4th May 2006 07:01
Hammerson PLC04 May 2006 Proposed Election by Hammerson for REIT Status and Extracts from Chairman's AGMAddress Speaking at the Annual General Meeting of Hammerson plc to be held today, JohnNelson, Chairman, will say: "As many of you will know, the UK Government has introduced into this year'sFinance Bill proposals for Real Estate Investment Trusts - more commonly knownas REITs. The Board of Hammerson has decided that, if the Bill is enactedsubstantially in its current form, the company will elect for REIT status totake effect at the beginning of 2007. To enter the new regime, Hammerson will be required to pay a one-off entrycharge of 2% of the value of its UK property assets at 31 December 2006.Thereafter the company will be exempt from corporation tax on UK rental incomeand gains arising on UK property sales. It will be required to pay dividends toshareholders at a level of at least 90% of the tax exempt income andshareholders will then be liable to pay tax on those dividends, subject to theirindividual tax circumstances. In future, shareholders will, in effect, beinvesting in REITs on a similar basis to that of investing in propertiesdirectly. The principal benefits to Hammerson and to you, as shareholders, are: • First, on the basis of the company's current projections, the savings of tax on income and capital gains will exceed the initial costs of entering the regime. • Second, entry into the regime will remove Hammerson's substantial deferred tax liability on unrealised gains. This will both increase the group's net asset value per share and allow the group to make decisions regarding disposals based on property fundamentals rather than on tax considerations. • Third, surpluses from Hammerson's substantial development programme will, in future, be tax exempt, provided developed properties are retained for three years. • And fourth, shareholders will be investing in Hammerson on the basis that their investment is taxed only once, rather than twice. We believe that the introduction of REITs will provide additional opportunitiesto grow the business over the next few years and enable Hammerson to continue toplay a leading role in the transformation of our towns and cities. I believe itwill also add impetus to the regeneration of the UK's infrastructure at the sametime providing an attractive medium for investors. Hammerson's French business already enjoys a similar tax exempt status followingthe group's entry into the SIIC regime in France at the beginning of 2004. Thishas proved beneficial to shareholders and is unaffected by the UK proposals." Further details on REITs and their potential effects on Hammerson, including aproforma balance sheet, are set out in the attached appendix. Post Year End Events Referring to events since 31 December 2005, the Chairman will say: "The first four months of this year have been marked by continued stronginvestment demand for property in the principal markets in which Hammersonoperates. There have been further improvements in the office letting markets inboth London and Paris. In 2006, we have let 14,230 m(2) at One London Wall andMoorhouse in the City. Including space under offer, the buildings are nowrespectively 98% and 71% let. Recent transactions reflect shortened rent freeperiods and rents of up to £55 per ft(2). In Paris, we have let a further 6,000 m(2) at 9 place Vendome and this is now 90% let. Hammerson has continued to make excellent progress on its existing majordevelopment programme and commenced the redevelopment of the former StockExchange in the City. Today, we have announced the exchange of contracts for the sale of the B5factory outlet centre in Berlin to Henderson Global Investors for €21.8 million.The property had a book value at 31 December 2005 of €21.3 million and generateda net rental income in 2005 of €0.2 million. I am pleased to report that our financial position remains strong. Since theyear end we have raised £300 million in the international capital markets and£330 million from the banking market. The new facilities will be used largely torefinance existing borrowings and will have the effect of reducing the group'scost of borrowing and extending the debt maturity profile. Whilst we believe the recent rate of growth in capital values is unlikely to besustained, demand for prime property investments remains strong and I anticipatethat this will be reflected in further increases in the value of Hammerson'sproperties when we announce our interim results in September. I have everyconfidence that Hammerson will continue to prove an attractive investment forthe future." Conference Call A telephone conference for investors and analysts will be hosted by JohnRichards, Chief Executive, and Simon Melliss, Group Finance Director, at 10.00a.m. today. Access to the conference can be obtained by dialling +44 (0) 1452561 263. The conference can be replayed by dialling +44 (0) 1452 550 000 andentering the conference pin number, 8827497#. For further information: John Nelson Tel: 020 7887 1000Chairman John Richards Tel: 020 7887 1000Chief Executive Christopher Smith Tel: 020 7887 1019Director of Corporate Affairs csmith@hammerson.co.uk Appendix: Hammerson- Proposed REIT Conversion and Proforma Balance Sheet REIT status is a special tax exempt regime for property companies. REIT systemshave been very successful in a number of countries including the USA, Australiaand France. In 2004, Hammerson elected for tax exempt status for its Frenchproperties under the French REIT regime, Societes d'Investissements ImmobiliersCotees ("SIIC"). The UK government has included provisions in this year's Finance Billintroducing a REIT regime. Under the proposed UK system, companies that elect tobe REITs will have rental income and capital gains from UK properties exemptedfrom corporation tax and instead have obligations to distribute 90% of theexempted rental income (calculated after certain deductions) as Property IncomeDividends ("PIDs"), which will be taxable as rental income for shareholders. Anentry charge of 2% of the value of the group's UK property assets will bepayable on joining the new regime. Provided that the Finance Bill is enacted and regulations published as expected,the Board of Hammerson anticipates that it will be beneficial to Hammerson andits shareholders for the election for REIT status to be made. The company'sprojections show that the anticipated future corporation tax savings will morethan justify the entry charge, even taking account of the extra tax to be borneby shareholders. In addition, as a REIT, Hammerson will be less restricted bytax in making property buy/sell decisions, and deferred tax relating to UKcapital gains can be released. It is envisaged that Hammerson will elect for REIT status before the end of 2006and become a REIT effective 1 January 2007. The 31 December 2006 accounts willprovide for the entry charge payable and show the release of deferred taxrelating to capital gains and capital allowances on UK investment properties. The entry charge will be payable in four quarterly instalments starting in July2007 and will be broadly 2% of the total value of the group's UK portfolio at 31December 2006. The value of the UK portfolio at 31 December 2005 was £4,127million, implying an entry charge of around £83 million, but the 31 December2006 portfolio value will depend on acquisitions, disposals and revaluationsduring 2006. Deferred tax provisions relating to UK capital gains and capitalallowances would be almost entirely written back. At 31 December 2005, thesetotalled £365 million. By way of illustration, a proforma balance sheet is attached showing what theeffect of REIT conversion would have been on the 31 December 2005 balance sheet.Adjusted net assets, before deferred tax, reduces by 29 pence from £12.37 to£12.08 per share, reflecting the entry charge payable. Shareholders' equityafter deferred tax, increases by £282 million, or £0.99 per share, to £11.96 pershare. Most of the company's dividends will be paid as PIDs from November 2007. PIDswill generally be paid after deducting 22% withholding tax, although regulationsto be announced may remove the withholding tax for some classes of shareholdersand some non-UK resident shareholders may claim under tax treaties to reduce therate. PIDs received will be taxed on UK resident shareholders broadly as rentalincome and the 22% withholding tax will ensure that UK-resident individualsliable to income tax at the basic rate will have no additional tax to pay. Underthe current draft of the Finance Bill, a REIT will bear a tax penalty if a PIDis paid to a shareholder with an interest of more than 10% in the company.Further details of the rules governing PIDs will be provided in advance of thefirst payment. During 2006, the Board will monitor the progress of the Finance Bill throughParliament and make preparations for the election for REIT status. The Bill isnot final and the associated regulations and guidance have not yet been issued.A further announcement will be made by Hammerson if substantial changes emerge. Hammerson plc - Proforma Summarised Balance Sheet 31 December 2005 31 December REITs Proforma 2005 Adjustments £m £m £mBalance sheet Properties 5,732 - 5,732Net debt (2,049) - (2,049)Other net assets (158) - (158)Entry charge payable - (83) (83) Sub-total 3,525 (83) 3,442 Net deferred tax provision (note 1) (406) 365 (41)Fair value of interest rate swaps 7 - 7 Equity shareholders' funds 3,126 282 3,408 £ £ £Net asset value per share (diluted)NAV per share (note 2) 10.97 0.99 11.96Adjusted NAV per share (note 3) 12.37 (0.29) 12.08 Notes 1. Net deferred tax provision £m £m £mUK Net capital gains 329 (329) - Capital allowances 36 (36) - Other timing differences (2) - (2) Dividends receivable from France 62 - 62 Revenue tax losses (33) - (33) 392 (365) 27France 14 - 14 Net deferred tax provision 406 (365) 41 2. NAV per share NAV per share is calculated by dividing equity shareholders' funds by the numberof shares in issue and allowing for the dilutive effect of unexercised shareoptions. 3. Adjusted NAV per share Adjusted NAV per share is calculated by dividing equity shareholders' funds,after adjusting for deferred tax and the fair value of interest rate swaps andallowing for the dilutive effect of unexercised share options, by the number ofshares in issue. The above Proforma assumes that the Finance Bill published on 7 April 2006 isenacted substantially in its current form with satisfactory regulations andguidance. The amount of the entry charge on 1 January 2007 will depend on thevaluation of Hammerson's UK portfolio at that time. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hammerson