more than one month, at an averagerate of 4.1% (2005: 3.5%). Such deposits are considered to be cash equivalents. 14 PAYABLES: CURRENT LIABILITIES 2006 2005 £m £m_______________________________________________________________________________________________________________________ Trade payables 48.7 46.7 Other payables 137.3 154.3 Accruals 23.4 19.7 Fair value of interest rate swaps 8.8 -_______________________________________________________________________________________________________________________ 218.2 220.7_______________________________________________________________________________________________________________________ 15 BORROWINGS 2006 2005 £m £m_______________________________________________________________________________________________________________________Unsecured£200 million 7.25% Sterling bonds due 2028 197.5 197.4£300 million 6% Sterling bonds due 2026 296.5 296.4£250 million 6.875% Sterling bonds due 2020 247.0 246.9£300 million 5.25% Sterling bonds due 2016 296.9 -€700 million 4.875% Euro bonds due 2015 469.3 -£106.2 million (2005: £200 million) 10.75% Sterling bonds due 2013 103.9 195.6€500 million 6.25% Euro bonds due 2008 336.2 342.4£26 million variable rate loan notes due 2008 26.0 -€300 million 5% Euro bonds due 2007 202.0 205.6Bank loans and overdrafts 90.8 540.9_______________________________________________________________________________________________________________________ 2,266.1 2,025.2Exchange difference on currency swaps 1.0 -_______________________________________________________________________________________________________________________ 2,267.1 2,025.2_______________________________________________________________________________________________________________________SecuredSterling fixed rate mortgages due 2009 15.5 -Sterling variable rate mortgages due 2007 - 69.1Sterling variable rate loans due within one year - 0.5_______________________________________________________________________________________________________________________ 15.5 69.6_______________________________________________________________________________________________________________________ 2,282.6 2,094.8_______________________________________________________________________________________________________________________ Security for secured borrowings as at 31 December 2006 is provided by charges onproperty. 15 BORROWINGS (continued) Maturity Bank loans Other 2006 2005 and overdrafts loans Total Total £m £m £m £m_______________________________________________________________________________________________________________________After five years (1.1) 1,611.1 1,610.0 936.3From two to five years 100.2 - 100.2 883.3From one to two years - 362.2 362.2 274.7_______________________________________________________________________________________________________________________Due after more than one year 99.1 1,973.3 2,072.4 2,094.3Due within one year 7.2 203.0 210.2 0.5_______________________________________________________________________________________________________________________ 106.3 2,176.3 2,282.6 2,094.8_______________________________________________________________________________________________________________________ At 31 December 2005 and 2006 no loans due after five years were repayable byinstalments. Undrawn committed facilities 2006 2005 £m £m_______________________________________________________________________________________________________________________Expiring between one and two years - 225.9Expiring after more than two years 845.0 57.7_______________________________________________________________________________________________________________________ 845.0 283.6_______________________________________________________________________________________________________________________ Interest rate and currency profile Floating rate 2006 Fixed rate borrowings borrowings Total % Years £m £m £m_______________________________________________________________________________________________________________________Sterling 7.11 14 857.3 416.8 1,274.1Euro 5.36 5 1,007.5 1.0 1,008.5_______________________________________________________________________________________________________________________ 6.16 10 1,864.8 417.8 2,282.6_______________________________________________________________________________________________________________________ Floating 2005 rate Fixed rate borrowings borrowings Total % Years £m £m £m_______________________________________________________________________________________________________________________Sterling 7.83 16 759.9 244.6 1,004.5Euro 5.78 2 548.0 542.3 1,090.3_______________________________________________________________________________________________________________________ 6.97 11 1,307.9 786.9 2,094.8_______________________________________________________________________________________________________________________ Rates at which interest is charged on borrowings due after more than one year 2006 2005 £m £m_______________________________________________________________________________________________________________________Up to 7% 1,361.4 914.97% to 10% 197.5 197.4Over 10% 103.9 195.6_______________________________________________________________________________________________________________________ 1,662.8 1,307.9Variable rates 409.6 786.4_______________________________________________________________________________________________________________________ 2,072.4 2,094.3_______________________________________________________________________________________________________________________ Variable rate borrowings bear interest based on LIBOR, with the exception ofcertain euro borrowings whose interest costs are linked to EURIBOR. The aboveanalysis reflects the effect of currency and interest rate swaps in place at 31December 2005 and 2006. 16 FINANCIAL INSTRUMENTS Fair values of financial instruments The fair values of borrowings together with their carrying amounts shown in thebalance sheet are as follows: 2006 2005 Book value Fair Book Fair value value value £m £m £m £m_______________________________________________________________________________________________________________________ Current borrowings (209.4) (210.4) (0.5) (0.5) Non-current borrowings (2,091.3) (2,181.0) (2,111.2) (2,317.8) Unamortised borrowing costs 19.1 19.1 16.9 16.9 Currency swaps (1.0) (1.0) - -_______________________________________________________________________________________________________________________ Total borrowings (2,282.6) (2,373.3) (2,094.8) (2,301.4)_______________________________________________________________________________________________________________________ Interest rate swaps (8.8) (8.8) 7.3 7.3_______________________________________________________________________________________________________________________ At 31 December 2006, the fair value of financial liabilities exceeded their bookvalue by £90.7 million (2005: £206.6 million), equivalent to 32 pence per share(2005: 72 pence per share) on an adjusted net asset value per share basis. On apost tax basis, using a tax rate of 30%, the difference was equivalent to 22pence per share (2005: 51 pence per share). 17 SHARE CAPITAL Authorised Called up, allotted and fully paid 2006 2005 2006 2005 £m £m £m £m_______________________________________________________________________________________________________________________Ordinary shares of 25p each 94.8 94.8 71.3 71.2_______________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________Movements in issued share capital NumberNumber of shares in issue at 1 January 2006 284,985,440Share options exercised 216,500_______________________________________________________________________________________________________________________Number of shares in issue at 31 December 2006 285,201,940_______________________________________________________________________________________________________________________ 18 RESERVES Share Capital premium Translation Hedging redemption Other account reserve reserve reserve reserves £m £m £m £m £m_______________________________________________________________________________________________________________________Balance at 1 January 2006 659.5 (32.8) 32.9 7.2 6.7Exchange adjustment - (30.1) - - -Net gain on hedging activities - - 27.0 - -Premium on issue of shares 1.0 - - - -Share-based employee remuneration - - - - 3.8Cost of shares awarded to employees - - - - (1.4)Transfer on award of own shares toemployees - - - - (0.2)_______________________________________________________________________________________________________________________ Balance at 31 December 2006 660.5 (62.9) 59.9 7.2 8.9_______________________________________________________________________________________________________________________ Revaluation Retained reserve earnings £m £m_______________________________________________________________________________________________________________________Balance at 1 January 2006 221.8 2,163.7Revaluation gains on development properties 67.0 -Revaluation gains on owner-occupied property 7.6 -Revaluation gains on investments 14.4 -Transfer on completion of development properties (202.1) 202.1Transfer on sale of development and owner-occupied property (26.2) 26.2Acquisition of minority interest - (2.2)Actuarial losses on pension schemes - (0.9)Gain on award of own shares to employees - 0.4Transfer on award of own shares to employees - 0.2Dividends paid - (57.7)Deferred tax recognised directly in equity (3.6) (0.4)Profit for the year attributable to equity shareholders - 1,016.9_______________________________________________________________________________________________________________________Balance at 31 December 2006 78.9 3,348.3_______________________________________________________________________________________________________________________ 19 INVESTMENT IN OWN SHARES 2006 2005 At cost £m £m_______________________________________________________________________________________________________________________ Balance at 1 January 4.4 2.8 Purchase of own shares 4.0 2.3 Cost of shares awarded to employees (1.4) (0.7)_______________________________________________________________________________________________________________________ Balance at 31 December 7.0 4.4_______________________________________________________________________________________________________________________ 20 ADJUSTMENTS FOR NON-CASH ITEMS IN THE CASH FLOW STATEMENT 2006 2005 £m £m_______________________________________________________________________________________________________________________ Depreciation 0.8 0.5 Share-based employee remuneration 3.8 2.1 Amortisation of lease inducements and other direct costs 1.2 4.4 Increase in accrued rents receivable (17.5) (5.6) Other items (1.0) 0.4_______________________________________________________________________________________________________________________ (12.7) 1.8_______________________________________________________________________________________________________________________ 21 CONTINGENT LIABILITIES There are contingent liabilities of £27.8 million (2005: £12.6 million) relatingto guarantees given by the group and a further £14.0 million (2005: £10.1million) relating to claims against the group arising in the normal course ofbusiness. Hammerson's share of contingent liabilities arising within jointventures, which is included in the figures shown above, is £2.9 million (2005:£6.9 million). 22 ACQUISITION Name of business acquired LxB Holdings LimitedDate of acquisition 11 August 2006Proportion of shares acquired 100% Book value Fair value £m £m_______________________________________________________________________________________________________________________Investment properties 333.5 426.5Intangible assets 0.2 -Current receivables 6.5 6.3Cash and deposits 44.5 44.5Current payables (10.5) (14.0)Non-current borrowings (248.8) (249.1)Non-current deferred tax - (23.6)_______________________________________________________________________________________________________________________Net assets acquired 125.4 190.6 ________Goodwill on acquisition 12.6 ________Cost of acquisition 203.2 ________Satisfied by:Cash paid 173.3Variable rate loan notes issued 26.0Costs paid 3.9 ________ 203.2 ________ LxB Holdings Limited is the parent company of a group involved in propertyinvestment and development. The fair values of investment properties, intangibleassets and deferred tax liabilities were determined by the directors. Thegoodwill arising on this acquisition is principally attributable to provisionsmade for deferred tax resulting from the difference between how deferred tax iscalculated for accounting purposes and the way it is valued during purchasenegotiations. In the opinion of the directors, the carrying amount of thisgoodwill cannot be justified by future cashflows and consequently it has beenimpaired. The impairment has been included in the income statement (see note 1). 23 OTHER INFORMATION The financial information contained in this announcement has been prepared onthe basis of the accounting policies set out in the statutory accounts for theyear ended 31 December 2005 but does not constitute the group's statutoryaccounts for the years ended 31 December 2005 or 2006. Whilst the financialinformation included in this announcement has been computed in accordance withInternational Financial Reporting Standards (IFRS) this announcement does notitself contain sufficient information to comply with IFRS. The financialinformation for the year ended 31 December 2005 is derived from the statutoryaccounts for that year which have been delivered to the Registrar of Companies.The auditors reported on those accounts and their report was unqualified and didnot contain a statement under s.237(2) or (3) Companies Act 1985. The statutoryaccounts for the year ended 31 December 2006, for which the audit report has notyet been signed, will be finalised on the basis of the financial informationpresented by the directors in this preliminary announcement, will comply withIFRS and will be delivered to the Registrar of Companies. SHAREHOLDER INFORMATION Financial CalendarFull year results announced 26 February 2007Annual General Meeting 3 May 2007Recommended final dividend - Ex dividend date 11 April 2007 - Record date 13 April 2007 - Payable on 14 May 2007Anticipated 2007 interim dividend October 2007 Website The 2006 Annual Report and other information will be available on the Company'swebsite, www.hammerson.com, when posted to shareholders. The Company operates aservice whereby all registered users of the Company's website can choose toreceive, via e-mail, notice of all Company announcements which can be viewed onthe website. Registered Office 10 Grosvenor Street, London W1K 4BJ. Registered in England No. 360632 Glossary of Terms Adjusted figures (per share) Reported amounts adjusted to exclude certain non-recurring items as set out in note 6 to the accounts. Anchor store A major store, usually a department store or supermarket, occupying a large unit within a shopping centre or retail park, which serves as a draw to other retailers and consumers. Average cost of borrowing The cost of finance expressed as a percentage of the weighted average of borrowings during the period. Capital return The change in value during the period for properties held at the balance sheet date, after taking account of capital expenditure and exchange translation movements, calculated on a monthly time weighted basis. Dividend cover Adjusted earnings per share divided by the dividend per share. Earnings per share (or 'EPS') Profit for the period attributable to equity shareholders divided by the average number of shares in issue during the period. EPRA European Public Real Estate Association. This organisation has issued recommended bases for the calculation of earnings per share and net asset value per share. ERV The estimated market rental value of the total lettable space in a property, after deducting head and equity rents, calculated by the group's valuers. Gearing Net debt expressed as a percentage of equity shareholders' funds. IFRS International Financial Reporting Standards. IPD Investment Property Databank. Initial yield Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of property value. Interest cover Net rental income divided by net cost of finance before capitalised interest, the change in fair value of interest rate swaps and bond redemption costs. Interest rate and currency swap An agreement with another party to exchange an interest or currency rate obligation for a pre-determined period of time. Like-for-like / underlying net The percentage change in rental income for completed investment properties ownedrental income throughout both current and prior periods, after taking account of exchange translation movements. Loan to value ratio Borrowings and foreign currency swaps expressed as a percentage of the total value of investment and development properties. Net asset value per share Equity shareholders' funds divided by the number of shares in issue at the(or 'NAV') balance sheet date. Over-rented The percentage by which the ERV falls short of rents passing, together with the estimated rental value of vacant space. Pre-let A lease signed with a tenant prior to completion of a development. REITs Real Estate Investment Trusts. A tax regime which in the UK exempts participants from corporation tax both on UK rental income and gains arising on UK investment property sales, subject to certain requirements. Rents passing The annual rental income receivable from an investment property, after any rent-free periods and after deducting head and equity rents. This may be more or less than the ERV (see over-rented and reversionary or under-rented). Return on shareholders' equity Capital growth and profit for the year expressed as a percentage of shareholders' funds at the beginning of the year, all excluding deferred tax. Reversionary or under-rented The percentage by which the ERV exceeds the rents passing, together with the estimated rental value of vacant space. SIIC Societes d'Investissements Immobiliers Cotees. A French tax-exempt regime available to property companies listed in France. Total development cost All capital expenditure on a development project, including capitalised interest. Total return Net rental income and capital return expressed as a percentage of opening book value of property adjusted for capital expenditure and exchange translation movements, calculated on a monthly time weighted basis. Total shareholder return Dividends and capital growth in the share price, expressed as a percentage of the share price at the beginning of the year. True equivalent yield The average income return, reflecting the timing of future rental increases, based on current ERV, resulting from lettings, lease renewals and rent reviews, assuming rents are received quarterly in advance. Turnover rent Rental income which is related to an occupier's turnover. Vacancy rate The ERV of the area in a property, or portfolio, excluding developments, which is currently available for letting, expressed as a percentage of the total ERV of the property or portfolio. Yield on cost Rents passing expressed as a percentage of the total development cost of a property. This information is provided by RNS The company news service from the London Stock Exchange

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