4th Sep 2007 07:02
Hammerson PLC04 September 2007 HAMMERSON HALF-YEAR RESULTS Hammerson plc, the European REIT, announces its unaudited results for the sixmonths to 30 June 2007. Six months to: 30 June 30 June Change 2007 2006 Net rental income £138.3m £109.3m +26.5%Profit before tax £367.8m £384.8m -4.4%Adjusted profit before tax(1) £54.8m £44.8m +22.3% Basic earnings per share(1) 126.8p 112.3p +12.9%Adjusted earnings per share(1) 18.4p 15.1p +21.9%Interim dividend per share 12.0p 6.38p +88% 30 June 2007 31 Dec 2006 Equity shareholders' funds £4,649m £4,165m +11.6%Adjusted net asset value per share, EPRA basis(1) £16.35 £15.00 +9.0% Note(1) Details of the calculations for basic and adjusted data are shown on page 5 and in note 7 on page 24. Key points • Adjusted earnings per share up 22% compared with the first half of 2006, reflecting increased rental income from lettings, asset management initiatives, rent reviews, indexation of rent from leases in France and development completions. • Strong growth in net asset value per share, reflecting a portfolio capital return of 5.9%. • The group invested £389 million in the first half of 2007. Since 30 June the sale of two major assets raised over £500 million, some £40 million in excess of their value at 31 December 2006. • Good progress made with the current development programme and in advancing the substantial development pipeline. • Strong balance sheet with gearing of 54%, since reduced by disposals to 43% on a pro-forma basis. • The Directors intend to recommend an increase in the total dividend for 2007 of around 25% compared with 2006. The interim dividend has been increased by 88% to provide a better balance between the interim and final dividends. The Chairman, John Nelson, said today: "Against a background of greater uncertainty in financial markets, we aremaintaining our strategy of creating value through asset management, developmentactivity and capital recycling in key property markets in the UK and France. Wehave an investment portfolio of exceptional quality which, coupled with ouroutstanding development programme and pipeline, will enable us to continue todrive the performance of the business. I have great confidence in Hammerson'sfuture." 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 half-year results to investors andanalysts at 9.30 a.m. today at the City Presentation Centre, 4 Chiswell Street,London, EC1Y 4UP. A live webcast will be available on the morning of theannouncement on the Company's website (www.hammerson.com). Financial calendar: Ex dividend date 19 September 2007 Record date 21 September 2007 Interim dividend payable 19 October 2007 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: [email protected] CHAIRMAN'S STATEMENT I am delighted to announce excellent results for the six months to 30 June 2007.Adjusted net asset value per share increased by 9.0% to £16.35, principallyreflecting a capital return of 5.9% on the portfolio. Adjusted earnings pershare of 18.4 pence were 21.9% higher than in the first half of 2006, reflectingincreased rental income from asset management initiatives, rent reviews,indexation of rent from leases in France and the completion last year of twomajor developments. Earlier this year, I stated our intention to recommend a total dividend for 2007around 25% higher than the total for 2006. This remains the case. The Board hasdecided that it is also appropriate to provide a more balanced profile betweenthe interim and final dividends and has therefore declared an interim dividendof 12 pence per share, an increase of 88% over the interim dividend paid in2006. On 1 January 2007 we took advantage of the new tax-exempt regime for propertycompanies in the UK by converting to a Real Estate Investment Trust (REIT). Wecontinue to benefit from tax-exempt status in France following our entry threeyears ago into the similar SIIC tax regime. It is therefore anticipated thatHammerson will bear minimal tax in the future. This has been an active year for Hammerson. We have continued our policy ofrecycling capital, achieving growth in rents from the existing portfolio,advancing developments and ensuring that the group remains in robust financialshape. In the first half of the year, we invested £389 million, principally onproperty acquisitions and our development programme. The six major developmentscurrently underway should demonstrate further substantial capital growth overthe next two years as they are completed and let. Progress has been maintainedsince 30 June with two major disposals, which raised over £500 million, some £40million in excess of the value of the assets at 31 December 2006. In the first half of the year, demand for office accommodation both in centralLondon and Paris strengthened further, leading to increased rental values.Conditions for retailers remained somewhat challenging, particularly in the UK,but we continued to attract retailers to our existing schemes and developments.After several years of rising values, investment activity in commercial propertyin the UK showed signs of slowing in the second quarter, whilst in France,property investment markets remained robust. Looking ahead, in both the UK and France, we anticipate modest increases inrents at our shopping centres and retail parks. In relation to the officemarkets, with vacancy rates at their lowest level for five years and limitedavailability in both markets, the fundamentals are positive. Nevertheless,recent weakness in global financial markets may affect demand for office space,with the impact in the City of London likely to be greater than in Paris. Withregard to investment markets, higher borrowing costs and concerns about risk arelikely to have a greater effect on the values of secondary property than onprime property of the type owned by Hammerson. Against this background, I believe that there are several reasons why Hammersonremains extremely well placed to continue its out-performance over themedium-term. First, we have an investment portfolio of the highest quality, diversifiedbetween the retail and office sectors in both the UK and France. It generates arobust and growing income stream from a wide range of tenants, providing moreresilience than secondary property. Second, we have a current development programme of nearly £1 billion and afuture pipeline providing the potential for capital investment of a further £5billion over the next ten years. Our management team has consistentlydemonstrated its ability to achieve excellent returns from development. Third, we have a strong balance sheet, with only one major borrowing facilitymaturing in the next four years. This will enable us to withstand any short-termmarket weakness and continue to pursue attractive acquisition and developmentopportunities. In conclusion, we are maintaining our strategy of creating value through assetmanagement, development activity and capital recycling in key property marketsin the UK and France. We have an investment portfolio of exceptional qualitywhich, coupled with our outstanding development programme and pipeline, willenable us to continue to drive the performance of the business. I have greatconfidence in Hammerson's future. John Nelson, Chairman 4 September 2007 BUSINESS AND FINANCIAL REVIEW The financial information contained in this review is extracted or calculatedfrom the attached income statement, balance sheet, cash flow statement, otherstatements, notes and glossary of terms. Profit before tax For the six months to 30 June 2007, profit before tax, which includes propertyrevaluation gains, was £367.8 million, compared with £384.8 million in 2006. Thetable below shows adjusted profit before tax, which rose by £10.0 million to£54.8 million compared with the equivalent period in 2006. During the first halfof the year the group benefited from letting activity, rent reviews, rentalindexation in France and income following the completion in 2006 of two majordevelopments at Bishops Square in London and 9 place Vendome in Paris. Thesewere partly offset by an increase in administration and finance costs. Analysis of profit before tax Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 £m £m £m Profit before tax 367.8 384.8 792.4Adjustments:Loss/(Profit) on the sale of investmentproperties 0.5 (0.9) (95.8)Revaluation gains on investment properties (323.4) (382.5) (664.8) Goodwill impairment - - 12.6Bond redemption costs 0.1 33.7 34.0 Change in fair value of interest rate swaps 9.8 9.7 16.1 Adjusted profit before tax 54.8 44.8 94.5 Adjusted earnings per share increased by 21.9% to 18.4 pence, reflecting theunderlying profit growth discussed above. Details of the calculations forearnings per share are provided in note 7 on page 24. The Directors have declared an interim dividend of 12 pence per share, anincrease of 88%, payable on 19 October 2007, reflecting a decision to provide amore even balance between the interim and final dividends. Net rental income Net rental income for the six months to 30 June 2007 was £138.3 million,compared with £109.3 million for the corresponding period in 2006. Forproperties owned throughout both periods, there was an increase of £11.7 millionto £111.7 million. An analysis of net rental income is shown below. Net rental income Six months to Six months to 30 June 2007 30 June 2006 £m £m Properties owned throughout 111.7 100.0Acquisitions 10.2 -Developments 16.3 0.9Properties sold - 8.6Exchange translation and other 0.1 (0.2)Total net rental income 138.3 109.3 Administration costs Administration costs totalled £21.4 million for the six months to 30 June 2007compared with £16.8 million for the equivalent period in 2006. The increaseprincipally reflected higher staffing costs resulting from increased businessactivity and performance related remuneration. Finance costs Net finance costs at £72.0 million were £19.1 million lower than in the firstsix months of 2006, reflecting the £33.7 million premium paid to redeem bondslast year. An increase in the group's net debt and higher interest ratespartially offset this reduction. Interest capitalised totalled £11.7 million,some £2.9 million lower than the equivalent figure during 2006 followingcompletion of two major developments in 2006. The group's average cost ofborrowing in the first half of 2007 was 6.1%, compared with 5.7% for thecorresponding period in 2006. Tax The current tax charge of £17.8 million for the six months to 30 June 2007included £17.4 million in respect of the capital gain arising on the sale of 9place Vendome, which was completed in July 2007. This was Hammerson's onlyFrench property outside the SIIC regime. The related deferred tax provision of£28.8 million has been released. As a UK REIT and French SIIC, it is anticipated that the group will bear minimaltax. Balance sheet and financing Hammerson's property portfolio was valued at £7.5 billion at 30 June 2007,compared with £6.7 billion at 31 December 2006. The increase arose principallyfrom capital additions, including capitalised interest, of £389 million and arevaluation surplus of £396 million. At 30 June, group borrowings amounted to £2.6 billion, whilst cash andshort-term deposits were £76 million. Gearing was 54%. Equity shareholders' funds increased by £484 million to £4.6 billion in the sixmonths to 30 June 2007, due mainly to the property valuation uplift of £396million and the issue of five million shares in connection with the acquisitionof Ravenhead Retail Park, St Helens, which increased net assets by £79 million. During the first half of the year, adjusted net asset value per share increasedby £1.35, or 9.0%, to £16.35. An analysis of adjusted net asset value per shareis shown below. At 30 June 2007 At 31 December 2006Analysis of net asset value £m £ per share £m £ per share Basic 4,649 16.00 4,165 14.60Effect of dilution:On exercise of share options 6 n/a 9 n/a Diluted 4,655 15.99 4,174 14.61Adjustments:Fair value of interest rate swaps 19 0.06 9 0.03Deferred tax on revaluation surpluses and other items 85 0.30 103 0.36 EPRA, diluted 4,759 16.35 4,286 15.00 Basic shares in issue used for calculation (million) 290.6 285.2Diluted shares used for calculation (million) 291.1 285.7 In April a new £340 million five-year bank facility was arranged, furtherstrengthening Hammerson's financial resources. At 30 June 2007, the averagematurity of the group's borrowings was nearly nine years with only £402 millionmaturing in the next four years. In July we received proceeds of £506 millionfrom the sale of two properties. On a pro-forma basis the latter reduced netdebt to £2.0 billion and gearing to 43%. Also in July, we made a tender offer for the £106 million 10.75% 2013 sterlingbonds outstanding. Following this, these bonds were redeemed and cancelled at apremium of £26 million, including costs. The transaction will reduce futureannual interest costs by approximately £3.5 million. Cash flow There was a net cash inflow from operating activities of £46 million for the sixmonths ended 30 June 2007, compared with an outflow of £33 million for the sameperiod last year. The principal reasons for the change were the payment in 2006of bond redemption costs, the timing of working capital receipts and payments,particularly VAT and increased rental income in 2007. Capital expenditure in thefirst half of this year totalled £285 million and overall there was a net cashinflow, after financing, of £37 million. Key performance indicators Return on shareholders' equity Hammerson achieved a return on shareholders' equity of 10.5% for the six monthsended 30 June 2007. Our estimated cost of equity is 8.5% per annum. Ungeared portfolio returns relative to IPD In the UK, Hammerson achieved a total ungeared property return of 6.0% in thefirst six months of 2007, compared with the IPD UK property benchmark of 4.9%.We aim to exceed the IPD benchmark by 1.0%. In France, Hammerson showed a return of 13.4%. IPD does not publish an index forFrance for the first six months of the year. Occupancy levels At 30 June 2007, the overall occupancy level in the investment portfolio was96.8%. This compares with 96.6% at 31 December 2006 and a target of 97.0%. Real estate portfolio At 30 June 2007, Hammerson's portfolio was valued at £7.5 billion, of whichinvestment properties accounted for £6.7 billion or 89%. Our objective for theinvestment portfolio is to achieve good growth in both capital and income andoutperform comparable benchmark indices. We pursue an active management policyaimed at minimising vacancy rates in the portfolio and enhancing rental values.We also follow a policy of actively recycling capital from mature assets intoproperties and development projects offering the potential for higher returns. At 30 June 2007, approximately 30% of the total portfolio was in respect of ourinterests in ten major properties held in joint ventures. In most instances,Hammerson has management responsibility for these assets and receives managementfees, which enhance our overall profitability. Hammerson made two major acquisitions in the first six months of 2007. In March,we acquired Ravenhead Retail Park, near St Helens town centre, for £120 million.It provides 27,500m(2) of retail accommodation with a current annual net rentalincome of £4.5 million. We anticipate starting construction of a £12 millionextension early in 2008. In May, we acquired the freehold of Stockley House, London SW1 for a total of£71 million. Completed in 1985, the 6,500m2 eight-storey office buildinggenerates an annual net rental income of £3.1 million from leases expiring in2010 and 2011. The property is adjacent to Victoria Station where we haveexisting ownerships and are in discussions with Network Rail for theregeneration of the station, which will include a major mixed-use development ofup to 100,000m(2). We intend to incorporate proposals for Stockley House intoour broader masterplan for Victoria. A table of property valuations and capital returns for the six months to 30 June2007 is shown below. Shopping Centres Retail Parks Offices Total Value Capital Value Capital Value Capital Value Capital return return return return £m % £m % £m % £m % UK 2,508 2.9 1,391 3.3 1,593 6.9 5,492 4.0France 1,247 11.6 107 (13.1) 573 16.3 1,927 11.2Germany 80 8.3 - - - - 80 8.3Total 3,835 5.6 1,498 1.9 2,166 9.2 7,499 5.9 The capital return from the group's portfolio overall was 5.9%, with returnsfrom the retail and office portfolios of 4.5% and 9.2% respectively. In the UK,the capital return was 4.0%, which compares with an increase of 2.6% in the IPDAll Property Capital Growth Index. In France there was a strong uplift in thevalues of the group's shopping centres, although the value of the retail park atVillebon decreased as rental values were revised downwards. The value of theFrench office portfolio includes 9 place Vendome at the agreed sale price. Overall the vacancy rate decreased marginally from 3.4% at the end of 2006 to3.2% at 30 June 2007. Success in letting empty space in the office portfolio wasoffset by a slight increase in vacancy in the retail portfolio. Several transactions initiated in the first six months of the year have beencompleted since 30 June. In July, we entered into agreements to acquire tworetail park developments in France. Contracts were exchanged for the acquisitionof the freehold of a proposed development, St Omer Retail Park, for £20 million.The site is located 2 km south of St Omer, between Calais and Lille. Hammerson'sownership upon completion will be 19,300m(2). Around 89% of the scheme ispre-let and the estimated net rental income upon completion in mid-2009 is £1.2million per annum, representing an initial yield of 5.9%. Hammerson has also signed heads of terms to acquire the development site of CapMalo Retail Park, near Rennes. Hammerson will pay £7 million for the fivehectare site. A planning application has been submitted for 10,700m(2) of retailpark accommodation and the decision is expected shortly. Additional developmentcosts are estimated at £7 million, with work on site expected to start in April2008 for completion in April 2009.The forecast initial yield on completion is6.2%. A contract to purchase Grand Maine shopping mall, Angers, Maine et Loire, for£44 million has been signed, with completion expected in October 2007. Thecentre is anchored by a Carrefour hypermarket and produces an annual net rentalincome of £1.9 million. There are opportunities to increase the income and valueof the centre. In July, we concluded the sale of our 50% interest in 9 place Vendome, Paris1er, a major office building developed in joint venture with AXA REIM France.Hammerson's net sale proceeds amounted to £207 million giving rise to adevelopment profit of £117 million on our £90 million share of the totaldevelopment cost. Taking into account acquisition fees, the net yield to thepurchaser was below 3.5%, demonstrating the continuing strength of theinvestment market in France. Also in July, we sold a 50% interest in WestQuay Shopping Centre, Southamptonfor £299 million. Opened in 2000, WestQuay was developed by Hammerson in a 50:50joint venture with Barclays. We acquired the latter's 50% interest in December2004 for £203 million. The scheme provides 76,200m(2) of high quality retailaccommodation anchored by John Lewis and Marks & Spencer. Hammerson and GIC RealEstate, the purchaser, will each hold their respective 50% interests in WestQuayin a joint venture partnership, with Hammerson retained as asset manager. Current developments Our strategy is to maintain a development programme with the objectives ofachieving good returns and creating high quality properties of a type which arenot generally available in the open market. At 30 June 2007, six major projects were underway with a current cost of £377million and an estimated cost on completion of £920 million. At 30 June,development profits of £191 million were reflected in the overall portfoliovalue. In addition, a further £46 million was realised on the sale in 2006 of a50% interest in 125 Old Broad Street. The table below summarises these schemes,which are forecast to generate aggregate net rental income of £73 million whencompleted and fully let. Based on current valuation yields for comparablecompleted investment properties, the additional total development profits fromthese schemes could be of the order of £250 million, equivalent to a furtherNAV uplift of 86 pence per share. Current Ownership Lettable Cost at Value at Costs to Forecast Projected Let Forecast developments interest area 30/6/07 30/6/07 complete total annual at completion cost rent 31/8/07 date % m(2) £m £m £m £m £m %Notes (1) (2) (1) (2) (1) (2) (1) (2) (2) (3) Retail Cabot Circus, 50 92,000 134 158 111 245 18 66 Sep 2008BristolHighcross, 60 60,000 101 149 109 210 13 49 Sep 2008LeicesterUnion Square, 100 49,000 58 68 162 220 15 21 Sep 2009AberdeenParinor 100 24,000 31 60 44 75 6 48 Apr 2008extension,Aulnay-sous-BoisOffices125 Old Broad 50 31,000 11 106 34 45 9 - Dec 2007Street, LondonEC2(4)60 Threadneedle 100 20,400 42 73 83 125 12 - Nov 2008Street, LondonEC2TOTAL 377 614 543 920 73Other development properties 206 199Profit realised on 50% disposal of 125 46 -Old Broad Street in 2006Total development properties (note 8 629 813to the accounts) 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 2007. (4) Cost to 30 June 2007 and forecast total cost shown net of disposal profit of £46 million arising in 2006. Cabot Circus in Bristol is a major retail-led regeneration project we arecarrying out in a joint venture with Land Securities. Construction and lettingare progressing well with leases for 66% of the projected scheme income eithersigned or under offer. Hammerson's estimated total development cost is £245million and our share of the projected income is £18 million. On opening inSeptember 2008, the scheme will re-establish Bristol as a top ten UK retaildestination. In Leicester, we are carrying out an expansion of the existing Shires shoppingcentre, which will more than double its size to 100,000m(2). The anchor storewill be handed over soon to John Lewis for its fit out. Leases for 49% of theprojected scheme income have either been signed or are under offer. Hammerson'sshare of the total development cost is £210 million, whilst our share of theprojected annual income is around £13 million. We believe this project willprove to be the catalyst for an increase in rental values within the refurbishedexisting scheme. With 12 months to opening at the schemes in both Bristol and Leicester ourletting progress is consistent with our experience at other major retaildevelopments. We are achieving our target rents but there is pressure fromretailers for greater lease incentives, which have increased over the last yearto the equivalent of a rent-free period averaging 18 months. At Union Square in Aberdeen, we are creating almost 50,000m(2) of retail parkand mall type space. Pre-letting is at an early stage but we are seeing gooddemand from retailers seeking large units at cost-effective rents in a city witha shortage of such space. The anticipated total development cost is £220million with projected net rental income of approximately £15 million per annum.Completion is scheduled for autumn 2009. In France, work is progressing well on a 24,000m(2) extension and restructuringproject at Parinor, our existing shopping centre to the north of Paris. Theworks will increase the size of the scheme to over 90,000m2, making it thelargest shopping centre serving the north of Paris. The programme will becompleted in April 2008, at an estimated development cost of £75 million. Around48% of the forecast annual rental income of £6 million has been secured or isunder offer. We are currently carrying out two major developments on the site of the formerLondon Stock Exchange in the City of London. Work is well underway on the firstbuilding, 125 Old Broad Street, where we are creating 29,400m(2) of officeaccommodation and 1,600m(2) of retail units with completion due at the end ofthis year. Following the sale of a 50% interest in this scheme in November 2006,Hammerson's share of the total costs will amount to £45 million, whilst ourshare of the forecast rental income is £9 million, a potential yield on cost of20%. The second project on this site is 60 Threadneedle Street, where we arebuilding a nine-storey office building of 20,400m(2) with completion scheduledfor November 2008. The original site purchase cost was low and we anticipate anattractive profit on this development. Development pipeline The developments now underway have all been brought forward through Hammerson'sdevelopment pipeline. Future schemes can be advanced when we consider itappropriate. At present, the pipeline includes more than 20 schemes, providingthe potential for capital investment of over £5 billion during the next tenyears, in addition to the cost of the current developments. The pipeline coversall areas of our business and includes major retail-led mixed-use schemes,extensions to our existing retail centres, retail parks and offices. The totalinvestment made by Hammerson in land and work up fees to secure theseopportunities now amounts to £206 million and they currently provide an incomeof around £5 million per annum. Within the development pipeline there are six schemes where a start on site ispossible within the next two years. These schemes, which have an estimated totaldevelopment cost of over £2 billion, are summarised in the table on thefollowing page. Future development starts Projects Ownership Area Cost at Forecast Earliest 30/6/07 total cost potential % m(2) £m(1) £m(1) startShopping Centres New Retail Quarter, Sheffield 100 105,000 31 600 2008Eastgate & Harewood Quarters, Leeds 90 100,000 50 600 2009 Retail Parks Fife Central Retail Park, Kirkcaldy 100 13,000 - 30 2007Westmorland Retail Park and ManorWalks, Cramlington, Northumberland 100 29,000 - 150 2008 Offices Bishops Place, London E1 100 100,000 17 650 2008The Triangle, Paddington, London W2 50 20,000 5 70 2008 Total 103 2,100 Note(1) Indicates Hammerson's share of costs. The New Retail Quarter in Sheffield is a major retail-led mixed-use regenerationproject on a site of over eight hectares in the heart of the city. Totallingaround 105,000m(2), the scheme will be anchored by a John Lewis departmentstore. We are already seeing encouraging interest from other retailers as thecity centre has suffered a lack of new retail space over the last 20 years. Wereceived planning consent for our proposals in August 2006 and enabling worksare underway. In Leeds, the Council granted planning consent for our proposed 100,000m(2)shopping centre earlier this year. Leeds has been an extremely successful retaildestination, but in recent years has been slipping down the rankings as itsuffers from a lack of the large high quality shops required by retailers. OurEastgate site, which comprises eight hectares on the Headrow and adjoiningBargate, is the natural direction for the retail core to expand. The scheme, inwhich our interest is 90%, will also be anchored by a new store for John Lewisand a second department store. The majority of the site is controlled byHammerson and site assembly will be completed by a compulsory purchase orderlater this year. In Scotland, Hammerson has recently received planning permission to create13,000m(2) of retail warehousing and 360 car parking spaces on a site adjacentto its existing retail park in Kirkcaldy, Fife. Approximately 50% of the newaccommodation has been pre-let to B&Q and Argos. A start on site is imminent. Also within the retail parks sector, we are planning a major expansion of ourexisting interests in Cramlington town centre, which we purchased for £164million in August 2006. Situated 16 km north of Newcastle, Cramlington currentlyprovides just over 50,000m(2) of retail space. We will be making a planningapplication later this year to increase the size of the centre by over 50%. In central London, we have a number of interesting future developments. The mostimmediate of these is Bishops Place on a one hectare site we have assembled justnorth of Liverpool Street station in the City. A planning application will besubmitted later this year for a mixed-use scheme of around 100,000m(2),including some 60,000m(2) of offices, a hotel and around 300 residential units. In Paddington we are preparing a planning application for a 20,000m(2) officetower, on a site adjoining Paddington Station acquired with our purchase fiveyears ago of the former Railtrack property portfolio. This is an improvingoffice location where we see significant growth potential. The scheme will becarried out in a 50:50 joint venture with Ballymore, possibly starting at theend of 2008. In May this year we announced that Hammerson, together with its partner the CityCorporation of London, had entered into an exclusivity agreement with leadinginternational bank, JPMorgan Chase, to develop a new European headquartersbuilding for the bank. We are working with our partners to create a building ofaround 100,000m(2) on the site of an existing building, St Alphage House, ownedby the City Corporation of London. We aim to submit a planning application laterthis year for a start on site in 2008. JPMorgan Chase will own the building. PROPERTY MARKETS AND OUTLOOK Retail property In the first half of the year, UK consumer expenditure grew solidly, in linewith the economy. However, in the light of rising interest rates and increasedconstraints on disposable income, conditions for retailers are somewhatchallenging. Nevertheless retailers continue to seek representation in the bestshopping centres and retail parks where we anticipate modest growth both inretail sales and rents over the next 18 months. In France, a reduction in unemployment and more positive sentiment following thePresidential elections in May has led to an upturn in consumer spending. With amore favourable outlook for French consumer spending, steady rental growth isexpected. Office property The central London office market has continued to benefit from the City'sgrowing dominance as an international financial centre. Strong rental growth in2006 was followed by further increases in the first half of the year, reflectingthe highest levels of take up of space since 2000. With vacancy rates at theirlowest level for five years and limited supply, the fundamentals remainpositive. However, continued weakness in financial markets could adverselyaffect occupier demand from the financial services sector. The central Paris office occupational market remains buoyant with strong demandboth from the private and the public sectors. The limited supply of primeaccommodation has led to historically low vacancy rates in the CBD and recordrents. Investment markets Demand from investors for UK real estate has been strong, particularly forLondon offices, but slowed in the second quarter. Yields for prime retailproperty remained broadly unchanged in the first half of 2007, with increases incapital values due principally to rental growth. Yields for London officesreduced slightly. However, higher interest rates have resulted in manydebt-backed investors being unable to use high levels of leverage to fundproperty acquisitions. This has been a factor behind the re-establishment of arisk premium and weaker demand for secondary property. In France, investment activity reached a record level in the first half of theyear, driven predominantly by international buyers. Office investment accountedfor the majority of transactions, with few prime assets coming to the market inthe retail sector. However, after a period of very strong growth and in thelight of increased interest rates, it is likely that yields will now stabilise. If the recent volatility in financial markets continues, investors are likely tobecome more cautious about property investment in the short-term. Nevertheless,property will remain an important part of a diversified investment portfolioand, with interest rates now believed to be near their peak in this cycle, themedium-term outlook for the real estate markets in both the UK and Franceremains favourable. Property portfolio informationRENTAL DATA: INVESTMENT PROPERTYFor the six months ended 30 June 2007 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 53.6 47.4 1.7 93.3 104.5 9.1 Retail parks 24.6 23.5 3.8 49.4 59.5 15.2 78.2 70.9 2.5 142.7 164.0 11.2 Office: City 27.7 23.9 1.4 53.6 53.3 (3.4) Other 5.9 5.2 5.5 18.2 20.4 6.9 33.6 29.1 2.5 71.8 73.7 (0.7)Total United Kingdom 111.8 100.0 2.5 214.5 237.7 7.3 Continental EuropeFranceRetail 29.4 26.3 3.2 59.0 64.2 5.2Office 10.4 9.6 8.7 23.3 24.4 (3.7)Total France 39.8 35.9 4.3 82.3 88.6 2.6 GermanyRetail 1.6 0.7 19.8 3.4 4.7 7.8Total Continental Europe 41.4 36.6 5.1 85.7 93.3 2.9 GroupRetail 109.2 97.9 3.1 205.1 232.9 9.4Office 44.0 38.7 3.6 95.1 98.1 (1.4)Total Investment Portfolio 153.2 136.6 3.2 300.2 331.0 6.0Developments and othersources not analysed above 2.4 1.7As disclosed in note 2 tothe accounts 155.6 138.3 Selected information at 31 December 2006 GroupRetail 2.4 200.9 225.9 9.3Office 5.6 87.7 91.7 (3.9)Total Investment 3.4 288.6 317.6 5.2Portfolio 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 together with the estimated rental value of vacant space. Property portfolio information continuedVALUATION DATA: INVESTMENT PROPERTYFor the six months ended 30 June 2007 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 2,107 43 2.1 4.3 4.3 4.8 Retail parks 1,273 29 2.4 4.4 3.7 4.7 3,380 72 2.2 4.3 4.1 4.8 Office: City 1,057 49 4.8 7.3 3.9 5.0 Other 307 23 11.1 13.4 3.9 5.5 1,364 72 6.0 8.4 3.9 5.1Total United Kingdom 4,744 144 3.3 5.5 4.0 4.8 Continental EuropeFranceRetail 1,289 93 7.7 10.0 4.4 4.6Office 573 81 16.3 18.4 3.1 4.1Total France 1,862 174 10.3 12.5 3.8 4.4 GermanyRetail 80 6 8.3 9.2 4.5 6.5Total Continental Europe 1,942 180 10.2 12.4 3.8 4.5 GroupRetail 4,749 171 3.7 5.8 4.1 4.7Office 1,937 153 8.8 11.2 3.7 4.8Total Investment Portfolio 6,686 324 5.1 7.3 4.0 4.7 Developments 813 72 13.1 13.3Total Group includingdevelopments 7,499 396 5.9 7.9 Selected information at 31 December 2006 GroupRetail 4,483 4.2 4.9Office 1,698 2.8 5.0Total Investment Portfolio 6,181 3.8 4.9 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. Consolidated income statement Year ended Six months Six months 31 December ended ended 2006 30 June 2007 30 June 2006 Audited Unaudited Unaudited £m Notes £m £m 278.2 Gross rental income 2 155.6 129.6 201.3 Operating profit before gains on investment 2 116.9 92.5 properties 748.0 Gains on investment properties 2 322.9 383.4 949.3 Operating profit 2 439.8 475.9 (118.0) Finance costs (68.4) (55.7) (34.0) Bond redemption costs (0.1) (33.7) (16.1) Change in fair value of interest rate swaps (9.8) (9.7) 11.2 Finance income 6.3 8.0 (156.9) Net finance costs 4 (72.0) (91.1) 792.4 Profit before tax 367.8 384.8 (99.4) Current tax 5A (17.8) (0.7) 333.8 Deferred tax 5A 22.7 (61.1) 234.4 Tax credit/(charge) 4.9 (61.8) 1,026.8 Profit for the period 372.7 323.0 Attributable to: 1,016.9 Equity shareholders 365.1 319.3 9.9 Minority interests 7.6 3.7 1,026.8 Profit for the period 372.7 323.0 357.5p Basic earnings per share 7 126.8p 112.3p 356.9p Diluted earnings per share 7 126.6p 112.1p Adjusted earnings per share are shown in note 7. All results derive fromcontinuing operations. Consolidated balance sheet *31 December 2006 30 June 2007 30 June 2006 Audited Unaudited Unaudited £m Notes £m £m Non-current assets 6,716.0 Investment and development properties 8 7,498.5 6,253.2 32.4 Interests in leasehold properties 32.4 34.3 42.2 Plant, equipment and owner-occupied property 45.4 36.9 64.9 Investments 9 89.3 57.2 13.6 Receivables 10 11.3 2.8 6,869.1 7,676.9 6,384.4 Current assets 148.0 Receivables 11 108.7 93.2 39.4 Cash and deposits 12 76.4 293.0 187.4 185.1 386.2 7,056.5 Total assets 7,862.0 6,770.6 Current liabilities 218.2 Payables 13 219.4 161.7 111.1 Tax liabilities 180.0 60.1 210.2 Borrowings 14 331.9 277.1 539.5 731.3 498.9 Non-current liabilities 2,072.4 Borrowings 14 2,267.0 2,173.2 103.3 Deferred tax 5C 84.6 477.1 55.1 Tax liabilities 4.8 25.6 32.3 Obligations under finance leases 32.3 34.2 11.2 Net pension liability 16 9.1 7.2 21.0 Other payables 19.9 18.5 2,295.3 2,417.7 2,735.8 2,834.8 Total liabilities 3,149.0 3,234.7 4,221.7 Net assets 4,713.0 3,535.9 Equity 71.3 Share capital 72.6 71.3 660.5 Share premium account 17 740.0 660.2 (62.9) Translation reserve 17 (64.9) (38.6) 59.9 Hedging reserve 17 62.9 39.1 7.2 Capital redemption reserve 17 7.2 7.2 8.9 Other reserves 17 9.5 8.0 78.9 Revaluation reserve 17 153.8 234.7 3,348.3 Retained earnings 17 3,671.8 2,504.1 (7.0) Investment in own shares 18 (4.0) (4.0) 4,165.1 Equity shareholders' funds 4,648.9 3,482.0 56.6 Equity minority interests 64.1 53.9 4,221.7 Total equity 4,713.0 3,535.9 £14.61 Diluted net asset value per share 7 £15.99 £12.21 £15.00 EPRA net asset value per share 7 £16.35 £13.89 Consolidated statement of recognised income and expense Year ended Six months Six months 31 December ended ended 2006 30 June 2007 30 June 2006 Audited Unaudited Unaudited £m Notes £m £m (31.1) Foreign exchange translation differences (2.1) (5.5) Net gain on hedge of net investment in foreign subsidiaries 27.0 17 3.0 6.2 67.0 Revaluation gains on development properties 17 72.3 70.0 7.6 Revaluation gains on owner-occupied property 17 3.2 3.4 14.4 Revaluation gains on investments 17 2.8 6.1 (2.2) Acquisition of minority interests - - (0.9) Actuarial gains/(losses) on pension schemes 17 3.7 3.2 (4.0) Tax recognised directly in equity 5B (4.3) (9.4) 77.8 Net gain recognised directly in equity 78.6 74.0 1,026.8 Profit for the period 372.7 323.0 1,104.6 Total recognised income and expense 451.3 397.0 Attributable to: 1,095.7 Equity shareholders 443.8 393.0 8.9 Minority interests 7.5 4.0 1,104.6 Total recognised income and expense 451.3 397.0 Reconciliation of equity Year ended Six months Six months31 December 2006 ended ended 30 June 2007 30 June 2006 Audited Unaudited Unaudited £m Notes £m £m 3,125.8 Opening equity shareholders' funds 4,165.1 3,125.8 1.1 Issue of shares 80.8 0.8 (4.0) Purchase of own shares - - 3.8 Share-based employee remuneration 17 3.3 1.7 0.4 Gain on award of own shares to employees 17 0.2 0.3 3,127.1 4,249.4 3,128.6 1,095.7 Total recognised income and expense 443.8 393.0 4,222.8 4,693.2 3,521.6 (57.7) Dividends (44.3) (39.6) 4,165.1 Closing equity shareholders' funds 4,648.9 3,482.0 Consolidated cash flow statement Six months Six months Year ended ended ended 31 December 2006 30 June 2007 30 June 2006 Audited Unaudited Unaudited £m Notes £m £m Operating activities 201.3 Operating profit before gains on investment 2 116.9 92.5 properties (12.7) Adjustment for non-cash items 19 (11.4) (0.2) 14.1 Decrease in receivables 40.8 38.8 (31.9) Increase/(Decrease) in payables 4.0 (40.5) 170.8 Cash generated from operations 150.3 90.6 (155.2) Interest and bond redemption costs paid (109.1) (128.8) 11.0 Interest received 5.9 6.4 (21.1) Tax paid (1.2) (1.1) 5.5 Cash flows from operating activities 45.9 (32.9) Investing activities (116.4) Purchase of property and capital expenditure (131.4) (33.1) (250.5) Development of properties (133.6) (133.2) 628.0 Sale of properties - 137.7 (132.7) Purchase of interests in subsidiary companies - - (1.0) Purchase of investments (19.5) (1.4) (9.2) Decrease/(Increase) in non-current receivables - 1.7 118.2 Cash flows from investing activities (284.5) (28.3) Financing activities 1.1 Issue of shares 1.7 0.8 (4.0) Purchase of own shares 18 - - 0.2 Proceeds from award of own shares 0.2 0.2 (277.7) Increase/(Decrease) in non-current borrowings 195.7 71.0 211.0 Increase in current borrowings 122.3 276.2 (2.4) Dividends paid to minorities - - (57.7) Equity dividends paid (44.3) (39.6) (129.5) Cash flows from financing activities 275.6 308.6 (5.8) Net increase/(decrease) in cash and deposits 37.0 247.4 45.5 Opening cash and deposits 39.4 45.5 (0.3) Exchange translation movement - 0.1 39.4 Closing cash and deposits 12 76.4 293.0 Analysis of movement in net debtFor the six months ended 30 June 2007 Short-term Cash at Current Non-current Net debt deposits bank borrowings borrowings £m £m £m £m £mBalance at 1 January 2007 13.1 26.3 (210.2) (2,072.4) (2,243.2)Cash flow 3.3 33.7 (122.3) (195.7) (281.0)Exchange - - 0.6 1.1 1.7Balance at 30 June 2007 16.4 60.0 (331.9) (2,267.0) (2,522.5) 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. Theresults for the year ended 31 December 2006 are an abridged version of the fullaccounts for that year, which received an unqualified report from the auditors,did not contain a statement under s237(2) or (3) of the Companies Act 1985 andhave been filed with the Registrar of Companies. The unaudited financialinformation contained in this report has been prepared on the basis of theaccounting policies set out in the full accounts for the year ended 31December 2006. This half-year 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 half-year period.There have been no material changes in reportable contingent liabilities since31 December 2006. The principal exchange rates used to translate foreign currency denominatedamounts are: Balance sheet: £1 = €1.486 Income statement: £1 = €1.482 The half-year report was approved by the Board on 4 September 2007. 2. OPERATING PROFIT Six months Six months Year ended ended ended 31 December 2006 30 June 2007 30 June 2006 £m £m £m 278.2 Gross rental income 155.6 129.6 (5.1) Rents payable (2.6) (2.3) 273.1 Gross rental income, after rents payable 153.0 127.3 45.4 Service charge income 25.6 22.4 (53.0) Service charge expenses (27.9) (26.7) (7.6) Net service charge expenses (2.3) (4.3) (28.1) Other property outgoings (12.4) (13.7) (35.7) Property outgoings (14.7) (18.0) 237.4 Net rental income 138.3 109.3 4.1 Management fees receivable 2.0 2.3 (20.9) Cost of property activities (12.6) (10.3) (19.3) Corporate expenses (10.8) (8.8) (36.1) Administration expenses (21.4) (16.8) Operating profit before gains on investment properties 201.3 116.9 92.5 95.8 (Loss)/Profit on the sale of investment (0.5) 0.9 properties 664.8 Revaluation gains on investment properties 323.4 382.5 (12.6) Goodwill impairment - - 748.0 Gains on investment properties 322.9 383.4 949.3 Operating profit 439.8 475.9 Notes to the accounts continued 3. SEGMENTAL ANALYSIS The group's primary segments are the geographical locations of its properties.The properties in Continental Europe are located principally in France, with oneproperty located in Germany. Six months Six months Year ended ended ended 31 December 2006 30 June 2007 30 June 2006 £m £m £m 200.9 Gross rental income UK 114.1 90.7 77.3 Continental Europe 41.5 38.9 278.2 155.6 129.6 689.3 Segment result UK 238.3 354.0 279.3 Continental Europe 212.3 130.7 (19.3) Unallocated corporate costs (10.8) (8.8) 949.3 Operating profit 439.8 475.9 4. NET FINANCE COSTS Six months Six months Year ended ended ended 31 December 2006 30 June 2007 30 June 2006 £m £m £m 13.7 Interest on bank loans and overdrafts 7.6 8.9 121.5 Interest on other loans 67.2 57.7 3.1 Interest on obligations under finance leases 1.6 1.6 6.3 Other interest payable 3.7 2.1 144.6 Gross interest costs 80.1 70.3 (26.6) Less: Interest capitalised (11.7) (14.6) 118.0 Finance costs 68.4 55.7 34.0 Bond redemption costs 0.1 33.7 16.1 Change in fair value of interest rate swaps 9.8 9.7 (11.2) Finance income (6.3) (8.0) 156.9 Net finance costs 72.0 91.1 In May 2006, £93.8 million of the £200 million 10.75% 2013 sterling bonds wereredeemed, leaving £106.2 million outstanding as at 31 December 2006. In April2007 a further £0.4 million of these bonds were redeemed, and the remaining£105.8 million were redeemed in July 2007. Notes to the accounts continued 5. TAX A. TAX (CREDIT)/CHARGE Six months Six months Year ended ended ended31 December 2006 30 June 2007 30 June 2006 £m Notes £m £m UK current tax 0.2 On net income before revaluations and disposals 0.1 0.2 (0.5) Credit in respect of prior years - - 100.5 Entry charge payable on election for UK REIT - - status 100.2 0.1 0.2 Foreign current tax 1.1 On net income before revaluations and disposals 0.3 0.5 (1.9) Credit in respect of prior years - - - On revaluations and disposals 5F 17.4 - (0.8) 17.7 0.5 99.4 Total current tax charge 17.8 0.7 Deferred tax 17.9 On net income before revaluations and disposals (5.2) 10.4 127.6 On revaluations and disposals (9.7) 53.6 (10.2) On bond redemption costs - - (4.8) On movements in fair value of interest rate swaps (2.8) (2.9) (15.7) Credit in respect of prior years - - - Effect of reduction in UK corporation tax rate (5.0) - (448.6) Released on election for UK REIT status - - (333.8) (22.7) 61.1 (234.4) Tax (credit)/charge (4.9) 61.8 B. TAX RECOGNISED DIRECTLY IN EQUITY Six months Six months Year ended ended ended31 December 2006 30 June 2007 30 June 2006 £m £m £m 12.1 Deferred tax charge on revaluations 3.3 8.6 (8.5) Deferred tax released on election for UK REIT status - - 0.4 Deferred tax charge on actuarial gains on pension schemes 1.0 0.8 4.0 Tax recognised directly in equity 4.3 9.4 C. DEFERRED TAX MOVEMENTS 1 January Recognised Recognised Foreign 2007 in income in equity exchange 30 June 2007 £m £m £m £m £mUK Dividends receivable from France 97.2 17.1 2.8 (0.2) 116.9Surpluses in trading subsidiaries 17.7 (1.0) - - 16.7Other timing differences (3.2) (2.7) 1.5 - (4.4)Revenue tax losses (37.2) (7.4) - - (44.6) 74.5 6.0 4.3 (0.2) 84.6France 28.8 (28.7) - (0.1) - Net deferred tax provision 103.3 (22.7) 4.3 (0.3) 84.6 Notes to the accounts continued 5. TAX continued D. UK REIT STATUS The group elected to be treated as a UK REIT with effect from 1 January 2007.The UK REIT rules exempt the profits of the group's UK property rental businessfrom corporation tax. Gains on UK properties are also exempt from tax, providedthey are not held for trading or, for properties completed after 1 January 2007,sold in the three years after completion of development. The group is otherwisesubject to UK corporation tax. As a REIT, Hammerson plc is required to pay Property Income Distributions equalto at least 90% of the group's exempted net income. On entering the REIT regime, entry tax became payable equal to 2% of the marketvalue of the group's qualifying UK properties at 31 December 2006. The financialstatements for the year ended 31 December 2006 provided for this entry chargeand showed the corresponding release of deferred tax relating to UK capitalgains and UK capital allowances. The total entry charge of £100.5 million isbeing paid in quarterly instalments between July 2007 and April 2008. E. FRENCH SIIC STATUS Hammerson plc has been a French SIIC since 1 January 2004 and all the Frenchproperties with the exception of 9 place Vendome are within the SIIC tax exemptregime. Income and gains are exempted from French tax but the Frenchsubsidiaries are required to distribute a proportion of their profits toHammerson plc, which will then pay UK dividends to its shareholders. Undercurrent UK tax rules, Hammerson plc will be taxed on dividends received fromFrance, subject to available UK tax losses. If all the properties were realisedat their 30 June 2007 values, a total of £418 million of dividends would arise(31 December 2006: £324 million), and deferred tax is provided for the potentialUK tax thereon. F. COMMENTARY Current tax is reduced by the UK REIT and French SIIC tax exemptions. UK deferred tax has been recalculated at a rate of 28% rather than 30%,reflecting the reduction in the UK corporation tax rate that will apply from 1April 2008. Provision has been made in current tax for the £17.4 million of French taxarising on the sale of the company owning 9 place Vendome, which completed on 6July 2007. Deferred tax of £28.7 million, which had been calculated on the basisof a sale of the property, has been written back. 6. DIVIDENDS The interim dividend of 12.0 pence per share (30 June 2006: 6.38 pence pershare) was approved by the Board on4 September 2007 and is payable on 19 October 2007 to shareholders on theregister at the close of business on 21 September 2007. The interim dividend will be paid as a Property Income Distribution and will besubject to withholding tax at a rateof 22%. The £44.3 million dividend included in the reconciliation of equity on page 18is the 2006 final dividend, representing 15.3 pence per share, which was paid on14 May 2007. Notes to the accounts continued 7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE The European Public Real Estate Association (EPRA) has issued recommended basesfor the calculation of certain per share information and these are included inthe following tables. EARNINGS PER SHARE The calculations for earnings per share use the weighted average number ofshares, which excludes those shares held in the Hammerson Employee ShareOwnership Plan (note 18), which are treated as cancelled. Year ended 31 December 2006 Six months ended 30 June 2007 Six months ended 30 June 2006 Pence Pence PenceEarnings Shares per Earnings Shares per Earnings Shares per £m million share £m million share £m million share 1,016.9 284.4 357.5 Basic 365.1 287.9 126.8 319.3 284.4 112.3 Adjustments: - 0.5 (0.6) Dilutive share - 0.4 (0.2) - 0.5 (0.2) options1,016.9 284.9 356.9 Diluted 365.1 288.3 126.6 319.3 284.9 112.1 Adjustments: Revaluation gains on investment (664.8) (233.3) properties (323.4) (112.2) (382.5) (134.2) Loss/(Profit) on the sale of (95.8) (33.6) investment 0.5 0.2 (0.9) (0.3) properties 12.6 4.4 Goodwill - - - - impairment Change in fair value of interest 16.1 5.7 rate swaps 9.8 3.5 9.7 3.4 (333.8) (117.2) Deferred tax (22.7) (7.9) 61.1 21.4 (credit)/charge 100.5 35.3 UK REIT entry tax - - - - charge - - Tax on property 17.4 6.0 - - disposals Minority interests in respect of the 7.8 2.7 above 6.3 2.2 2.6 0.9 59.5 20.9 EPRA, diluted 53.0 18.4 9.3 3.3 34.0 11.9 Bond redemption 0.1 - 33.7 11.8 costs 93.5 32.8 Adjusted, diluted 53.1 18.4 43.0 15.1 NET ASSET VALUE PER SHARE 31 30 June 30 June December 2007 2006 2006 Net asset Equity Net asset Net asset value shareholders' value value per share funds Shares per share per share £ £m million £ £ 14.60 Basic 4,648.9 290.6 16.00 12.21 Company's own shares held in Employee Share Ownership Plan n/a - (0.3) n/a n/a n/a Unexercised share options 6.7 0.8 n/a n/a 14.61 Diluted 4,655.6 291.1 15.99 12.21 (0.22) Fair value adjustment to borrowings (net of 2.5 0.01 (0.24) tax) 14.39 EPRA triple net, diluted 4,658.1 16.00 11.97 0.03 Fair value of interest rate swaps 18.6 0.06 0.01 0.22 Fair value adjustment to borrowings (net of (2.5) (0.01) 0.24 tax) 0.36 Deferred tax 84.6 0.30 1.67 15.00 EPRA, diluted 4,758.8 16.35 13.89 Notes to the accounts continued 8. INVESTMENT AND DEVELOPMENT PROPERTIES Investment Development properties Total properties Valuation Cost Valuation Cost Valuation Cost £m £m £m £m £m £m Balance at 1 January 2007 6,181.2 3,820.5 534.8 423.3 6,716.0 4,243.8Exchange adjustment (2.3) (1.4) - - (2.3) (1.4)Additions 183.7 183.7 193.8 193.8 377.5 377.5Disposals (0.1) (0.1) - - (0.1) (0.1)Capitalised interest - - 11.7 11.7 11.7 11.7Revaluation adjustment 323.4 - 72.3 - 395.7 -Balance at 30 June 2007 6,685.9 4,002.7 812.6 628.8 7,498.5 4,631.5 Properties are stated at market value as at 30 June 2007, 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. Since 30 June 2007,DTZ Debenham Tie Leung and Donaldsons have merged. In France and Germany, the group's properties were valued by Cushman &Wakefield, Chartered Surveyors. The valuations have been prepared in accordancewith the Appraisal and Valuation Standards of the Royal Institution of CharteredSurveyors and with IVA 1 of the International Valuation Standards. At 30 June 2007 the total amount of interest included in development propertieswas £23.8 million (31 December 2006: £12.1 million) calculated using the group'saverage cost of borrowings. 9. INVESTMENTS Available for sale investments 31 December 2006 30 June 2007 30 June 2006 £m £m £m 47.3 Value Retail Investors Limited Partnerships 50.1 38.8 16.1 Interests in Value Retail plc and related companies 37.9 17.1 1.5 Other investments 1.3 1.3 64.9 89.3 57.2 10. RECEIVABLES: NON-CURRENT ASSETS 31 December 2006 30 June 2007 30 June 2006 £m £m £m 10.8 Loans receivable 10.8 - 2.8 Other receivables 0.5 2.8 13.6 11.3 2.8 Loans receivable comprised a loan of €16.0 million (£10.8 million) to ValueRetail plc bearing interest based on EURIBOR and maturing on 22 August 2008. Theloan is classified as 'available for sale' and is included in the balance sheetat fair value, which equates to cost. Notes to the accounts continued 11. RECEIVABLES: CURRENT ASSETS 31 December 2006 30 June 2007 30 June 2006 £m £m £m 57.1 Trade receivables 42.4 39.5 - Loans receivable - 20.7 87.0 Other receivables 57.7 30.9 0.6 Corporation tax 0.3 0.2 3.3 Prepayments 8.3 1.9 148.0 108.7 93.2 12. CASH AND DEPOSITS 31 December 2006 30 June 2007 30 June 2006 £m £m £m 26.3 Cash at bank 60.0 16.1 13.1 Short-term deposits 16.4 276.9 39.4 76.4 293.0 Analysis by currency 27.3 Sterling 59.0 36.0 12.1 Euro 17.4 257.0 39.4 76.4 293.0 Short-term deposits principally comprised deposits placed on money markets withrates linked to LIBOR. 13. PAYABLES: CURRENT LIABILITIES 31 December 2006 30 June 2007 30 June 2006 £m £m £m 48.7 Trade payables 63.7 49.5 137.3 Other payables 121.9 91.5 23.4 Accruals 15.2 18.3 8.8 Fair value of interest rate swaps 18.6 2.4 218.2 219.4 161.7 14. BORROWINGS 31 December 2006 30 June 2007 30 June 2006 £m £m £m 90.8 Bank loans and overdrafts: Unsecured 590.7 205.7 15.5 Secured 39.7 71.7 2,175.3 Other loans: Unsecured 1,972.6 2,174.5 2,281.6 2,603.0 2,451.9 1.0 Exchange difference on currency swaps (4.1) (1.6) 2,282.6 2,598.9 2,450.3 In June 2007, the group's unsecured €300 million 5% euro bond was redeemed onmaturity by drawing down existing committed banking facilities, which wererepaid in July 2007 following the disposal of the group's interest in 9 placeVendome. Notes to the accounts continued 14. BORROWINGS continued ANALYSIS BY CURRENCY 31 December 2006 30 June 2007 30 June 2006 £m £m £m 1,274.1 Sterling 1,440.9 1,211.5 1,008.5 Euro 1,158.0 1,238.8 2,282.6 2,598.9 2,450.3 As part of the group's foreign currency hedging programme, at 30 June 2007 thegroup had sold €594.2 million (31 December 2006: €369.2 million) forward againststerling: €225 million for value in December 2007, at a rate of £1 = €1.462;and €369.2 million for value in July 2007, at a rate of £1 = €1.487, which wasrolled for value in December 2007, at a rate of £1 = €1.464. UNDRAWN COMMITTED FACILITIES 31 December 2006 30 June 2007 30 June 2006 £m £m £m - Expiring within one year - 8.8 845.0 Expiring after more than two years 497.9 722.7 845.0 497.9 731.5 15. FAIR VALUE OF FINANCIAL INSTRUMENTS 31 December 2006 30 June 2007 30 June 2006Book value Fair value Book value Fair value Book value Fair value £m £m £m £m £m £m (209.4) (210.4) Current borrowings (336.5) (340.8) (279.1) (282.0) (2,091.3) (2,181.0) Non-current borrowings (2,285.4) (2,277.5) (2,193.1) (2,286.7) 19.1 19.1 Unamortised borrowing costs 18.9 18.9 20.3 20.3 (1.0) (1.0) Currency swaps 4.1 4.1 1.6 1.6 (2,282.6) (2,373.3) Total borrowings (2,598.9) (2,595.3) (2,450.3) (2,546.8) (8.8) (8.8) Interest rate swaps (18.6) (18.6) (2.4) (2.4) The fair values of the group's borrowings have been estimated on the basis ofquoted market prices. The fair values of the group's outstanding interest rateswaps have been estimated by calculating the present value of future cash flows,using appropriate market discount rates. Details of the group's cash and short-term deposits are set out in note 12.Their fair values and those of other financial assets and liabilities equate totheir book values. At 30 June 2007, the book value of financial liabilities exceeded their fairvalue by £3.6 million (31 December 2006: book value £90.7 million less than fairvalue), equivalent to 1 pence per share (31 December 2006: 32 pence per share)on an adjusted net asset value per share basis. On a post-tax basis, thedifference was equivalent to 1 pence per share (31 December 2006: 22 pence pershare). 16. NET PENSION LIABILITY The net pension liability of £9.1 million (31 December 2006: £12.0 million)includes £nil (31 December 2006: £0.8 million) analysed within current payables.The liability has reduced since 31 December 2006 principally due to actuarialgains. Notes to the accounts continued 17. RESERVES Share Capital premium redemption account Translation Hedging reserve reserve reserve £m £m £m £m Balance at 1 January 2007 660.5 (62.9) 59.9 7.2Exchange adjustment - (2.0) - -Net gain on hedging activities - - 3.0 -Premium on issue of shares 79.5 - - -Balance at 30 June 2007 740.0 (64.9) 62.9 7.2 Other Revaluation Retained reserves reserve earnings £m £m £m Balance at 1 January 2007 8.9 78.9 3,348.3Share-based employee remuneration 3.3 - -Cost of shares awarded to employees (3.0) - -Transfer on award of own shares to employees 0.3 - (0.3)Revaluation gains on development properties - 72.3 -Revaluation gains on owner-occupied property - 3.2 -Revaluation gains on investments - 2.8 -Transfer on sale of investments - (0.1) 0.1Actuarial gains on pension schemes - - 3.7Gain on award of own shares to employees - - 0.2Dividends paid - - (44.3)Deferred tax recognised directly in equity - (3.3) (1.0)Profit for the period attributable to equity shareholders - - 365.1Balance at 30 June 2007 9.5 153.8 3,671.8 The revaluation reserve and £2,659 million of retained earnings representunrealised revaluation gains and do not constitute distributable reserves. 18. INVESTMENT IN OWN SHARES At cost 31 December 2006 30 June 2007 30 June 2006 £m £m £m 4.4 Opening balance 7.0 4.4 4.0 Purchase of own shares - - (1.4) Cost of shares awarded to employees (3.0) (0.4) 7.0 Closing balance 4.0 4.0 The Trustees of the Hammerson Employee Share Ownership Plan acquire theCompany's own shares to award to participants in accordance with the terms ofthe Plan. The expense related to share-based employee remuneration is calculatedin accordance with IFRS 2 and the terms of the Plan, and recognised in theincome statement within administration expenses. The corresponding credit isincluded in other reserves. When the Company's shares are awarded to employeesas part of their remuneration, the cost of the shares is transferred to otherreserves. Should this not equal the credit previously recorded against otherreserves, the balance is adjusted against retained earnings. Notes to the accounts continued 19. ADJUSTMENTS FOR NON-CASH ITEMS IN THE CASH FLOW STATEMENT Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2007 2006 £m £m £m 0.8 Depreciation 0.6 0.4 3.8 Share-based employee remuneration 3.3 1.7 1.2 Amortisation of lease inducements and other direct 0.7 2.1 costs (17.5) Increase in accrued rents receivable (15.4) (4.5) (1.0) Other items (0.6) 0.1 (12.7) (11.4) (0.2) 20. ACQUISITIONS On 8 March 2007 the group acquired the company owning Ravenhead Retail Park. Theacquisition cost of the property was £120 million, including costs, which wassatisfied through the issue of 5,019,875 ordinary shares in Hammerson plc, witha value of £79 million and the assumption and immediate repayment of debt of £39million. No other significant assets or liabilities were acquired and thetransaction has been accounted for as an asset acquisition. Other information UK REIT TAXATION As a UK REIT, Hammerson plc is exempted from corporation tax on rental incomeand gains on UK investment properties but is required to pay Property IncomeDistributions (PIDs). UK shareholders will be taxed on PIDs received at theirfull marginal tax rates. A REIT may in addition pay normal dividends andHammerson currently expects that its interim dividends will be paid entirely asPIDs while its final dividends will have both a PID and a normal dividendelement. For most shareholders, PIDs will be paid after deducting withholding tax at thebasic rate. However, certain categories of shareholder are entitled to receivePIDs without withholding tax, principally: UK resident companies; UK publicbodies; UK pension funds; and managers of ISAs, PEPs and Child Trust Funds. Aswas announced on 13 August 2007, Hammerson's website includes a form to be usedby shareholders to certify if they qualify to receive PIDs without withholdingtax. Completed forms need to be received by the Company's registrar by 21September 2007 for the 2007 interim dividend. Further information on UK REITsis available on the Company's website. WEBSITE This half-year report, the most recent annual report and other current andhistoric information are available on the Company's website, www.hammerson.com.The Company operates a service whereby all registered users of the Company'swebsite can choose to receive, via e-mail, notice of all Company announcementswhich can be viewed on the website. DISCLAIMER This announcement contains certain statements that are neither reportedfinancial results nor other historical information. These statements areforward-looking in nature and are subject to risks and uncertainties. Actualfuture results may differ materially from those expressed in or implied by thesestatements. Many of these risks and uncertainties relate to factors that are beyondHammerson's ability to control or estimate precisely, such as future marketconditions, currency fluctuations, the behaviour of other market participants,the actions of governmental regulators and other risk factors such as theCompany's ability to continue to obtain financing to meet its liquidity needs,changes in the political, social and regulatory framework in which the Companyoperates or in economic or technological trends or conditions, includinginflation and consumer confidence, on a global, regional or national basis. Readers are cautioned not to place undue reliance on these forward-lookingstatements, which speak only as of the date of this document. Hammerson does notundertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of thisdocument. Information contained in this announcement relating to the Companyshould not be relied upon as a guide to future performance. Glossary of terms Adjusted figures (per share) Reported amounts adjusted to exclude certain items as set out in note 7 to the accounts. Anchor store A major store, usually a department store or supermarket, occupying a large unit within a shopping centre or retail park, which serves as a draw to other retailers and consumers. Average cost of borrowing The cost of finance expressed as a percentage of the weighted average of borrowings during the period. Capital return The change in value during the period for properties held at the balance sheet date, after taking account of capital expenditure and exchange translation movements, calculated on a monthly time weighted basis. Earnings per share (EPS) Profit for the period attributable to equity shareholders divided by the average number of shares in issue during the period. EPRA European Public Real Estate Association. This organisation has issued recommended bases for the calculation of earnings per share and net asset value per share. ERV The estimated market rental value of the total lettable space in a property, after deducting head and equity rents, calculated by the group's valuers. Gearing Net debt expressed as a percentage of equity shareholders' funds. IAS International Accounting Standard. IFRS International Financial Reporting Standard. IPD Investment Property Databank. An organisation supplying independent market indices and portfolio benchmarks to the property industry. 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 amount 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 tax regime which in the UK exempts participants from corporation tax both on UK rental income and gains arising on UK investment property sales, subject to certain requirements. Rents passing The annual rental income receivable from an investment, 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). Glossary of terms continued Return on shareholders' equity Capital growth and profit for the period expressed as a percentage of(ROE) equity shareholders' funds at the beginning of the period, all excluding deferred tax. Reversionary or under-rented The amount by which the ERV exceeds the rents passing, together with the estimated rental value of vacant space. SIIC Societes d'Investissements Immobiliers Cotees. A French tax-exempt regime available to property companies listed in France. Total development cost All capital expenditure on a development project, including capitalised interest. Total return Net rental income and capital return expressed as a percentage of 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. 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hammerson