30th Aug 2005 07:00
Hammerson PLC30 August 2005 Embargoed until 7.00 a.m. - Tuesday, 30 August 2005 HAMMERSON HALF YEAR RESULTS Hammerson plc announces its unaudited results for the six months to 30 June2005. Six months to 30 June Restated under IFRS 2005 2004 ChangeNet rental income £101.3m £96.2m +5.3%Profit before tax(1) £247.3m £203.3m +21.6%Adjusted profit before tax(2) £42.8m £42.0m +1.9% Basic earnings per share(3) 72.2p 94.5p -23.6%Adjusted earnings per share(4) 14.3p 14.3p no changeDividend per share 5.80p 5.45p +6.4% 30 Jun 2005 31 Dec 2004 Restated under IFRSEquity shareholders' funds £2,615m £2,410m +8.5%Adjusted net asset value per share(5) £10.36 £9.45 +9.6% Loan to value ratio 42% 46% Gearing 63% 72% The group is reporting for the first time under International FinancialReporting Standards (IFRS). Under IFRS, Hammerson is required to includerevaluation changes on investment properties in profit before tax, and to assumethat the full amount of tax would be payable in the event of a sale of allproperties. Notes: (1) In 2005 there was a gain on investment properties and interest rate swaps of £205 million (2004: £161 million). (2) Excluding gains on investment properties and changes in the fair value of interest rate swaps. (3) In 2005 there was a deferred tax charge of £42 million, principally relating to property revaluations (2004: £139 million credit). (4) Excluding the gains on investment properties, the gains on interest rate swaps and related tax and deferred tax. (5) Excluding deferred tax and the fair value of interest rate swaps. Key points • There was an underlying valuation increase of the portfolio overall of 5.1%, or 6.2% excluding the effect of the withdrawal of relief from UK stamp duty land tax in disadvantaged areas. • Adjusted net asset value per share increased by 9.6% to £10.36. • Net rental income increased by 8.0% on a like-for-like basis. Property disposals reduced income by £10.2 million compared with the first half of 2004. • During the first half of the year, the group invested £183 million. The disposal of properties raised £217 million, 15% in excess of their book value at 31 December 2004. • The loan to value ratio was 42% at 30 June 2005. • Since 30 June 2005, the group has acquired its first retail park in France, Villebon 2, near Paris, for £104 million. • John Nelson will become Chairman on 1 October 2005, on the retirement of Ronald Spinney. The Chairman, Ronald Spinney, said today: " I am pleased to report a further robust performance by Hammerson in 2005.Adjusted net asset value per share increased by 9.6% to £10.36, whilst adjustedearnings per share was maintained at 14.3 pence. The interim dividend has beenincreased by 6.4%. During the first six months of the year, the group concluded two major officelettings in London and Paris and benefited from the first rent reviews at TheOracle shopping centre in the UK and from indexation of rents from its Frenchassets. It expanded its retail parks business with the acquisition of a schemein Kirkcaldy, Fife and the completion of Cyfarthfa Retail Park in MerthyrTydfil. Several future development projects were advanced, including majorretail-led city centre regeneration schemes in Bristol and Leicester and theredevelopment of the former Stock Exchange buildings in the City of London. Some£217 million was raised from disposals, including £179 million from the sale of14 boulevard Haussmann in Paris. The group's balance sheet and financing structure remain sound. The group hasthe resources to unlock the potential from the developments currently underwayand from the projects in the pipeline. I believe Hammerson is well placed to achieve good income growth from itsreversionary retail portfolio, notwithstanding some uncertainties over trends inconsumer expenditure in the UK. In addition, there is an encouraging improvementin demand for office accommodation, both in central London and Paris, and thisshould enable the group to achieve further lettings in its office portfolio." Copies of the Chairman's statement, income statement, balance sheet, cash flowstatement and notes are attached. The terms used in the commentary that follows,and in the key points above, are defined in the glossary of terms at the end ofthe document. Presentation Hammerson is making a presentation to investors and analysts at 9.30 a.m. todayat New Broad Street House, 35 New Broad Street, London, EC2. A conference callfacility is available for those unable to attend the presentation by dialling +44 (0)1296 317500 and stating 'Hammerson Interim Results 2005'. A copy of theslide presentation will be posted simultaneously on the Company's website(www.hammerson.co.uk). Financial calendarEx dividend date 21 September 2005Record date 23 September 2005Interim dividend payable 21 October 2005 For further information: John Richards Tel: 020 7887 1000Chief Executive Simon Melliss Tel: 020 7887 1000Group Finance Director Christopher Smith Tel: 020 7887 1019Director of Corporate Affairs Email: [email protected] CHAIRMAN'S STATEMENT I am pleased to report a further robust performance by Hammerson in 2005.Adjusted net asset value per share increased by 9.6% to £10.36, whilst adjustedearnings per share was maintained at 14.3 pence. The interim dividend has beenincreased by 6.4%. During the first six months of the year, the group concluded two major officelettings in London and Paris and benefited from the first rent reviews at TheOracle shopping centre in the UK and from indexation of rents from its Frenchassets. It expanded its retail parks business with the acquisition of a schemein Kirkcaldy, Fife and the completion of Cyfarthfa Retail Park in MerthyrTydfil. Several future development projects were advanced, including majorretail-led city centre regeneration schemes in Bristol and Leicester and theredevelopment of the former Stock Exchange buildings in the City of London. Some£217 million was raised from disposals, including £179 million from the sale of14 boulevard Haussmann in Paris. The group's balance sheet and financing structure remain sound. The group hasthe resources to unlock the potential from the developments currently underwayand from the projects in the pipeline. The last few years have seen the introduction in many jurisdictions of taxtransparent vehicles for property ownership, commonly known as REITs. Recently,successful REITs have been trading at premiums to their underlying net assetvalues. The UK Government is currently reviewing proposals for the introduction of aREIT. If implemented, it should make property accessible to a wider range ofinvestors. At the same time, it should enable the Government to achieve itsstated objectives of encouraging long term savings provision, improvingliquidity and transparency in the property market, facilitate improvements tothe quality of the UK's stock of property and encourage urban regeneration. In France, where Hammerson has expanded the size of its business in recentyears, the group continues to benefit from its entry at the beginning of 2004into the tax transparent French SIIC regime. Recent years have seen a resurgence of property as an important asset class toinvestors. Indeed, returns from property investment have exceeded those fromequities and bonds over each of the last three, five and ten year periods. Hammerson is well placed to take advantage of this environment. The group has aninvestment portfolio of the highest quality which provides a secure and growingincome stream, together with the potential for capital growth. Furthermore, Iconsider Hammerson to have the most attractive development programme of any ofEurope's major property companies. I believe Hammerson is well placed to achieve good income growth from itsreversionary retail portfolio, notwithstanding some uncertainties over trends inconsumer expenditure in the UK. In addition, there is an encouraging improvementin demand for office accommodation, both in central London and Paris, and thisshould enable the group to achieve further lettings in its office portfolio. I shall be standing down from the Board at the end of September having spent 12years with the Company. It has been a privilege to serve first as ChiefExecutive and latterly as Chairman, both of them exciting and stimulating roles.I would like to place on record my appreciation to all those who have supportedHammerson and me personally...our shareholders, bankers, partners, customers,advisers, suppliers and especially, my Board colleagues and the team atHammerson. John Nelson, who succeeds me as Chairman, joined the Board as anon-executive director in May 2004. He has had a distinguished career as asenior investment banker and I am confident that Hammerson will continue toprosper under his leadership. Ronald Spinney, Chairman 30 August 2005 OPERATING AND FINANCIAL REVIEW International Financial Reporting Standards In common with all companies listed on European Union stock exchanges, Hammersonadopted IFRS with effect from 1 January this year. The group issued its 2004full year financial statements restated under IFRS on 26 April 2005. Thatreport, together with reconciliations to, and explanations of the differencesfrom, the figures as they were reported under UK GAAP, is available on theCompany's website, www.hammerson.co.uk. This interim report is prepared inaccordance with IFRS and further details relating to the transition to IFRS areprovided in the notes to the accounts. The adoption of IFRS has changed the presentation and format of the interimreport. However, it has no impact on the cash flows of the business or itsunderlying performance. Results and dividend Net rental income for the six months to 30 June 2005 was £101.3 million,compared with £96.2 million for the corresponding period in 2004. On alike-for-like basis, net rental income increased by 8%. An analysis of netrental income is shown below. Six months to Six months to) 30 June 2005 30 June 2004) £m £m) Properties owned throughout 91.4 84.6)Acquisitions 6.9 0.8)Developments 1.6 (0.6)Properties sold - 10.2)Exchange translation and other 1.4 1.2) 101.3 96.2) Profit before tax was £247.3 million, compared with £203.3 million in the firsthalf of 2004. In 2005, there was a profit of £31.5 million on property sales,which principally arose on the sale of Neo, 14 boulevard Haussmann, Paris 9eme.Profit before tax also included gains on the revaluation of investmentproperties of £169.2 million. An analysis of profit before tax is shown below. Six months to Six months to Year ended 30 June 2005 30 June 2004 31 December 2004 £m £m £m Profit before tax 247.3 203.3 413.4Less:Profit on sale of investment properties 31.5 22.4 40.3Revaluation gains on investment properties 169.2 138.9 283.7Negative goodwill - - 6.2Movement in fair value of interest rate swaps 3.8 - - Adjusted profit before tax 42.8 42.0 83.2 Adjusted profit before tax rose by £0.8 million compared with the equivalentperiod last year. Rent reviews in the UK, indexation in France and the receiptof surrender premiums increased profits by £4.6 million, although this waslargely offset by income foregone in respect of properties sold in 2004 andfinance and void costs at recently completed developments. Adjusted earnings per share was maintained at 14.3 pence reflecting the increasein underlying profit discussed above, which was partly offset by a marginalincrease in the related tax charge.There was a tax charge of £44.1 million for the six months to 30 June 2005,compared with a £58.4 million tax credit for the equivalent period of 2004. Thetax credit in 2004 reflected the effects of entry to the SIIC regime in France,resulting in a current tax charge of £70.6 million and a deferred tax credit of£165.5 million. Excluding the effects of the SIIC regime, the current tax chargehas reduced from £10.0 million in 2004 to £1.9 million in 2005, principally dueto the inclusion of tax on disposals in the charge for 2004. On the same basis,the deferred tax charge has increased from £26.5 million to £42.2 million,reflecting the investment property revaluation surplus and future dividendsreceivable from Hammerson France. The directors have declared an interim dividend of 5.80 pence per share payableon 21 October 2005, an increase of 6.4%. Balance sheet and financing At 30 June 2005, Hammerson's property portfolio was valued at £4,767 million,compared with £4,603 million at the end of 2004. The increase arose from capitaladditions of £187 million, a revaluation surplus of £231 million, partly offsetby the disposal of properties with a book value of £189 million and exchangetranslation losses of £65 million. Borrowings at the end of June stood at £1,884 million and cash and deposits at£233 million so that net debt was £1,651 million compared with £1,746 million at31 December 2004. The decrease in net debt over the period reflected cashreceived from disposals. The group's financing structure was strengthened further in May by the signingof a £370 million five year revolving credit facility. The average maturity ofthe group's debt is currently 10 years. Hammerson had cash, short term depositsand unutilised committed bank facilities totalling £719 million at 30 June 2005. The group's borrowings at 30 June 2005, excluding cash and deposits, butincluding foreign currency swaps, were equivalent to 42% of the value of theproperty portfolio. Equity shareholders' funds increased by £205 million to £2,615 million in thesix months to 30 June 2005, mainly due to the property valuation uplift, partlyoffset by a related provision for deferred tax. Since 30 June 2005, the companyhas issued 7.1 million ordinary shares at a price of 858 pence per share inconsideration for the acquisition of the share capital of a private group ofcompanies owning the Villebon 2 Retail Park near Paris. During the first half of the year, adjusted net asset value per share increasedby 91 pence, or 9.6%, to £10.36 and an analysis is shown below. As at 30 June 2005 As at 31 December £m 2004 £m Basic net asset value 2,614.8 2,410.2Effect of dilution:On exercise of options 10.2 8.8 Diluted net asset value 2,625.0 2,419.0Adjustments:Fair value of derivative financial instruments (9.5) -Deferred tax on revaluation surpluses and other items 242.6 187.9Deferred tax on capital allowances 30.5 25.5 Adjusted net asset value 2,888.6 2,632.4 Basic net assets per share (pence) from IFRS balance 942.0 869.0sheetAdjusted net assets per share (pence) 1,036 .0 945.0 Basic shares in issue used for calculation (million) 277.6 277.3Diluted shares used for calculation (million) 278.7 278.5 Cash flow The cash flow from operating activities for the six months to 30 June 2005 was£45 million compared with £12 million for the same period last year. Theincrease principally reflected the timing of working capital receipts andpayments, and in particular the receipt of VAT on the disposal of Neo, 14boulevard Haussmann, in Paris which was paid to the French tax authorities inJuly. Capital expenditure of £183 million was more than offset by the proceedsof property sales of £217 million, most of which arose from the sale of Neo, 14boulevard Haussmann. Overall there was a net cash inflow, after financing, of£180 million for the first six months of the year. Portfolio Hammerson's property portfolio was valued at £4.8 billion at 30 June 2005.During the first six months, the retail weighting of the portfolio increasedfrom 69% to 71%, whilst the weighting in the UK increased from 69% to 73%. A table of property valuations and movements for the six months to 30 June 2005is shown below: Shopping Centres Retail Parks Offices Total Value £m % change Value £m % change Value £m % change Value £m % change UK 1,868 4.1 621 7.7 1,004 6.2 3,493 5.3 France 757 5.5 - - 376 8.9 1,133 6.6 Germany 141 (10.6) - - - - 141 (10.6) Total 2,766 3.6 621 7.7 1,380 6.9 4,767 5.1 There was an underlying valuation increase of the group's portfolio overall of5.1%, with the valuation of the retail and office portfolios increasing by 4.4%and 6.9% respectively. In the UK, the withdrawal of stamp duty relief indisadvantaged areas reduced the portfolio valuation by £54 million. Withoutthis, the UK portfolio would have increased in value by 6.9% and the totalportfolio by 6.2%. In the UK and France, the valuation uplifts reflected both growth in rentalincome and an inward yield shift. The decline in value of the group's propertiesin Germany reflected adverse conditions for German retailers and lower rentalvalues. In April, Hammerson acquired the freehold interest in Fife Central Retail Parkin Kirkcaldy for £75 million. The 27,000 m(2) retail park has significantreversionary potential, with further opportunities to add value through activeasset management and an extension. Since 30 June 2005, the group has acquired, for £104 million, its first retailpark in France, Villebon 2, near Paris. The 40,300 m(2) scheme, which adjoins anAuchan hypermarket, is one of the largest and most successful retail parks inFrance. It offers good rental growth prospects and has planning approval for anextension of 5,500 m(2). During the first half of the year, Hammerson disposed of two properties. Neo, 14boulevard Haussmann, Paris 9eme, a 26,700 m(2) office property, was sold in Junefor £179 million, 19% above its value at 31 December 2004. SittingbourneIndustrial Estate was sold for £34 million in March. This property was acquiredby Hammerson in February 2003 for £17 million. Terms have been agreed for thegroup to undertake the management role for the proposed redevelopment of thesite as a mixed-use town centre scheme to be anchored by a major foodsuperstore. In April, Hammerson's first retail park development was opened at Cyfarthfa inMerthyr Tydfil at a total development cost of £35 million. With three remainingunits now in solicitors' hands, the park is anticipated to produce an annualrental income of £4.1 million. At 30 June 2005, the scheme was valued at £33million above cost. During the first half of the year, there was an underlying increase in retailrents in the UK of 15.3% compared with the first six months of 2004. At TheOracle shopping centre in Reading, nearly all the rent reviews have now beenagreed, resulting in rents overall being approximately one third higher than theprevious passing rents. In France, rents are subject to annual indexation whichcontributed to an increase in retail rents of £2.2 million, or 11%, over thecomparable figure for 2004. During the first half of the year, seven units became vacant in the UK shoppingcentre portfolio and a further 26 units were occupied by retailers which wentinto administration. Of these 33 units, new leases have since been agreed inrespect of 27, giving rise to an increase in rents of £360,000 per annum. Thereis good interest in the six remaining units. In Germany, the group has recently commenced a substantial refurbishment atForum Steglitz, its shopping centre in Berlin. This will cost some £28 millionand will complete in the spring of 2006. A number of existing occupiers will berelocating within the reconfigured space and there is good interest from newretailers for representation in the centre. Currently, over 50% of the totalscheme is let, under offer, or in negotiation. At Moorhouse, London EC2, a lease was signed in June with HVB Group, theinternational bank, for 9,300 m(2) of office accommodation in the 30,100 m(2)building. There is an encouraging level of interest from potential occupiers forthe remaining space. Since 30 June, the group has agreed a lease of approximately 2,300 m(2) ofoffices at One London Wall. Following this transaction the building is over 60%let. Hammerson has also signed a lease since 30 June in respect of 3,960 m(2) ofoffice space for its own occupation at 10 Grosvenor Street, London W1, abuilding developed as a 50:50 joint venture with Grosvenor. Hammerson'srelocation will provide it with modern efficient space to meet both itsimmediate and future requirements. Hammerson and Grosvenor, which owns thefreehold of 100 Park Lane, the group's current headquarters, will jointly marketthe long leasehold interest in this building and share the proceeds from thissale. Developments at 30 June 2005 Estimated total Amount let Cost at development or under AnticipatedCurrent Projects Ownership Size 30/6/05 cost offer by completion interest m(2) £m £m area date OfficesBishops Square, London E1 75% 75,900 221 * 285 * 98% July 200519 Hanover Square, London W1 100% 2,900 20 22 nil Aug 20059 place Vendome, Paris 1er 50% 27,700 68 * 86 * 66% Apr 2006 Retail parksSt Oswald's, Gloucester (Phase 100% 20,200 47 60 89% Sept 20051)The Avenue Retail Park, Cardiff 100% 4,500 20 25 78% Jan 2006B&Q, Dallow Road, Luton 100% 8,700 19 28 100% Mar 2006Westwood & East Kent, Thanet 100% 8,400 9 17 81% Mar 2006 * Indicates Hammerson's share of the total costs Seven developments, with an estimated total cost of £523 million, were inprogress at 30 June, the cumulative costs to Hammerson of which were £404million. Hammerson's share of the future rental income from these schemes, forwhich leases have already been signed or agreed, amounts to £39 million perannum. A further £5 million of annual rental income is anticipated when theproperties are fully let. At 30 June 2005, these seven properties had produced avaluation surplus of £142 million above their cost. Since 30 June, Hammerson has reached practical completion of Bishops Square, a75,900 m(2) scheme in the City of London, being carried out in a 75:25 jointventure with The Corporation of London. The 71,900 m(2) office element has beenhanded over for fitting out works to the occupier, Allen & Overy, a leadinginternational law firm. There has been an encouraging level of interest in the4,000 m(2) of retail space, with 18 of the 21 retail and restaurant units nowlet or under offer, representing 86% of the anticipated retail rental income.Hammerson's share of the estimated total development cost, which includes afitting out contribution to Allen & Overy, is £285 million. The group's share ofthe projected income at the end of rent free periods is just over £25 millionper annum. Practical completion of 19 Hanover Square has also been achievedsince 30 June and marketing of this small office building will commence duringSeptember. In central Paris, work is progressing well at 9 place Vendome, Paris 1er, a 50:50 joint venture with AXA, to create 22,200 m(2) of high quality officeaccommodation and 5,500 m(2) of prime retail space, with completion scheduledfor April 2006. In June of this year, a pre-let agreement was signed withClifford Chance, a major international firm of lawyers, in respect of 13,000 m(2) of the new office accommodation and 1,800 m(2) of ancillary space.Hammerson's share of the income from this lease, after the expiry of rent freeperiods, will amount to £3.4 million per annum. With leases for five of theeight retail units agreed, the scheme is now 66% let overall. St Oswald's in Gloucester is a mixed-use scheme, involving a retail park,leisure facilities and 450 residential units. The first phase of the scheme,which provides 20,200 m(2) of retail space and leisure facilities, was 89% letat 30 June and will officially open in September 2005. The estimated developmentcost of this element of the scheme is £60 million. In respect of the residentialcomponent, Hammerson has entered into a conditional contract to sell itsinterest to Westbury Homes, the residential developer. In March 2005, work started on the construction of a new 8,700 m(2) store for B&Q at Dallow Road, Luton. In April, work began on a 4,500 m(2) extension andrefurbishment to the Avenue Retail Park in Cardiff, with completion scheduledfor early 2006. The majority of the new space has been let to Homebase. At Westwood and East Kent Retail Parks in Thanet, Kent, work is now underway ona 8,400 m(2) extension to Hammerson's existing 16,600 m(2) retail park at anestimated total development cost of £17 million. Around 80% of the extension hasbeen let or is under offer to Homebase, Sportsworld and Argos. Potential developments 2005/2006 Hammerson maintains an active development programme with the objectives ofachieving good returns and creating high quality properties of a type notgenerally available in the open market. The group continues to build on itsexcellent reputation for its approach to urban regeneration, its ability toforge strong relationships with local authorities and its skills in deliveringcomplex development projects. Six further development projects could start during the remainder of 2005 and2006. These include major retail-led, mixed-use schemes in Bristol andLeicester. Indicative totalProject Ownership interest Size development costs % m(2) £mRetail schemesBroadmead, Bristol 50 140,000 230 * New Shires, Leicester 60 60,000 190 * Union Square, Aberdeen 50 50,000 80 * Offices125 Old Broad Street, London EC2 100 32,000 16060 Threadneedle Street, London EC2 100 20,600 110Opera Capucines, Paris 2eme 50 10,200 35 * Total 805 * Indicates Hammerson's share of the total costs Broadmead in Bristol, a mixed-use retail-led scheme of around 140,000 m(2), isbeing developed by the Bristol Alliance, a 50:50 joint venture between Hammersonand Land Securities Group PLC. Earlier this year the department store was let toHouse of Fraser. An unconditional development agreement with Bristol CityCouncil is now in place and a start on site is imminent. Hammerson's estimatedtotal development cost in respect of the Broadmead redevelopment is £230 millionand the group's share of the projected income is around £16 million per annum. In Leicester, the group is working with Hermes in a 60:40 joint venture to carryout a major expansion of the existing shopping centre, The Shires. The NewShires scheme includes 60,000 m(2) of additional retail space, which is to beanchored by John Lewis Partnership, leisure facilities, and residential units.Demolition of existing buildings and enabling works are underway and it isanticipated that construction will begin in early 2006, with completion in 2008.Hammerson's 60% share of the estimated total development cost of New Shires is£190 million and its share of the projected income is around £12 million perannum. Union Square, Aberdeen, which was part of the portfolio acquired by Hammersonfrom the former Railtrack, is a 50:50 joint venture with Stannifer. The schemehas planning consent for 50,000 m(2) of mixed-use space, incorporating a retailpark, retail mall and leisure facilities. Leasing is progressing well, with 39%of the scheme let or under offer. Construction is anticipated to start next yearat an estimated total development cost to Hammerson of £80 million. Since purchasing the freehold of the former London Stock Exchange buildings in2004, which had planning consent for 45,500 m(2) of office and retailaccommodation, Hammerson has been successful in expanding and enhancing thepotential schemes. In April 2005, a resolution to grant a revised planningconsent was passed for the refurbishment of the 26-storey tower building at 125Old Broad Street, to provide 31,400 m(2) of office accommodation and 600 m(2) ofretail space. In addition, at the end of July, a resolution to grant a revisedplanning consent was passed for 60 Threadneedle Street, a 20,600 m(2)nine-storey building, incorporating 870 m(2) of retail space. A decision will bemade shortly on the timing of the start on the first scheme, 125 Old BroadStreet. Opera Capucines, Paris 2eme, is a 50:50 joint venture with MAAF to create 5,700m(2) of office and 4,500 m(2) of retail accommodation in a prime central Parislocation. Esprit has agreed to occupy 2,500 m(2) of retail space. Constructionof the new development is due to begin in the first quarter of 2006. Future developments In addition to the schemes outlined above, Hammerson has invested approximately£85 million to create and advance further development opportunities. Theprojects currently generate an interim income of around £2 million per annum andfall into four principal categories: major retail-led, mixed-use schemes;extensions to existing shopping centres; retail parks; and offices. Firstly, the group is working in partnership with local authorities and councilsto advance several major retail-led city centre schemes. These includedevelopments in Kingston-upon-Thames, Leeds, Peterborough and Sheffield. Secondly, within Hammerson's retail portfolio there are several opportunities toextend and enhance a number of its shopping centres, including Brent Cross innorth London, WestQuay in Southampton, The Oracle in Reading and four of thegroup's French shopping centres. The extensions to these schemes could add asubstantial amount of retail and leisure space to the portfolio. Thirdly, Hammerson has a number of opportunities to develop and expand itsexisting retail parks portfolio, which include an 11,800 m(2) extension to FifeCentral Retail Park in Kirkcaldy, a 6,000 m(2) extension to Berkshire RetailPark, Theale and a scheme in Nice, France. Fourthly, through its acquisition of the Railtrack portfolio at the end of 2002,Hammerson has the potential to expand its commercial portfolio in London byaround 325,000 m(2), including 200,000 m(2) of offices. Hammerson is currentlyprogressing a project in Bishopsgate, London EC1, having entered into an optionagreement with Hackney Council enabling it to acquire a development siteadjoining the group's existing Norton Folgate site. Hammerson intends to submita planning application at the end of 2005 for a mixed-use development of 79,000m(2), incorporating 43,000 m(2) of offices. The group is also advancing majormixed-use schemes at Shoreditch High Street, Bishopsgate Goodsyard andPaddington. Markets and outlook Retail property In the UK, many retailers experienced a marked slowdown in sales growth in thefirst half of 2005. Despite this, prime retail assets continued to meet with agood level of demand from tenants. With the environment likely to remaincompetitive, retailers are expected to continue to focus on prime shoppingcentres offering high turnovers and lower cost retail parks, in both instancessupporting continued rental growth. In France, retail sales continued to grow in the first half of 2005, though therate of growth reduced during the second quarter of the year. Nonetheless, therehas been demand for space in shopping centres, leading to a modest increase inrental values. In Germany there are now signs of economic recovery, but this has not yet beenreflected in higher consumer spending. Demand from retailers for space remainsweak. Office property In central London, take-up of office space during the first six months of 2005was maintained at similar levels to those seen in the second half of 2004.Combined with only a limited amount of new space being added to the market, thevacancy level fell from 12.3% at the end of 2004 to 10.5% by the middle of thisyear. Although the level of vacancy remained higher in the City, this marketalso saw a reduction in available space during the first half of the year.Headline rents have so far remained stable during 2005, though there are somesigns that rent free periods required to secure tenants are shortening. Lookingahead, a low level of new supply, particularly of large office buildings in theCity, and further falls in vacancy during the remainder of 2005 and in 2006, areexpected to lead to growth in headline rents during 2006. In central Paris, the rate of office take-up was also similar to that seenduring 2004. Vacancy was stable at 5.5% and prime headline rents were unchangedduring the first half of the year. Additional take-up is projected to lead to areduction in vacancy and an increase in rents during 2006. Investment market Sentiment towards property investment in the UK and France has continued to befavourable, with strong demand from a wide range of investors, whilst in Germanythere has been an awakening interest from investors. The UK market has seen alarge number of transactions involving both office and retail assets. In France,the few assets that have been brought to the market have attracted stronginterest. As a result, yields for prime retail and office assets in both the UKand France have fallen, leading to increased capital values. Property Portfolio Information For the six months ended30 June 2005 Net Properties True Underlying Estimated rental at equivalent valuation Vacancy Rents rental Reversionary/ income valuation yield change rate passing value (Over-rented) £m £m % % % £m £m %Notes (1) (2) (3) (4)United KingdomRetail: Shopping 43.2 1,867.9 5.5 4.1 3.0 93.1 106.3 10.8 centres Retail parks 12.3 620.6 5.4 7.7 5.4 23.5 28.6 11.4 55.5 2,488.5 5.5 5.0 3.6 116.6 134.9 10.9 Office: City 7.1 727.3 6.3 7.0 35.2 20.0 24.0 (20.2) West End 0.6 99.0 5.9 12.3 65.0 1.9 5.5 - Docklands & 4.5 178.3 7.2 - 13.6 11.3 11.5 (13.9) other 12.2 1,004.6 6.5 6.2 26.9 33.2 41.0 (15.7)Total United Kingdom 67.7 3,493.1 5.7 5.3 8.6 149.8 175.9 4.1 Continental EuropeFranceRetail 21.9 757.0 6.2 5.5 2.5 45.2 51.6 12.5Office 9.1 375.8 5.7 8.9 0.3 16.0 16.9 (0.2)Total France 31.0 1,132.8 6.1 6.6 2.3 61.2 68.5 9.1 GermanyRetail 2.6 140.8 6.8 (10.6) 13.6 8.9 10.0 5.5Total Continental Europe 33.6 1,273.6 6.2 4.4 5.8 70.1 78.5 8.6 GroupRetail 81.3 3,386.3 5.7 4.4 4.3 170.7 196.5 11.1Office 20.0 1,380.4 6.3 6.9 23.7 49.2 57.9 (11.2)Total Group 101.3 4,766.7 5.8 5.1 7.8 219.9 254.4 5.4 Selected information at 31 December 2004 GroupRetail 3,198.7 5.9 4.7 165.2 190.9 12.3Office 1,404.3 6.5 28.3 54.9 68.9 (8.2)Total Group 4,603.0 6.1 9.4 220.1 259.8 6.2 Notes (1) True equivalent yield is based on rents passing and estimated rental values. The calculation excludes properties in the course of development. (2) Rents passing after deducting head and equity rents post any rent free periods. (3) Estimated rental value including vacant space and after deducting head and equity rents. (4) The amount by which the estimated rental value exceeds or falls short of the rents passing, together with the estimated rental value of vacant space. Consolidated Income Statement Six months *Six months *Year ended ended ended 31 December 2004 30 June 2005 30 June 2004 Audited Unaudited Unaudited £m Notes £m £m 219.6 Gross rental income 119.6 109.9 Operating profit before gain on 162.9 investment properties 2 87.1 82.8 330.2 Gain on investment properties 2 200.7 161.3 493.1 Operating profit 2 287.8 244.1 (97.7) Finance costs (50.8) (49.5) 18.0 Finance income 6.5 8.7 - Change in fair value of interest rate 3.8 - swaps (79.7) Net finance costs 4 (40.5) (40.8) 413.4 Profit before tax 247.3 203.3 (80.9) Current tax 5(a) (1.9) (80.6) 104.2 Deferred tax 5(a) (42.2) 139.0 23.3 Tax (charge)/credit (44.1) 58.4 436.7 Profit for the period 203.2 261.7 Attributable to: 431.4 Equity shareholders 199.7 260.8 5.3 Minority interests 3.5 0.9 436.7 Profit for the period 203.2 261.7 156.2p Basic earnings per share 7 72.2p 94.5p 155.9p Diluted earnings per share 7 72.0p 94.3p Adjusted earnings per share are shown in note 7. *Restated under IFRS (see note 19). Consolidated Balance Sheet *31 December 2004 30 June 2005 *30 June 2004 Audited Unaudited Unaudited £m Notes £m £m Non-current assets 4,603.0 Investment and development properties 8 4,766.7 4,003.9 32.6 Interests in leasehold properties 32.6 33.6 6.2 Plant, equipment and owner-occupied property 6.2 6.3 46.4 Investments 9 47.9 42.7 - Deferred tax 5(c) - 2.0 21.2 Loans receivable 10 20.3 27.5 2.1 Other receivables 2.5 - 4,711.5 4,876.2 4,116.0 Current assets 85.5 Receivables 11 71.9 89.6 53.7 Cash and deposits 12 233.6 230.4 139.2 305.5 320.0 4,850.7 Total assets 5,181.7 4,436.0 Current liabilities 209.4 Payables 13 190.3 205.7 63.0 Tax liabilities 61.6 63.9 0.7 Borrowings 14 1.9 156.2 273.1 253.8 425.8 Non-current liabilities 1,798.8 Borrowings 14 1,882.5 1,497.8 213.4 Deferred tax 5(c) 273.1 141.0 35.4 Tax liabilities 33.7 50.3 32.9 Obligations under finance leases 32.9 33.9 13.0 Pension deficit 17.1 10.3 32.2 Other payables 30.6 31.4 2,125.7 2,269.9 1,764.7 2,398.8 Total liabilities 2,523.7 2,190.5 2,451.9 Net assets 2,658.0 2,245.5 Equity 69.3 Called up share capital 69.4 69.2 597.8 Share premium account 16 599.5 595.6 89.4 Revaluation reserve 16 108.2 54.2 5.4 Translation reserve 16 (55.6) (61.7) - Hedging reserve 16 53.7 - 7.2 Capital redemption reserve 16 7.2 7.2 4.4 Other reserves 16 4.9 3.8 1,638.6 Retained earnings 16 1,831.4 1,541.8 (1.9) Investment in own shares 17 (3.9) (1.7) 2,410.2 Equity shareholders' funds 2,614.8 2,208.4 41.7 Equity minority interests 43.2 37.1 2,451.9 Total equity 2,658.0 2,245.5 869p Diluted net asset value per share 7 942p 797p 945p Adjusted net asset value per share 7 1,036p 847p *Restated under IFRS (see note 19). Consolidated Statement of Recognised Income and Expense *31 December 2004 30 June 2005 *30 June 2004 Audited Unaudited Unaudited £m Notes £m £m 0.1 Foreign exchange translation differences (63.1) (12.2) Net gain on hedge of net investment in foreign subsidiaries - 53.7 - 61.6 Revaluation gains on development properties 61.3 13.6 Revaluation gains on investments and owner-occupied property 5.9 1.5 2.1 (4.2) Actuarial losses on pension schemes (3.5) (1.1) 1.1 Employee share options 0.5 0.5 (17.7) Tax on items taken directly to equity 5(b) (16.7) (2.2) 46.8 Net gain recognised directly in equity 33.7 0.7 436.7 Profit for the period 203.2 261.7 - Transition adjustment on adoption of IAS39 1 5.7 - - Deferred tax thereon 1,5(b) (1.7) - 483.5 Total recognised income and expense 240.9 262.4 Attributable to: 478.2 Equity shareholders 239.3 263.4 5.3 Minority interests 1.6 (1.0) 483.5 Total recognised income and expense 240.9 262.4 Consolidated Statement of Changes in Equity *31 December 2004 30 June 2005 *30 June 2004 Audited Unaudited Unaudited £m Notes £m £m Opening equity shareholders' funds 2,168.2 - as previously reported 2,410.2 2,168.2 (193.0) - effect of adopting IFRS 19 - (193.0) 1,975.2 Opening equity shareholders' funds restated 2,410.2 1,975.2 3.9 Issue of shares 1.8 1.6 - Acquisition of own shares (2.3) - 0.3 Amortisation of investment in own shares 0.3 0.5 1,979.4 2,410.0 1,977.3 478.2 Total recognised income and expense 239.3 263.4 2,457.6 2,649.3 2,240.7 (47.4) Dividends (34.5) (32.3) 2,410.2 Closing equity shareholders' funds 2,614.8 2,208.4 * Restated under IFRS (see note 19). Consolidated Cash Flow Statement *31 December 2004 30 June 2005 *30 June 2004 Audited Unaudited Unaudited £m Notes £m £m Operating activities 162.9 Operating profit before gain on investment 87.1 82.8 properties 1.8 Adjustment for non-cash items 18 0.9 0.5 14.3 Decrease in receivables 24.4 12.8 (17.4) Increase/(Decrease) in payables 16.6 (20.1) 161.6 Cash generated from operations 129.0 76.0 (100.1) Interest paid (89.0) (70.7) 21.0 Interest received 7.0 8.4 (22.0) Tax paid (1.8) (2.2) 60.5 Cash flows from operating activities 45.2 11.5 Investing activities (99.7) Purchase of property (86.7) (7.9) (223.5) Development of property (96.2) (109.8) 398.7 Sale of property 217.2 245.3 - Purchase of own shares 17 (2.3) - Purchase of interests in joint ventures and subsidiary companies (221.1) - - 5.6 (Increase)/Decrease in other long term receivables (0.5) - (140.0) Cash flows from investing activities 31.5 127.6 Financing activities 3.9 Issue of shares 1.8 1.6 239.8 Increase in medium and long term borrowings 120.4 16.5 (249.4) Increase/(Decrease) in short term borrowings 15.7 (80.7) (1.7) Dividends paid to minorities - - (47.4) Equity dividends paid (34.5) (32.3) (54.8) Cash flows from financing activities 103.4 (94.9) (134.3) Net increase/(decrease) in cash and deposits 180.1 44.2 187.0 Opening cash and deposits 53.7 187.0 1.0 Exchange translation movement (0.2) (0.8) 53.7 Closing cash and deposits 12 233.6 230.4 *Restated under IFRS (see note 19). Notes to the Accounts 1. FINANCIAL INFORMATION The financial information contained in this report does not constitute statutoryaccounts within the meaning of section 240 of the Companies Act 1985. The fullaccounts for the year ended 31 December 2004, which were prepared under UK GAAPand which received an unqualified report from the auditors, and did not containa statement under s237(2) or (3) of the Companies Act 1985, have been filed withthe Registrar of Companies. The unaudited financial information contained inthis report has been prepared on the basis of the accounting policies set out innote 19. Comparative figures for the year ended 31 December 2004 containedwithin this report were published in a press release on 26 April 2005, andfurther details and reconciliations explaining the transition to IFRS areavailable on the group's website, www.hammerson.co.uk. The principal exchange rate used to translate foreign currencydenominated amounts in the balance sheet is the rate at the end of the period,£1 = €1.48. The principal exchange rate used for the income statement is theaverage rate, £1 = €1.46. Transitional adjustment on adoption of IAS 39 The group has taken advantage of the exemption in IFRS 1, which allows thedeferral of the accounting and disclosure requirements of IAS 32 'FinancialInstruments: Disclosure and Presentation' and IAS 39 'Financial Instruments:Recognition and Measurement'. As such the effective date of transition to IFRSin relation to these standards is 1 January 2005. The effect of the change isto include the fair value of interest rate swaps in the balance sheet at fairvalue and to recognise changes in their fair value in the income statement. Asat 1 January 2005, retained earnings and equity shareholders' funds areincreased by £5.7m, representing the fair value of interest rate swaps, at thattime, less the related deferred tax provision of £1.7m. Notes to the Accounts 2. OPERATING PROFITRelated Shares:
Hammerson