4th Sep 2006 07:01
Hammerson PLC04 September 2006 HAMMERSON HALF YEAR RESULTS Hammerson plc announces its unaudited results for the six months to 30 June2006. Six months to 30 June 2006 2005 Change Net rental income £109.3m £101.3m +7.9%Profit before tax £384.8m £247.3m +55.6%Adjusted profit before tax(1) £44.8m £42.8m +4.7% Basic earnings per share(2) 112.3p 72.2p +55.5%Adjusted earnings per share, EPRA basis(3) 3.3p 14.3p -76.9%Adjusted earnings per share(4) 15.1p 14.3p +5.6%Interim dividend per share 6.38p 5.80p +10.0% 30 Jun 2006 31 Dec 2005 Equity shareholders' funds £3,482m £3,126m +11.4%Adjusted net asset value per share, EPRA basis(3) £13.89 £12.37 +12.3%Gearing 62% 66% Notes: (1) Excluding gains on investment properties, the change in the fair value of interest rate swaps and bond redemption costs totalling £340 million (2005: £205 million). (See page 4) Includes the items listed above in note (1).(2) The European Public Real Estate Association ("EPRA") has issued recommended bases for the(3) calculation of certain adjusted data. Further details of these calculations are provided in note 7 to the accounts. (See page 22) Excluding gains on investment properties, the change in the fair value of interest rate swaps, bond redemption costs, deferred tax and related minority interests, as set out in note 7 to the accounts.(4) Key points • Adjusted net asset value per share increased by 12.3% to £13.89. • Strong portfolio capital return of 8.1% in the first six months of2006. • During the first half of the year, the group invested £168 million andraised £138 million from disposals. Several major transactions have beencontracted since 30 June 2006, including the acquisition of a portfolio ofretail parks in the UK for £425 million and the sale of Liberty Shopping Centre,Romford, for £281 million. • The redevelopment of 9 place Vendome in Paris wassuccessfully completed; two major developments were started at an estimatedtotal cost of £360 million. • In May, Hammerson announced its intention to become a REIT inJanuary 2007, following which the group will be exempt from corporation tax bothon UK rental income and gains arising on UK investment property sales. The Chairman, John Nelson, said today: "I am delighted to report an excellent set of results for the first six monthsof 2006. Adjusted net asset value per share increased by 12.3% to £13.89, whilstadjusted earnings per share of 15.1 pence were 5.6% higher than in the firsthalf of 2005. The interim dividend has been raised by 10.0%. This year has been one of vigorous activity. We made good progress in lettingspace within the office portfolio and maintaining high occupancy levels at ourretail schemes. We completed a very profitable development at 9 place Vendome inParis, advanced the two major retail schemes currently underway in Bristol andLeicester, and enhanced our development pipeline. In addition, we have continuedour active recycling of capital. Some £550 million has been raised fromdisposals this year and over £600 million invested in properties and developmentprojects offering the potential for higher returns. We are maintaining our strategy of focusing on key property markets in the UKand France and adding value through asset management, development activity andcapital recycling. The group has an investment portfolio and developmentprogramme of exceptional quality and I have great confidence in Hammerson'sfuture performance." 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 on the interim results to investors andanalysts at 9.30 a.m. today at New Broad Street House, 35 New Broad Street,London, EC2. A conference call facility is available for those unable to attendthe presentation by dialling + 44 (0) 1296 480180 and entering PIN number 056977#. A copy of the slide presentation will be posted simultaneously on theCompany's website (www.hammerson.com). Financial calendar Ex dividend date 20 September 2006 Record date 22 September 2006 Interim dividend payable 20 October 2006 Further information: John Richards, Chief Executive Tel: +44 (0) 20 7887 1000 Simon Melliss, Group Finance Director Tel: +44 (0) 20 7887 1000 Christopher Smith, Director of Corporate Affairs Tel: +44 (0) 20 7887 1019 Email: christopher.smith@hammerson.com CHAIRMAN'S STATEMENT I am delighted to report an excellent set of results for the first six months of2006. Adjusted net asset value per share increased by 12.3% to £13.89, whilstadjusted earnings per share of 15.1 pence were 5.6% higher than in the firsthalf of 2005. The interim dividend has been raised by 10.0%. This year has been one of vigorous activity. We made good progress in lettingspace within the office portfolio and maintaining high occupancy levels at ourretail schemes. We completed a very profitable development at 9 place Vendome inParis, advanced the two major retail schemes currently underway in Bristol andLeicester, and enhanced our development pipeline. We continued to focus onrecycling capital from mature assets into properties and development projectsoffering the potential for higher returns. In the first six months, some £138million was raised from disposals, whilst new investment totalled £168 million. Momentum has been maintained since 30 June, with the acquisition of a portfolioof five retail parks in the UK for £425 million and the imminent start on siteof a major expansion of the group's Parinor shopping centre near Paris. Afurther £414 million has been raised from disposals, including £281 million fromthe sale of Liberty Shopping Centre in Romford. Demand for office accommodation both in central London and Paris improvedfurther in 2006. Conditions for retailers have remained challenging,particularly in the UK. However, Hammerson has continued to attract retailers toits schemes and developments. Property investment markets in which the groupoperates remain strong. Looking ahead, I anticipate that investors willincreasingly favour properties which combine a secure and growing rental income,the characteristics displayed by Hammerson's portfolio, as these offer theprospects of superior returns and greater resilience if markets weaken. The group's balance sheet and financial resources were further strengthenedduring the first half of 2006 with three major new medium term financings. At 30June, the group's gearing was 62% and the group had over £1 billion of undrawncommitted facilities and cash. In May, we announced that Hammerson intends to enter the new tax-exempt REITregime to take effect on 1 January 2007. This will involve the payment by thegroup of a one-off entry charge of 2% of the value of its UK properties at 31December 2006. Based on their 30 June 2006 values, the charge would have beenaround £96 million, whilst some £410 million of the group's provision fordeferred tax on unrealised UK capital gains and capital allowances would nolonger have been required. Following conversion, the group will be exempt fromcorporation tax both on UK rental income and gains arising on UK investmentproperty sales. The group continues to benefit from its tax exempt status inFrance following its entry in 2004 into the similar SIIC tax regime. Further detailed regulations regarding UK REITs are due this Autumn. Followingthis, it is anticipated that the Company will hold an Extraordinary GeneralMeeting to consider changes that may be required to Hammerson's Articles ofAssociation in order for it to convert. Rental income from several recently completed developments, both in the UK andFrance, is not yet fully reflected in the income statement. Rents from theseschemes are projected to increase by some £24 million in 2007, contributing tohigher earnings. We anticipate this will provide the capacity for continuingstrong dividend growth. We are maintaining our strategy of focusing on key property markets in the UKand France and adding value through asset management, development activity andcapital recycling. The group has an investment portfolio and developmentprogramme of exceptional quality and I have great confidence in Hammerson'sfuture performance. John Nelson, Chairman 4 September 2006 BUSINESS AND FINANCIAL REVIEW Results and dividend Net rental income for the six months to 30 June 2006 was £109.3 million,compared with £101.3 million for the corresponding period in 2005. Forproperties owned throughout, there was an increase of £1.5 million to £94.9million. The corresponding figure of £93.4 million for the six months to 30 June2005 included some £2.4 million in respect of lease surrender premiums. Ananalysis of net rental income is shown below. Six months to Six months to 30 June 2006 30 June 2005 £m £m Properties owned throughout 94.9 93.4Acquisitions 9.0 0.9Developments 4.1 4.2Properties sold 1.3 3.1Exchange translation and other - (0.3)Total net rental income 109.3 101.3 Profit before tax was £384.8 million, compared with £247.3 million in the firsthalf of 2005. In 2006, there were gains on the revaluation of investmentproperties of £382.5 million. In May 2006, the group made a tender offer for its10.75% 2013 bonds, following which approximately half their nominal value, or£93.8 million, was redeemed and cancelled at a premium, including costs, of£33.7 million. The transaction will reduce Hammerson's annual interest cost byapproximately £3 million. An analysis of profit before tax is shown below. Six months to Six months to Year ended 30 June 2006 30 June 2005 31 Dec 2005 £m £m £m Profit before tax 384.8 247.3 698.6Adjustments:Profit on sale of properties (0.9) (31.5) (32.1)Revaluation gains on investment properties (382.5) (169.2) (575.5)Bond redemption costs 33.7 - -Change in fair value of interest rate swaps 9.7 (3.8) (1.6)Adjusted profit before tax 44.8 42.8 89.4 Adjusted profit before tax rose by £2.0 million, or 4.7%, compared with theequivalent period last year. Increased net rental income was partially offset byhigher administration and finance costs. There was a current tax charge of £0.7 million for the six months to 30 June2006, compared with £1.9 million for the equivalent period of 2005. The deferredtax charge has increased from £42.2 million to £61.1 million, principallyreflecting the investment property revaluation surplus. Adjusted earnings per share increased by 5.6% to 15.1 pence, reflecting theunderlying profit growth discussed above. The directors have declared an interim dividend of 6.38 pence per share payableon 20 October 2006, an increase of 10.0%. Balance sheet and financing Hammerson's property portfolio was valued at £6,253 million at 30 June 2006,compared with £5,732 million at the end of 2005. The increase arose from capitaladditions of £180 million, a revaluation surplus of £453 million, exchangetranslation gains of £9 million, partially offset by the disposal of propertieswith a book value of £121 million. The group's borrowings at 30 June totalled £2,450 million and cash and depositsamounted to £293 million. There was an increase in net debt of £108 million inthe first six months of the year to £2,157 million, principally reflecting netcapital expenditure and the premium on the redemption of bonds. Gearing at 30June 2006 was 62%, or 54% excluding the provision for deferred tax fromshareholders' funds. The group's balance sheet and financial resources were further strengthenedduring the first half of 2006 with three major new financings: - £300 million 5.25% unsecured bonds due 2016;- £330 million five year sterling bank facility; and- €700 million 4.875% unsecured bonds due 2015. At 30 June 2006, Hammerson had cash, short term deposits and unutilisedcommitted bank facilities totalling just over £1 billion. The average maturityof the group's debt is nearly ten years. Equity shareholders' funds, adjusted on an EPRA basis, increased by £438 millionto £3,971 million in the six months to 30 June 2006, due mainly to the propertyvaluation uplift. During the first half of the year, adjusted net asset value per share increasedby £1.52, or 12.3%, to £13.89. An analysis of adjusted net asset value per shareis shown below: As at As at 30 June 2006 31 December 2005 £m £m Basic net asset value 3,482 3,126Dilution on exercise of options 10 8Diluted net asset value 3,492 3,134 Adjustments:Fair value of interest rate swaps 2 (7)Deferred tax on revaluation surpluses and other items 437 370Deferred tax on capital allowances 41 36Adjusted net asset value 3,972 3,533 Basic net assets per share £12.21 £10.97Adjusted net assets per share, EPRA basis £13.89 £12.37 Basic shares in issue used for calculation (million) 285.2 285.0Diluted shares used for calculation (million) 286.0 285.7 Cash flow There was a cash outflow from operating activities for the six months to 30 June2006 of £33 million, compared with an inflow of £45 million for the same periodlast year. The decrease principally reflected bond redemption payments and thetiming of working capital receipts and payments, which in 2005 included thereceipt of VAT on the disposal of 14 boulevard Haussmann, in Paris which wassubsequently paid to the French tax authorities in July 2005. Interest paidincludes £32 million relating to the bond redemption referred to above, butexcludes the interest on the new bonds issued, which is payable annually inarrears. Capital expenditure of £168 million was largely offset by the proceedsof property sales of £138 million. Overall there was a net cash inflow, afterfinancing, of £247 million for the first six months of the year. Portfolio At 30 June 2006, Hammerson's portfolio was valued at £6.3 billion, of whichinvestment properties accounted for £5.4 billion or 86%. The group's objectivefor the investment portfolio is to achieve good growth in both capital andincome and outperform comparable benchmark indices. Hammerson pursues an activemanagement policy aimed at minimising vacancy rates in the portfolio andenhancing rental values. The group maintains a policy of actively recyclingcapital from mature assets into properties and development projects offering thepotential for higher returns. A table of property valuations and capital returns for the six months to 30 June2006 is shown below: Shopping Centres Retail Parks Offices Total £m % return £m % return £m % return £m % returnUK 2,452 7.2 757 5.6 1,376 13.5 4,585 8.8France 1,018 6.5 113 5.6 468 9.9 1,599 7.6Germany 69 (6.3) - - - - 69 (6.3)Total 3,539 6.5 870 5.6 1,844 12.5 6,253 8.1 The capital return from the group's portfolio overall was 8.1%, with returnsfrom the retail and office portfolios of 6.3% and 12.5% respectively. Both inthe UK and France, lower valuation yields accounted for approximately two thirdsof the capital return, whilst the remainder arose from rental growth anddevelopment surpluses. In the UK, the capital return was 8.8%, which compareswith an increase of 7.1% in the IPD All Property Capital Growth Index. In April, the redevelopment of 9 place Vendome in Paris 1er was completedproviding 22,200 m(2) of high quality office accommodation and 5,500 m(2) ofprime retail space. The principal office occupier is Clifford Chance, a majorinternational firm of lawyers. The property is now 90% let and Hammerson's shareof the income from this 50:50 joint venture with AXA will amount to £7.5 millionfollowing the expiry of rent free periods. At 30 June, Hammerson's interest inthe property was valued at £162 million, a surplus of £76 million over thegroup's cost of £86 million. During the first half of the year, the group disposed of three properties incontinental Europe. In France, Hammerson sold its 50% interest in a developmentproject, 4 place de l'Opera in Paris, to the joint venture partner for £27million. Two retail properties in Berlin were sold for £75 million, leaving thegroup with only one property, Forum Steglitz, in Germany. A refurbishment ofthis building will be completed in September 2006. The group also sold its long leasehold interest in 100 Park Lane, Hammerson'sLondon headquarters, prior to the Company's relocation to 10 Grosvenor Street inJune of this year. The latter was developed as a 50:50 joint venture withGrosvenor. Hammerson's relocation provides it with modern efficient space tomeet both its immediate and future requirements. Several transactions initiated in the first six months of the year have beencontracted since 30 June. In August, Hammerson acquired a portfolio of retailparks for £425 million through the purchase of LxB Holdings Limited. Theportfolio provides a combined floorspace of 116,000 m(2) and generates rents of£16.1 million per annum, compared with a current ERV of £19.4 million. There areexcellent opportunities to extend and redevelop the schemes to increase thefloorspace and enhance rental values. The group also increased its interest from50% to 100% in the proposed Union Square retail development in Aberdeen byacquiring for £20 million the former joint venture partner's interest. Two office buildings, 83/85 Pall Mall, London SW1 and 18/19 Hanover Square,London W1 were sold for £37 million and £58 million respectively. LibertyShopping Centre, Romford was sold for £281 million and Avenue Retail Park inCardiff was sold for £38 million. Within the group's retail portfolio, which accounts for 78% of the investmentportfolio, the vacancy level remains very low at 2.6%. The retail portfolio is10% reversionary overall. In the UK shopping centre portfolio, 21 units werevacated in the first six months of the year. Ten of these units were re-let,resulting in a like-for-like rental uplift of £0.5 million, and there is goodinterest in the remaining units. Additionally, the uplift from rent reviewssecured in the UK was £2.8 million per annum. In France, retail rents werelittle changed in the first six months of the year. The vacancy rate in the London office portfolio decreased from 29% at the yearend to 17% at 30 June 2006. In the UK, 13 new leases were signed in the firsthalf. Including space under offer, One London Wall and Moorhouse, London EC2 arenow respectively 100% and 95% let and the group is in discussions with potentialtenants for the remaining space. Demand has also improved at Exchange Tower inDocklands, where leases have been signed with three tenants in respect of 5,000m(2) of accommodation. New contracted income As at 31 August 2006, the group had secured a substantial and rising incomestream reflecting leasing activity referred to above and leases which have beensigned in respect of recently completed and current developments, as shown inthe table below. The group's cash flow from these schemes will increase by £21million in 2007 over the figure for 2006 and by a further £22 million in 2008. Rents passing 2006 2007 2008 2009 £m £m £m £m Bishops Square, London E1 0.4 13.3 25.5 25.5Other completed offices 1.1 5.0 10.4 11.7Retail parks 8.6 10.9 11.5 11.59 place Vendome, Paris 0.4 2.4 6.0 6.4Total - cash flow 10.5 31.6 53.4 55.1 - SIC 15 basis 28.3 51.9 51.6 51.7 Notes(1) The figures include Hammerson's share of income in respect of joint ventures and do not include the income from two properties sold since 30 June 2006.(2) Income is included according to when rent payments commence, with the allocation to rent free periods, as required by SIC 15, also shown. Current developments 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. Current projects Ownership Area Cost at Value at Estimated total Projected Let Forecast interest m(2) 30/6/06 30/6/06 development annual % completion % £m (1) £m cost (1) income date £m £m Shopping centres (2) (2) (2) (2) (3)Broadmead, Bristol 50 140,000 61 84 230 17 42 Sep 2008New Shires, 60 60,000 43 60 200 13 38 Sep 2008LeicesterParinor,Aulnay-Sous-Bois 100 24,000 14 14 75 5 8 Apr 2008Offices125 Old BroadStreet, London EC2 100 30,700 64 116 160 18 - Dec 2007 Notes(1) Capital costs including capitalised interest.(2) Indicates Hammerson's share of costs, value and income.(3) Amount let or under offer by income at 31 August 2006. Three developments, with an estimated total cost of £590 million, were inprogress in the UK at 30 June. Broadmead in Bristol is a mixed-use retail-ledscheme of 140,000 m(2), which is being developed by the Bristol Alliance, a 50:50 joint venture between Hammerson and Land Securities Group PLC. Good progressis being made with letting the scheme, but retailers are seeking slightly longerrent free periods. The principal anchor stores will be House of Fraser andHarvey Nichols. In Leicester, work started in January 2006 on a major expansion of the existingshopping centre, which will more than double its size to 110,000 m(2). Lettingsare progressing well but, as with the scheme in Bristol, rent free periods haveincreased. The scheme, to be anchored by John Lewis Partnership, is beingcarried out in a joint venture, in which Hammerson has a 60% interest withHermes. In February, Hammerson started construction work on the redevelopment of theformer London Stock Exchange tower building, 125 Old Broad Street, toprovide 30,100 m(2) of office accommodation and 600 m(2) of retail units withcompletion scheduled for December 2007. At 30 June, the scheme had a cost of £64million and was valued at £116 million. A fourth scheme, a major expansion to the group's Parinor shopping centre nearParis, will commence imminently at an estimated cost of £75 million. The 24,000m(2) redevelopment will increase the size of Parinor to 90,000 m(2), making itthe largest shopping centre serving the north of Paris. The extension will beanchored by Planete Saturn, which has agreed a lease on a 4,600 m(2) store. Anextension of 5,600 m(2) to Villebon 2, near Paris, is also underway. Potential development starts 2006/2007 It is anticipated that four further development projects with an estimated totalcost of £362 million could start during the remainder of 2006 and 2007. Future projects Area Cost at 30/6/06 Estimated total cost m(2) £m £mRetailUnion Square, Aberdeen 50,000 9 190Fife Central Retail Park, Kirkcaldy 11,000 8 32West Berkshire Retail Park, Theale 11,000 12 25Offices 60 Threadneedle Street, London EC2 20,600 28 115Total 92,600 57 362 Union Square, Aberdeen, has planning consent for 50,000 m(2) of mixed-use space,incorporating a retail park, retail mall and leisure facilities. In July,Hammerson increased its interest in the scheme to 100% with the acquisition for£20 million of a further 50% interest from the former joint venture partner. Theestimated total development cost of the scheme is approximately £190 million andthe projected net rental income is £14 million per annum. The first phase of thedevelopment is expected to begin later this year and around 40% of the forecastincome from the scheme is pre-let or in solicitors' hands. In Scotland, Hammerson has applied for planning consent for 11,000 m(2) ofretail warehousing and 360 car parking spaces on a site adjacent to the group'sexisting retail park in Kirkcaldy, Fife. Approximately 50% of the newaccommodation has been pre-let to B&Q. Hammerson has also submitted a planningapplication for a proposed 11,000 m(2) standalone retail warehouse with 230 carparking spaces in Theale, Berkshire. A lease has been signed with Danishretailer, ILVA to occupy the entire building. It is anticipated that the schemewill start early next year at an estimated total development cost of £25million. The group also plans to start a redevelopment of 60 Threadneedle Street in theCity of London. The scheme has consent for a 20,600 m(2) nine-storey officebuilding, incorporating 1,000 m(2) of retail space. Future developments In addition to the schemes outlined above, Hammerson has invested approximately£170 million to secure and advance further development opportunities. Theprojects currently generate an interim income of around £5 million per annum andfall into four principal categories: major retail-led, mixed-use schemes;extensions to existing shopping centres; retail parks; and offices. Firstly, Hammerson is working in partnership with local authorities and councilsin several towns and cities to advance major retail-led city centre schemes.These include potential developments in Kingston-upon-Thames, Leeds, MiltonKeynes and Sheffield, with phased start dates from 2008 onwards. Since 30 June,Hammerson has received planning consent for its proposed 105,000 m(2) mixed-usescheme in Sheffield city centre. Anchored by John Lewis, the scheme will alsoinclude 100 smaller unit stores, up to 200 apartments, and 2,200 car parkingspaces. Construction of the first phase could begin in 2008. In Leeds, aplanning application has recently been submitted for a 100,000 m(2) retail-leddevelopment in the city centre. The development will also be anchored by JohnLewis and include 100 smaller unit stores, up to 600 residential units and 2,700car parking spaces. Secondly, within Hammerson's portfolio there are opportunities to extend andenhance a number of its existing shopping centres, including Brent Cross innorth London, WestQuay in Southampton and The Oracle in Reading. In February ofthis year, Hammerson entered into a development agreement with Peterborough CityCouncil for a major expansion and refurbishment of the Queensgate scheme inwhich the group holds a 50% interest. Similarly, in France, Hammerson has plansfor improvements to three of its shopping centres near Paris, Espace SaintQuentin, Les 3 Fontaines and Italie 2. Thirdly, the group has a number of opportunities to develop and expand itsexisting retail parks portfolio. Within the recently acquired LxB portfolio,expansion and improvement programmes are planned for the schemes in Belfast,Didcot and Newcastle. Fourthly, Hammerson has the potential to expand its portfolio in central Londonby around 400,000 m(2), including nearly 200,000 m(2) of offices. The group iscurrently progressing a project in Bishopsgate, London EC1, having acquired anoption to purchase a development site adjoining its existing Norton Folgatesite. Hammerson intends to submit a planning application during 2007 for amixed-use development totalling 100,000 m(2) incorporating 67,000 m(2) ofoffices. The group has also appointed a master planner for the nearbyBishopsgate Goodsyard site, for up to 195,000 m(2) of offices, retail andresidential accommodation and is advancing a major mixed-use scheme atShoreditch High Street. In Paddington, planning consent is anticipated shortlyfor an 18,400 m(2) office development. Hammerson has a 50% interest in each ofthese three schemes. MARKETS AND OUTLOOK Economic environment The international environment has generally been benign in recent quarters. Inthe UK, economic growth improved in the first half of 2006, after a period ofmore modest growth in 2005. Although unemployment has risen, disposable incomescontinue to grow and the housing market has picked up. In France, economicgrowth also increased in the first half of 2006, helping to reduce unemploymentand support stronger growth in disposable incomes. UK retail UK non-food retail sales growth improved in the first half of 2006, althoughdeflation continues to put pressure on retailers' margins. Modest increases inheadline rents are being partially offset by increased tenants' incentives. Todrive performance, it is anticipated that retailers will focus demand foradditional space on profitable locations, including those offering the potentialfor good turnover growth or the opportunity to restrain costs. This trend shouldcontinue to favour prime regional shopping centres and retail parks. London offices In central London, take-up of office space in the first half of 2006 was robustand above the average level seen over the past decade. This contributed to afurther reduction in the vacancy rate, from 9% at the start of the year to 7.5%by the end of June, resulting in an increase in rents. Although the number ofnew office developments has risen since the start of 2006, particularly in theCity, little of this new supply will come to the market before the beginning of2008. Current forecasts for office demand suggest that the additional supply canbe absorbed by the market without increasing the vacancy rate during 2008. France retail French non-food retail sales growth improved in the first half of 2006 andfurther growth is projected for the rest of this year, which should result inhigher shopping centre rents on new leases. Existing leases are subject toannual indexation linked to the cost of construction index, which for 2006 is0.7%. However, indications are that the index from 1 January 2007 will rise toaround 5%. Paris offices Economic recovery is leading to higher levels of office take-up in central Parisand a gradual reduction in vacancy, currently around 5%. This is exerting upwardpressure on headline rents and leading to a reduction in tenant incentives.Rents for new leases are forecast to rise further over the next 18 months.Existing leases are generally subject to indexation, as referred to in theprevious paragraph. Investment markets Property investment markets in both the UK and France have continued to seestrong increases in capital values, with existing investors increasing theirallocation to the sector and new investors entering the market. This process hasso far benefited both prime and secondary assets. It is anticipated that futurecapital growth will be driven more by underlying rental growth than by a furtherreduction in yields. This trend should favour prime property over secondaryassets, the latter also being more vulnerable to an increase in interest rates. PROPERTY PORTFOLIO INFORMATIONInvestment Property Rental Datafor the six months ended 30 June 2006 Gross Net Estimated rental rental Vacancy Rents rental Reversionary/ income income rate passing value (Over-rented) £m £m % £m £m %Notes (1) (2) (3) (4)United KingdomRetail: Shopping centres 54.1 46.9 1.2 105.2 117.4 10.3 Retail parks 14.0 13.5 4.2 29.4 34.3 10.8 68.1 60.4 2.0 134.6 151.7 10.4 Office: City 11.4 8.7 22.5 21.7 25.4 (11.8) West End 2.0 1.6 0.4 6.5 7.7 17.4 Docklands and 5.7 4.5 12.6 12.9 12.7 (13.6) other 19.1 14.8 16.4 41.1 45.8 (7.8)Total United Kingdom 87.2 75.2 5.9 175.7 197.5 5.7 Continental EuropeRetail 31.6 26.8 3.9 58.9 68.1 9.6Office 7.3 6.4 18.6 21.0 23.8 (3.2)Total Continental Europe 38.9 33.2 6.8 79.9 91.9 6.0 GroupRetail 99.7 87.2 2.6 193.5 219.8 10.1Office 26.4 21.2 16.9 62.1 69.6 (6.2)Total Investment Portfolio 126.1 108.4 6.2 255.6 289.4 5.8Income on developments andother sources not analysedabove 3.5 0.9 As disclosed in note 2 tothe accounts 129.6 109.3 Selected information at 31 December 2005 GroupRetail 1.7 194.5 224.9 10.8Office 26.0 49.2 60.1 (9.2)Total Investment 6.8 243.7 285.0 6.1Portfolio Notes(1) The ERV of the area in a property or portfolio excluding developments, which is currently available for letting, expressed as a percentage of the total ERV of the property or portfolio.(2) The annual rental income receivable from an investment property, after any rent free periods and after deducting head and equity rents.(3) The estimated market rental value of lettable space in a property after deducting head and equity rents, calculated by the group's valuers.(4) The percentage by which the ERV exceeds, or falls short of, rents passing and the estimated rental value of vacant space. PROPERTY PORTFOLIO INFORMATION (CONTINUED)Investment Property Valuation Datafor the six months ended 30 June 2006 True Properties Revaluation Capital Total Initial equivalent at valuation in the period return return yield yield £m £m % % % %Notes (1) (2)United KingdomRetail: Shopping centres 2,271 146 7.0 9.3 4.5 5.0 Retail parks 738 35 5.0 7.0 3.3 4.9 3,009 181 6.5 8.7 4.2 5.0 Office: City 442 67 18.2 20.4 2.3 5.2 West End 109 13 13.1 14.9 2.0 4.9 Docklands and other 181 17 10.1 13.0 5.5 6.0 732 97 15.2 17.5 3.0 5.3Total United Kingdom 3,741 278 8.2 10.4 3.9 5.0 Continental EuropeRetail 1,186 60 5.0 7.3 4.2 5.3Office 468 45 9.9 11.5 2.7 4.8Total Continental Europe 1,654 105 6.4 8.5 3.8 5.2 GroupRetail 4,195 241 6.1 8.3 4.2 5.1Office 1,200 142 13.1 15.0 3.1 5.1Total Investment Portfolio 5,395 383 7.6 9.8 3.9 5.1Developments 858 70 11.4 11.3Total Group includingdevelopments 6,253 453 8.1 10.0 Selected information at 31 December 2005 GroupRetail 4,006 4.4 5.3Office 952 3.1 5.7Total Investment Portfolio 4,958 4.2 5.4 Notes(1) Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of property value.(2) The average income return, reflecting the timing of future rental increases, based on current ERV, resulting from lettings, lease renewals and rent reviews, assuming rents are received quarterly in advance. PROPERTY PORTFOLIO INFORMATION (CONTINUED)Development Property DataAs at 30 June 2006 Estimated Cost Cost total Projected Forecast Ownership to to development annual completionProperty interest Area date Value complete cost income Let date % m2 £m £m £m £m £m % Notes (1) (1) (1) (1) (1) (2) Broadmead, Bristol 50 140,000 61 84 169 230 17 42 Sep 2008New Shires, Leicester 60 60,000 43 60 157 200 13 38 Sep 2008Parinor, Aulnay-Sous-Bois 100 24,000 14 14 61 75 5 8 Apr 2008125 Old Broad Street, London 100 30,700 64 116 96 160 18 - Dec 2007EC2Total current developments 182 274 483 665 53Bishops Square, London E1(3) 279 11 290 26 100 Jul 2005Cost to date of other 112developmentsRevaluation gains on 285developments Total development properties(note 8 to the accounts) 858 Notes(1) Capital costs including capitalised interest. Indicates Hammerson's share of the costs, value and income.(2) Amount let or under offer by income at 31 August 2006.(3) Practical completion of Bishops Square was achieved in July 2005. It is anticipated that this property will be transferred to the investment portfolio in September 2006 when it will be ready for its intended use. Consolidated Income Statement Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m 249.2 Gross rental income 129.6 119.6 Operating profit before gains on investment 178.9 properties 2 92.5 87.1 607.6 Gains on investment properties 2 383.4 200.7 786.5 Operating profit 2 475.9 287.8 (102.1) Finance costs (55.7) (50.8) - Bond redemption costs (33.7) - 12.6 Finance income 8.0 6.5 1.6 Change in fair value of interest rate swaps (9.7) 3.8 (87.9) Net finance costs 4 (91.1) (40.5) 698.6 Profit before tax 384.8 247.3 1.0 Current tax 5(a) (0.7) (1.9) (133.9) Deferred tax 5(a) (61.1) (42.2) (132.9) Tax charge (61.8) (44.1) 565.7 Profit for the period 323.0 203.2 Attributable to: 554.4 Equity shareholders 319.3 199.7 11.3 Minority interests 3.7 3.5 565.7 Profit for the period 323.0 203.2 198.0p Basic earnings per share 7 112.3p 72.2p 197.6p Diluted earnings per share 7 112.1p 72.0p Adjusted earnings per share are shown in note 7. All results derive from continuing operations. Consolidated Balance Sheet *31 December 2005 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m Non-current assets 5,731.7 Investment and development properties 8 6,253.2 4,766.7 35.6 Interests in leasehold properties 34.3 32.6 44.3 Plant, equipment and owner-occupied properties 36.9 6.2 49.5 Investments 9 57.2 47.9 - Loans receivable 10 - 20.3 4.5 Other receivables 2.8 2.5 5,865.6 6,384.4 4,876.2 Current assets 144.2 Receivables 10 93.2 71.9 45.5 Cash and deposits 11 293.0 233.6 189.7 386.2 305.5 6,055.3 Total assets 6,770.6 5,181.7 Current liabilities 220.7 Payables 12 161.7 190.3 60.5 Tax liabilities 60.1 61.6 0.5 Borrowings 13 277.1 1.9 281.7 498.9 253.8 Non-current liabilities 2,094.3 Borrowings 13 2,173.2 1,882.5 406.4 Deferred tax 5(c) 477.1 273.1 25.5 Tax liabilities 25.6 33.7 35.9 Obligations under finance leases 34.2 32.9 16.9 Net pension liability 15 7.2 17.1 18.9 Other payables 18.5 30.6 2,597.9 2,735.8 2,269.9 2,879.6 Total liabilities 3,234.7 2,523.7 3,175.7 Net assets 3,535.9 2,658.0 Equity 71.2 Called up share capital 71.3 69.4 659.5 Share premium account 16 660.2 599.5 (32.8) Translation reserve 16 (38.6) (55.6) 32.9 Hedging reserve 16 39.1 53.7 7.2 Capital redemption reserve 16 7.2 7.2 6.7 Other reserves 16 8.0 5.4 * 221.8 Revaluation reserve 16 234.7 108.2 2,163.7 Retained earnings 16 2,504.1 1,831.4 (4.4) Investment in own shares 17 (4.0) (4.4) * 3,125.8 Equity shareholders' funds 3,482.0 2,614.8 49.9 Equity minority interests 53.9 43.2 3,175.7 Total equity 3,535.9 2,658.0 £10.97 Diluted net asset value per share 7 £12.21 £9.42 £12.37 EPRA net asset value per share 7 £13.89 £10.36 *Restated (see note 17). Consolidated Statement of Recognised Income and Expense Year ended Six months Six months 31 December ended ended 2005 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m (39.3) Foreign exchange translation differences (5.5) (63.1) Net gain on hedge of net investment in foreign 32.9 subsidiaries 16 6.2 53.7 197.5 Revaluation gains on development properties 16 70.0 61.3 11.6 Revaluation gains on owner-occupied properties 16 3.4 - 2.7 Revaluation gains on investments 16 6.1 1.5 (6.3) Actuarial gains/(losses) on pension schemes 15, 16 3.2 (3.5) (55.5) Tax on items taken directly to equity 5(b) (9.4) (16.7) 143.6 Net gain recognised directly in equity 74.0 33.2 565.7 Profit for the period 323.0 203.2 709.3 Total recognised income and expense 397.0 236.4 Attributable to: 699.2 Equity shareholders 393.0 234.8 10.1 Minority interests 4.0 1.6 709.3 Total recognised income and expense 397.0 236.4 Reconciliation of Equity Year ended Six months Six months31 December 2005 ended ended 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m 2,414.2 Opening equity shareholders' funds 3,125.8 2,414.2 63.6 Issue of shares 0.8 1.8 (2.3) Purchase of own shares 17 - (2.3) 2.1 Share-based employee remuneration 16 1.7 0.8 * - Gain on award of own shares to employees 16 0.3 - 2,477.6 3,128.6 2,414.5 699.2 Total recognised income and expense 393.0 234.8 3,176.8 3,521.6 2,649.3 (51.0) Dividends 6 (39.6) (34.5) 3,125.8 Closing equity shareholders' funds 3,482.0 2,614.8 *Restated (see note 17). Consolidated Cash Flow Statement Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 Audited Unaudited Unaudited £m Notes £m £m Operating activities 178.9 Operating profit before gains on investment 92.5 87.1 properties 1.8 Adjustment for non-cash items 18 (0.2) 0.9 (44.4) Decrease/(Increase) in receivables 38.8 24.4 38.9 (Decrease)/Increase in payables (40.5) 16.6 175.2 Cash generated from operations 90.6 129.0 (123.6) Interest and bond redemption costs paid (128.8) (89.0) 13.1 Interest received 6.4 7.0 (19.8) Tax paid (1.1) (1.8) 44.9 Cash flows from operating activities (32.9) 45.2 Investing activities (314.9) Purchase of property (33.1) (86.7) (223.2) Development of property (133.2) (96.2) 224.4 Sale of property 137.7 217.2 Purchase of interests in joint ventures and subsidiary companies 6.8 - - (0.5) Purchase of investments (1.4) - 18.2 Decrease/(Increase) in other long term receivables 1.7 (0.5) (289.2) Cash flows from investing activities (28.3) 33.8 Financing activities 3.0 Issue of shares 0.8 1.8 (2.3) Purchase of own shares 17 - (2.3) - Proceeds from award of own shares 0.2 - 318.6 Increase in medium and long term borrowings 71.0 120.4 (30.3) Increase/(Decrease) in short term borrowings 276.2 15.7 (1.8) Dividends paid to minorities - - (51.0) Equity dividends paid (39.6) (34.5) 236.2 Cash flows from financing activities 308.6 101.1 (8.1) Net increase/(decrease) in cash and deposits 247.4 180.1 53.7 Opening cash and deposits 45.5 53.7 (0.1) Exchange translation movements 0.1 (0.2) 45.5 Closing cash and deposits 11 293.0 233.6 Analysis of Movement in Net Debt Borrowings Borrowings Short term Cash at due within due after deposits bank one year one year Net debt £m £m £m £m £m Balance at 1 January 2006 22.4 23.1 (0.5) (2,094.3) (2,049.3)Unamortised bond issue costs written - - - (2.0) (2.0)offCash flow 254.5 (7.1) (276.2) (71.0) (99.8)Exchange - 0.1 (0.4) (5.9) (6.2)Balance at 30 June 2006 276.9 16.1 (277.1) (2,173.2) (2,157.3) 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, orcomplete financial statements under IAS 1 'Presentation of FinancialStatements'. The results for the year ended 31 December 2005 are an abridgedversion of the full accounts for that year, which received an unqualified reportfrom the auditors, did not contain a statement under s237(2) or (3) of theCompanies Act 1985 and have been filed with the Registrar of Companies. Theunaudited financial information contained in this report has been prepared onthe basis of the accounting policies set out in the full accounts for the yearended 31 December 2005. This interim financial report has been prepared usingaccounting policies consistent with IFRS and in accordance with IAS 34 'InterimFinancial Reporting'. The group's financial performance does not suffer materially from seasonalfluctuations. There have been no changes in estimates of amounts reported inprior periods which have a material impact on the current interim period. Therehave been no material changes in reportable contingent liabilities since 31December 2005. The principal exchange rates used to translate foreign currency denominatedamounts are: Balance sheet: £1 = €1.45 Income statement: £1 = €1.46 The interim report was approved by the Board on 4 September 2006. Notes to the Accounts 2. OPERATING PROFIT Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 £m £m £m 249.2 Gross rental income 129.6 119.6 (4.0) Rents payable (2.3) (2.4) 245.2 Gross rental income, after rents payable 127.3 117.2 43.2 Service charge income 22.4 21.0 (52.3) Service charge expenses (26.7) (25.3) (9.1) Net service charge expenses (4.3) (4.3) (25.8) Other property outgoings (13.7) (11.6) (34.9) Property outgoings (18.0) (15.9) 210.3 Net rental income 109.3 101.3 3.0 Management fees receivable 2.3 1.1 (17.5) Cost of property activities (10.3) (7.8) (16.9) Corporate expenses (8.8) (7.5) (31.4) Administration expenses (16.8) (14.2) Operating profit before gains on investment 178.9 properties 92.5 87.1 32.1 Profit on the sale of investment properties 0.9 31.5 575.5 Revaluation gains on investment properties 382.5 169.2 607.6 Gains on investment properties 383.4 200.7 786.5 Operating profit 475.9 287.8 3. SEGMENTAL ANALYSIS The group's primary segments are the geographical locations of its properties.Following the disposal of two properties in Germany, the properties inContinental Europe are located principally in France. Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 £m £m £m 170.2 Gross rental income UK 90.7 80.8 79.0 Continental Europe 38.9 38.8 249.2 129.6 119.6 532.2 Segment result UK 354.0 201.9 268.3 Continental Europe 130.7 92.2 (14.0) Unallocated corporate costs (8.8) (6.3) 786.5 Operating profit 475.9 287.8 Notes to the Accounts 4. NET FINANCE COSTS Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 £m £m £m 16.8 Interest on bank loans and overdrafts 8.9 7.6 102.0 Interest on other loans 57.7 50.6 3.2 Interest on obligations under finance leases 1.6 1.4 1.3 Other interest payable 2.1 1.2 123.3 Gross interest costs 70.3 60.8 (21.2) Less: Capitalised interest (14.6) (10.0) 102.1 Finance costs 55.7 50.8 - Bond redemption costs 33.7 - (12.6) Finance income (8.0) (6.5) (1.6) Change in fair value of interest rate swaps 9.7 (3.8) 87.9 Net finance costs 91.1 40.5 In May 2006, £93.8 million of the £200.0 million 10.75% sterling bonds due 2013were redeemed. Bond redemption costs include a redemption premium of £31.7million and unamortised issue costs of £2.0 million. 5. TAX (a) Tax Charge Six months Six months Year ended ended ended 31 December 2005 30 June 2006 30 June 2005 £m £m £m UK current tax 1.0 On net income before revaluations and disposals 0.2 0.7 Foreign current tax 2.0 On net income before revaluations and disposals 0.5 1.2 (4.0) Credit in respect of prior years - - (2.0) 0.5 1.2 (1.0) Total current tax charge/(credit) 0.7 1.9 Deferred tax 21.5 On net income before revaluations and disposals 7.5 9.8 129.6 On revaluations and disposals 53.6 32.4 (17.2) Credit in respect of prior years - - 133.9 61.1 42.2 132.9 Tax charge 61.8 44.1 (b) Tax Recognised Directly in Equity Six months Six months ended ended Year ended 30 June 2006 30 June 2005 31 December 2005 £m £m £m 57.0 Deferred tax charge on revaluations 8.6 17.8 Deferred tax charge/(credit) on actuarial gains/ (1.5) (losses) on pension schemes 0.8 (1.1) 55.5 9.4 16.7 1.7 Deferred tax charge on interest rate swaps - 1.7 57.2 Tax recognised directly in equity 9.4 18.4 Notes to the Accounts 5. TAX (continued) (c) Deferred Tax Movements 1 January Recognised Recognised Foreign 2006 in income in equity exchange 30 June 2006 £m £m £m £m £mUK Capital gains net of capital losses 329.1 45.4 8.6 - 383.1Capital allowances 36.1 4.5 - - 40.6Other timing differences (2.3) (1.5) 0.8 - (3.0)Dividends receivable from France 62.0 14.3 - 0.2 76.5Revenue tax losses (33.1) (11.5) - - (44.6) 391.8 51.2 9.4 0.2 452.6France 14.6 9.9 - - 24.5 Net deferred tax provision 406.4 61.1 9.4 0.2 477.1 (d) Commentary Current tax is reduced by the French tax exemption, capital allowances and taxrelief for capitalised interest. Under IAS 12, deferred tax provisions are made for the tax that wouldpotentially be payable on the realisation of investment properties and otherassets at book value. For UK investment properties, deferred tax is calculatedon the basis that properties will be realised predominantly through sale so thatcapital gains are reduced by indexation. Hammerson's French properties, with the exception of 9 place Vendome, have beenelected into the SIIC tax exempt regime. The SIIC rules require Hammerson'sFrench subsidiaries to distribute a proportion of their profits to Hammerson plcand allowance is made within deferred tax for the UK tax that may arise whendividends are received. (e) UK REITs The tax charge does not reflect the current expectation that the Company willelect for UK REIT status with effect from 1 January 2007. Under UK REIT rules,UK rental income and capital gains on investment properties will be exemptedfrom tax subject to Hammerson paying "Property Income Dividends" of at least 90%of the exempted rental income, which will be taxable on shareholders dependingon their circumstances. On electing, the Company will pay a conversion charge of2% of UK property values. If the Company elects for REIT status, the 31 December 2006 accounts will showthe conversion charge and the write back of almost all deferred tax relating toUK capital gains and capital allowances. Actual amounts will depend on the 31December 2006 property values, but based on the 30 June 2006 figures, theconversion charge would be approximately £96 million and around £410 million ofthe deferred tax provision would be released. Notes to the Accounts 6. DIVIDENDS The interim dividend of 6.38 pence per share (30 June 2005: 5.80 pence pershare) was approved by the Board on 4 September 2006 and is payable on 20October 2006 to shareholders on the register at the close of business on 22September 2006. The dividend has not been included as a liability as at 30 June2006. The 2005 final dividend of £39.6 million, representing 13.91 pence per share,was paid on 17 May 2006 and is included in the Reconciliation of Equity. 7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE The calculations for earnings per share, based on the weighted average number ofshares, are shown in the table below. The weighted average number of sharesexcludes those shares held in the Hammerson Employee Share Ownership Plan (note17), which are treated as cancelled. The European Public Real Estate Association ('EPRA') has issued recommendedbases for the calculation of certain per share information and these are shownin the following tables. Year ended 31 December 2005 Six months ended 30 June 2006 Six months ended 30 June 2005 Pence Pence Earnings Shares Pence per Earnings Shares per share Earnings Shares per share £m million share £m million £m million 554.4 280.0 198.0 Basic 319.3 284.4 112.3 199.7 276.7 72.2 Adjustments: Dilutive share - 0.5 (0.4) options - 0.5 (0.2) - 0.6 (0.2) 554.4 280.5 197.6 Diluted 319.3 284.9 112.1 199.7 277.3 72.0 Adjustments: Revaluation movement on investment (575.5) (205.1) properties (382.5) (134.2) (200.7) (72.4) Profit on disposal of investment (32.1) (11.4) properties (0.9) (0.3) - - Movement in fair value of interest (1.6) (0.6) rate swaps 9.7 3.4 (3.8) (1.4) 133.9 47.7 Deferred tax charge 61.1 21.4 42.2 15.2 Minority interests in respect of the 8.4 3.0 above 2.6 0.9 2.3 0.9 87.5 31.2 EPRA, diluted 9.3 3.3 39.7 14.3 Bond redemption - - costs 33.7 11.8 - - 87.5 31.2 Adjusted, diluted 43.0 15.1 39.7 14.3 Notes to the Accounts 7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE (continued) The calculations for net asset value per share are shown in the table below: 31 December 30 June 30 June 2006 2005 2005 Net asset Equity Net asset Net asset value shareholders' value value per share funds Shares per share per share £ £m million £ £ 10.97 Basic 3,482.0 285.2 12.21 9.42 Company's own shares held in Employee Share n/a Ownership Plan - (0.6) n/a n/a n/a Unexercised share options 10.1 1.4 n/a n/a 10.97 Diluted 3,492.1 286.0 12.21 9.42 (0.51) Fair value adjustment to borrowings (net of (67.6) (0.24) (0.54) tax) 10.46 EPRA triple net, diluted 3,424.5 11.97 8.88 (0.02) Fair value of interest rate swaps 2.4 0.01 (0.03) 0.51 Fair value adjustment to borrowings (net of 67.6 0.24 0.54 tax) 1.42 Deferred tax 477.1 1.67 0.97 12.37 EPRA, diluted 3,971.6 13.89 10.36 8. INVESTMENT AND DEVELOPMENT PROPERTIES Investment properties Development Total properties Valuation Cost Valuation Cost Valuation Cost £m £m £m £m £m £m Balance at 1 January 2006 4,958.0 3,348.2 773.7 512.4 5,731.7 3,860.6Exchange adjustment 8.3 6.0 0.8 0.5 9.1 6.5Additions 36.7 36.7 130.0 130.0 166.7 166.7Disposals (119.9) (161.1) (1.5) (0.6) (121.4) (161.7)Transfers 129.0 83.4 (129.0) (83.4) - -Capitalised interest 0.3 0.3 14.3 14.3 14.6 14.6Revaluation adjustment 382.5 - 70.0 - 452.5 -Balance at 30 June 2006 5,394.9 3,313.5 858.3 573.2 6,253.2 3,886.7 All properties are stated at market value as at 30 June 2006, valued byprofessionally qualified external valuers. In the United Kingdom, officeproperties and the group's interests in the Birmingham Alliance properties werevalued by DTZ Debenham Tie Leung, Chartered Surveyors, and all other retailproperties were valued by Donaldsons, Chartered Surveyors. In France andGermany, the group's properties were valued by Cushman & Wakefield, CharteredSurveyors. The valuations have been prepared in accordance with the Appraisaland Valuation Standards of the Royal Institution of Chartered Surveyors and withIVA 1 of the International Valuation Standards. At 30 June 2006 the total amount of capitalised interest included in developmentproperties was £41.7 million (31 December 2005: £34.7 million) calculated usingthe group's average cost of borrowings. Notes to the Accounts 9. INVESTMENTS Available for sale investments 31 December 2005 30 June 2006 30 June 2005 £m £m £m 34.1 Value Retail Investors Limited Partnerships 38.8 33.1 14.3 Interests in Value Retail plc and related companies 17.1 13.8 1.1 Other investments 1.3 1.0 49.5 57.2 47.9 10. RECEIVABLES - CURRENT ASSETS 31 December 2005 30 June 2006 30 June 2005 £m £m £m 34.3 Trade receivables 39.5 26.3 20.6 Loans receivable 20.7 - 78.6 Other receivables 30.9 33.9 0.5 Corporation tax 0.2 0.3 2.9 Prepayments 1.9 1.9 7.3 Fair value of interest rate - 9.5 swaps 144.2 93.2 71.9 Loans receivable comprised a loan of €30.0 million (£20.7 million) to ValueRetail plc bearing interest based on EURIBOR and maturing on 10 October 2006.The loan was classified as 'available for sale' and included at fair value,which equates to cost. At 30 June 2005 the loan was included within non-currentreceivables. 11. CASH AND DEPOSITS 31 December 2005 30 June 2006 30 June 2005 £m £m £m 23.1 Cash at bank 16.1 225.4 22.4 Short term deposits 276.9 8.2 45.5 293.0 233.6 Analysis by currency 29.4 Sterling 36.0 189.3 16.1 Euro 257.0 44.3 45.5 293.0 233.6 Short term deposits principally comprised deposits placed on money markets withrates linked to LIBOR. 12. PAYABLES - CURRENT LIABILITIES 31 December 2005 30 June 2006 30 June 2005 £m £m £m 46.7 Trade payables 49.5 44.5 154.3 Other payables 91.5 132.7 19.7 Accruals 18.3 13.1 - Fair value of interest rate swaps 2.4 - 220.7 161.7 190.3 Notes to the Accounts 13. BORROWINGS 31 December 2005 30 June 2006 30 June 2005 £m £m £m 540.9 Bank loans and overdrafts: Unsecured 205.7 341.9 69.6 Secured 71.7 67.2 1,484.3 Other loans: Unsecured 2,174.5 1,473.9 2,094.8 2,451.9 1,883.0 - Exchange difference on currency swaps (1.6) 1.4 2,094.8 2,450.3 1,884.4 During the six months ended 30 June 2006, £93.8 million of the group's £200million 10.75% sterling bonds due 2013 were redeemed and unsecured bonds of £300million 5.25% due 2016 and €700 million 4.875% due 2015 were issued. Analysis by currency 31 December 2005 30 June 2006 30 June 2005 £m £m £m 1,004.5 Sterling 1,211.5 1,001.6 1,090.3 Euro 1,238.8 882.8 2,094.8 2,450.3 1,884.4 As part of the group's foreign currency hedging programme, at 30 June 2006 thegroup had currency swaps of £290.6 million being €418.0 million sold forwardagainst sterling for value on 31 July 2006, at a spot rate of £1 = €1.44. Undrawn committed facilities 31 December 2005 30 June 2006 30 June 2005 £m £m £m - Expiring within one year 8.8 - 225.9 Expiring between one and two years - 228.4 57.7 Expiring after more than two years 722.7 256.6 283.6 731.5 485.0 14. FAIR VALUE OF FINANCIAL INSTRUMENTS 31 December 2005 30 June 2006 30 June 2005Book value Fair value Book value Fair value Book value Fair value £m £m £m £m £m £m (0.5) (0.5) Current borrowings (279.1) (282.0) (0.5) (0.5) (2,111.2) (2,317.8) Non-current borrowings (2,193.1) (2,286.7) (1,900.2) (2,113.8) 16.9 16.9 Unamortised borrowing costs 20.3 20.3 17.7 17.7 - - Currency swaps 1.6 1.6 (1.4) (1.4) (2,094.8) (2,301.4) Total borrowings (2,450.3) (2,546.8) (1,884.4) (2,098.0) 7.3 7.3 Interest rate swaps (2.4) (2.4) 9.5 9.5 Notes to the Accounts 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The fair values of the group's long-term borrowings have been estimated on thebasis of quoted market prices. The fair values of the group's outstandinginterest rate swaps have been estimated by calculating the present value offuture cash flows, using appropriate market discount rates. Details of thegroup's cash and short term deposits are set out in note 11. Their fair valuesand those of other receivables and payables equate to their book values. At 30 June 2006, the fair value of borrowings exceeded their book value by £96.5million (31 December 2005: £206.6 million), equivalent to 34 pence per share (31December 2005: 72 pence per share) on an adjusted net asset value per sharebasis. On a post tax basis, using a tax rate of 30%, the difference wasequivalent to 24 pence per share (31 December 2005: 51 pence per share). 15. NET PENSION LIABILITY The net pension liability has reduced since 31 December 2005 following employercontributions to the group's funded defined benefit scheme of £7.0 million andactuarial gains of £3.2 million. 16. RESERVES Share Capital premium redemption account Translation Hedging reserve Other reserve reserve reserves £m £m £m £m £m Balance at 1 January 2006 659.5 (32.8) 32.9 7.2 6.7Exchange adjustment - (5.8) - - -Net gain on hedging activities - - 6.2 - -Premium on issue of shares 0.7 - - - -Share-based employee remuneration - - - - 1.7Cost of shares awarded to employees - - - - (0.4)Balance at 30 June 2006 660.2 (38.6) 39.1 7.2 8.0 Revaluation Retained reserve earnings £m £m Balance at 1 January 2006 221.8 2,163.7Revaluation gains on development properties 70.0 -Revaluation gains on owner-occupied properties 3.4 -Revaluation gains on investments 6.1 -Transfer on completion of development properties (45.6) 45.6Transfer on sale of development and owner-occupied properties (12.4) 12.4Actuarial gains on pension schemes - 3.2Gain on award of own shares to employees - 0.3Dividends paid - (39.6)Deferred tax recognised directly in equity (8.6) (0.8)Profit for the period attributable to equity shareholders - 319.3Balance at 30 June 2006 234.7 2,504.1 The revaluation reserve and £2,058 million of retained earnings representunrealised revaluation gains and do not constitute distributable reserves. Notes to the Accounts 17. INVESTMENT IN OWN SHARES 31 December 2005 30 June 2006 30 June 2005 * £m £m £m 2.8 Opening balance 4.4 2.8 2.3 Purchase of own shares - 2.3 Transfer to other reserves - cost of shares awarded (0.7) to employees (0.4) (0.7) 4.4 Closing balance 4.0 4.4 *Restated to reflect change in accounting policy, as set out below. The Trustees of the Hammerson Employee Share Ownership Plan acquire theCompany's own shares to award to participants in the Plan. In 2005, the groupclarified its accounting policy in respect of this reserve, such that it nowonly includes the Company's investment in own shares at cost. The difference of£0.5 million between cost and the carrying value as previously reported at 30June 2005, has been transferred to other reserves. The expense related to share-based employee remuneration is calculated inaccordance with IFRS 2 and the terms of the Plan, and recognised in the incomestatement within administration expenses. The corresponding credit is includedin other reserves. When the Company's shares are awarded to employees as part oftheir remuneration, the cost of the shares is transferred to other reserves.Should this not equal the credit previously recorded against other reserves, thebalance is adjusted against retained earnings. 18. ADJUSTMENTS FOR NON CASH ITEMS IN THE CASH FLOW STATEMENT Six months Six months ended ended Year ended 30 June 2006 30 June 2005 31 December 2005 £m £m £m 0.5 Depreciation 0.4 1.3 2.1 Share-based employee remuneration 1.7 0.5 0.4 Unrealised foreign exchange losses/(gains) 0.1 (0.6) 4.4 Amortisation of lease incentives and other direct 2.1 1.5 costs (5.6) Increase in accrued rents receivable (4.5) (1.8) 1.8 (0.2) 0.9 Glossary of Terms Adjusted net asset value ('NAV') NAV per share adjusted to exclude deferred tax and the fair value of interestper share rate swaps. Adjusted earnings per share EPS adjusted to exclude deferred tax, the gain on revaluation of investment properties, profits on disposal of investment properties and related tax, the change in fair value of interest rate swaps and, in 2006, the costs of bond redemption. Book value The amount at which assets and liabilities are reported in the financial statements. Capital return The change in value during the period for properties held at the balance sheet date, after taking account of capital expenditure and exchange translation movements, calculated on a monthly time weighted basis. Development pipeline The group's current and potential development programme. Earnings per share ('EPS') Profit for the period divided by the weighted average number of shares in issue during the period. EPRA European Public Real Estate Association. This organisation has issued recommended bases for the calculation of earnings per share and net asset value per share. ERV The estimated market rental value of lettable space in a property, after deducting head and equity rents, calculated by the group's valuers. Gearing Net debt expressed as a percentage of equity shareholders' funds. IAS International Accounting Standards. IFRS International Financial Reporting Standards. Initial yield Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of property value. Interest rate and currency swap An agreement with another party to exchange an interest or currency rate obligation for a pre-determined period of time. Like-for-like / underlying net The percentage change in rental income for completed investment propertiesrental income owned throughout both current and prior periods, after taking account of exchange translation movements. Net asset value per share Equity shareholders' funds divided by the number of shares in issue at the balance sheet date.('NAV') Over-rented The percentage by which ERV falls short of rents passing, together with the estimated rental value of vacant space. Pre-let A lease signed with a tenant prior to completion of a development. REIT Real Estate Investment Trust. A UK tax exempt regime for publicly quoted companies engaged in property rentals. Rents passing The annual rental income receivable from an investment property, after any rent free periods and after deducting head and equity rents. This may be more or less than the ERV (see over-rented and reversionary or under-rented). Reversionary or under-rented The percentage by which the ERV exceeds rents passing, together with the estimated rental value of vacant space. SIC 15 A statement of accounting practice, which requires certain lease incentives to be amortised through the income statement. SIIC Societes d'Investissements Immobiliers Cotees. A French tax exempt regime available to property companies listed in France. Total development cost All capital expenditure on a development, including capitalised interest. Total return Net rental income and capital return expressed as a percentage of the opening book value of property, adjusted for capital expenditure and exchange translation movements, calculated on a monthly time weighted basis. True equivalent yield The average income return, reflecting the timing of future rental increases, based on current ERV, resulting from lettings, lease renewals and rent reviews, assuming rents are received quarterly in advance. Underlying valuation change The percentage change in property values for properties owned at the balance sheet date since the previous balance sheet date after taking into account capital expenditure, capitalised interest and exchange translation movements. Vacancy rate The ERV of the area in a property, or portfolio, excluding developments, which is currently available for letting, expressed as a percentage of the total ERV of the property or portfolio. Yield on cost Rents passing expressed as a percentage of the total development cost of a property. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hammerson