Final Results

Monday 20 February 2017

HAMMERSON PLC - AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

STRONG FINANCIAL RESULTS WITH SECTOR-LEADING EARNINGS AND DIVIDEND GROWTH

(1) On a proportionally consolidated basis, excluding interests in premium outlets. See page 16 of the Financial Review for description of financial information.

(2) Calculations for adjusted and EPRA figures are shown in note 7 to the accounts on pages 42 and 43.

(3) IFRS profit includes portfolio non-cash revaluation gains of £125m (2015: £542m)

(4) Proportionally consolidated, including premium outlets

(5) See table 17 on page 64 and page 24 of the Financial Review for description of loan to value.

ASSET MANAGEMENT - CREATING DIFFERENTIATED DESTINATIONS

- 142,000m2 of new space leased; over 40 new brands; leases signed at average 5% ahead of ERV

- Group LfL NRI up 2.2% (3.2% including premium outlets) demonstrating retailer demand for prime destinations

- Premium outlets continue to outperform with sales growth of 8%; LfL NRI up 7.6%

- Continued strong demand for retail park space driving high occupancy; LfL NRI up 2.4%

INVESTMENT MANAGEMENT - ADDING PRIME SPACE IN HIGH-GROWTH CATCHMENTS

- Total return 5.7% beating IPD benchmark (3.4%)

- Successfully transferred Irish loans, secured ownership of Dundrum and Ilac Centre; Ireland GDP growth continues to outperform

- Added another strategic asset to the portfolio through the acquisition of Grand Central, Birmingham

- Significantly increased investment in premium outlets; additional VR stake acquired, now 40%; 5 VIA centres added

- Successfully disposed £635m of assets across portfolio, ahead of target programme

DEVELOPING VENUES - TWO ICONIC NEW SCHEMES OPENED

- Victoria Gate, Leeds, completes the 56,300m2 aspirational retail destination for the north of England

- Watermark confirms Westquay, Southampton, as the premier retail and leisure venue of the south coast

- Continued progress on pipeline of large-scale London development projects

FINANCIAL EFFICIENCY - FURTHER REDUCED COST OF DEBT

- Over £1.2bn new debt raised, successfully refinancing acquisition facility; secured reduced weighted average cost of debt of 3.1%

- Continued active capital recycling to fund future growth

David Atkins, Chief Executive of Hammerson, said: "I am pleased to report another set of strong financial results, with sector-leading earnings and dividend growth reflecting robust operational performance across all parts of the portfolio. During the year we have significantly grown and enhanced the portfolio, adding new retail space in faster-growth markets including Dublin, Leeds and Birmingham, and extending our presence in the European outlets market. To fund these growth opportunities, we successfully refinanced over £1.2 billion of debt and executed our planned disposal programme, generating £635 million.

The strength of the results we are reporting today is a clear reflection of the success of the specialist retail strategy we set out five years ago. Looking ahead, despite some UK retail headwinds and geopolitical uncertainty, I am confident that we have a resilient and adaptable business with multiple opportunities to drive similar levels of growth and therefore continue to deliver sector-leading income-focused returns."

Contents:

Results presentation today:

The results presentation is being held today at 9.00 a.m. at Deutsche Bank's offices at 1 Great Winchester Street, London EC2N 2DB. A live webcast of Hammerson's results presentation will be broadcast today at 9.00 a.m. via the Company's website, www.hammerson.com. At the end of the presentation you will be able to participate in a question and answer session by dialling +44 (0)20 3427 1901. Please quote confirmation code 8686487.

Financial calendar:

Enquiries:

WHO WE ARE

At Hammerson we create destinations that excite shoppers, attract and support retailers, reward investors and serve communities; destinations where more happens. We are an owner, manager and developer of retail property and our portfolio includes investments in prime shopping centres in the UK, France and Ireland, convenient retail parks in the UK and premium outlets across Europe.

OUR MARKET

The retail property market in which we operate is affected by structural trends which influence our strategy, drive our priorities and guide our performance. The key trend is the growth of multichannel retail which leads retailers to use both physical space and online platforms together to drive sales. As a result, the experience of the retail journey and the convenience of shopping for goods are more important than ever. Therefore, retailers place a premium on those retail destinations which deliver shoppers' needs and the best locations are becoming relatively more valuable; the retail property market is polarising. Furthermore, retail tourism is increasingly enjoyed by international tourists as part of a travel experience. Discounted premium brands at attractive retail outlets make the shopping journey even more memorable.

OUR STRATEGY

We align our portfolio to benefit from these market trends.

- Focus on growing consumer markets: Our portfolio is concentrated around retail property which is aligned to consumer requirements in a multichannel world: the experience of large prime shopping centres; the convenience of retail parks; and the draw of luxury-brand premium outlets. We choose locations by identifying significant, growing cities and catchments in selected European countries, and where we can gain market share

- Create differentiated destinations: Our talented people apply insight and market expertise to create and operate destinations which offer exceptional experiences to attract retailers and shoppers. Our Product Experience Framework purposefully guides our asset and development management to consistently enhance our destinations and realise their income potential

- Promote financial efficiency and partnerships: A singular retail focus, strong and efficient capital structure and operational excellence enables us to attract valuable partners. These include global capital providers, international joint venture partners and expert operating collaborators who help us broaden our market reach, increase scale and strengthen our business

OUR BUSINESS MODEL

Our business model delivers value for all our stakeholders.

- Shareholders: We create consistent earnings growth which benefits shareholders through growing dividend payments and increased share value

- Retailers: Offering our retail tenants innovative formats that are responsive to customer demands

- Shoppers: Offering our shoppers entertaining and exciting experiences, as well as great retail destinations

- Our people: Developing, recognising and rewarding our people secures a skilled and motivated workforce

- Communities: We create positive social impacts through our activities, including the creation of local jobs

Our Product Experience Framework is embedded across everything we do, providing a unique point of differentiation. We constantly challenge ourselves to apply best practice in retail design and digital solution, customer engagement and sustainability. Our Product Experience Framework incorporates:

- Iconic destinations: We create outstanding architecture to enhance locations. We place our centres at the heart of local communities, connected by seamless technology and transportation links

- Best at retail: We deliver the optimal retail mix, consistently refreshed and showcasing new concepts

- Convenient & easy: We make shopping simple and stress-free, with enhanced customer facilities and services, such as click & collect, encouraging regular shopper visits

- Interactive & engaging: Our outstanding customer service and leading digital infrastructure drive engagement loyalty, and encourage shoppers to spend longer in our destinations

- Entertaining & exciting: We constantly evaluate and refresh our food and leisure offers, and provide a local and national calendar of events to surprise and delight our customers, and keep them coming back

- Positive Places: We create destinations that deliver positive impacts economically, socially and environmentally

Monitoring value creation

We use our Key Performance Indicators, or KPIs, to ensure we are delivering our strategy. They are split between financial and operational measures, and each link to our three strategic elements. During 2016 we have included an additional KPI, Voluntary staff turnover, to reflect the importance to the business of our talented people.

Financial KPIs

* Proportionally consolidated excluding premium outlets. See page 16 for further explanation.

Operational KPIs

This Business Review provides an overview of the performance of our sectors during 2016.

UK Shopping Centres

2016 was a busy year for UK shopping centres with the Grand Central acquisition, the opening of two new centres and another set of strong operating results from our existing portfolio. We have also seen good performance in the second half of the year, with retailers keen to take space in our prime centres.

Operational summary

Note: Figures presented on a proportionally consolidated basis.

Sector and portfolio overview

Prime shopping centres are differentiated from secondary or tertiary centres by their scale, catchment size and superior brand mix. They include large anchor tenants, flagship stores for international brands and offer shoppers catering and entertainment as well as retail. Prime centres support retailers' multichannel strategies as they offer high sales, footfall and dwell times in an attractive, well-managed environment which provides a mixture of leading brands, food, leisure and digital infrastructure. Online sales penetration continues to grow and accounted for 15% of total retail spend as at December 2016 according to the ONS. Leases are generally long-term, at least ten years duration, with upward-only market rent reviews at five year intervals.

UK consumer spending grew by 3.8% in the final quarter of 2016 (Source: Barclaycard). Currency devaluation has had a favourable impact on tourist spending, but is expected to increase inflation in 2017 which may adversely impact real spending power and the input costs for retailers. Nevertheless, retailers enjoyed good Christmas trading and UK consumer confidence has remained resilient. 

Investment volumes in 2016 totalled £2.7 billion which was approximately 40% lower than in 2015, with the only prime centres traded being Grand Central, Birmingham and Merry Hill, Dudley. However, demand for prime assets continues, with investment yields broadly unchanged during 2016, although secondary shopping centres have suffered outward yield shift.

We have ownership stakes in ten of the top 50 UK shopping centres (Source: PMA). We have over 2,000 tenants across our portfolio and 14% of our centres are let to catering and leisure brands, an increase of a third over the last five years.

Net rental income

Net rental income totalled £148.4 million in 2016, and on a like-for-like basis increased by 2.4%, compared with a 2.1% increase in 2015. The growth in 2016 is driven by rent review settlements, income from new lettings and increased car park income. Four of our centres achieved annual like-for-like NRI growth of more than 5% with the best performing centres being Bullring and Union Square, which benefited from recent lettings and rent review uplifts.

Leasing, occupancy and ERVs

Tenant demand for space at our centres remained strong, with 141 leases signed representing £9.0 million of annual rental income and 48,300m2 of space. The reduction in activity compared with 2015 was due to the timing of lease renewals and expiries at a number of centres. For principal leases, rents secured were 6% above December 2015 ERVs and 6% above the previous passing rent. Despite the continued tenant demand, ERV growth slowed to 1.6% compared with 2.8% in 2015, although growth in the second half of 2016 of 1.1% was higher than the 0.5% growth achieved in the first six months. Occupancy levels remained high at 97.8%, compared with 98.3% in December 2015. The decrease was principally due to Victoria Gate which opened in October and where occupancy was 90.5% at the year end.

We have applied our Product Experience Framework and have delivered a number of key leasing deals with international brands, luxury operators and new catering offers to enhance our centres. Highlights include:

- Five new restaurants at Cabot Circus including Côte, Brasserie Blanc and the UK's first L'Osteria

- Also at Cabot Circus, the first COS store in the south west and Monki's first store outside London

- At Silverburn, Smiggle and Tortilla opened their first Scottish stores

- At Bullring, LinkStreet which joins the centre to Grand Central was refurbished and remodelled to appeal to contemporary and pop-up style retailers. Lettings were completed with new niche brands including: Made.com; Religion Clothing; and Cereal Killer Café

- Brent Cross celebrated its 40th anniversary by welcoming three international brands: Urban Decay; Tesla Motors; and Smiggle

In October we announced plans to upgrade the Riverside at The Oracle. The project will cost £2.9 million (Hammerson's share) and be anchored by a new 167m2 glass-fronted pavilion let to Comptoir Libanais. The scheme will also create a large public events space and enhanced public realm.

Lease expiries and rent reviews

The portfolio offers a robust income stream, with a weighted average unexpired lease term, including tenant breaks, of seven years, and opportunities for rental growth. Leases subject to rent reviews, break clauses or expiries offer the prospect to secure additional rental income. Over the three years to 31 December 2019, these leases would provide additional annual rental income of £8.0 million, or 6%, if renewed, or if reviews are settled at current ERVs.

At 31 December 2016, nine units were let to tenants in administration, equating to just 0.3% of the Group's total passing rents.

Sales, footfall and occupancy cost

Despite the heightened level of macro-economic uncertainty in the UK, particularly associated with the EU referendum decision, consumers remained resilient. Footfall across our portfolio was 0.5% lower than 2015. However this was ahead of the national index which fell by 1.9% during the year.

Retailer sales were also disappointing, with sales, calculated on a same-centre basis, 1.1% lower than in 2015. As reported at the half year, Union Square has been adversely affected by the weak oil price. Excluding this centre, sales across the portfolio decreased by 0.3%, with the strongest performances at Silverburn and The Oracle.

The occupational cost ratio, calculated as total occupancy cost as a percentage of sales, increased from 19.2% at the beginning of the year to 20.1% at 31 December 2016 due to changes in occupancy cost and the tenant mix across the portfolio.

Disposals, acquisitions and completed developments

In January 2016, we completed the sale of Monument Mall, Newcastle for £75 million. Following its acquisition in 2011, we redeveloped the 9,500m2 centre in 2013, and the sale crystallised a £24 million profit on cost.

In February 2016, we acquired Grand Central for £350 million. The 38,400m2 shopping centre in Birmingham is anchored by a 23,200m2 John Lewis and sits above New Street Station, the redeveloped major railway hub. The centre includes 40 premium stores including Kiehls, L'Occitane en Provence and MAC and also contains 20 casual dining brands including Paul, Pho and Tortilla.

In December 2016, we completed the sale of 50% of the scheme to CPPIB, one of the existing joint venture partners in Bullring, for £175 million. The transaction had been contracted at the time of the acquisition, but was delayed due to a review by the Competition and Markets Authority ('CMA'). We fully cooperated with the investigation and received clearance from the CMA in July, allowing CPPIB to obtain EU merger clearance and complete the transaction. 

We recently opened two new centres: Victoria Gate, Leeds in October; and Westquay Watermark, Southampton in December. Victoria Gate is adjacent to Hammerson's existing centre, Victoria Quarter. The combined retail offer has been branded "Victoria Leeds" and provides 56,300m2, of high-end stores and restaurants with over 115 brands. The 37,300m2 development provides Leeds with a 21st century retail destination and includes a flagship John Lewis store, a casino, a modern take on Victorian arcades with more than 30 shops and restaurants and an 800-space multi-storey car park. Key brands include Anthropologie, Aspinal of London, D&D London, Gant, Hackett, Le Pain Quotidien, Nespresso, Russell & Bromley and Tommy Hilfiger and the scheme has introduced 17 new brands to Leeds and 11 to our UK portfolio. Four units remain to be let, which will provide the opportunity to deliver ERV growth and finalise the exciting tenant mix. 

Westquay Watermark, is the UK's largest dedicated restaurant and leisure complex at 17,200m2 and was 95% let on opening. The scheme has over 20 restaurants, cafes and bars, a Hollywood Bowl and is anchored by a highly anticipated Showcase Cinema de Lux. For a number of restaurateurs this is their first move outside London and tenants include Bill's, Cabana, Cau, Franco Manca, KuPP, Thaikhun, The Real Greek and Wahaca. 50% of the scheme was sold to GIC, Hammerson's joint venture partner at the adjacent Westquay shopping centre, in December 2016 for £47 million. The development further confirms Westquay as the leading retail, dining and leisure destination on the south coast. 

UK Retail Parks

The retail parks occupational market remains strong, with healthy retailer demand for space at the best locations. Whilst the investment market has been disappointing during 2016, our modern retail parks portfolio is well placed to outperform in 2017.

Operational summary

Note: Figures presented on a proportionally consolidated basis.

Sector and portfolio overview

Retail parks are largely situated in out-of-town locations with units being generally larger and rents lower than in shopping centres. The better-located parks are easily accessible by car and offer free parking. The market is split into a number of sub-segments, and we have chosen to operate in a selection of these: shopping parks; hybrid parks; and key homeware parks, where occupational demand is strongest.

The occupational market remains strong, with homeware and furnishing retailers seeking space. Retailers with expansion plans include Dunelm, Oak Furniture Land, ScS, Tapi and Wren Kitchens. Also, Bunnings, the Australian hardware chain, has opened its first UK store in St. Albans and is investing £500 million to create a network of stores across the UK.

Fashion retailers are also taking new stores on retail parks as they offer a cost-effective way to fill gaps in their store footprint between large shopping centres and town centres. This trend is leading to improved tenant fit-outs, greater interaction with retailers' multichannel strategies to support click & collect sales and also a wider food and beverage offer.

Consistent with the UK shopping centres investment market, transaction volumes in 2016 were approximately one-third lower than the prior year at £2.5 billion. Sellers have outnumbered buyers during the year, particularly in the second half of 2016 when a number of open-ended funds sought to sell assets to generate liquidity following the EU referendum decision. This situation has forced investment yields to increase by approximately 100bp during the year, although there have been signs of stability returning to the market at the beginning of 2017.

We are one of the largest direct owners of retail parks in the UK and, at 31 December 2016, our portfolio consisted of 18 convenient retail parks, which provide a total of 400,000m2 with 320 tenants.

Net rental income

Net rental income totalled £79.6 million and on a like-for-like basis increased by 2.4% in 2016, compared to 2.6% in 2015. The growth in 2016 being due to an increase in surrender premiums received associated with pro-active tenant rotation at parks including Ravenhead Retail Park, St Helens and Imperial Retail Park, Bristol. The portfolio also suffered from a small number of administrations, including Brantano, in the first half of the year.

Leasing, occupancy and ERVs

Across the portfolio we signed 36 leases representing £4.9 million of annual rental income and 24,100m2 of space. Occupancy levels remained high during the year and were 98.6% at 31 December 2016, compared with 98.4% at the beginning of the year. This high occupancy has resulted in a lower level of year-on-year leasing during 2016. For principal leases, rents were contracted at 4% above December 2015 ERVs and 28% above the previous passing rent.

ERV growth was 0.2% in 2016, compared with 1.3% for 2015. Whilst occupier demand for space in the right location continues, particularly from homeware retailers, high occupancy is limiting opportunities to demonstrate ERV growth across the portfolio. Key leasing transactions during 2016 included:

- New leases with fashion retailers such as Fat Face, H&M, New Look and River Island as well as homeware retailers including DFS, HomeSense, Sofology and Tapi

- New drive-through concepts for Costa and Starbucks at Imperial Retail Park, Bristol and Central Retail Park, Falkirk

- Four leases at Elliott's Field, Rugby securing £1.2 million of new income at an average of 4% above the December 2015 ERV

We continue to target tenants which will enhance the retail offer at individual parks and grow income and have a number of tenant engineering opportunities planned for 2017.

Lease expiries and rent reviews

Our portfolio benefits from a secure income stream, and at 31 December 2016 had a weighted average unexpired lease term of eight years, including tenant break options.

Leases subject to rent reviews, break clauses or approaching their lease expiry date, offer the opportunity to secure additional income. Over the three years to 31 December 2019, these leases would provide additional annual rental income of £3.0 million, or 4.5%, if renewed or if reviews are settled at current market rents.

At 31 December 2016, there were just two tenants in administration representing £0.2 million of income, both of which continue to trade.

Customer insight and footfall

We have begun to collect footfall data across our portfolio in order to enhance our customer insight. For the year to 31 December 2016, visitor numbers increased by 2.2%, 290 basis points ahead of the Springboard Retail Parks index of -0.7%.

Also during 2016, we completed the second phase of our in-depth customer surveys to better understand consumer opinions about our parks and existing or prospective tenants. We found that customer satisfaction has improved by 3% across our portfolio, dwell times and the average number of shops and restaurants visited have both increased by 8% and catering visits have increased by 7%.

This feedback from our shoppers has enabled us to improve our customer services provision at a number of parks, an example being the installation of Amazon lockers at Elliott's Field Shopping Park, Rugby.

Disposals and developments

As part of the Group's £500 million disposal programme announced to part fund the Irish portfolio acquisition in September 2015, we sold a number of retail parks in 2016, raising total proceeds of £217 million. Thurrock Shopping Park, Essex was sold in June for £93 million, which was £10 million below its December 2015 valuation but significantly above the acquisition cost of £64 million in 2012.

We also completed the sales of a solus property in Folkestone for £7 million in July, Manor Walks, Cramlington for £78 million in August and Westmorland Retail Park, Cramlington in November for £36 million.

We are currently on-site with three significant development schemes in Didcot, Rugby and Swansea and further details are in the Development section of this Business Review on page 12. In addition, we are reconfiguring the former Homebase unit at Fife Central Retail Park, Kirkcaldy with works started in December 2016. Four new units are to be constructed with three already let to Sofology, Wren Kitchens and DW Sports. The 4,300m2 project will be completed in June 2017 with a total development cost of £10 million. We continue to advance other smaller-scale development projects across our portfolio as these deliver strong financial returns and enable us to enhance the appearance and tenant mix of our portfolio.

France

During 2016 we have continued to attract new tenants, enhanced the tenant mix across our portfolio and delivered strong net rental income growth. The investment market has also strengthened for prime retail destinations which has led to an increase in the portfolio's value.

Operational summary

Note: Figures presented on a proportionally consolidated basis.

Sector and portfolio overview

Prime shopping centres in France have similar characteristics to those in the UK and Ireland. Online retailing is not as advanced in France compared with the UK, although it is growing rapidly and retailers are beginning to focus on their multichannel strategies in a similar way to those operating in the UK.

French leases tend to be shorter than in the UK, often of nine years duration, with three-year break clauses, although in practice these are seldom exercised. This situation enables landlords like Hammerson to actively manage tenant mix to enhance the brand offer. The retail environment has been subdued during 2016 associated with the ongoing terrorist threat, particularly in Paris, and unsupportive wider macro-economic conditions, such as high unemployment levels and low GDP growth. The wider shopping centre market has seen sales and footfall reduce.

Investment markets were strong in France, although the total retail investment activity of €4.4 billion was €1.2 billion lower than 2015 and of this approximately 40% of sales were to foreign investors. Due to a lack of assets on the market, and the effect of quantitative easing, the strong investor demand acted to reduce yields to around 4% for prime, successful shopping centres.

At 31 December 2016, our French portfolio comprised 10 prime shopping centres, with five located in or around Paris, including Italie Deux and Les Trois Fontaines. Our other major centres include Les Terrasses du Port, Marseille and Places des Halles, Strasbourg. The three largest centres: Les Terrasses du Port, Italie Deux and Les Trois Fontaines account for two-thirds of the value of the portfolio. There are over 1,000 tenants across the portfolio, which attract almost 100 million visits each year.

Net rental income

Net rental income totalled £89.3 million in 2016 and on a like-for-like basis increased by 2.2%, compared to 2.5% in 2015. Les Terrasses du Port, Marseille was the strongest performing centre, with increased gross rental income and reduced year-on-year operating costs, as the centre begins to mature following its opening in 2014. As with our UK shopping centres, we have been focusing on increasing non-rental income and in 2016 this revenue stream increased to £5.4 million, compared to £4.7 million in 2015.

Leasing, occupancy and ERVs

Our retenanting strategy has continued during 2016 and we signed 117 leases across the portfolio, representing £9.0 million of annual rental income and 35,500m2 of space. For principal leases, the new income was 5% above December 2015 ERVs but 5% below the previous passing rent. The variance to previous passing rent was due to a number of leases signed at the beginning of the year at Villebon 2, which we sold in April, and the reletting of the former H&M unit at Place des Halles, Strasbourg to Darty and New Look. These tenants relocated within the centre and enabled a coordinated retenanting programme, including an upsized Zara, and helped improve the tenant mix and footfall on the first floor. Excluding these two factors, the figure would have been 12% above the previous passing rent.

We signed leases with a number of international brands, including brands new to the French portfolio: MAC at Les Trois Fontaines; Bialetti at Nicetoile and Espace Saint-Quentin, and Armani Exchange and Coach, its first at a French shopping centre, at Les Terrasses du Port. Other key leasing deals during the year were:

- Kusmi Tea and Nyx at Italie Deux

- Veritas and Rituals at Les Terrasses du Port

- KOTON at O'Parinor, its first store in France

- ID Kids and Parfois at Places des Halles

In May, the new Apple store at Les Terrasses du Port opened in a striking glass unit on the terrace overlooking the Mediterranean Sea. This is the first Apple store in our French portfolio and welcomed over 7,000 visitors and helped increase footfall in the centre by 24% during 2016.

Occupancy of 96.5% was marginally lower than in 2015, principally due to vacancies at Places des Halles associated with the retenanting scheme and Jeu de Paume, which has performed below expectations since opening in late 2015. Like-for-like ERVs fell by 2.2% in 2016, due to Jeu de Paume, where ERVs have been rebased to reflect trading performance. Excluding Jeu de Paume, ERV growth remains challenging and on the remainder of the portfolio like-for-like ERVs increased by 0.2%, compared with no change in the prior year.

At 31 December 2016 there were 29 units in administration, a decrease of 20 during the year. These tenants all continue to trade, represent only 0.5% of the Group's passing rent and provide opportunities to enhance the tenant mix.

Sales, footfall and occupancy cost

Over the course of 2016, retail sales increased by 3.1%, calculated on a same-centre basis, significantly higher than the CNCC index which fell by 0.1%. Footfall at our centres grew by 2.8%, and was also above the CNCC index of -1.2%. The sales improvement came despite our strong presence in the Paris region which has been adversely impacted by the terrorist threat. The growth has been achieved by our leasing strategy with new tenants boosting sales and a strong performance from Les Terrasses du Port, which has continued to grow since it opened in May 2014.

Consistent with the increase in sales, the occupational cost ratio decreased during 2016 from 14.0% to 13.7% at 31 December 2016.

Lease expiries and rent reviews

Most of our French leases are subject to annual indexation, which will be 0.1% in 2017. Across our portfolio the average unexpired lease term is three years, or six years excluding tenant break options. The portfolio offers opportunities for rental growth with an average reversion of 7%. Leases expiring, or subject to tenants' break clauses, over the three years to 31 December 2019 would provide additional annual rental income of £2.8 million, or 11.2%, if renewed at current market rents. 

Disposals and developments

In April 2016, we completed the sale of Villebon 2 for €157 million (£124 million). Along with the disposals of the UK retail parks explained on page 7, this was part of the £500 million disposal programme to part-fund the Irish loan portfolio acquisition.

In line with the Group's strategy we are progressing extension opportunities and other smaller-scale asset management initiatives at our three major shopping centres, which would significantly enhance these schemes and increase their catchment. Further design work and leasing discussions are required before these projects can be commenced, but they offer exciting opportunities to strengthen our portfolio and deliver attractive financial returns. Further details are provided on pages 13 and 65.

Ireland

We are delighted to have secured the vast majority of the Dublin property assets during 2016 and have already completed a number of the asset management initiatives we anticipated at the time of the loan acquisition. Dundrum Town Centre is Ireland's pre-eminent shopping and leisure destination and offers significant income growth opportunities.

Operational summary

Note: Figures presented on a proportionally consolidated basis and represent performance post property conversion only.

Sector and portfolio overview

Dublin accounts for over 70% of Ireland's total retail expenditure, 50% of national GDP and supports retail demand due to its urban area population of 1.3 million residents and significant tourist traffic (9.6 million visitors in 2016). Ireland's prime retail offer is concentrated in the centre of Dublin around Grafton Street and Henry Street, as well as a number of prime shopping centres along the M50 motorway on the outskirts of Dublin. The property market and wider economy continues to experience strong growth, although prime retail rents remain comfortably below their peak levels of 2006/7. A number of new retailers have recently entered the Irish market, including COS, Victoria's Secret and & Other Stories; there are also numerous other international retailers and food and beverage operators seeking accommodation in Dublin.

The macro-economy has continued to perform well with GDP growth of 4% expected in 2016, again making Ireland the fastest-growing economy within the EU. Growing employment, driven by inward foreign investment, remains a key driver of economic productivity. This growth has underpinned the Irish property investment market that remains strong. In 2016, shopping centre investment volume was £2.0 billion, although this was skewed by a small number of large transactions including Blanchardstown and Liffey Valley shopping centres which were both sold to international investors.

Our portfolio has been secured through a joint acquisition of a loan portfolio from the National Asset Management Agency (NAMA) in October 2015, and the subsequent consensual agreement to acquire the secured property assets from the borrowers during 2016. At 31 December 2016, the Group owned Dundrum Town Centre ('Dundrum'), Ireland's pre-eminent shopping and leisure destination in a 50:50 joint venture with Allianz, having acquired ownership of the property in July 2016. We also wholly own the Dublin Central development site and land adjoining the Swords Pavilions shopping centre in north Dublin. In December 2016, we secured a 50% co-ownership with Irish Life, of the Ilac Centre located on Henry Street, one of Dublin's busiest retail thoroughfares.

We are working towards securing the 50% co-ownership with IPUT and Irish Life of Pavilions shopping centre in Swords in north Dublin and expect this final loan conversion to complete by summer 2017.

Our total portfolio of Dublin assets will encompass 220,000m2 of high-quality shopping centre space, with over 300 tenants and annual footfall of nearly 50 million. It also provides 27 acres of development land. Our share of the total contracted rent for the portfolio will be €45 million (£38 million).

In addition to the centre-based staff who transferred to the Group when we secured ownership of Dundrum, we opened a new office in Dublin and we have recruited a team of 10, with four individuals joining from the previous Dundrum asset manager, Chartered Land. We will continue to integrate the assets into our existing UK operating structure to maximise efficiencies and deliver our asset management strategy.

Net rental income

Net rental income totalled £14.0 million in 2016, with £1.5 million generated from Dublin Central development site and the remainder from Dundrum. As ownership of the property portfolio was secured during the year, the net rental income only relates to the second half of 2016, prior to which the Group received interest income from the loan portfolio. During 2016, 10 rent reviews were settled, of which half were after the property ownership was transferred. These settlements were with tenants including Aldo, Boots, BT2, Clarks, Coast and Dune. In total these reviews delivered annual rental uplifts of 8%. In January 2017, we have settled a further 21 reviews achieving rent uplifts of 7% on £5.4 million (Hammerson's share) of passing rent.

Non-rental income from car parks and the sale of advertising and merchandising opportunities is a significant source of income growth and has generated £2.3 million since we secured ownership of the properties. In August, the car park tariffs at Dundrum were increased by €1; however remain at a sizeable discount to parking in the city centre. The tariff change has resulted in a significant increase in car park revenue.

Leasing, occupancy and ERVs

Occupancy levels are high at 99.5% at 31 December 2016. Tenant demand for space is strong, although the high occupancy levels are currently limiting the fulfilment of all of the demand. We have a clear leasing strategy to deliver rental growth and enhance the tenant mix and overall experience at our new centres, and during the second half of the year we signed six leases representing £0.8 million of annual rental income and 3,300m2 of space. Key leasing transactions included: Ecco; Five Guys; Gamestop; and Oaxaca, a Mexican restaurant. In November 2016, the refurbishment of Dundrum's food court was completed. The enhanced offering includes brands such as: Chopped; Costa; Kanoodle; and Poulet Bonne Femme and broadens the catering offer at the centre. Also at Dundrum, ERVs grew by 9% in the second half of 2016. 

Lease expiries and rent reviews

At 31 December 2016, the portfolio offered the Group's longest weighted unexpired lease term of 12 years, including tenant break options, as well as significant opportunities for rental growth. The portfolio was 8.3% reversionary and leases subject to rent reviews, break clauses or expiries offer the prospect of securing additional rental income. Over the three years to 31 December 2019, these leases would provide additional annual rental income of £2.5 million, or 10.4%, if renewed, or reviews are settled, at current ERVs. This time period falls short of the most significant batch of rent reviews in 2020, which, based on current ERVs, would deliver a rental uplift of £1.9 million.

In addition to rent review and lease renewal uplifts, we have identified a number of tenant engineering opportunities to both enhance the tenant mix and generate increased rental income and ERV. At 31 December 2016, there were no units let to tenants in examinership.

Sales and footfall 

Overall consumer sentiment has recovered strongly in January 2017 following some uncertainty in the latter half of 2016 and confidence levels, as measured by ESRI, are at their highest level in seven years and national retail sales grew by 3.4% in 2016.

As part of our integration activities we are upgrading the IT infrastructure at Dundrum to improve the footfall and sales data collection processes as well as introducing the Plus app in 2017. This will bring the centre in line with the Hammerson standard and provide new insight into the behaviours of our Dublin shoppers.

Future developments

The portfolio contains a number of future development opportunities at with the Dundrum estate, Dublin Central and Swords Pavilions. Further details of these potential schemes are on page 65.

In addition, the redevelopment of Moore Mall South at the Ilac Centre commenced in January 2017 and is due for completion in May. The project involves the refurbishment of the mall area and the reconfiguration of 10 units into five larger flagship stores. Four of the new units have already been pre-let representing 78% of the target income.

FaulknerBrowns has been appointed as the masterplan architect for the Dundrum Estate and work on the scheme design has commenced.

Developments

We are proud of the two new shopping centre developments in Leeds and Southampton which opened in 2016. They align perfectly with our strategy of creating differentiated destinations and add to the attraction of existing assets in both major cities.

On-site developments

Notes

1. Group ownership 100% for on-site schemes.

2. Valuation at 31 December 2016. Values are not included for extension projects which are incorporated into the value of the existing property.

3. Incremental capital cost including capitalised interest.

4. Incremental income net of head rents and after expiry of rent-free periods.

5. Let or in solicitors' hands by income at 17 February 2017.

Introduction

The Group has a pipeline of development opportunities in the UK, France and Ireland, including three on-site retail park schemes, three major London developments and a number of potential future projects across the portfolio. These schemes provide the opportunity to significantly grow the business and enhance the quality of the Group's existing portfolio over the medium term. We carefully control expenditure and will only commit to projects when the risk level is acceptable. This will vary for each project and is dependent on a variety of factors including general market conditions, pre-letting, construction and programme certainty, and funding and financial viability. At 31 December 2016, committed capital expenditure was low at £68 million, of which the majority represented the remaining expenditure at Leeds and Southampton and land acquisitions relating to our major developments. This position means the Group retains flexibility over the future commitment of its development opportunities.

Completed developments

We completed two UK shopping centre developments during 2016: Victoria Gate, Leeds; and Westquay Watermark, Southampton. These successful developments add two new destinations to our portfolio and further details are in the UK shopping centres section of this Business Review on page 5.

On-site developments

In Swansea, we started on-site in December 2016 on a 21,200m2 £16 million redevelopment of Parc Tawe which is due to complete at the end of 2017. The scheme will create a modern, mixed retail and leisure park with new public realm and improved city centre pedestrian links. The scheme is 53% pre-let with new leases signed with existing retailers: Odeon; Costa; Mothercare; and Toys R Us, leaving the remaining eight new retail and restaurant units to be let during 2017.

Elliott's Field, Phase I opened in October 2015, providing 16,900m2 of high-quality retail space anchored by a 5,600m2 Debenhams and a 4,700m2 M&S general merchandise store. Capitalising on the success of Phase I and the strong demand from furniture and flooring retailers, planning consent was granted for a 7,900m2 second phase on land adjacent to the existing shopping park and construction started in February 2017. The scheme is due to complete by the end of the year and is currently 44% pre-let including anchor retailers DFS and Sofology. We plan for this to be our first carbon-neutral retail park for building energy consumption.

In January 2017, we started on-site with the £42 million expansion of the existing Orchard Centre in Didcot. The scheme will create 8,700m2 of new retail space, increasing the size of the total scheme to 30,000m2 and leases for 39% of the estimated income have been exchanged with M&S Food, H&M, River Island, TK Maxx, Costa and Starbucks. Didcot has an affluent and growing catchment and is located between Oxford, Reading, Newbury and High Wycombe. The scheme is scheduled to complete in early 2018 and will deliver £3 million additional rental income.

Future developments

Our future development opportunities include schemes in all of the Group's portfolios, including three major London developments. These have the potential to significantly grow the business and create modern iconic retail destinations. During 2016 we have progressed a number of these schemes, although there are further milestones to achieve before we are in a position to commence these projects.

Brent Cross extension

In conjunction with our joint venture partner, Standard Life, we have continued to advance plans for the extension and refurbishment of Brent Cross shopping centre in north-west London. This project forms part of the wider Brent Cross Cricklewood regeneration plans with the extended shopping centre comprising 175,000m2 of retail, catering and leisure use and will be the principal retail destination for north London. Following completion of the development agreement and the CPO Inquiry in 2016, the next steps are to submit a reserved matters planning application in spring 2017, receive confirmation of CPO powers, sign lease agreements with key tenants ahead of a decision to commence construction in summer 2018 with completion due in 2022. The Group's estimated remaining development cost is in the region of £475-550 million.

Croydon town centre

The Croydon Partnership, a 50:50 joint venture with Westfield, is progressing a scheme to redevelop the Whitgift Centre and refurbish Centrale shopping centre, with the Group's total future costs in the region of £650-700 million. The scheme will establish Croydon as the principal retail and leisure hub for south London and is part of wider large-scale regeneration already underway in the area. The Partnership owns key interests in the site and controls 100% of Centrale and 75% of the Whitgift Centre. A new outline planning application was submitted in October 2016. The enhanced application included scheme revisions which were outside the scope of the existing outline planning permission, principally a new M&S anchor store and a redesign of the northern end of the scheme. The revised design incorporates three levels of retail with over 300 shops, restaurants and cafes, as well as improved leisure facilities, public realm improvements and residential homes. The decision on the new planning application is expected by summer 2017 and, subject to finalising detailed design and completing agreements with key anchor tenants, the earliest start on site could be during 2018, allowing retailers to trade through the busy Christmas period in 2017.

The Goodsyard

Bishopsgate Goodsyard is a 4.2ha site on the edge of the City of London which is owned in joint venture with our partner, Ballymore Properties. The planning application for a large mixed-use development was called-in by the Mayor of London in September 2015. In April 2016, following the GLA's planning officers' recommendation to refuse the application, the Mayor agreed to defer the application to allow further consultation with the GLA's planning officers and redesign elements of the proposed scheme. This work is underway and we aim to submit the necessary amendments and obtain determination by the Mayor later this year.

Les Trois Fontaines extension

The extension of Les Trois Fontaines is part of a wider city centre project in Cergy Pontoise. This project will add 28,000m² to the existing shopping centre and has an estimated cost to complete of £200 million. The project has been validated by the co-ownership, Auchan and the City. Building permits and retail consent have been obtained and pre-letting is progressing well. 

Other schemes

We have a number of potential pipeline schemes in each of our sectors which will enhance the overall quality of the Group's portfolio. During 2016 we we submitted a planning application for an extension to Union Square and in Paris we progressed a potential extension scheme at Italie Deux. Also, our new Irish portfolio contains a number of exciting future projects at the Dundrum estate, Dublin Central and Swords Pavilions Phase III. 

The precise nature and design of these schemes are fluid and they are at different stages of development. The speed of delivery for these pipeline schemes will be dependent on a variety of factors including: planning permission; retailer demand; anchor tenant negotiations; land assembly; scheme design; funding; and financial viability. Further details of these schemes are included on page 65.

Premium Outlets

During 2016, we increased our two premium outlets investments in Value Retail and VIA Outlets. They continue to deliver excellent income and capital growth and align with our strategy of allocating capital to growing consumer markets.

1 Figures reflect overall portfolio performance, not Hammerson's ownership share and 2015 figures have been restated at 2016 exchange rates.

2 2016 VIA Outlets figures include Festival Park since July 2016.

3 VIA Outlets figures include six months of Festival Park sales for both 2016 and 2015.

4 Average sales densities have been calculated as a weighted average based on the average occupied GLA. Festival Park has been excluded for both 2016 and 2015 due to information being unavailable.

Sector and portfolio overview

Outlets offer a distribution channel for brands to sell excess inventory at a material discount to the original price. Premium outlets are at the top of this sector, providing international fashion and luxury brands with an environment similar to a full priced store, where retailers are able to maintain and protect their brand identity.

Over recent years, the European outlets sector has seen both strong sales growth and increasing investor demand, and investment yields have reduced during 2016. However, transactions are relatively infrequent with many traded off-market, particularly at the higher end of the outlets sector, where our portfolios have chosen to operate.

The market has strong demand for discounted luxury and fashion items from international tourists, in particular from China, India, Russia and the Middle East. In 2016, spending patterns of wealthy tourists have been influenced by security concerns and currency movements. Reduced spending by Chinese visitors has been mitigated by growing demand from other international travellers. 

Our exposure to the sector, which has increased over recent years, is gained through our long-term partnership with Value Retail and also through VIA Outlets, a joint venture established in 2014. Both portfolios are externally managed, although the Group has a strong relationship with both management teams and Timon Drakesmith is a Board member of Value Retail and is Chairman of the VIA Outlets advisory committee. The sector has many similarities with our directly managed properties and we utilise the knowledge gained to enhance the brand experience across our other portfolios.

Value Retail ('VR')

Strategic overview

VR operates nine high-end shopping-tourism Villages in the UK and Western Europe which provide over 182,000m2 of floor space and more than 1,000 stores. VR focuses on international fashion and luxury brands and attracts long-haul tourists and wealthy domestic customers. The Villages, which include Bicester Village outside London and La Vallée Village near Paris, are among the most successful outlet centres in Europe.

The average sales density for the Villages is €15,100/m2 with densities at Bicester Village around €38,400/m2 representing growth of 7.9% in 2016. The Villages have been intentionally located close to Europe's wealthiest cities and major tourist attractions and targeted marketing enables VR to benefit from the growing shopping-tourism market. In total, over 160 million residents live within a 120 minute drive of a Village, and the major cities served by the Villages attract 100 million tourists each year. This strategy has enabled VR to deliver annual compound brand sales growth of over 15% since 2006 and during 2016 VR enhanced their management team through external recruitment.

We hold interests in the VR holding companies as well as direct investments in the Villages. When these holdings are combined, at 31 December 2016, the Group had an economic interest in the net assets of VR of 40%. 

Acquisitions and disposals

In December 2016, we acquired additional sponsor stakes in VR holding companies for £41 million, increasing our sponsor interest to 25%. We also sold our minority stake in VR China for £8 million, crystallising a profit of £1.3 million.

Performance in 2016

Against a more challenging macro-economic environment and a slowdown in long-haul tourism growth, particularly from China, sales growth is slightly lower in 2016 at 8%, compared with 11% in 2015. Performance has varied across the Villages, with strong growth at Bicester, Oxford, La Roca, Barcelona, and Kildare, Dublin, the latter Village benefiting from the opening of a major extension in late 2015. However, La Vallée Village, Paris has seen a more subdued performance, with reduced tourist visits associated with the continuing terrorist threat in Paris.

VR have redirected promotional activities towards both a more diverse tourist market and high-end domestic customers. They are also proactively evolving and improving the brand mix at the Villages and enhancing the customer experience through refurbishment, enhanced customer services and extensions. This strategy boosted sales growth in the second half of 2016 with growth of 10%, compared to 5% in the first half of the year.

Developments and extensions

At Fidenza Village, Milan a new 3,300m2 extension opened in October 2016. Leasing demand has been strong with new boutiques opened by Dsquared2, Jil Sander, Nike, Roberto Cavalli and a new restaurant, Villano. At 31 December 2016, the Village occupancy rate is 91% with only seven units to let.

At Bicester Village, the demolition of the former Tesco store was completed and construction on the 5,800m2 extension commenced in the second half of 2016. The project, due to open in October 2017, will introduce 34 new brands, over 500 new car parking spaces and enhanced road access. 

VIA Outlets ('VIA')

Strategic overview

VIA is an outlets joint venture formed in 2014 in partnership with APG, Value Retail and Meyer Bergman in which Hammerson has a 47% stake. VIA's strategy has been to create a c.€1 billion portfolio by acquiring existing European outlet centres with strong catchments, focused on mainstream fashion brands and with potential for growth through active asset and development management. It reached this target in late 2016 through the acquisition of four outlets and management intend to focus on the integration and improvement of the operational efficiency and performance of the portfolio in 2017. At 31 December 2016, VIA operated eight centres providing 148,000m2 of floor space and 680 stores across seven European countries. Major centres included Freeport, near Lisbon, Batavia Stad, near Amsterdam, Fashion Arena, near Prague, and Festival Park, Majorca.

With some oversight from VR, the VIA team enhances the overall centre management, physical appearance, leisure and catering offers and tenant mix of the centres to deliver sales, income and value growth. The strategy also involves work to right-size units, the introduction of more flagship stores and targeted marketing to increase tourist visits and total footfall.

Acquisitions

In July 2016, VIA completed the acquisition of Festival Park, Majorca with the Group's share of the acquisition price being €44 million. The 33,000m2 centre includes an 8,000m2 cinema and attracted 4.4 million visitors in 2016. VIA management has already commenced work to improve the brand mix and enhance the food and beverage offer at the centre.

In November 2016, VIA agreed to acquire four outlet centres from the IRUS fund, with the Group's share of the acquisition cost being €170 million. All of the centres are located close to major cities, with the largest centre at 29,000m2 in Zweibrücken, Germany with 114 tenants and a sales density of €6,000/m2. The second largest at 28,000m2 is in Porto, Portugal with the other centres in Seville, Spain and Wroclaw, Poland. The latter centres have sales densities ranging from €3,300/m2 to €4,000/m2. At 31 December 2016, we had completed the acquisition of two of the assets, Seville and Wroclaw with Zweibrücken completing in February 2017. The acquisition of Porto is expected to be finalised in the spring. The transaction increases VIA's portfolio value to €1.2 billion, achieving the original acquisition strategy.

Performance in 2016

VIA's portfolio has performed strongly during 2016, particularly Batavia Stad and Fashion Arena, and sales densities have increased by 19% year-on-year. At Batavia Stad, significant upgrades have been implemented in 2016 including 30 remerchandising projects impacting almost a quarter of the scheme.

Occupancy at 92% was 5% higher than at the beginning of the year following new lettings at a number of the outlet centres during the year. Occupancy at premium outlets tends to be lower than for shopping centres and retail parks due to the greater remerchandising and retenanting activity.

Developments and extensions

At Batavia Stad, a 6,900m2 extension is due to open in early 2017 and will introduce 41 new units and increase space by 28%. Further upgrades are being implemented including new façades and 40 remerchandising projects, including new brands Gant and Falke. The tourist marketing strategy implemented in 2015 has delivered a 37% increase in tax free sales during 2016.

The enhancement works at the food court at Fashion Arena have now finished and 22 remerchandising projects have been completed during 2016, including the opening of the first Polo Ralph Lauren outlet store in central and eastern Europe. Tax free sales were 37% higher in 2016 than 2015.

Work has started at Freeport on a major reconfiguration and enhancement of the centre. The total lettable space will be reduced through the closure of large warehouse-type units and new smaller units will be let to premium retailers and restaurants. This reconfiguration is accompanied by a refurbishment of the existing space and works are due to complete in September 2017.

Another strong financial performance

The Group has again delivered a strong financial performance, demonstrating our ability to generate income and value growth. 2016 has also been a busy year with over £1.2 billion of refinancing completed to enhance the Group's financial position.

Highlights

* attributable to equity shareholders

1. See Note 7B to the accounts for calculation

2. See Note 7D to the accounts for calculation

3. See table 8 on page 60 for further analysis

Presentation of financial information

The information presented in this Financial Review is derived from the Group's financial statements, prepared under IFRS. A significant proportion of the Group's property interests are held in conjunction with third parties in joint ventures and associates. Under IFRS, the results and net investment in these holdings are equity accounted and presented on single lines in the income statement and balance sheet.

Management principally review the performance of the Group's shopping centres, retail parks, other strategic and development properties on a proportionally consolidated basis, to reflect the Group's different ownership shares. Management do not proportionally consolidate the Group's premium outlet investments, which are externally managed by experienced outlet operators, independently financed and have operating metrics which differ from the Group's other properties. We review the performance of our premium outlet investments separately from the rest of the proportionally consolidated portfolio, with the key financial metrics for the Group being: earnings contribution; property valuations and returns; and net asset growth.

Within the Financial Review, the Financial statements and the Additional Disclosures, the Group's properties which are wholly owned or held in joint operations are defined as being held by the "Reported Group", whilst those held in joint ventures and associates are defined as "Share of Property interests".

Further explanations of the distinction between the Group's different holdings is provided in the Glossary on pages 66 and 67.

Alternative Performance Measures ('APMs')

The Group uses a number of APMs, being financial measures which are not specified under IFRS, to monitor the performance of the business. These include a number of the Group's key performance indicators on pages 2 and 3 and many of these measures are based on the EPRA Best Practice Recommendations (BPR) reporting framework which aims to improve the transparency, comparability and relevance of published results of listed European real estate companies. The Group's key EPRA metrics are shown in table 1 within the Additional Disclosures section on page 56. 

For other APMs, the Financial Review and Additional Disclosures sections contain supporting information, including a number of reconciliations. Definitions for APMs are also included in the Glossary.

Profit for the year

The Group's profit for the year, attributable to equity shareholders, under IFRS was £317.3 million, £409.5 million lower than 2015. This was principally due to lower revaluation gains on the Group's shopping centres and retail parks which suffered a net revaluation loss of £13.4 million in 2016 compared with a net gain of £367.5 million in 2015. 

Management principally review the Group's profit on an "adjusted" basis to monitor the Group's underlying earnings as it excludes capital and non-recurring items such as valuation movements, profits or losses on disposal and other one-off exceptional items. This approach is consistent with other property companies and we follow EPRA guidance to calculate adjusted profit. A reconciliation of IFRS profit to adjusted profit for the year is shown in the table on page 17.

Analysis of the Group's income statement under IFRS split between underlying "Adjusted" profit and "Capital and other" profit is shown in note 2 to the accounts on page 36 and further details of the EPRA adjustments are provided in note 7 on page 42 to the accounts.

Reconciliation of IFRS profit for the year to adjusted profit for the year

* Proportionally consolidated

The Group's adjusted profit in 2016 was £230.7 million, £19.8 million higher than in 2015. The table below bridges adjusted profit and adjusted EPS between the two years and the movements are shown at constant exchange rates.

Reconciliation of adjusted profit for the year

The increase in adjusted profit was driven by additional net rental income of £17.5 million. The like-for-like portfolio produced £6.5 million higher rental income, acquisitions and disposals added £5.9 million and the Group's developments delivered new income of £5.1 million. The Group's premium outlet investments in Value Retail and VIA Outlets contributed an additional £5.9 million of earnings associated with further sales growth, particularly from Bicester Village. There was an increase of £3.0 million in administration expenses and finance costs increased marginally by £0.3 million. The impact of higher debt levels was offset by the benefit of recent refinancing activity, which has reduced the Group's average cost of debt to 3.1%, and £12.1 million of additional interest income (at constant exchange rates) was received from the Irish loans acquired in October 2015. The change in the GBP:€ exchange rate increased earnings by £0.5 million as the sterling value of the Group's overseas net rental income increased by more than the value of the euro-denominated administration and finance costs. In total, these movements resulted in a 9.4% increase in adjusted profit and a 8.6% uplift in adjusted EPS.

Net rental income

Analysis of net rental income

In 2016, net rental income grew by £27.9 million to £346.5 million, or £17.5 million at constant exchange rates. Net rental income from the like-for-like portfolio increased by 2.2% during the year, with the most significant contributions being rent reviews at Union Square and Bullring and strong trading at Les Terrasses du Port. Like-for-like net rental income growth on the Reported Group properties was 3.4%, whilst for properties held by the Group's proportionally consolidated joint ventures and associates, growth was 0.1%. Further analysis of net rental income is provided in table 5 of the Additional Disclosures on page 58.

Acquisitions contributed £24.4 million of new income, principally from Grand Central, Birmingham in February 2016 and Dundrum Town Centre, Dublin, associated with the conversion of the majority of the Irish loan portfolio in July 2016.

Disposals reduced income in 2016 by £18.5 million, reflecting the 2015 sales of Drakehouse Retail Park, Sheffield; Bercy 2, Paris and Grand Maine, Angers and the sales in 2016 of Monument Mall, Newcastle; Villebon 2, Paris; Manor Walks, Cramlington and Thurrock Shopping Park, Essex. Additional income from developments of £5.1 million is principally from those completed in 2015 including Elliott's Field Shopping Park, Rugby, Cyfarthfa Retail Park, Merthyr Tydfil and Jeu de Paume, Beauvais. 

Administration expenses

Administration expenses analysis

* In 2016, £0.4 million (2015: £0.3 million) of the Group's proportionally consolidated underlying administration expenses related to the Group's share of Property interests.

Net administration expenses in 2016 were £46.1 million, an increase of £3.8 million, or £3.0 million at constant exchange rates, compared to 2015. This increase was associated with additional staff costs due to higher headcount to support our new acquisitions and Irish operations which were partly offset by additional management fee income from Ireland.

Cost ratio

The EPRA cost ratio for the year ended 31 December 2016 was 22.6%, a decrease of 50bp compared to 2015. The ratio is calculated on a proportionally consolidated basis, excluding premium outlets, in line with EPRA best practice, and reflects total operating costs as a percentage of gross rental income. The ratio is not necessarily comparable between different real estate companies as business models and expense accounting and classification practices vary. The cost ratio calculation is included as table 7 of the Additional Disclosures on page 59.

The ratio of property costs fell from 11.3% to 10.7% reflecting lower vacancy costs, whilst the ratio of net administration costs to gross rental income was 10bp higher in 2016 at 11.9%, associated with increased headcount to support the recent acquisitions and forthcoming development projects.

Loss on the sale of properties

During 2016, we sold eight properties raising proceeds of £635 million, after deducting selling costs. Compared to their valuation at 31 December 2015, these sales resulted in a loss of £24.0 million, 85% of which related to three retail parks: Thurrock Shopping Park, Essex; Manor Walks, Cramlington; and Westmorland, Cramlington. The losses were consistent with the impact of the outward yield shift suffered across the rest of the UK retail parks portfolio during 2016 explained in the "Valuation change" section of this Review on page 21.

Share of results of joint ventures and associates, including investments in premium outlets

As explained on page 16, for management reporting purposes we review the Group's premium outlet investments separately from the rest of the Group's other properties. Due to the nature of the Group's control, VIA Outlets is accounted for as a joint venture and Value Retail is accounted for as an associate.

The operating performance of our premium outlet investments is described on pages 14 and 15 of the Business Review and the aggregated financial contribution to the Group is shown in table 12 of the Additional Disclosures section on page 62.

Share of results of joint ventures, including VIA Outlets

The Group has interests in 15 joint ventures and the share of the results of joint ventures under IFRS for the year ended 31 December 2016 was £169.2 million (2015: £246.8 million) as analysed in the table below. Further details are provided in note 9 to the accounts.

Analysis of share of results of joint ventures

The reduction in the share of results of joint ventures under IFRS of £77.6 million during 2016 was principally due to revaluation gains being £103.4 million lower than in the prior year. The lower gains on these properties are consistent with the year-on-year change in revaluation movements on the Group's wholly owned property portfolio. Net rental income from the Group's share of property joint ventures was £14.1 million higher than in 2015, principally due to the conversion to property ownership of Dundrum Town Centre, Dublin in July 2016 which is held jointly with Allianz. On an adjusted earnings basis, profit from the Group's joint ventures was £26.5 million higher in 2016.

Share of results of associates, including Value Retail

The Group has two associates: Value Retail ('VR'), and a 10% interest in Nicetoile, where the Group is the asset manager and which is proportionally consolidated for management reporting purposes. On an IFRS basis, the share of results of associates under IFRS for the year ended 31 December 2016 was £137.1 million (2015: £160.6 million), of which £135.2 million related to VR and principally related to the property valuation uplift of £120.0 million.

On an adjusted earnings basis the results of associates were £24.9 million (2015: £18.1 million), of which £23.6 million related to VR. The year-on-year increase resulted from strong trading, particularly at Bicester, Oxford; Kildare, Dublin; and the two Spanish Villages, La Roca and Las Rozas. See note 13 of the accounts for further details on the Group's associates.

Total adjusted earnings contribution from premium outlets

In 2016, the Group's two investments in premium outlets contributed £29.8 million to adjusted profit, £6.6 million higher than in 2015 (£5.9 million at constant exchange rates), of which £6.5 million related to increased earnings at Value Retail. In addition, the Group has advanced loans to Value Retail, from which the Group received £4.2 million (2015: £5.3 million) of interest income in 2016.

Further details of the aggregated profit contribution from our premium outlets investments is provided in table 12 of the Additional Disclosures section on page 62.

Finance costs

Net finance costs on a proportionally consolidated basis, as shown in note 2 to the accounts, totalled £96.6 million in 2016, compared with £98.1 million in 2015. Adjusted finance costs, which exclude items such as debt cancellation costs and the change in the fair value of derivatives which are not included in adjusted earnings, totalled £93.5 million in 2016, an increase of £9.4 million in 2015, or £0.3 million at constant exchange rates. The calculation of adjusted finance costs in shown in table 18 on page 64.

In 2016, interest received from our Irish loan assets of £17.4 million was largely offset by the additional interest expense associated with the increased level of borrowing to support the acquisitions in Birmingham and Ireland.

During 2016, the Group's weighted average interest rate reduced to 3.1%, compared to 3.8% for 2015. This reflected refinancing activity which is explained in the "Financing and cash flow" section of this Review on page 23.

Interest capitalised during the year was £5.1 million (2015: £5.3 million) and principally related to the Group's developments in Leeds and Southampton which both opened in the final quarter of 2016.

Tax

The Group has tax exempt status in the UK, France and Ireland and is exempt from corporation tax on rental income and gains arising on property sales. On a proportionally consolidated basis, the tax charge for 2016 remained low at £2.7 million (2015: £1.6 million), the increase being due to restrictions on the use of tax losses across the Group and increased tax in France. We have published "Hammerson's Approach to Tax for the year ending 31 December 2017" on the Group's website www.hammerson.com which provides further information about the Group's tax strategy. 

Dividend

The Directors have proposed a final dividend of 13.9 pence per share. Together with the interim dividend of 10.1 pence, the total for 2016 is 24.0 pence, representing an increase of 7.6% compared with the prior year. The final dividend is payable on 27 April 2017 in the UK and 28 April 2017 for South African investors, to shareholders on the register at the close of business on 17 March 2017. 4.9 pence will be paid as a PID, net of withholding tax where appropriate, with the balance of 9.0 pence paid as a normal dividend

The Company will not be offering a scrip dividend alternative, but for shareholders who wish to receive their dividend in the form of shares, the Dividend Reinvestment Plan (DRIP) will be available.

South African secondary listing

To ensure Hammerson is accessing the widest pool of international capital, the Company completed a secondary listing of its shares on the Johannesburg Stock Exchange ("JSE") in September 2016. Hammerson's register already included a highly diversified global shareholder base, including a number of South African funds, and the listing further extended the depth and variety of investors and improved liquidity for existing shareholders. The calculation of headline earnings per share as required by the JSE is in note 7C to the accounts on page 43.

Net assets

During 2016, equity shareholders' funds increased by £259 million, or 4.7%, to £5,776 million at 31 December 2016. Net assets, calculated on an EPRA basis, were £5,865 million and on a per share basis, net assets increased by 29 pence to £7.39. The movement during the year is shown in the table below.

1. Adjustments in accordance with EPRA best practice shown in note 7D to the accounts on page 43.

2. Dividends include the scrip dividend payment of £44.1 million which reduced EPRA NAV per share by 8 pence. 

The increase in EPRA net asset value was principally due to the valuation surplus on the Group's premium outlets which totalled £138 million. Adjusted profit increased NAV by 29 pence, although this was largely offset by dividends, which reduced NAV by 25 pence. Exchange and other principally includes foreign exchange movements associated with the strengthening of the euro during the year which increased EPRA NAV per share by 14 pence. Further details of the reconciliation between IFRS and EPRA net assets are in note 7D to the accounts on page 43.

Investment and development properties

Portfolio valuation analysis

Valuation change

The chart below analyses the sources of the valuation change during 2016 for the property portfolio, on a proportionally consolidated basis excluding premium outlets.

During 2016, the Group's proportionally consolidated portfolio suffered a net decrease in valuation of £13 million. In the UK, shopping centre values fell by £6 million and retail parks by £118 million. £39 million of this adverse movement was due to the increase in stamp duty land tax in April 2016 and represents the majority of the adverse "Development and other" movement for both portfolios.

Components of valuation change in 2016 (£m)

Proportionally consolidated, excluding premium outlets

http://www.rns-pdf.londonstockexchange.com/rns/2442X_8-2017-2-18.pdf

Investment yields were broadly unchanged for UK shopping centres, with income growth offsetting the impact of the stamp duty increase. Equivalent yields for our retail park portfolio increased by an average of 45bp for the UK retail parks portfolio, resulting in a valuation reduction of £120 million.

In France, investor demand for prime assets continues to be strong and yields for our portfolio have reduced by an average of 30bp during the year equivalent to a valuation increase of £114 million. This increase was partly offset by the rebasing of ERVs at Jeu de Paume, Beauvais which accounts for the portfolio's adverse income change of £27 million. The centre opened in late 2015 and has suffered from weak trading and letting in 2016. The £14 million "Development and other" adverse valuation movement includes £6 million reflecting increased transfer taxes in Paris which were introduced at the beginning of the 2016.

In Ireland, there was a £3 million valuation gain, representing income growth of £62 million being largely offset by the recognition of £59 million of purchasers' costs to secure the properties. There was also a £8 million gain in relation to the Irish development sites, principally Dublin Central, included within the UK other and developments portfolio. The remainder of the £34 million gain in this latter portfolio was principally in relation to the recently completed schemes in Leeds and Southampton.

In addition to the Group's proportionally consolidated portfolio, the premium outlets portfolio produced a revaluation surplus of £138 million, of which Value Retail contributed £120 million and VIA Outlets £18 million. Investor demand continues to strengthen for the sector and the valuation performance was driven by income growth, which accounted for two-thirds of the surplus, the remainder principally being due to inward yield shift.

Further valuation and yield analysis is included in tables 8 and 9 in the Additional Disclosures section on page 60.

Capital expenditure

Capital expenditure totalled £1,533 million in 2016, although included the conversion to property assets of the Irish loans which were acquired in October 2015 for £690 million and further details are in note 9D to the accounts. Acquisitions also included the purchase of Grand Central, Birmingham for £350 million. Development expenditure totalled £138 million, principally on the completion of the developments in Leeds and Southampton. Other capital expenditure of £55 million included refurbishment and asset management initiatives including the reconfiguration of Place des Halles, the new Apple store at Les Terrasses du Port and a number of smaller scale UK retail park projects.

Returns

Returns summary

1. As the annual IPD indices have yet to be published, the benchmark returns shown above have been estimated and are calculated on a weighted 75:25 UK:France basis.

Property returns

The table on page 21 compares the financial returns generated in 2016 with benchmark IPD indices. The Group's benchmark is the IPD All Retail Universe total return weighted 75:25 between the UK and French indices. The All Retail Universe indices include returns from all types of retail property.

As the annual IPD benchmarks for both countries are not available until after this Annual Report has been published, the benchmarks have been estimated and are subject to revision. The UK IPD data is based on the Quarterly All Retail Universe to December 2016. As there is less data available for France, for the purposes of calculating the Group IPD benchmarks, we have assumed that the French benchmark is equal to the returns generated by our French portfolio of 8.3%.

The Group's total return was 5.7%, 230 basis points higher than the estimated benchmark. The Group's outperformance was driven by the property portfolio held by our premium outlet investments which produced a total return of 15.1%. The total return for the UK investment portfolio was 1.9%, which was 20 basis points higher than the UK benchmark. The Ireland investment portfolio, which was included from the date of property acquisition in July, generated a total return of 2.3% and reflects the impact of recognising the acquisition-related costs, such as stamp duty and advisor fees.

In 2016, the Reported Group portfolio generated a total return of 3.8%, whilst properties held by our joint ventures and associates generated a total return of 7.5%. Both portfolios exceeded the estimated Group benchmark, the performance of the latter portfolio being boosted by the strong return from premium outlets. An analysis of the capital and total returns by business segment is included in table 8 on page 60.

Shareholder returns

For the year ended 31 December 2016, the Group's return on shareholders' equity was 7.8%, which compares to the Group's estimated cost of equity of 7.6%. The income element of the return on equity tends to be relatively low given the prime nature of the property portfolio. The capital element of the return was driven by the portfolio's valuation performance during the year.

Hammerson's total shareholder return for 2016 was -0.7%, which represents an outperformance of the FTSE EPRA/NAREIT UK index by 780 basis points as the wider index has suffered larger share price reductions than the Company. Over the last five years, the Group's average annual total shareholder return has been 13.8%, compared to 14.9% for the FTSE EPRA/NAREIT UK index.

Investment in joint ventures and associates, including investments in premium outlets

Investment in joint ventures, including VIA Outlets

At 31 December 2016, the Group's investment in joint ventures totalled £3,737 million compared with £3,214 million at the beginning of the year, an increase of £523 million. Key changes during 2016 were the part disposals by the Group of 50% stakes in Grand Central, Birmingham and Westquay Watermark, Southampton and the conversion to property of Dundrum Town Centre. We also made an additional investment in VIA Outlets associated with its acquisition of three outlet centres in the second half of 2016.

The movement in investments in joint ventures during 2016 is shown in the table below and further analysis is provided in note 9D of the accounts.

Analysis of movements in investment in joint ventures

Investment in associates, including Value Retail

The Group's investment in associates totalled £988 million at 31 December 2016, an increase of £220 million during the year.

The increase was principally due to foreign exchange translation gains of £60 million, the acquisition of additional sponsor interests in Value Retail in December 2016 for £41 million and revaluation gains on VR's property portfolio which totalled £120 million. Two-thirds of the revaluation gains related to income growth with the balance being due to yield compression and development profits. Further analysis is provided in note 10 to the accounts on page 52.

Total investment in premium outlets

At 31 December 2016, the Group's total investment in premium outlets, representing our share of VR and VIA, calculated on a consistent basis with EPRA NAV and including the Group's loans to VR, totalled £1,309 million (2015: £1,003 million). The increased investment in the year was due to a combined valuation surplus of £138 million, additional investment of £112 million and foreign exchange gains of £76 million. These were partly offset by VR repaying £55 million of loans to the Group. Further details of the Group's aggregated investment in the sector are provided in table 11 of the Additional Disclosures on page 61.

Financing and cash flow

Our financing strategy is to generally borrow on an unsecured basis on the strength of the Group's covenant to maintain operational flexibility. Borrowings are arranged to maintain short-term liquidity and to ensure an appropriate maturity profile. Acquisitions may be financed initially using short-term funds before being refinanced for the longer term when market conditions are appropriate. Short-term funding is raised principally through syndicated revolving credit facilities from a range of banks and financial institutions with which we maintain strong working relationships. Long-term debt mainly comprises the Group's fixed rate unsecured bonds. Derivative financial instruments are used to manage exposure to fluctuations in foreign currency exchange rates and interest rates, but are not employed for speculative purposes.

The Board approves financing guidelines against which it monitors the Group's financial structure. These guidelines, together with the relevant metrics, are summarised in the table below which illustrates the Group's robust financial position.

Key financing metrics

1. Guidelines should not be exceeded for an extended period of time.

2. See page 24 for further explanation and table 17 on page 64 for supporting calculation.

3. EBITDA includes the interest received from the Irish loan assets. See table 15 on page 63 for supporting calculation.

Net debt position

On a proportionally consolidated basis, net debt at 31 December 2016 was £3,413 million. This comprised borrowings of £3,543 million and cash and deposits of £130 million and a supporting calculation is included in table 16 on page 64. During the year, net debt increased by £445 million and the movement is analysed in the table below.

Movement in net debt

We have continued to reduce the Group's average cost of debt with new issuance at low rates of interest whilst ensuring a solid funding platform. The weighted average cost of debt for 2016 was 3.1%, a reduction of 70 basis points compared with 2015. Key financing transactions during 2016 included:

- a seven-year €500 million bond was issued in March at a coupon of 1.75%, the Group's lowest ever bond coupon

- a £420 million unsecured revolving credit facility was signed in April with a syndicate of eight banks for a maturity of five years and may be extended by a further two years. The facility has an initial margin of 90 basis points and replaced a £150 million revolving credit facility due to mature in April 2017 which featured an initial margin of 150 basis points 

- a £400 million private placement signed in November with funding received in January 2017. This consists of senior notes denominated in euro, sterling and US dollar and have a weighted average coupon of 1.7% and maturities of seven, nine, 11 and 14 years.

During the year we have benefited from low floating rates on the €1.5 billion facility used to fund the acquisitions in Ireland and Birmingham. The financing activity noted above will enable the Group to cancel the remaining commitments on this facility in early 2017. At 31 December 2016, liquidity, comprising cash and undrawn committed facilities, was £592 million, compared with £931 million at the end of 2015.

Exposure to exchange translation differences on euro-denominated assets is managed through a combination of euro borrowings and derivatives. At 31 December 2016, the value of euro-denominated liabilities as a proportion of the value of euro-denominated assets was 79%, compared with 90% at the beginning of the year. Interest on euro debt also acts as a hedge against exchange differences arising on net income from our overseas businesses. The strengthening of the euro against sterling during 2016 has resulted in modest gains to net asset value and earnings.

The Group's unsecured bank facilities and the private placement senior notes contain financial covenants that the Group's gearing, defined as the ratio of net debt to shareholders' equity, should not exceed 150% and that interest cover, defined as net rental income divided by net interest payable, should not be less than 1.25 times. The same gearing covenant applies to three of the Company's unsecured bonds, whilst the remaining bonds contain a covenant that gearing should not exceed 175%. These figures are on a proportionally consolidated basis and the bonds have no covenant for interest cover. Hammerson's financial ratios are comfortably within these covenants.

Fitch and Moody's rate Hammerson's unsecured credit as A- and Baa1 respectively. Moody's changed its outlook from stable to negative in June 2016 following the UK's EU referendum decision, stating that the heightened economic uncertainty could dampen prospects for the UK real estate sector. This was consistent with Moody's change in outlook for the UK sovereign rating from stable to negative.

Loan to value ("LTV") - New calculation methodology

The calculation of the Group's LTV has been amended to include the Group's share of net assets from our premium outlet investments in VR and VIA Outlets within the "value" denominator. These assets were previously excluded from the calculation. The Group has been acquiring interests in these investments over recent years and at 31 December 2016 our combined investment was £1.2 billion. The omission of these investments has become more significant and the change in methodology provides better comparability with our peer group. The amendment is consistent with our gearing calculation and the proportionally consolidated basis of the Group's financial information as explained on page 16.

Under the new methodology, the Group's LTV ratio at 31 December 2016 was 36% (2015: 34%), compared with 41% at 31 December 2016 (2015: 38%) under the previous methodology. The supporting calculations for both bases are in table 17 of the Additional Disclosures on page 64.

At 31 December 2016 the Group's share of net debt in VR and VIA Outlets was £468 million. On a proforma basis, proportionally consolidating this with the Group's share of VR and VIA Outlets property valuations, would increase the Group's gearing from 59% to 67%, whilst the LTV would be 39%.

Debt maturity profile at 31 December 2016 (£m)

Proportionally consolidated, excluding premium outlets

http://www.rns-pdf.londonstockexchange.com/rns/2442X_9-2017-2-18.pdf

The above analysis excludes cash and deposits, the fair value of currency swaps and unamortised bank facility fees.

1. Debt maturing in 2017 has been refinanced by the £400 million private placement funds which were received in January 2017.

RISKS AND UNCERTAINTIES

Our risk management processes are designed to reduce the chances of financial loss, protect our reputation whilst supporting the growth of the wider business and acting on opportunities when they arise. Our Risk Management Framework ('RMF') is structured around nine principal risks, contains mitigating actions and the residual risk assessment for each risk is summarised in the table below. A more comprehensive explanation of the Group's approach to risk management is included in the 2016 Annual Report.

RESPONSIBILITY STATEMENT OF THE DIRECTORS ON THE ANNUAL REPORT

The Responsibility Statement has been prepared in connection with the Company's full Annual Report for the year ended 31 December 2016. Certain parts of the Annual Report are not included in this announcement.

We confirm that to the best of our knowledge:

- The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

- The Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

- The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

By order of the Board

David Atkins

Chief Executive

Timon Drakesmith

Chief Financial Officer

17 February 2017

INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF HAMMERSON PLC ON THE AUDITED FINANCIAL RESULTS OF HAMMERSON PLC

We confirm that we have issued an unqualified opinion on the full financial statements of Hammerson plc. Our audit report on the full financial statements sets out the following risks of material misstatement which had the greatest effect on our audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those risks and the key observations arising from our work:

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.

Our liability for this report, and for our full audit report on the financial statements is to the Company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

Deloitte LLP

Chartered Accountants and Statutory Auditor

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 December 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 December 2016

CONSOLIDATED BALANCE SHEET

as at 31 December 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 December 2016

* Investment in own shares is stated at cost.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 December 2015

* Investment in own shares is stated at cost.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 December 2016

An analysis of the movement in net debt is provided in note 20.

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED 31 December 2016

1: Financial information

Statement of compliance

The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 31 December 2016. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The financial information does not constitute the Company's financial statements for the years ended 31 December 2016 or 2015, but is derived from those financial statements. Those accounts give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole. Financial statements for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 2016 and 2015 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under s498(2) or (3) of the Companies Act 2006 or preceding legislation.

Transactions with joint ventures including distributions, interest and management fees are eliminated on a proportionate basis.

During 2016, the following new and revised Standards and Interpretations have been adopted but these have not affected the amounts reported in these financial statements:

- Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS28 Investments in Associates and Joint Ventures - amendments regarding the consolidation exemption

- Amendments to IFRS 11 Joint Arrangements - amendments regarding the accounting for acquisitions of an interest in a joint operation

- Amendments to IAS 1 'Presentation of Financial Statements' - Disclosure Initiative

The principal exchange rate used to translate foreign currency denominated amounts in the balance sheet is the rate at the end of the year, £1 = €1.171 (2015: £1 = €1.357). The principal exchange rate used for the income statement is the average rate, £1 = €1.224 (2015: £1 = €1.378).

Going Concern

The Group's business activities, together with factors likely to affect its future development, performance, and position are set out in the 'Business Review', the 'Financial Review' and the 'Risks and Uncertainties'. The financial position of the Group, its liquidity position and borrowing facilities are described in the 'Business Review', the 'Financial Review' and in the Notes to the Accounts.

The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance. As part of the review, the Directors considered the Group's cash balances, its debt maturity profile, including undrawn facilities, and the long-term nature of tenant leases. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report.

2: Profit for the year

The following tables show the Group's profit for the year on a proportionally consolidated basis by aggregating the Reported Group results (shown in column A) with those from its share of Property interests (shown in column B), the latter being reallocated to the relevant financial statement lines. The Group's share of results arising from its interests in premium outlets has not been reallocated as management does not review these interests on a proportionally consolidated basis (see note 3) and these are therefore not included in the Group's share of Property interests. The Group's proportionally consolidated profit for the year in column C is then allocated between 'Adjusted' and 'Capital and other' for the purposes of calculating figures in accordance with EPRA best practice.

Notes

A Reported Group results as shown in the consolidated income statement on page 29.

B Property interests reflect the Group's share of results of Property joint ventures as shown in note 9A and Nicetoile included within note 10A.

C Aggregated results on a proportionally consolidated basis showing Reported Group together with share of Property interests.

D Aggregated results on a proportionally consolidated basis allocated between 'Adjusted' and 'Capital and other' for the purposes of calculating adjusted earnings per share as shown in note 7B.

E Included in gross rental income on a proportionally consolidated basis is £7.2 million (2015: £6.6 million) of contingent rents calculated by reference to tenants' turnover.

3: Segmental analysis

The factors used to determine the Group's reportable segments are the geographic locations (UK, France and Ireland) and sectors in which it operates, which are generally managed by separate teams and are the basis on which performance is assessed and resources allocated. Gross rental income represents the Group's revenue from its tenants and customers. Net rental income is the principal profit measure used to determine the performance of each sector. Total assets are not monitored by segment and resource allocation is based on the distribution of property assets between segments.

As stated in the Financial Review on page 16, management reviews the business principally on a proportionally consolidated basis, except for its interests in premium outlets held through its investments in Value Retail and VIA Outlets, where the Group has less day-to-day involvement in the financial performance and which have different operational characteristics from the Group's property portfolio. The segmental analysis has been prepared on the basis that management uses to review the business, rather than on a statutory basis. Property interests represent the Group's non-wholly owned properties which management proportionally consolidate when reviewing the performance of the business. For reconciliation purposes the Reported Group figures, being wholly-owned properties, are shown in the following tables.

In October 2015, the Group acquired an interest in a loan portfolio secured on retail properties located in Ireland in a 50:50 joint venture. The majority of these loans were converted into property in 2016 and these are included in note 3B. Rental income has been included in note 3A from the date of conversion. The Group's investment in the Irish joint venture is included in note 3C.

A: Revenue and profit by segment

B: Investment and development property assets by segment

C: Analysis of non-current assets employed

Included in the above table are investments in joint ventures of £3,736.7 million (2015: £3,213.6 million), which are further analysed in note 9 on pages 45 to 50. The Group's share of the property valuations held within Property interests of £3,517.8 million (2015: £2,478.4 million) has been included in note 3B above, of which £2,562.6 million (2015: £2,304.7 million) relates to the United Kingdom, £205.1 million (2015: £173.7 million) relates to Continental Europe and £750.1 million (2015: £nil) relates to Ireland.

4: Net finance costs

5: Tax

A: Tax charge

The Group's tax charge remains low because it has tax exempt status in its principal operating countries. In the UK, the Group has been a REIT since 2007 and a SIIC in France since 2004. These tax regimes exempt the Group's property income and gains from corporate taxes provided a number of conditions in relation to the Group's activities are met including, but not limited to, distributing at least 90% of the Group's UK tax exempt profit as property income distributions. The residual business in both the UK and France are subject to corporation tax as normal. The Irish properties acquired in 2016 are held in a QIAIF which provides similar tax benefits to those of a UK REIT but which will subject future distributions from Ireland to the UK to a 20% withholding tax.

B: Tax charge reconciliation