Hammerson PLC - Interim / Quarterly Report 2013

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RNS Number : 3056K Hammerson PLC 29 July 2013 Embargoed until 7:00 a.m. on Monday 29 July 2013 Hammerson plc - UNAudited Results for the SIX MONTHS ended 30 june 2013 Six months ended: 30 June 2013 30 June 2012 Increase Like-for-like increase Net rental income (continuing operations) £140.4m £127.8m 9.9% 2.5% Profit before tax (1) (continuing operations) £80.8m £13.9m n/a EPRA earnings per share (2) 11.1p 10.2p 8.8% Interim dividend per share 8.3p 7.7p 7.8% As at: 30 June 2013 31 December 2012 EPRA net asset value per share (2) £5.51 £5.42 1.7% LTV 38% 36% OPERATING HIGHLIGHTS · Like-for-like net rental income increased 2.5%, reflecting strong performance across our portfolio · Group occupancy of 97.4% (31 March 2013: 96.6%), ahead of our target of 97% · Long-term retail leases signed 1% above ERV (UK +5%, France 0%), demonstrating continued demand from successful retailers for space in our winning locations PORTFOLIO HIGHLIGHTS · New £78 million investment in Value Retail's European Villages including, for the first time, an investment in La Vallée Village (Paris), enhancing our relationship with VR business and management. Overall our net interest in VR at 30 June 2013 totals £578 million · Les Terrasses du Port, Marseille 89% let and construction on programme. The first unit will be handed over to Printemps in August, starting the countdown to opening in May 2014 · £154 million additional investment in Bullring, increasing our ownership of this iconic retail destination to 50% · Significant milestones reached on our three core UK strategic developments. Detailed planning application submitted for Victoria Gate, Leeds and outline planning registered for Croydon regeneration. Public consultation held for new plans at Brent Cross ahead of planning submission by year end · Primark signed for extension at O'Parinor, one of their first stores in Paris. Extensions completed at Manor Walks, Cramlington, and on site at Silverburn, Glasgow and Cyfarthfa, Merthyr Tydfil FINANCIAL HIGHLIGHTS · Strong financial position with liquidity of around £690 million, gearing and LTV of 57% and 38% respectively · EPS growth of 8.8% in line with previous guidance · Dividend increased by 7.8%, reflecting confidence in sustained income growth David Atkins, Chief Executive of Hammerson, said: "While household budgets in the UK and France remain under pressure, there are encouraging signs of improvement in macro-economic conditions in the UK. Our winning venues remain in demand from consumers and retailers. This combined with our management actions allows us to maintain high occupancy, secure new tenants on attractive terms and consistently grow rental income. We therefore have confidence in our continued ability to secure strong growth in earnings and dividends over the medium term." (1) Includes revaluation gains and losses relating to property and financial instruments. (2) Calculations for EPRA figures are shown in note 8 on p. 49. Enquires: David Atkins, Chief Executive Tel: +44 (0)20 7887 1000 Timon Drakesmith, Chief Financial Officer Morgan Bone, Director of Corporate Communications Tel: +44 (0)20 7887 1009 [email protected] www.hammerson.com Results presentation today: Time: 9.30 a.m. Venue: Deutsche Bank 1, Great Winchester Street London EC2N 2DB Webcast: A live webcast of Hammerson's results presentation will be broadcast today at 9.30 a.m. via the Company's website: www.hammerson.com. At the end of the presentation you will be able to participate in a question and answer session by dialling +44 (0)20 3147 4971. Please quote confirmation code 153678. Financial calendar: Ex-dividend date 21 August 2013 Record date 23 August 2013 Interim dividend payable 3 October 2013 Contents: Overview 3 Independent Review Report 33 Key Performance Indicators 5 Responsibility Statement 33 Business Review 7 Condensed Financial Statements 34 Financial Review 20 Notes to the Accounts 41 Property Portfolio Information 27 Other Information 58 Principal Risks and Uncertainties 31 Glossary of Terms 59 Index to key data 30 June 2013 Page Operational Occupancy 97.4% 5 Leasing activity £10.2m 17 Area of new lettings 70,600 m2 17 Leasing v ERV +1% 17 Leasing v previous passing rent +12% 17 Non-rental income UK France £9.2m £0.7m 17 17 14 Day rent collection rates UK France 99% 92% 29 29 Financial Adjusted earnings per share 11.1p 6 Cost ratio 25.3% 22 Interim dividend per share 8.3p 24 Equity shareholders' funds £3.9bn 24 EPRA net asset value per share £5.51 24 Net debt £2.2bn 24 Gearing 57% 26 Loan to value 38% 26 Liquidity £686m 24 Weighted average cost of finance 5.0% 23 Interest cover 2.7 times 26 Net debt / EBITDA 7.9 times 26 Fixed rate debt 72% 24 Portfolio currency hedge 80% 24 Portfolio Portfolio total returns (six months ended 30 June 2013) 2.4% 6 Like-for-like NRI +2.5% 5 Portfolio value £5.7bn 18 Portfolio capital return -0.2% 19 Overview STRATEGY Hammerson focuses on winning retail locations which benefit from structural consumer trends for experience, convenience and luxury: prime regional shopping centres, convenient retail parks and, through our partner Value Retail ('VR'), premium designer outlet villages. Our strategy is to deliver industry-leading shareholder returns by: creating high-quality property through development, extension, refurbishment and acquisition; maximising income via high occupancy, tenant engineering and creative marketing; and operating within a prudent and flexible financial structure which provides security whilst allowing us to act decisively and swiftly. Our top three stated priorities for 2013 are to: prepare Les Terrasses du Port, Marseille, for opening in spring 2014; deliver extensions and refurbishments in our existing portfolio; and confirm plans for major developments in Leeds and London. We have performed well in all three areas over the first six months. CREATING HIGH-QUALITY RETAIL PROPERTY Experience - Prime Shopping Centres Les Terrasses du Port, our retail and leisure development overlooking the Mediterranean Sea in Marseille, is now 89% let, with just under a year until opening. Our scheme is benefiting from the Euromediterranée rejuvenation, with new museums, hotels and theatres already opened in the surrounding area. We will hand over the first unit to department store Printemps this summer, starting the countdown to opening in May 2014. We have also made significant advances with our three major UK developments. In Leeds, we submitted a detailed planning application for our £130 million John Lewis-anchored retail development which adjoins Victoria Quarter. At Brent Cross, in London, we held thorough community consultation events in June, ahead of submitting a revised planning application in the autumn. In Croydon, the joint venture with Westfield to deliver a £1 billion retail-led scheme to transform the heart of the town is progressing well, with planning approval expected in the autumn. Bullring, Birmingham, has been a consistently strong performer since we opened it in 2003, demonstrating compound annual rental growth of 5.5%. In May we acquired an additional stake, and now own 50% of this iconic retail destination, which celebrates its 10th birthday this year. We have several options to further extend and redevelop the centre, to ensure that it continues to outperform over the coming years. Convenience - Retail Parks Reflecting the increased demand for leisure facilities in retail parks, we opened a 9-screen Vue cinema at Manor Walks, Cramlington, earlier this month. The cinema is their first in the UK to feature Dolby 'Atmos' 3D sound. We have also brought Prezzo (the first in the north of England) and Frankie & Benny's (the first in Northumberland) to the scheme. We are extending and reconfiguring a number of our retail parks to generate additional income from specific retail demand. For example at Cyfarthfa, Merthyr Tydfil, we have pre-lets agreed with B&Q and Marks & Spencer, and started enabling works on site last month. At Elliott's Field, Rugby, we received planning approval in May, have secured Debenhams as an anchor, and will start on site in early 2014. The extension will include a new retail terrace to accommodate 15 new fashion and homeware brands. Luxury - Premium Designer Outlets In June and July, Hammerson invested a further £78 million into VR, through whom we invest in the premium designer outlet market. We acquired, for the first time, an investment in La Vallée Village (Paris) and increased our stakes in Las Rozas (Madrid) and La Roca (Barcelona) Villages. Our total investment in VR accounts for 15% of the Group's EPRA net asset value at the end of June 2013. VR has continued to trade well and in line with expectations during the first half of 2013. Brand sales grew at a double-digit rate compared to the same period last year. The 5,800m2 extension project at La Roca Village is progressing well. MAXIMISING INCOME FROM OUR PORTFOLIO We are introducing new brands and formats to our portfolio to capitalise on the structural demand for modern dining and leisure facilities. For example, at Silverburn, Glasgow, we have started on site with a leisure-led extension to include cinema, catering and bingo facilities. In Southampton, following the success of the relaunched 'Dining at WestQuay' concept, our proposals for a leisure-led Watermark scheme adjacent to WestQuay have recently been approved by the council. We continue to enhance our multi-channel offer to retailers and customers. Having already implemented free wifi throughout our UK shopping centres and launched new mobile-enabled websites, we are able to progress to the next stage of digital engagement with our consumers. In September we are launching a mobile-enabled loyalty app, which will offer product updates, dedicated services to customers and rewards for shoppers. By creating destination venues and constantly refreshing the tenant mix to reflect consumer demand, we create winning locations for retailers and consumers. Despite the challenging backdrop, we have maintained occupancy above our target, and grown like-for-like income from the portfolio by 2.5%. CAPITAL STRENGTH We have maintained our strong financial position over the period, with gearing and LTV remaining low at 57% and 38% respectively. We maintained our average interest cost at 5.0%, and finished the period with substantial liquidity of around £690 million. KEY PERFORMANCE INDICATORS (KPIs) We monitor the performance of our business by comparing four principal measures with appropriate benchmarks: occupancy; growth in like-for-like net rental income; growth in adjusted earnings per share; and portfolio total returns. These KPIs illustrate how successful the implementation of our strategic priorities has been. Management reporting systems and IPD are the sources of the information used to calculate KPIs. http://www.rns-pdf.londonstockexchange.com/rns/3056K_-2013-7-26.pdf The continuing portfolio was 97.4% occupied at 30 June 2013, remaining ahead of our target of 97.0%. For the Group as a whole, the impact of tenant administrations was largely offset by a strong letting performance. As noted in Security and Quality of Income on page 29, tenants in administration represent a small proportion of the Group's total income. Occupancy is analysed further in the Business Review on page 15. http://www.rns-pdf.londonstockexchange.com/rns/3056K_1-2013-7-26.pdf Like-for-like net rental income growth is the percentage change in net rental income for completed investment properties owned throughout both current and prior periods, after taking account of exchange translation movements. We target growth in excess of 2% per annum. For the six months ended 30 June 2013, net rental income for the continuing portfolio grew by 2.5% compared with 2.1% for the year ended 31 December 2012. Shopping centre income grew by 3.2%, comprising 2.8% in the UK and 3.9% in France. For the UK retail park portfolio, income increased by 2.8% on a like-for-like basis. http://www.rns-pdf.londonstockexchange.com/rns/3056K_2-2013-7-26.pdf Adjusted EPS is derived from earnings reported in the financial statements under IFRS, adjusted to exclude certain items, mainly those relating to valuation changes. The relevant calculations are shown in note 8A on page 49. For the first half of 2013, adjusted EPS was 11.1 pence, an increase of 0.9 pence, or 8.8% compared with the comparative period. The growth principally resulted from higher net rental income and an increased contribution from our investment in Value Retail. EPS growth is benchmarked against the Retail Prices Index (RPI) and our target is to grow adjusted EPS by more than RPI plus 3%. We significantly outperformed the target in the first half of 2013. A commentary on profit, earnings, and earnings per share is provided in the Financial Review on page 20. http://www.rns-pdf.londonstockexchange.com/rns/3056K_3-2013-7-26.pdf For the six months to 30 June 2013, the portfolio total return of 2.4% outperformed the IPD benchmark of 2.2%. The prime nature of our portfolio is evident from the income return of 2.6% which is low relative to the benchmark of 3.3%. However the portfolio capital return of -0.2% outperformed the benchmark of -1.1% by 90 basis points, demonstrating the underlying quality of the portfolio. We aim to outperform IPD by 100 basis points. BUSINESS REVIEW OVERVIEW OF FOCUS AND STRATEGY We focus on winning locations that cater to consumer preference for: · Experience - prime shopping centres which offer exciting brands, full-line stores, high-quality catering and leisure facilities in a safe, digital-enabled environment · Convenience - convenient, well-managed retail parks in out-of-town locations are securing an increasing number of fashion and catering tenants, due to their accessibility · Luxury - affinity to high-quality brands and increased tourism have driven impressive sales growth at premium designer outlets in major cities throughout Europe We have three strategic priorities which guide our capital deployment, operating model and financial management: · creating high-quality properties · maximising income from the portfolio · utilising the Group's capital strength, whilst maintaining a prudent capital structure CREATING HIGH-QUALITY PROPERTIES Our strategy is underpinned by high-quality real estate. We create compelling retail venues in successful locations with services and experiences tailored to the local consumer demographic. The quality of our portfolio is enhanced through: · development - creating vibrant, modern retail destinations, often involving urban regeneration · refurbishment - refreshing or repositioning existing assets to increase their appeal to tenants and consumers · extensions - meeting the increased demand from tenants and consumers at successful retail locations · investment activity - recycling capital from mature assets into properties offering the potential to generate higher returns Development, refurbishment and extensions Our experience in managing complex urban regeneration schemes such as: Bullring, Birmingham; WestQuay, Southampton; and Les Terrasses du Port in Marseille has earned Hammerson a reputation as a leading retail real estate developer. Our substantial pipeline of future developments has the potential to provide Hammerson's shareholders with good returns and we have forged strong relationships with the local authorities and major retail groups who have interests in these schemes. Going forward, we must ensure that our capital and human resources are appropriately focused on completion of schemes which offer the most attractive returns over the medium to long term. The main focus of Hammerson's strategic UK development projects will be on its major retail schemes in Leeds and London, including Croydon and Brent Cross, which in total will deliver circa 327,000m² of new retail space over the coming years. This is in addition to the refurbishment programme of existing centres and retail park extensions. Consequently, Hammerson has reached mutual agreement with Sheffield City Council not to progress Sevenstone, the proposed new retail quarter for Sheffield city centre. Recent progress on our major projects includes the submission of detailed planning applications for Victoria Gate in Leeds, and consultation on improvements to the Brent Cross Cricklewood regeneration scheme ahead of submitting a revised planning application. Planning determination on the outline application for the redevelopment of the Whitgift Centre in Croydon is expected this autumn. During the first half of 2013, we have achieved several milestones in advancing development projects, as noted in the table below. Overview of recent progress Site assembly Planning Letting Construction · Acquired the site at Le Jeu de Paume, Beauvais · Acquired a 25% leasehold interest in Whitgift, Croydon · Entered into a 50/50 joint venture with Westfield for the redevelopment of central Croydon · Achieved planning approval for: - Silverburn extension, Glasgow - Cyfarthfa Retail Park, Merthyr Tydfil - Elliott's Field Retail Park, Rugby - Watermark WestQuay, Southampton · Submitted planning applications for: - Whitgift, Croydon - Victoria Gate, Leeds · Signed lettings for: - Les Terrasses du Port, Marseille - Manor Walks shopping centre and retail park, Cramlington - Monument Mall, Newcastle - Cyfarthfa Retail Park, Merthyr Tydfil - Silverburn extension, Glasgow · Progressed construction at: - Les Terrasses du Port, Marseille - Monument Mall, Newcastle · Completed the extension of Manor Walks shopping centre, Cramlington · Started on site at: - The retail park at Manor Walks, Cramlington - Silverburn extension, Glasgow - Cyfarthfa Retail Park, Merthyr Tydfil Note: Further information on these schemes is set out on pages 9 to 12. The table on page 9 summarises the developments for which we are on site, or which we expect to start over the next few years. Our development programme comprises: · On site projects: 110,400m2 of lettable space at a cost to complete of £206 million and generate an estimated £35 million of income per annum · Major developments > 30,000m2: annual income estimated at £71 million, involving the development, refurbishment or extension of 327,000m2 at a cost of £970 million · Extensions/developments < 30,000m2: creating 71,100m2 of accommodation, generating income of £16 million per annum and costing £194 million · Pipeline: our development pipeline provides longer term opportunities for large retail and leisure developments in the UK and France involving the creation of 159,150m2 of new space, at a total development cost of £784 million and estimated income of £55 million per annum when fully let. Developments Scheme Lettable area Earliest start Potential completion Value at 30/06/13 Estimated cost to complete1 Estimated annual income2 Let3 m2 £m £m £m % ON SITE Les Terrasses du Port, Marseille 61,000 Commenced Q2 2014 300 150 29 89 Cyfarthfa, Merthyr Tydfil 14,500 Commenced Q4 2014 n/a 26 2 46 Monument Mall, Newcastle 11,400 Commenced Q3 2013 41 7 1 77 Silverburn extension, Glasgow 4 10,900 Commenced Q1 2015 n/a 12 1 75 O'Parinor, Aulnay-sous-bois, Paris5 7,200 Commenced Q4 2014 n/a 3 1 100 Manor Walks, Cramlington 5,400 Commenced Q4 2013 n/a 8 1 66 110,400 206 35 MAJOR DEVELOPMENTS (>30,000m2) Victoria Gate, Leeds (Phase 1) 37,000 2014 2016 120 10 18 Croydon town centre 4 200,000 2015 2018 500 35 - Brent Cross Extension, London6 90,000 2016 2019 350 26 - 327,000 970 71 EXTENSIONS/REDEVELOPMENTS (<30,000m2) Abbotsinch, Paisley 5,000 2013 2014 9 1 60 Le Jeu de Paume, Beauvais 23,400 2013 2015 60 5 34 Elliott's Field, Rugby 16,000 2014 2015 35 3 13 Watermark WestQuay, Southampton 17,700 2014 2016 70 5 - Brent Cross Leisure, London6 9,000 2015 2016 20 2 - 71,100 194 16 PIPELINE Halle en Ville, Mantes 32,000 2014 2016 120 9 30 SQY Ouest, Saint Quentin-en-Yvelines 4 31,700 2014 2015 16 1 - Italie 2, Paris 13ème 5,700 2015 2017 28 2 - Orchard Centre, Didcot 11,000 2015 2016 40 3 - The Goodsyard, London E1 4, 7 5,750 2015 Phased 100 - - Victoria Gate, Leeds (Phase 2) 73,000 2018 2021 480 40 - 159,150 784 55 Total 667,650 2,154 177 Notes (1) Incremental capital cost including capitalised interest. (5) 25% ownership. (2) Incremental income net of head rents and after expiry of rent-free periods. (6) 41% ownership. (3) Let or in solicitors' hands by income at 24 July 2013. (7) Area reflects phase 1 of retail space only. (4) 50% ownership. (8) € converted at £1 = €1.167. Costs and income represent Hammerson share for joint ventures. On site developments Les Terrasses du Port, Marseille, the 61,000m2 shopping and leisure destination currently under development, is on budget and scheduled to complete in May 2014. Featuring 194 shops and 2,600 car parking spaces, the development was valued at £300 million at the end of June 2013, some £50 million above cost. Printemps will anchor the scheme with a 8,700m2 department store carrying high-end fashion and accessories from designer ranges. Michael Kors and Gant are opening their first shops in France's second city with Bose and G-Star taking flagship stores. French fashion brand Sandro has also secured space, with Groupe SMCP (Sandro, Maje and Claudine Pierlot) now opening three stores within the scheme. The new retailers joining the centre have taken space on the top floor, which is dedicated to high-end and designer brands and has stunning views over the Mediterranean. Monoprix, Zara, Levi's, Agatha and Fossil are also in the tenant line-up. Vinci Park will operate the car park, and the scheme as a whole is now 89% let or in solicitors' hands. We are selectively targeting a number of well-known international retailers to lease the remaining space. Les Terrasses du Port is just part of the impressive regeneration of the wider port area of Marseille. Several new important buildings have opened in the vicinity of the shopping centre, including: MUCEM, a new museum which was opened in June by Francois Hollande; Le Silo, a new theatre; and the Euromed centre which includes a new 4 star hotel and 48,000m2 of office space for which works have started. Marseille is the European Capital of Culture in 2013, and as such is hosting a number of festivals to celebrate urban art, film, dance and cuisine. Tourist numbers are expected to reach 12 million this year, up from 4 million in 2011. In March, Merthyr Tydfil County Borough Council approved our planning application to extend Cyfarthfa Retail Park and bring Marks & Spencer to the town. Marks & Spencer will anchor the 14,500m² extension with a 4,600m² full-line store offering clothing, homeware and a food hall. The scheme will also provide 9,900m² of additional retail space, to which B&Q will be relocated and which will accommodate up to six new brands. The scheme will provide approximately 200 jobs during the construction phase and create the equivalent of up to 230 full time jobs when complete. Work has started on the extension with some stores, including the new B&Q, trading early in 2014 and the remainder open by Christmas 2014. The redevelopment of Monument Mall in Newcastle is expected to be completed in August and some 77% of the anticipated rental income from the £20 million scheme has been secured. TK Maxx will occupy a 3,300m² flagship store over the first and second floors with a glazed triple-height entrance onto Northumberland Street. We have also signed Jack Wills, Reiss and Rox to the scheme. Our leisure-led expansion of Silverburn, Glasgow has commenced. We have signed Cineworld to operate the cinema and Gala Bingo and to date 75% of the anticipated rental income of £1 million has been secured. We expect the 10,900m2 extension to be open for business in early 2015 at an estimated cost of £12 million. We have recently signed Primark to the 7,200m2 extension at O'Parinor, which will be one of the retailer's first stores in Paris. The scheme is now fully pre-let or in solicitors' hands and scheduled for completion towards the end of 2014. The 5,400m² shopping centre extension at Manor Walks, Cramlington opened in July. Vue Cinema is now welcoming customers to its 2,600m² nine-screen cinema with Dolby 'Atmos' 3D sound, VIP seating and super-sized screens. Restaurant brands Prezzo and Frankie & Benny's have signed as part of the family restaurant line-up at the scheme. Major developments (> 30,000m2) In June, a detailed planning application was submitted for Victoria Gate, the 37,000m2 first phase of our development in Leeds. The scheme will introduce two new retail streets drawing on Leeds' thriving arcade heritage and create a direct route from Victoria Quarter which we acquired in 2012. John Lewis will anchor the centre with a 24,000m² flagship store and the project will also provide up to 30 additional retail units for aspirational brands, six restaurants, new leisure space and a 800 space multi-storey car park. The estimated annual income from the scheme is £10 million, and we expect work to commence in spring 2014 with an autumn 2016 opening. In January, we formed a 50:50 joint venture with Westfield to regenerate the retail heart of Croydon, South London and restore the town as one of the UK's leading shopping destinations. Hammerson contributed Centrale shopping centre to the joint venture at a valuation of £115 million, and now shares ownership with Westfield. In March, the joint venture also acquired for £65 million the 155-year headlease of the Whitgift Centre, representing a 25% interest. Together with Westfield, we intend to redevelop and combine the Whitgift Centre and Centrale. The 200,000m2 mixed-use scheme will include retail, leisure and residential space, with the potential for hotels and offices, and will create over 5,000 new jobs. A planning application was registered in February and is expected to be determined in the autumn. Subject to consent, construction on the £1 billion scheme could start in 2015. Together with our partner Standard Life Investments we released in June updated details of the Brent Cross Cricklewood regeneration in north-west London. The plans have been shown to local stakeholders before being finalised and submitted to Barnet Council later this year as an amendment to the outline planning permission granted in 2010. The updated scheme includes a new network of covered streets and spaces in and around Brent Cross as part of a 90,000m2 extension costing £350 million. It will deliver a world class retail, dining and leisure environment and some of the proposed transport improvements will be accelerated. The regeneration will support 27,000 full-time jobs, with retail and leisure accounting for 5,500 of these. Local residents will also benefit from new parks and community facilities as well as much improved transport connections. We anticipate work on the 9,000m2 leisure and catering extension at Brent Cross will start on site in 2015. The cost of the project is estimated at £20 million. Extensions/redevelopments (< 30,000m2) Abbotsinch Retail Park, Paisley was acquired as part of The Junction Fund portfolio in October 2012 and work is due to start imminently to develop a 5,000m2 terrace comprising five new units. Of the anticipated income, 60% has been secured. In January we acquired the land for our proposed development of Le Jeu de Paume, Beauvais and leases signed or in solicitors' hands already represent 34% of the expected income. Carrefour Market will anchor the centre with a 3,000m2 store and a further 83 retail units and 37 residential apartments will complete the 23,400m2 city centre scheme, 60 km to the north of Paris. The line-up includes H&M as the fashion anchor and Furet du Nord as the culture and leisure anchor. Discussions continue with retailers interested in the remaining larger units and we are planning to start construction before the end of this year. Plans for the redevelopment of Elliott's Field Retail Park in Rugby were approved by Rugby Borough Council in May. Debenhams will anchor the scheme operating from a 5,600m2 full-line store with cosmetics, clothing and homeware departments and a cafe/restaurant. The £35 million extension will include a new retail terrace to accommodate 15 new fashion and homeware brands. New catering space, improved car parking facilities and major improvements to the external environment also feature in the scheme. We have secured 13% of the estimated annual income from the project for which work is due to start in early 2014 with expected completion by spring 2015. Proposals for the leisure-led development at Watermark WestQuay were approved by Southampton City Council in July. The four hectare brownfield site in the centre of Southampton is immediately adjacent to Hammerson's jointly owned 76,800m² WestQuay Shopping Centre. The mixed-use scheme will be delivered in two phases with the first phase of 17,700m2 comprising a landmark cinema building, up to 15 restaurants and additional retail space, alongside newly created public space in front of the city's historic walls. The second phase has the potential to include a residential tower, a hotel, flexible office space, restaurants and additional public space. Estimated development costs for the first phase of £70 million would provide £5 million of income per annum. ENHANCING QUALITY THROUGH PORTFOLIO MANAGEMENT We have completed our rebalancing of the portfolio to focus exclusively on the retail sector, recycling the proceeds from mature properties and reinvesting in acquisitions and developments with prospects for income and capital growth. We completed the sales of our remaining office properties and acquired further interests in two of our chosen retail sub-sectors of 'experience', in the form of Bullring, Birmingham, and 'luxury', represented by Value Retail. Acquisition - Experience We acquired in May an additional 16.7% stake in Bullring, and the Group's ownership now stands at 50%. A new 50:50 joint venture with Canada Pension Plan Investment Board ("CPPIB") acquired Future Fund's 33.3% stake for £307 million, with Hammerson's share being £153.5 million. This acquisition underlines our commitment to prime retail destinations and generating income growth through investment in winning sectors of the retail property market. Bullring is one of Europe's leading shopping centres, attracting 40 million visitors per annum, and is 99% occupied. Since opening, passing rents at the centre have grown at a compound rate of 5.5% per annum. Following the successful Spiceal Street restaurant extension in 2011, there are a number of asset management and development opportunities to drive future growth at the centre including the introduction of a cinema and additional catering. Passing rents for Bullring as a whole are £53 million per annum and after taking into account purchase costs the net initial yield on the purchase was 5.7%. Hammerson will continue to have responsibility for asset management and development of the centre. Disposals In June the sales to Brookfield of the Group's 50% interest in 125 Old Broad Street, London EC2 and 1 Leadenhall Court, London EC3 were completed for aggregate proceeds of £189 million. Net rental income generated by the properties in the year to the date of disposal was £6.4 million. LUXURY - PREMIUM DESIGNER OUTLETS Hammerson's exposure to the luxury retail sector is predominantly through Value Retail ('VR'), the developer and operator of luxury retail outlet Villages in the UK and Western Europe, achieved through our 22% interest in the VR holding companies and through investments in the Villages themselves. VR's portfolio includes Bicester Village, Oxfordshire and La Vallée Village near Paris. In June we acquired for the first time an investment in La Vallée Village and increased our investment in Las Rozas and La Roca, VR's Spanish Villages located close to Madrid and Barcelona respectively. The aggregate cost of these transactions was £56 million. In July we also took a €25 million (£22 million) participation in a refinancing of the senior loan facility at Fidenza Village, near Milan. At 30 June 2013, VR's nine European Villages were valued for Hammerson at a total of €2.9 billion, an underlying increase of 5.7% since the end of 2012. There was encouraging double digit growth in the portfolio's brand sales in the first half of 2013. At €51.5 million EBITDA, as prepared under IFRS, increased by 15.2% from €44.7 million in the first half of 2012, whilst gross profit margin, before administration costs, grew from 59.9% to 64.4%. So far in 2013, an average of 9.4% of the selling space in the Villages was remerchandised, of which around a third related to the introduction of new brands, with the balance reflecting unit refitting or the relocation of existing brands. At La Roca Village construction work has started on an extension which will increase the gross lettable area of the Village by around a third. The extension will be open for trading in the first half of 2014. During the period VR refinanced senior debt facilities at Bicester and Maasmechelen Villages and repaid a working capital facility. As a result of these and other initiatives, total external debt increased by 7.2% to €1.25 billion or 43% of the June 2013 property portfolio value. Page 22 of the Financial Review provides further information on how our investment in VR has impacted Hammerson's financial performance. MAXIMISING INCOME Against a background of challenging trading environments in the UK and France, retailers continue to focus their space requirements on high-quality, prime shopping centres and conveniently located retail parks of the types operated by Hammerson. We aim to maximise income growth from the portfolio by optimising occupancy and footfall at our properties. The characteristics of each of the markets in which we operate dictates our approach to meeting these objectives, but there are some common themes: · foster close, long-standing relationships with existing and prospective retailers · predict, monitor and respond to local market trends · offer attractive commercial solutions to tenants' occupational requirements · tailor marketing campaigns to maximise footfall at each destination · innovate new formats for our tenants to facilitate multi-channel sales · provide an enhanced customer experience at our properties Our responses to emerging consumer trends are set out in the following paragraphs. Brand loyalty The globalisation of brands, combined with the ability to research product availability and provenance online, means that shoppers increasingly know what they want before arriving in a centre. This is evidenced by our own consumer research which shows that consumers are spending more time researching products before committing to a purchase. Consequently, retailers use flagship stores as brand support. We continually refresh the tenant mix by bringing new, relevant, exciting brands to an area. This not only helps support tenants' sales, but enhances vibrancy and footfall, adding to the overall experience. We have introduced more than 200 premium retailers into our shopping centres since 2009. Catering and leisure The desire to use shopping centres as an experience is evidenced by the increasing demand for catering and leisure facilities; 10% of our retail floorspace is now dedicated to leisure and catering, and a third of all our shoppers visit our cinemas or restaurants. We have leisure extensions completed in Cramlington and underway at O'Parinor and Silverburn to capitalise on this trend, and have further similar extensions scheduled to start on site next year. Multi-channel Last year Hammerson introduced free wifi to all UK centres and provided mobile-enabled websites. This was in addition to the bespoke social media promotional activity already being undertaken by the individual centres. This has proved highly successful with website visitors and social media followers growing strongly, the latter by 38% year-on-year. Our strategy is to use multi-channel initiatives to support our core rental business. We use digital technologies to drive footfall, improve the customer experience and increase dwell time, all of which support retail sales. Our next initiative is an integrated mobile app which will enable product search, customer loyalty, centre services and promotions. We will launch the first iteration of this app at some centres in September this year. Operational performance Given the economic backdrop, the operating performance of the retail portfolio has been strong in the first six months of 2013 as shown in the table below. The sales and footfall figures for the French centres reflect the weakness in the French economy relative to that in the UK and also the impact of the shopping centre refurbishment programme. Operational performance - continuing operations H1 2013 H1 2012 Occupancy (%) 97.4 97.5 Net rental income growth - like-for-like (%) 2.5 2.4 Leasing activity - new rent from units leased (£m) 10.2 7.4 Area of new lettings ('000m2) 70.6 45.5 Leasing v ERV (% above 31 December 2012/2011 ERV) 1 4 Retail sales change (%) UK shopping centres (0.4) 0.4 France shopping centres (3.8) (3.9) Footfall change (%) UK shopping centres (1.5) (2.0) France shopping centres (5.8) (3.3) Non-rental income (£m) UK 9.2 8.3 France 0.7 1.0 Occupancy At the end of June 2013 occupancy was 97.4% for the continuing portfolio, remaining ahead of our target of 97.0%. For the Group as a whole, the impact of tenant administrations was largely offset by a strong letting performance. As noted in Security and Quality of Income on page 29, tenants in administration represent a small proportion of the Group's total income. The components of portfolio occupancy are analysed in the table below. Occupancy (%) UK shopping centres France retail UK retail parks Other UK Total continuing portfolio 30 June 2013 97.5 97.3 98.6 90.6 97.4 31 December 2012 98.1 97.5 98.2 90.9 97.7 30 June 2012 97.4 97.6 98.7 91.6 97.5 Like-for-like net rental income Compared with the first half of 2012, like-for-like net rental income for the continuing portfolio was 2.5% higher in the period to 30 June 2013. Income from shopping centres increased by 3.2%. In the UK, a 2.8% uplift was driven by strong growth in turnover rents and car park and commercial income, notably at Union Square, WestQuay and Brent Cross. Indexation was the primary factor in French shopping centre net rental income growth of 3.9%. UK retail parks like-for-like income grew by 2.8% largely as a result of leasing activity. Like-for-like net rental income for the six months ended 30 June 2013 Increase/ (Decrease) Properties for properties Total owned owned net throughout throughout rental 2012/13 2012/13 Acquisitions Disposals Developments income £m % £m £m £m £m United Kingdom Shopping centres 55.4 2.8 4.9 - 0.1 60.4 Retail parks 32.1 2.8 9.3 0.2 - 41.6 Other UK 3.3 (14.5) 0.4 2.1 0.6 6.4 Total United Kingdom 90.8 2.1 14.6 2.3 0.7 108.4 Continental Europe France retail 32.4 3.9 0.5 - (0.9) 32.0 Group Retail 119.9 3.1 14.7 0.2 (0.8) 134.0 Other UK 3.3 (14.5) 0.4 2.1 0.6 6.4 Total continuing operations 123.2 2.5 15.1 2.3 (0.2) 140.4 Discontinued operations 0.7 29.7 - 6.6 - 7.3 Total 123.9 2.7 15.1 8.9 (0.2) 147.7 Like-for-like net rental income for the six months ended 30 June 2012 Properties Total owned net throughout rental 2012/13 Exchange Acquisitions Disposals Developments income £m £m £m £m £m £m United Kingdom Shopping centres 53.9 - (0.2) - - 53.7 Retail parks 31.2 - - - - 31.2 Other UK 3.9 - - 6.6 0.9 11.4 Total United Kingdom 89.0 - (0.2) 6.6 0.9 96.3 Continental Europe France retail 31.2 (1.1) - 2.0 (0.6) 31.5 Group Retail 116.3 (1.1) (0.2) 2.0 (0.6) 116.4 Other UK 3.9 - - 6.6 0.9 11.4 Total continuing operations 120.2 (1.1) (0.2) 8.6 0.3 127.8 Discontinued operations 0.5 - - 13.3 - 13.8 Total 120.7 (1.1) (0.2) 21.9 0.3 141.6 For the purposes of this analysis Centrale, Croydon, has been reclassified from 'Shopping centres' to 'Other UK' to reflect the intention to redevelop this property as part of the regeneration of Croydon town centre. Leasing activity We signed 147 leases representing 70,600m2 of space and annual rental income of £10.2 million in the six months to 30 June. For the Group as a whole, rents secured were around 1% greater than December 2012 ERVs and 12% greater than the previous passing rents. Average ERVs were broadly unchanged over the first half of the year. Retailer sales and footfall In the UK sales from our centres were broadly flat, despite the impact of poor weather at the start of the year. The electricals and media sector was once again weak, compensated by a strong performance from department stores. In France, sales fell 3.8% partly due to the impact of our €100 million refurbishment programme, and the additional two days trading in the prior year. We estimate that these factors account for approximately 2.5% of the decline. Non-rental income Rental income from our portfolio is supplemented by revenue from car parks and from the sale of advertising and merchandising opportunities at our centres. This is included within 'net rental income' and makes a growing contribution to the Group's earnings. Increased car park income, particularly at Bullring, Union Square and WestQuay were the principal factors behind the increase of £0.6 million in total non-rental income to £9.9 million. CAPITAL STRENGTH We operate within a prudent and flexible financial structure which provides financial security whilst allowing us to act swiftly and decisively. Portfolio overview In this overview, 'the portfolio' refers to the continuing portfolio and excludes the office properties sold during the first half of 2013. The portfolio was valued at £5.7 billion at the end of June 2013, provided 1.7 million m2 of space and included 20 prime shopping centres in the UK and France and 22 conveniently located retail parks. At 30 June 2013, 73% of the portfolio by value was located in the UK, with the balance in France, whilst developments comprised 7%. Approximately 43% of the portfolio was held in joint ventures and included eight major shopping centres in the UK and two in France. Our ten most valuable properties represented 50% of the portfolio value whereas the average lot size for the portfolio as a whole was £86 million. A reconciliation of the movement in portfolio value over the first six months of the year is shown in the table below. Movement in portfolio value to 30 June 2013 £m Portfolio value at 1 January 5,458 Valuation decrease (23) Capital expenditure Developments 55 Expenditure on existing portfolio 25 Acquisitions 192 Capitalised interest 6 Disposals (61) Exchange 81 Portfolio value at 30 June - continuing operations 5,733 Includes developments The prime nature of the portfolio is reflected in income yields which are low relative to other property classes. The table below sets out net and gross valuations, income and yields for the investment portfolio. At 30 June 2013 the net initial yield of the continuing portfolio, based on the gross portfolio value, was 5.3%, unchanged since the beginning of the year. The components of the portfolio valuation are analysed in more detail in 'Capital returns' on page 19. Continuing investment portfolio at 30 June 2013 Gross Net book Income value value £m £m £m Portfolio value (net of cost to complete) 5,627 5,627 Purchasers' costs(1) (296) Net investment portfolio valuation as reported in the financial statements 5,331 Income and yields Rent for valuers' initial yield (equivalent to EPRA Net Initial Yield) 296.5 5.3% 5.6% Rent-free periods (including pre-lets) 7.1 0.1% 0.1% Rent for 'topped-up' initial yield(2) 303.6 5.4% 5.7% Non-recoverable costs (net of outstanding rent reviews) 11.6 0.2% 0.2% Passing rents 315.2 5.6% 5.9% ERV of vacant space 8.0 0.2% 0.2% Reversions 6.5 0.1% 0.1% Total ERV/Reversionary yield 329.7 5.9% 6.2% True equivalent yield 6.0% Nominal equivalent yield 5.8% Notes (1) Purchasers' costs equate to 5.6% of the net portfolio value. (2) The yield of 5.4% based on passing rents and the gross portfolio value is equivalent to EPRA 'topped-up' Net Initial Yield. Capital returns The total return of the whole portfolio for the six months ended 30 June 2013, was 2.4%, comprising capital and income returns of -0.2% and 2.6% respectively. Returns for the continuing portfolio were 2.2%, -0.3% and 2.5% respectively. The valuation data table on page 29 analyses total and capital returns by segment and the components of the changes in valuation for the continuing portfolio for the first six months of 2013 are analysed in the chart below. Over the first half of the year, investment yields reduced slightly in the UK shopping centre portfolio, contributing positively to valuations, but rose marginally for UK retail parks and French retail properties. Valuations benefited from rising rental values at shopping centres in the UK and France whilst at the UK retail park assets rental values fell marginally. The net effect of yields and rents on the valuation of the continuing portfolio is positive on the whole. However the impact has been more than offset by capital expenditure incurred to reposition the French shopping centres and on advancing the development pipeline. http://www.rns-pdf.londonstockexchange.com/rns/3056K_4-2013-7-26.pdf FINANCIAL REVIEW Discontinued operations In compliance with IFRS, the income and expenditure directly attributable to discontinued operations has been disclosed separately in the consolidated income statement. The assets and liabilities related to discontinued operations are described as 'held for sale' in the consolidated balance sheet. Note 6B on page 47 analyses the components of the net profit related to discontinued operations. With the exception of Hammerson's former share of the secured loan on 125 Old Broad Street, assets held for sale are funded from the Group's unsecured debt, and so no finance costs have been attributed to these assets within the profit related to discontinued operations. Profit before tax For the six months ended 30 June 2013, the Group's total profit before tax was £95.8 million compared with £48.8 million in the prior year. The recognition under equity accounting of the Group's share of the net revaluation gains for our investment in Value Retail and a strong operational performance were the main reasons for the year-on-year increase. The positive impact of lower bond redemption costs was more than offset by the losses on revaluation of derivatives. The table below reconciles profit before tax on adjusted and unadjusted bases. Six months ended Six months ended Analysis of profit before tax 30 June 2013 30 June 2012 Notes £m £m Adjusted profit before tax 2,6B 81.3 74.0 Adjustments: Gain on the sale of investment properties 2,6B 7.0 7.3 Net revaluation losses on property portfolio 2,6B (20.0) (22.0) Net revaluation gains in associate - Value Retail 2 39.3 - Premium and costs on redemption of bond 4 (3.9) (13.8) Change in fair value of derivatives 4,6B (7.9) 3.3 Profit before tax - continuing and discontinued operations 2,6B 95.8 48.8 Adjusted profit before tax at £81.3 million was £7.3 million, or 9.9% up on 2012. A year-on-year reconciliation is shown in the table below. The impact of acquisitions, growth in income from the like-for-like portfolio and an improved operating performance at Value Retail were the key components of the increase in profit. Reconciliation of adjusted profit before tax Adjusted profit before tax EPRA EPS £m pence Adjusted profit before tax for H1 2012 74.0 10.2 Net financing expense (3.7) (0.5) Administration expenses increase (2.8) (0.4) Net investment activity 7.0 1.0 Like-for-like net rental income increase 3.2 0.4 Additional income from Value Retail 4.2 0.6 Exchange and other (0.6) (0.2) Adjusted profit before tax for H1 2013 81.3 11.1 EPRA earnings per share were 11.1 pence for the period, an increase of 0.9 pence, or 8.8%, over the equivalent figure for 2012. Calculations for earnings per share are set out in note 8A to the accounts on page 49. Net rental income For the portfolio as a whole, net rental income for the period ended 30 June 2013 was £147.7 million. For continuing operations only the figure was £140.4 million for 2013 and £127.8 million for the comparative period. Growth of 2.5% in income from the like-for-like portfolio and income from acquisitions more than offset the income lost from disposals. The tables on page 16 provide more information on like-for-like net rental income. Administration expenses Administration costs are analysed in the table below. Administration expenses Six months ended 30 June 2013 Six months ended 30 June 2012 Notes £m £m Continuing operations 2 Cost of property activities 17.5 15.5 Corporate expenses 9.2 7.5 26.7 23.0 Management fees receivable (3.5) (2.8) 23.2 20.2 Discontinued operations 6B Cost of property activities 0.3 0.7 Management fees receivable (0.2) (0.4) 0.1 0.3 Total administration expenses 23.3 20.5 In the period to 30 June 2013 administration expenses for continuing operations, at £23.2 million, were £3.0 million higher than in the previous year. The increase principally reflected a higher level of variable remuneration, particularly in relation to share plans which vested this year. Administration expenses for discontinued operations represent the costs of staff made redundant as a result of the sale of the office portfolio. Management fees receivable are in respect of the joint ventures for 125 Old Broad Street and 10 Gresham Street. Cost ratio EPRA has published standard calculations for cost ratios as part of its best practice recommendations and the table below follows this guidance. The ratios are not necessarily comparable between different companies as business models and expense accounting and classification practices vary. For continuing operations the ratio including the cost of vacancy has fallen by 30 bp from 25.6% for the first half of 2012 to 25.3% in 2013. The table shows that our total operating costs increased from £37.1 million in 2012 to £39.7 million in 2013 due to higher net service charge and administration expenses. We continue to focus on cost management and together with a growing income stream from the completion of refurbishments, extensions and developments, we anticipate that the ratio will fall further over time. Cost ratio - continuing operations Six months ended 30 June 2013 Six months ended 30 June 2012 Notes £m £m Net service charge expenses - non-vacancy 1.1 0.8 Net service charge expenses - vacancy 3.7 2.9 Net service charge expenses - total 2 4.8 3.7 Other property outgoings 2 11.7 13.2 Cost of property activities 2 17.5 15.5 Corporate expenses 2 9.2 7.5 Management fees receivable 2 (3.5) (2.8) Total operating costs 39.7 37.1 Gross rental income (after rents payable) 2 156.9 144.7 Cost ratio including net service charge expenses - vacancy(%) 25.3 25.6 Cost ratio excluding net service charge expenses - vacancy (%) 22.9 23.6 Staff costs amounting to £0.7 million (2012: £0.4 million) have been capitalised as development costs and are excluded from the table above. Our business model for developments is to use a combination of in-house staff and external advisers. The cost of external advisers is capitalised to the cost of developments. The cost of staff working on developments is generally expensed, but may be capitalised subject to meeting certain criteria related to the degree of time spent on and the stage of progress of specific projects. Share of results and net assets of associate - Value Retail (VR) We have equity accounted for the Group's investment in VR since August 2012. Page 13 of the Business Review describes the operating performance of VR over the period. Prior to August 2012, our interests were treated as investments and income was recognised as distributions were received. The table below compares how our investment in VR has impacted the Group's income statement and balance sheet. On an EPRA basis, net income from our investment for the six months ended 30 June 2013 was £8.1 million, or 1.1 pence per share, as compared with £3.9 million, equivalent to 0.5 pence per share, for the same period in 2012. Including the Group's loan to VR our net interest at 30 June 2013 was valued at £578.3 million on an EPRA basis, equivalent to 81 pence per share. The changes reflect the revised accounting basis as well as the acquisition of additional interests in VR over the last year. Excluding our share of VR's income for the period, our investment contributed £39 million, or 6 pence per share, to the increase in the Group's equity shareholders' funds in the first half of 2013, principally as a result of property valuation increases. Value Retail Six months ended 30 June 2013 Six months ended 30 June 2012 Notes £m £m Income statement Distributions received Within net rental income - 2.6 Share of results of associate 10A 44.8 - Interest receivable Within net finance costs 2.6 1.3 Less: EPRA adjustments 10A (39.3) - Total impact of VR on income statement - EPRA basis 8.1 3.9 30 June 2013 31 December 2012 £m £m Balance sheet Investment in associate 10B 503.4 428.4 Add: EPRA adjustments 10B 25.2 16.2 EPRA adjusted investment in associate 528.6 444.6 Loan to VR 12 49.7 47.0 Total impact of VR on balance sheet - EPRA basis 578.3 491.6 Finance costs During the first half of 2013, we have maintained the average cost of the Group's borrowings at 5.0% and remain alert to the capital markets for further opportunities for savings. Note 4 to the accounts analyses net finance costs and shows that underlying finance costs, comprising gross interest costs less finance income, were £53.2 million for the first six months of 2013 compared with £48.8 million for the equivalent period in 2012. The increase principally resulted from a higher level of net debt, commitment fees on new borrowing facilities and the adverse impact of exchange. Interest capitalised of £6.4 million in the first six months of the year related almost exclusively to the development of Les Terrasses du Port. The finance costs for discontinued activities shown in note 6B are in respect of the Group's share of the secured debt and related derivatives of the 125 Old Broad Street joint venture, for which the sale was completed in June 2013. No finance charges have been allocated to discontinued operations as the other office properties which had been held for sale were financed from the Group's pooled unsecured borrowings. Tax The Group is a UK REIT and French SIIC for tax purposes. Dividend An interim dividend of 8.3 pence per share has been declared by the Directors, an increase of 7.8% compared with the 2012 interim dividend of 7.7 pence. The interim dividend is payable on 3 October 2013 to shareholders on the register at the close of business on 23 August 2013 and will be paid entirely as a PID, net of withholding tax where appropriate. Consistent with the case in recent years, there will be no scrip alternative although the dividend reinvestment plan remains available to shareholders. Balance sheet During the period to 30 June 2013, equity shareholders' funds increased by £39 million to £3.9 billion. EPRA net assets rose by £62 million in the half-year as shown in the table below and this was reflected in a 1.7% increase in EPRA net asset value per share which stood at £5.51 at the end of the period. A modest valuation deficit on the investment property portfolio, principally in respect of UK retail parks, was more than offset by positive contributions from our investment in Value Retail, developments and retained earnings. Movement in net asset value Equity shareholders' funds EPRA NAV £m £ per share 31 December 2012 3,860 5.42 Revaluation - continuing investment portfolio (29) (0.04) Revaluation - continuing developments 6 0.01 Revaluation - investments in Value Retail 39 0.06 Profit on disposals 7 0.01 Premium and costs on redemption of bonds (4) (0.01) Adjusted profit for the period 79 0.11 Dividends (71) (0.10) Exchange 20 0.03 Other 15 0.02 30 June 2013 3,922 5.51 * Excluding deferred tax and the fair value of derivatives, calculated in accordance with EPRA best practice as shown in note 8B. Financing and cashflow Borrowings of £2.3 billion and cash and deposits of £70 million meant that net debt was £2.2 billion at 30 June 2013. The increase of £170 million over the figure of £2.0 billion at the beginning of the year principally resulted from expenditure on acquisitions and developments, which exceeded proceeds from disposals, and dividends and exchange. The £39 million cash inflow from operating activities during the period, together with £331 million of capital expenditure and acquisition outflows, disposal proceeds of £239 million, £37 million of distributions received from Value Retail and a £19 million inflow in respect of financing activities led to an increase in cash and deposits of £3 million. Liquidity at 30 June 2013 was £686 million and comprised cash and undrawn committed facilities. We have a policy of maintaining a minimum of 50% of fixed rate debt, although this may be increased at higher gearing levels. At the end of 2012, 80% of debt was at fixed rates of interest but the proportion has fallen to 72% at 30 June 2013 as floating rate bank facilities have been used to fund capital expenditure. Increased exposure to floating rate debt enables us to benefit from the continuing low interest rate environment whilst maintaining the security offered by fixed rates of interest on the majority of debt. Recent market pricing indicates that interest rates may increase in the medium to long terms and our fixed/floating profile will partly mitigate that risk. We use a combination of euro borrowings and derivatives to hedge our exposure to exchange translation differences on euro denominated assets. At 30 June 2013, 80% of the value of euro-denominated assets was hedged, in line with our policy. Interest on euro debt also acts as a hedge against exchange differences arising on rental income from our French portfolio and all of the relevant income was hedged in this way in the first half of the year. The chart below sets out the maturity profile of the Group's bank facilities and bonds. The average maturity of the Group's debt at 30 June 2013 was more than six years and we monitor the capital markets with a view to managing short-term maturities. We completed in May a tender offer for £28 million of the Group's £300 million 5.25% unsecured bonds due in 2016. An exceptional charge of £3.9 million represented the premium and costs paid on the repurchased bonds. As the interest cost of the bond was at 5.25% and the debt was refinanced at an incremental finance cost of 1.4%, a lower running cost of debt was secured. We expect this to result in a saving of approximately £1.0 million per annum. In the first half of 2013 two new credit facilities became available: in April a £175 million syndicated five-year revolving credit facility, carrying a margin of 150 basis points over LIBOR which matures in 2018 and which was used to refinance an existing £150 million facility maturing at the same time; and a £150 million loan became effective in June for a term of one year which increased our access to low floating rates of interest. In addition, an existing £125 million facility maturing in 2017 increased to £150 million in April. We believe that the sterling, euro and private placement bond markets will be available to Hammerson in the medium term to replace existing bank borrowings and bonds as they mature. We will continue to monitor these markets and consider accessing them as appropriate. http://www.rns-pdf.londonstockexchange.com/rns/3056K_5-2013-7-26.pdf The Group's financial condition is robust, as illustrated in the table of key financing metrics below. The guidelines referred to in the table are approved by the Board and used to monitor the Group's financial structure. The financial covenants of the Group's unsecured bank facilities are that the Group's gearing, defined as the ratio of net debt to shareholders' equity, should not exceed 150% and that interest cover, defined as net rental income divided by net interest payable, should be not less than 1.25 times. The same gearing covenant applies to three of the Company's unsecured bonds, whilst the remaining bonds contain a covenant that gearing should not exceed 175%. The bonds have no covenant for interest cover. Hammerson's financial ratios are comfortably within these covenants. Financing risk is discussed further within Principal Risks and Uncertainties on pages 31 and 32. Fitch and Moody's rate Hammerson's unsecured credit as A- and Baa2 respectively. Key Financing Metrics Guideline 30 June 2013 31 December 2012 Net debt (£m) 2,207 2,036 Gearing (%) maximum 85% for an extended period 57 53 Loan to value (%) up to 40% 38 36 Liquidity (£m) 686 696 Weighted average cost of finance (%) 5.0 5.0 Interest cover (times) at least 2.0 2.7 2.8 Net debt/EBITDA (times) less than 10.0 7.9 7.9 Debt fixed / floating (%) 72 80 PROPERTY PORTFOLIO INFORMATION SECURITY AND QUALITY OF INCOME Our retail portfolio has a weighted average unexpired lease term of eight years, providing a secure income stream with opportunities for growth. At 30 June 2013 the continuing portfolio was 2.0% reversionary, unchanged since the end of 2012. The UK and French portfolios were respectively 1.0% and 5.4% reversionary. On the assumption that leases are renewed or re-let and rent reviews are agreed at current ERVs we estimate that £16.2 million of additional income per annum could be secured from the portfolio by 2015. Lease expiries and breaks Over the period from 2013 to 2015, leases with current rents passing of £77.1 million will expire or are subject to tenants' break clauses, as shown in the table below. Additional rental income of £7.0 million per annum could be secured in respect of expiries. We have assumed renewals take place at current rental value levels and have excluded tenant break options from this estimate, as we consider the probability that they will be exercised to be low. This is not a forecast and takes no account of void periods, lease incentives or potential changes to rental values. Lease expiries and breaks as at 30 June 2013 Weighted average Rents passing that ERV of leases that unexpired expire/break in expire/break in lease term to to 2013 2014 2015 2013 2014 2015 break expiry £m £m £m £m £m £m years years Notes 1 1 1 2 2 2 United Kingdom Retail: Shopping centres 12.6 9.1 12.3 15.1 9.9 12.4 6.8 8.3 Retail parks 5.8 2.1 4.9 9.1 2.3 4.7 9.2 10.1 18.4 11.2 17.2 24.2 12.2 17.1 7.8 9.1 Other UK 2.7 1.3 2.7 2.8 1.4 3.0 7.0 8.8 Total United Kingdom 21.1 12.5 19.9 27.0 13.6 20.1 7.8 9.0 France: Retail 14.9 4.9 3.8 15.7 5.1 3.8 1.2 4.9 Group Retail 33.3 16.1 21.0 39.9 17.3 20.9 6.1 8.0 Other UK 2.7 1.3 2.7 2.8 1.4 3.0 7.0 8.8 Total Group 36.0 17.4 23.7 42.7 18.7 23.9 6.2 8.0 Notes 1 The amount by which rental income, based on rents passing at 30 June 2013, could fall in the event that occupational leases due to expire are not renewed or replaced by new leases. For the UK, it includes tenants' break options. For France, it is based on the date of lease expiry. 2 The ERV at 30 June 2013 for leases that expire or break in each year and ignoring the impact of rental growth and any rent-free periods. Rent reviews Rent reviews as at 30 June 2013 Projected rents at current ERV of Rents passing subject to review in leases subject to review in Outstanding 2013 2014 2015 Outstanding 2013 2014 2015 £m £m £m £m £m £m £m £m Notes 1 1 1 1 2 2 2 2 United Kingdom Retail: Shopping centres 44.7 4.3 15.5 9.4 47.5 5.3 17.2 10.5 Retail parks 22.1 4.7 9.3 24.9 22.6 5.1 9.7 25.5 66.8 9.0 24.8 34.3 70.1 10.4 26.9 36.0 Other UK 4.0 1.2 2.0 3.3 4.2 1.3 2.1 3.6 Total United Kingdom 70.8 10.2 26.8 37.6 74.3 11.7 29.0 39.6 Notes 1 Rents passing at 30 June 2013, after deducting head and equity rents, which are subject to review in each year. 2 Projected rents for space that are subject to review in each year, based on the higher of the current rental income and the ERV as at 30 June 2013 and ignoring the impact of changes in rental values before the review date. Additional annual rental income amounting to £3.5 million could be secured from the UK portfolio, assuming that outstanding rent review negotiations are concluded at rental values prevailing at the time of review. Over the period to 2015, leases with rents passing of £74.6 million are subject to review and if reviewed to current rental values, rents estimated at £80.3 million per annum would be secured, generating additional rents of £5.7 million per annum. This is not a forecast and takes no account of potential changes in rental values before the relevant review dates. Rents from the majority of leases in our French portfolio increase annually by indexation, which was 3.1% for 2013. Tenant covenant strength The top ten retail occupiers in the portfolio accounted for £63.2 million, or 20.0%, of rents passing from the continuing portfolio as at the end of June 2013. % of total Tenant passing rent B&Q 3.9 H&M 2.2 Home Retail Group 2.1 Arcadia 2.0 DSG Retail 2.0 Next 1.9 Boots 1.7 New Look 1.5 Inditex 1.4 TK Maxx 1.3 Total 20.0 We monitor the credit standing of our key retailers and assess the covenant strength of prospective tenants using a credit rating agency. The agency's five-point risk indicator scale runs from one ('low') to five ('high') risk. All of the top ten retail tenants were rated at 'low' or 'lower than average' risk at the end of June 2013. For the portfolio as a whole, tenants rated within these lowest risk categories represented 82% of the passing rents of the UK retail portfolio and the average score was 1.6. The proportion of tenants in the French portfolio with equivalent lower risk scores was 82% and the average score was also 1.6. In the UK at 24 July 2013, 38 retail units were let to tenants in administration, and 13 of those continued to trade. All of the 25 units in our French portfolio let to tenants in administration continued to trade. Income from tenants in administration for the portfolio as a whole represented 1.6% of the Group's total passing rents. The figure for tenants in administration and no longer trading, however, was just 0.6%. At the end of December 2012, the comparative data was 1.2% and 0.5% respectively. Collection rates Our rent collection rates remain strong despite the challenging economic backdrop and demonstrate the underlying strength of the Group's income stream. In the UK and France 99% and 92% of the respective rents were collected within 14 days of the June 2013 due date. Investment portfolio Valuation data for investment property for the six months ended 30 June 2013 True Properties Revaluation Capital Total Initial equivalent at valuation in the period return return yield yield £m £m % % % % Notes 1 2 United Kingdom Retail: Shopping centres 2,475.9 16.4 0.7 3.3 5.3 5.9 Retail parks 1,409.9 (21.3) (1.5) 1.5 5.4 6.3 3,885.8 (4.9) (0.1) 2.6 5.3 6.0 Other UK 193.8 (11.4) (5.0) (2.1) 6.1 7.5 Total United Kingdom 4,079.6 (16.3) (0.4) 2.3 5.4 6.1 Continental Europe France: Retail 1,251.0 (12.5) (1.1) 1.5 5.1 5.6 Group Retail 5,136.8 (17.4) (0.3) 2.4 5.3 6.0 Other UK 193.8 (11.4) (5.0) (2.1) 6.1 7.5 Total investment portfolio 5,330.6 (28.8) (0.6) 2.1 5.3 6.0 Developments 402.3 5.8 3.4 3.4 Total continuing operations 5,732.9 (23.0) (0.3) 2.2 Discontinued operations 15.9 3.0 5.0 9.8 Total Group 5,748.8 (20.0) (0.2) 2.4 Notes 1 Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of gross property value, as provided by the Group's external valuers. Rents receivable following the expiry of rent-free periods are not included. Rent reviews are assumed to have been settled at the contractual review date at ERV. 2 The capitalisation rate applied to future cash flows to calculate the gross property value. The cash flows reflect the timing of future rents resulting from lettings, lease renewals and rent reviews based on current ERVs and assuming rents are received quarterly in advance. The property true equivalent yields are determined by the Group's external valuers. 3 Further analysis of development properties by segment is provided in note 3B on page 44. 4 The weighted average remaining rent-free period is 0.4 years. Rental data for investment portfolio for the six months ended 30 June 2013 Gross Net Average Estimated Reversion/ rental rental Vacancy rents Rents rental (over- income income rate passing passing value rented) £m £m % £/m² £m £m % Notes 1 2 3 4 5 United Kingdom Retail: Shopping centres 70.1 60.3 2.5 500 144.7 149.4 1.0 Retail parks 43.6 41.6 1.4 185 85.1 87.6 1.3 113.7 101.9 2.1 340 229.8 237.0 1.1 Other UK 7.1 5.9 9.4 210 14.2 15.4 (1.2) Total United Kingdom 120.8 107.8 2.5 325 244.0 252.4 1.0 Continental Europe France: Retail 36.2 32.4 2.7 345 71.2 77.3 5.4 Group Retail 149.9 134.3 2.2 340 301.0 314.3 2.1 Other UK 7.1 5.9 9.4 210 14.2 15.4 (1.2) Total continuing investment portfolio 157.0 140.2 2.6 325 315.2 329.7 2.0 Income from developments and other sources not analysed above 0.9 0.2 n/a n/a n/a n/a n/a Total continuing operations 157.9 140.4 n/a n/a n/a n/a n/a Discontinued operations 7.4 7.3 0.0 320 0.6 0.7 10.4 Total Group - as disclosed in note 3A to the accounts 165.3 147.7 Selected data for the year ended 31 December 2012 Group Retail 281.2 245.1 2.0 340 300.6 312.5 1.9 Other UK 16.2 13.9 9.1 175 11.1 12.6 2.7 Total continuing investment portfolio 297.4 259.0 2.3 325 311.7 325.1 2.0 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 ERV of that property or portfolio. 2 Average rent passing at 30 June 2013 before deducting head and equity rents and excluding rents passing from anchor units and car parks. 3 The annual rental income receivable from an investment property at 30 June 2013, after any rent-free periods and after deducting head and equity rents. 4 The estimated market rental value of the total lettable space in a property at 30 June 2013, after deducting head and equity rents, calculated by the Group's valuers. 5 The percentage by which the ERV exceeds, or falls short of, rents passing together with the estimated rental value of vacant space, all at 30 June 2013. PRINCIPAL RISKS AND UNCERTAINTIES Property and financial markets Financial markets are currently relatively stable, but remain subject to shocks arising from, for example, uncertainty in the eurozone, governments' austerity measures, the withdrawal of quantitative easing and slowing growth in major global economies. Lenders continue to be cautious and economic growth in the UK and eurozone is constrained. A full or partial break-up of the euro-community remains a risk and if realised could lead to a prolonged global recession. We are exposed to the euro and the specifics of the French economy through our shopping centre investments in France. Our business model has been stress-tested against a severe downside economic scenario and the results of those tests confirmed that the financial condition of the Group is robust. This reflected low gearing, long-term secure income streams from our leases, the currency hedging of the value of our French portfolio, a favourable spread of debt maturities and the flexibility to phase or halt our development programme should it be appropriate to do so. Property valuations The value of Hammerson's property portfolio reflects prevailing conditions in the general economic environment and, more specifically, in the property investment market. The Group's net asset value may therefore rise or fall due to external factors beyond management's control. Global financial markets have stabilised since the peak of the financial crisis, and investors have become more active in the real estate investment market, resulting in a rise in values for prime property over the last few years. However, as noted above, changing macroeconomic conditions could cause significant volatility in financial markets in the short to medium terms. The property portfolio is the most significant component of the value of the Hammerson Group. Deterioration of financial markets may put downward pressure on property values which would increase gearing and could ultimately result in the breach of borrowing covenants. The Group's property portfolio is of high quality, geographically diversified and let to a large number of tenants. These factors should help mitigate negative impacts which may arise from changes in the financial and property markets. At 30 June 2013, gearing was 57%, significantly lower than the Group's most stringent borrowing covenant that gearing should not exceed 150%. We estimate that values could fall by 42% from their June 2013 levels before covenants would be endangered. Tenant default Retailers in the UK and France are facing a challenging operating environment, and this increases the risk that they may be unable to pay their rents or could enter into administration. The impact of individual tenant default for Hammerson is low reflecting the Group's geographical diversity and its large number of tenants. Our occupational leases are also long-term contracts in general, making our income stream relatively secure. Development and letting We have a substantial development pipeline but have the flexibility to progress developments only when the relevant markets are sufficiently robust, when we have the right level of interest from retailers and on the basis that sound financial analysis demonstrates appropriate returns. Potential occupiers remain cautious about committing to lease space, although demand is strong for the right product. We have only one major development under way, Les Terrasses du Port in Marseille, for which 89% of the income has been contracted or is in solicitors' hands. We will progress other significant developments only when substantial pre-lets are secured. Liquidity risk Companies with short-term financing requirements may continue to find it difficult to secure sufficient funding, in particular from banks, at costs comparable with their existing facilities. Consequently our recent focus has been to address near-term maturities early. In June 2013 a new £150 million one-year term loan became effective which increased our available bank facilities. Excluding this facility, the nearest debt maturity is £411 million in respect of the 4.875% 2015 euro bonds. Our funding strategy includes the potential to access the sterling, euro and private placement bond markets if appropriate. Interest rate and exchange risk Interest charged on borrowings is the most significant item of cost for the Group. The short-term outlook for interest rates is that they will remain low, but recent market pricing indicates that they will rise in the medium to long term. To manage the risk of changes in interest rates, we set guidelines for our exposure to fixed and floating interest rates, using interest rate and currency swaps as appropriate. At 30 June 2013, 72% of the Group's gross debt was at fixed rates of interest. The Group is exposed to movements in the sterling/euro exchange rate through its investment in France. Exchange risk is managed principally by matching foreign currency assets with foreign currency borrowings or derivatives. At 30 June 2013, 80% of the value of the Group's French portfolio was hedged in this way. Tax and regulatory Governments are seeking to reduce fiscal deficits and regulators are examining mechanisms which would make financial markets more resilient. Increased taxation may be a risk for the broader business sector, but an asset-based industry such as real estate which currently benefits from tax efficient regimes throughout Europe could become a specific target. The real estate sector is sometimes perceived by regulators to be part of the financial services sector rather than as operating businesses and the industry could be adversely affected by misdirected regulation designed to stabilise financial markets. We monitor closely developments in the fields of tax and regulation and contribute to the debate through trade bodies such as EPRA and BPF which lobby on behalf of their members. Independent review report to Hammerson plc We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, the analysis of movement in net debt and related notes 1 to 20. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. Deloitte LLP Chartered Accountants and Statutory Auditor London, UK 26 July 2013 -------- Responsibility statement We confirm that to the best of our knowledge: · the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting; · the Interim Management Report, comprising pages 3 to 32 of this Half-year Report, includes a fair review of the information required by DTR 4.2.7R; and · a fair review of related party transactions, as required by DTR 4.2.8R, is disclosed in note 1 to the accounts. Signed on behalf of the Board on 26 July 2013 David Atkins Timon Drakesmith Director Director Consolidated income statement Six months Six months Year ended ended ended 31 December 30 June 30 June 2012 2013 2012 Audited Unaudited Unaudited £m CONTINUING OPERATIONS Notes £m £m 297.6 Gross rental income 2 157.9 145.7 215.9 Operating profit before other net losses and share of results of associate 2 117.2 107.6 (36.3) Other net losses 2 (22.2) (38.3) 47.5 Share of results of associate 10A 44.8 - 227.1 Operating profit 2 139.8 69.3 (94.0) Finance costs (49.7) (47.8) (13.8) Bond redemption - premium and costs (3.9) (13.8) (41.7) Floating rate reset bonds redemption - premium and costs - - 9.4 Change in fair value of derivatives (8.3) 3.5 6.5 Finance income 2.9 2.7 (133.6) Net finance costs 4 (59.0) (55.4) 93.5 Profit before tax 80.8 13.9 (0.4) Tax charge 5A (0.2) - 93.1 Profit from continuing operations 80.6 13.9 48.7 Profit from discontinued operations 6B 15.0 34.9 141.8 Profit for the period 95.6 48.8 Attributable to: 138.4 Equity shareholders 93.4 47.2 3.4 Non-controlling interests 2.2 1.6 141.8 Profit for the period 95.6 48.8 Basic and diluted earnings per share 12.6p Continuing operations 11.0p 1.7p 6.8p Discontinued operations 2.1p 4.9p 19.4p Total 8A 13.1p 6.6p 20.9p EPRA earnings per share 8A 11.1p 10.2p * Non-controlling interests relate to continuing operations. Consolidated statement of COMPREHENSIVE income Six months Six months Year ended ended ended 31 December 30 June 30 June 2012 2013 2012 Audited Unaudited Unaudited £m Continuing and discontinued operations £m £m (43.6) Foreign exchange translation differences 83.8 (45.9) 27.3 Net (loss)/gain on hedging activities (63.2) 33.5 0.1 Revaluation gains on owner-occupied property 3.2 0.5 - Revaluation gains on investment in associate 0.2 - 74.4 Revaluation gains on other investments - 61.2 (0.7) Actuarial losses on pension schemes (1.1) (1.3) 57.5 Net gain recognised directly in equity 22.9 48.0 93.1 Profit for the period from continuing operations 80.6 13.9 48.7 Profit for the period from discontinued operations 15.0 34.9 141.8 Profit for the period 95.6 48.8 199.3 Total comprehensive income for the period 118.5 96.8 Attributable to: 198.1 Equity shareholders 112.2 97.6 1.2 Non-controlling interests 6.3 (0.8) 199.3 Total comprehensive income for the period 118.5 96.8 Consolidated balance sheet 31 December 30 June 30 June 2012 2013 2012 Audited Unaudited Unaudited £m Notes £m £m Non-current assets 5,458.4 Investment and development properties 9 5,732.9 4,978.2 42.3 Interests in leasehold properties 45.1 10.0 36.7 Plant, equipment and owner-occupied property 39.6 36.2 428.4 Investment in associate 10B 503.4 - 1.4 Other investments 11 1.4 290.4 66.6 Receivables 12 50.7 28.8 6,033.8 6,373.1 5,343.6 Current assets 212.6 Assets held for sale 6D 16.0 634.7 102.7 Receivables 13 128.3 115.8 57.1 Cash and deposits 14 70.0 79.6 372.4 214.3 830.1 6,406.2 Total assets 6,587.4 6,173.7 Current liabilities 90.4 Liabilities associated with assets held for sale 6D 2.2 87.9 243.7 Payables 15 219.7 206.0 1.4 Tax 5B 0.8 0.6 158.0 Borrowings 16A 151.4 251.7 493.5 374.1 546.2 Non-current liabilities 1,880.1 Borrowings 16A 2,125.1 1,671.1 0.5 Deferred tax 5B 0.5 0.5 - Tax - 0.3 42.3 Obligations under finance leases 44.9 9.8 64.1 Payables 18 74.2 67.2 1,987.0 2,244.7 1,748.9 2,480.5 Total liabilities 2,618.8 2,295.1 3,925.7 Net assets 3,968.6 3,878.6 Equity 178.2 Share capital 19 178.2 178.2 1,222.3 Share premium 1,222.4 1,222.2 339.7 Translation reserve 419.4 337.6 (279.4) Hedging reserve (342.6) (273.2) 7.2 Capital redemption reserve 7.2 7.2 10.9 Other reserves 9.1 9.5 18.0 Revaluation reserve 21.2 223.4 2,360.3 Retained earnings 2,380.9 2,104.5 (6.0) Investment in own shares (5.2) (3.3) 3,851.2 Equity shareholders' funds 3,890.6 3,806.1 74.5 Non-controlling interests 78.0 72.5 3,925.7 Total equity 3,968.6 3,878.6 £5.41 Diluted net asset value per share 8B £5.47 £5.35 £5.42 EPRA net asset value per share 8B £5.51 £5.35 * Assets and liabilities relating to discontinued operations have been reclassified as held for sale. See note 6. ** Non-controlling interests relate to continuing operations. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Six months ended 30 June 2013 Capital Investment Equity Non- Share Share Translation Hedging redemption Other Revaluation Retained in own shareholders' controlling Total capital premium reserve reserve reserve reserves reserve earnings shares funds interests equity Unaudited £m £m £m £m £m £m £m £m £m £m £m £m Balance at 1 January 2013 178.2 1,222.3 339.7 (279.4) 7.2 10.9 18.0 2,360.3 (6.0) 3,851.2 74.5 3,925.7 Issue of shares - 0.1 - - - - - - - 0.1 - 0.1 Share-based employee remuneration - - - - - 3.0 - - - 3.0 - 3.0 Cost of shares awarded to employees - - - - - (5.7) - - 5.7 - - - Transfer on award of own shares to employees - - - - - 0.9 - (0.9) - - - - Proceeds on award of own shares to employees - - - - - - - 0.1 - 0.1 - 0.1 Purchase of own shares - - - - - - - - (4.9) (4.9) - (4.9) Dividends - - - - - - - (71.1) - (71.1) (2.8) (73.9) Foreign exchange translation differences - - 79.7 - - - - - - 79.7 4.1 83.8 Net loss on hedging activities - - - (63.2) - - - - - (63.2) - (63.2) Revaluation gains on owner-occupied property - - - - - - 3.2 - - 3.2 - 3.2 Revaluation gains on investment in associate - - - - - - - 0.2 - 0.2 - 0.2 Actuarial losses on pension schemes - - - - - - - (1.1) - (1.1) - (1.1) Profit for the period attributable to equity shareholders - - - - - - - 93.4 - 93.4 2.2 95.6 Total comprehensive income/(loss) for the period - - 79.7 (63.2) - - 3.2 92.5 - 112.2 6.3 118.5 Balance at 30 June 2013 178.2 1,222.4 419.4 (342.6) 7.2 9.1 21.2 2,380.9 (5.2) 3,890.6 78.0 3,968.6 Investment in own shares are stated at cost. CONSOLIDATED STATEMENT OF CHANGES IN EQUIty Year ended 31 December 2012 Capital Investment Equity Non- Share Share Translation Hedging redemption Other Revaluation Retained in own Treasury shareholders' controlling Total capital premium reserve reserve reserve reserves reserve earnings shares shares funds interests equity Audited £m £m £m £m £m £m £m £m £m £m £m £m £m Balance at 1 January 2012 178.2 1,221.9 381.1 (306.7) 7.2 9.3 161.7 2,125.7 (1.8) (4.7) 3,771.9 76.5 3,848.4 Issue of shares - 0.4 - - - - - - - - 0.4 - 0.4 Share-based employee remuneration - - - - - 4.9 - - - - 4.9 - 4.9 Cost of shares awarded to employees - - - - - (3.9) - - 3.9 - - - - Transfer on award of own shares to employees - - - - - 0.6 - (0.6) - - - - - Proceeds on award of own shares to employees - - - - - - - 0.2 - - 0.2 - 0.2 Transfer from treasury shares - - - - - - - - (4.7) 4.7 - - - Purchase of own shares - - - - - - - - (3.4) - (3.4) - (3.4) Dividends - - - - - - - (120.9) - - (120.9) (3.2) (124.1) Foreign exchange translation differences - - (41.4) - - - - - - - (41.4) (2.2) (43.6) Net gain on hedging activities - - - 27.3 - - - - - - 27.3 - 27.3 Revaluation gains on owner-occupied property - - - - - - 0.1 - - - 0.1 - 0.1 Revaluation gains on other investments - - - - - - 74.4 - - - 74.4 - 74.4 Actuarial losses on pension schemes - - - - - - - (0.7) - - (0.7) - (0.7) Transfer on recognition of investment in associate - - - - - - (218.2) 218.2 - - - - - Profit for the year attributable to equity shareholders - - - - - - - 138.4 - - 138.4 3.4 141.8 Total comprehensive income/(loss) for the year - - (41.4) 27.3 - - (143.7) 355.9 - - 198.1 1.2 199.3 Balance at 31 December 2012 178.2 1,222.3 339.7 (279.4) 7.2 10.9 18.0 2,360.3 (6.0) - 3,851.2 74.5 3,925.7 Investment in own shares and treasury shares are stated at cost. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Six months ended 30 June 2012 Capital Investment Equity Non- Share Share Translation Hedging redemption Other Revaluation Retained in own Treasury shareholders' controlling Total capital premium reserve reserve reserve reserves reserve earnings shares shares funds interests equity Unaudited £m £m £m £m £m £m £m £m £m £m £m £m £m Balance at 1 January 2012 178.2 1,221.9 381.1 (306.7) 7.2 9.3 161.7 2,125.7 (1.8) (4.7) 3,771.9 76.5 3,848.4 Issue of shares - 0.3 - - - - - - - - 0.3 - 0.3 Share-based employee remuneration - - - - - 2.3 - - - - 2.3 - 2.3 Cost of shares awarded to employees - - - - - (3.2) - - 3.2 - - - - Proceeds on award of own shares to employees - - - - - - - 0.1 - - 0.1 - 0.1 Transfer from treasury shares - - - - - - - - (4.7) 4.7 - - - Transfer on award of own shares to employees - - - - - 1.1 - (1.1) - - - - - Dividends - - - - - - - (66.1) - - (66.1) (3.2) (69.3) Foreign exchange translation differences - - (43.5) - - - - - - - (43.5) (2.4) (45.9) Net gain on hedging activities - - - 33.5 - - - - - - 33.5 - 33.5 Revaluation gains on owner-occupied property - - - - - - 0.5 - - - 0.5 - 0.5 Revaluation gains on other investments - - - - - - 61.2 - - - 61.2 - 61.2 Actuarial losses on pension schemes - - - - - - - (1.3) - - (1.3) - (1.3) Profit for the period attributable to equity shareholders - - - - - - - 47.2 - - 47.2 1.6 48.8 Total comprehensive income/(loss) for the period - - (43.5) 33.5 - - 61.7 45.9 - - 97.6 (0.8) 96.8 Balance at 30 June 2012 178.2 1,222.2 337.6 (273.2) 7.2 9.5 223.4 2,104.5 (3.3) - 3,806.1 72.5 3,878.6 Investment in own shares and treasury shares are stated at cost. Consolidated cash flow statement Six months Six months Year ended ended ended 31 December 30 June 30 June 2012 2013 2012 Audited Unaudited Unaudited £m Notes £m £m Operating activities Operating profit before other net (losses)/gains and share of results of associate 215.9 - continuing operations 2 117.2 107.6 23.7 - discontinued operations 6B 7.2 13.5 239.6 124.4 121.1 (14.5) (Increase)/Decrease in receivables (6.7) 0.8 13.5 (Decrease)/Increase in payables (19.5) (9.0) 14.0 Adjustment for non-cash items 20 8.5 7.1 252.6 Cash generated from operations 106.7 120.0 (117.6) Interest paid (70.5) (84.4) 5.7 Interest received 2.8 1.8 (0.8) Tax paid 5B (0.5) (0.4) 139.9 Cash flows from operating activities 38.5 37.0 Investing activities (397.3) Property acquisitions (189.2) - (122.9) Development and major refurbishments (73.3) (67.0) (48.0) Other capital expenditure (12.2) (9.9) 585.0 Sale of properties 239.1 152.4 (80.0) Acquisition of interest in associate (56.3) - - Purchase of other investments - (0.4) 2.4 Distribution received from associate 36.7 - 5.2 Decrease in non-current receivables 0.1 0.2 (55.6) Cash flows from investing activities (55.1) 75.3 Financing activities 0.5 Issue of shares 0.1 0.3 0.2 Proceeds from award of own shares 0.1 0.1 (3.4) Purchase of own shares (4.9) - (5.2) Interest rate swap cancellation costs paid - (5.2) (13.8) Bond redemption premium and costs paid 4 (3.9) (13.8) (41.7) Floating rate reset bonds redemption premium and costs paid 4 - - (20.0) Increase/(Decrease) in non-current borrowings 116.7 (224.5) 87.1 (Decrease)/Increase in current borrowings (10.6) 183.0 (3.2) Dividends paid to non-controlling interests (2.8) (3.2) (118.4) Equity dividends paid 7 (75.2) (64.3) (117.9) Cash flows from financing activities 19.5 (127.6) (33.6) Net increase/(decrease) in cash and deposits 2.9 (15.3) 100.7 Opening cash and deposits 66.4 100.7 (0.7) Exchange translation movement 0.7 (0.7) 66.4 Closing cash and deposits 70.0 84.7 (9.3) Cash and deposits classified as assets held for sale 6D - (5.1) 57.1 Cash and deposits as stated on balance sheet 14 70.0 79.6 The cash flows above relate to continuing and discontinued operations. See note 6 for information on discontinued operations. Analysis of movement in net debt Current borrowings Short-term Cash at including Non-current deposits bank currency swaps borrowings Net debt £m £m £m £m £m As stated on balance sheet at 1 January 2013 12.0 45.1 (158.0) (1,880.1) (1,981.0) Cash and deposits and borrowings classified as held for sale (note 6D) - 9.3 (1.3) (63.3) (55.3) Balance at 1 January 2013 12.0 54.4 (159.3) (1,943.4) (2,036.3) Cash flow (4.0) 6.9 10.6 (116.7) (103.2) Exchange - 0.7 (2.7) (65.0) (67.0) Balance at 30 June 2013 8.0 62.0 (151.4) (2,125.1) (2,206.5) Notes to the accounts 1. FINANCIAL INFORMATION The information for the year ended 31 December 2012 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006. The annual financial statements of Hammerson plc are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this Half-year Report has been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in Hammerson's latest annual audited financial statements. The Group's financial performance is not seasonal. There have been no changes in estimates of amounts reported in prior periods which have a material impact on the current half-year period. There have been no material changes in contingent liabilities since 31 December 2012. The management fees receivable in notes 2 and 6B include fees paid to Hammerson in respect of joint ventures for investment and development management services. All other related party transactions, with the exception of Directors' remuneration, are eliminated on consolidation. The principal exchange rates used to translate foreign currency denominated amounts are: Balance sheet: £1 = €1.167 (30 June 2012: £1 = €1.236; 31 December 2012: £1 = €1.233) Income statement: £1 = €1.176 (30 June 2012: £1 = €1.216; 31 December 2012: £1 = €1.233). The Half-year Report was approved by the Board on 26 July 2013. GOING CONCERN The current economic conditions have created a number of uncertainties. The Group's business activities, together with factors likely to affect its future development, performance, and position are set out in the 'Introduction', the 'Business and financial review' and 'Principal risks and uncertainties'. The financial position of the Group, its liquidity position and borrowing facilities are described in the 'Business and financial review' and in the notes to the accounts. The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance. As part of the review, the Directors considered the Group's cash balances, its debt maturity profile, including undrawn facilities, and the long-term nature of tenant leases. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Half-year Report. 2. RESULT FOR THE PERIOD Year ended 31 December 2012 Six months ended 30 June 2013 Six months ended 30 June 2012 Capital Capital Capital Adjusted and other Total Adjusted and other Total Adjusted and other Total £m £m £m Notes £m £m £m £m £m £m 297.6 - 297.6 Gross rental income 3A 157.9 - 157.9 145.7 - 145.7 (1.9) - (1.9) Ground and equity rents payable (1.0) - (1.0) (1.0) - (1.0) 295.7 - 295.7 Gross rental income, after rents payable 156.9 - 156.9 144.7 - 144.7 54.5 - 54.5 Service charge income 29.7 - 29.7 26.7 - 26.7 (62.7) ‑ (62.7) Service charge expenses (34.5) ‑ (34.5) (30.4) ‑ (30.4) (8.2) - (8.2) Net service charge expenses (4.8) - (4.8) (3.7) - (3.7) (28.7) - (28.7) Other property outgoings (11.7) - (11.7) (13.2) - (13.2) (36.9) - (36.9) Property outgoings (16.5) - (16.5) (16.9) - (16.9) 258.8 - 258.8 Net rental income 3A 140.4 - 140.4 127.8 - 127.8 5.9 - 5.9 Management fees receivable 3.5 - 3.5 2.8 - 2.8 (31.4) - (31.4) Cost of property activities (17.5) - (17.5) (15.5) - (15.5) (17.4) - (17.4) Corporate expenses (9.2) - (9.2) (7.5) - (7.5) (42.9) - (42.9) Administration expenses (23.2) - (23.2) (20.2) - (20.2) 215.9 - 215.9 Operating profit before other net losses and share of results of associate 117.2 - 117.2 107.6 - 107.6 - 12.2 12.2 Gain on the sale of investment properties - 0.8 0.8 - 8.3 8.3 - (68.3) (68.3) Revaluation losses on investment properties - (28.8) (28.8) - (55.8) (55.8) - 19.8 19.8 Revaluation gains on development properties - 5.8 5.8 - 9.2 9.2 - (36.3) (36.3) Other net losses - (22.2) (22.2) - (38.3) (38.3) 4.3 43.2 47.5 Share of results of associate 10A 5.5 39.3 44.8 - - - 220.2 6.9 227.1 Operating profit 122.7 17.1 139.8 107.6 (38.3) 69.3 (87.5) (46.1) (133.6) Net finance costs 4 (46.8) (12.2) (59.0) (45.1) (10.3) (55.4) 132.7 (39.2) 93.5 Profit before tax 75.9 4.9 80.8 62.5 (48.6) 13.9 (0.4) - (0.4) Current tax charge 5A (0.2) - (0.2) - - - 132.3 (39.2) 93.1 Profit/(Loss) from continuing operations 75.7 4.9 80.6 62.5 (48.6) 13.9 19.8 28.9 48.7 Profit from discontinued operations 6B 5.4 9.6 15.0 11.5 23.4 34.9 152.1 (10.3) 141.8 Profit/(Loss) for the period 81.1 14.5 95.6 74.0 (25.2) 48.8 (3.3) (0.1) (3.4) Non-controlling interests - continuing operations (2.0) (0.2) (2.2) (1.7) 0.1 (1.6) 148.8 (10.4) 138.4 Profit/(Loss) for the period attributable to equity shareholders 8A 79.1 14.3 93.4 72.3 (25.1) 47.2 Profit/(Loss) for the period attributable to equity shareholders 129.0 (39.3) 89.7 - continuing operations 8A 73.7 4.7 78.4 60.8 (48.5) 12.3 19.8 28.9 48.7 - discontinued operations 8A 5.4 9.6 15.0 11.5 23.4 34.9 148.8 (10.4) 138.4 79.1 14.3 93.4 72.3 (25.1) 47.2 3. SEGMENTAL ANALYSIS The factors used to determine the Group's reportable segments are the geographic locations (UK and Continental Europe) and sectors in which it operates, which are generally managed by separate teams and are the basis on which performance is assessed and resources allocated. Gross rental income represents the Group's revenue from its 'customers', or tenants. Net rental income is the principal profit measure used to determine the performance of each sector. Total assets are not monitored by segment and resource allocation is based on the distribution of property assets between segments. A. REVENUE AND PROFIT BY SEGMENT Year ended 31 December 2012 Six months ended 30 June 2013 Six months ended 30 June 2012 Non-cash items Non-cash items Non-cash items Revaluation Revaluation Revaluation Gross Net Within net gains/ Gross Net Within net gains/ Gross Net Within net gains/ rental rental rental (losses) on rental rental rental (losses) on rental rental rental (losses) on income income income properties income income income properties income income income properties £m £m £m £m £m £m £m £m £m £m £m £m United Kingdom 141.2 117.0 (7.2) (21.2) Retail: Shopping centres 70.1 60.3 (4.2) 16.4 68.5 57.8 (3.4) (13.0) 70.9 66.8 (0.9) (30.6) Retail parks 43.6 41.6 (0.4) (21.3) 33.2 31.1 (0.5) (29.4) 212.1 183.8 (8.1) (51.8) 113.7 101.9 (4.6) (4.9) 101.7 88.9 (3.9) (42.4) 16.2 13.9 (0.2) (17.3) Other UK 7.1 5.9 (0.1) (11.4) 8.3 7.3 (0.1) (9.3) 228.3 197.7 (8.3) (69.1) Total United Kingdom 120.8 107.8 (4.7) (16.3) 110.0 96.2 (4.0) (51.7) Continental Europe 69.1 61.3 - 0.8 France: Retail 36.2 32.4 - (12.5) 35.6 32.1 - (4.1) Group 281.2 245.1 (8.1) (51.0) Retail 149.9 134.3 (4.6) (17.4) 137.3 121.0 (3.9) (46.5) 16.2 13.9 (0.2) (17.3) Other UK 7.1 5.9 (0.1) (11.4) 8.3 7.3 (0.1) (9.3) 297.4 259.0 (8.3) (68.3) Total investment portfolio 157.0 140.2 (4.7) (28.8) 145.6 128.3 (4.0) (55.8) 0.2 (0.2) - 19.8 Developments and other sources not analysed above 0.9 0.2 - 5.8 0.1 (0.5) - 9.2 297.6 258.8 (8.3) (48.5) Total continuing operations 157.9 140.4 (4.7) (23.0) 145.7 127.8 (4.0) (46.6) 2 2 20 2 As disclosed in note 2 2 20 2, 9 2 2 20 2 28.0 24.1 1.5 (1.4) Discontinued operations - Other UK 7.4 7.3 (0.8) 3.0 16.9 13.8 1.0 24.6 6B 6B 20 6B As disclosed in note 6B 6B 20 6B, 9 6B 6B 20 6B 325.6 282.9 (6.8) (49.9) Total portfolio 165.3 147.7 (5.5) (20.0) 162.6 141.6 (3.0) (22.0) B. INVESTMENT AND DEVELOPMENT PROPERTY ASSETS BY SEGMENT 31 December 2012 30 June 2013 30 June 2012 Investment Development Capital Investment Development Capital Investment Development Capital properties properties Total expenditure properties properties Total expenditure properties properties Total expenditure £m £m £m £m £m £m £m £m £m £m £m £m United Kingdom 2,412.9 11.5 2,424.4 159.2 Retail: Shopping centres 2,475.9 11.0 2,486.9 160.8 2,267.1 11.5 2,278.6 6.0 1,422.6 5.2 1,427.8 273.0 Retail parks 1,409.9 5.3 1,415.2 8.5 1,154.1 18.2 1,172.3 3.1 3,835.5 16.7 3,852.2 432.2 3,885.8 16.3 3,902.1 169.3 3,421.2 29.7 3,450.9 9.1 158.9 27.5 186.4 3.7 Other UK 193.8 77.3 271.1 39.9 165.3 27.3 192.6 2.1 3,994.4 44.2 4,038.6 435.9 Total United Kingdom 4,079.6 93.6 4,173.2 209.2 3,586.5 57.0 3,643.5 11.2 Continental Europe 1,188.3 231.5 1,419.8 104.5 France: Retail 1,251.0 308.7 1,559.7 62.6 1,157.8 176.9 1,334.7 42.3 Group 5,023.8 248.2 5,272.0 536.7 Retail 5,136.8 325.0 5,461.8 231.9 4,579.0 206.6 4,785.6 51.4 158.9 27.5 186.4 3.7 Other UK 193.8 77.3 271.1 39.9 165.3 27.3 192.6 2.1 5,182.7 275.7 5,458.4 540.4 Total non-current assets 5,330.6 402.3 5,732.9 271.8 4,744.3 233.9 4,978.2 53.5 194.5 - 194.5 18.7 Assets held for sale 15.9 - 15.9 (0.6) 548.1 69.8 617.9 17.7 5,377.2 275.7 5,652.9 559.1 Total property assets 5,346.5 402.3 5,748.8 271.2 5,292.4 303.7 5,596.1 71.2 4. NET FINANCE COSTS Six months Six months Year ended ended ended 31 December 30 June 30 June 2012 2013 2012 £m £m £m 11.6 Interest on bank loans and overdrafts 5.5 5.9 89.2 Interest on other borrowings 48.5 44.4 0.6 Interest on obligations under finance leases 0.3 0.3 1.4 Other interest payable 1.8 0.9 102.8 Gross interest costs 56.1 51.5 (8.8) Less: Interest capitalised (6.4) (3.7) 94.0 Finance costs 49.7 47.8 13.8 Bond redemption - premium and costs 3.9 13.8 41.7 Floating rate reset bonds redemption - premium and costs - - (8.3) Change in fair value of interest rate swaps 8.3 (2.4) (1.1) Change in fair value of currency swaps outside hedge accounting designation - (1.1) (9.4) Change in fair value of derivatives 8.3 (3.5) (6.5) Finance income (2.9) (2.7) 133.6 Net finance costs 59.0 55.4 Underlying finance costs 102.8 Gross interest costs 56.1 51.5 (6.5) Finance income (2.9) (2.7) 96.3 Net underlying finance costs 53.2 48.8 * Total of £12.2 million (31 December 2012: £46.1 million; 30 June 2012: £10.3 million) included in 'Capital and other' in note 2. 5. TAX A. TAX CHARGE Six months Six months Year ended ended ended 31 December 30 June 30 June 2012 2013 2012 £m £m £m 0.4 Current tax charge 0.2 - B. CURRENT AND DEFERRED TAX MOVEMENTS 1 January Recognised 30 June 2013 in income Tax paid Acquisitions 2013 £m £m £m £m £m Current tax 1.2 0.2 (0.5) (0.2) 0.7 Deferred tax 0.5 - - - 0.5 1.7 0.2 (0.5) (0.2) 1.2 Analysed as: 1 January 30 June 2013 2013 £m £m Current assets: Corporation tax (0.2) (0.1) Current liabilities: Tax 1.4 0.8 Non-current liabilities: Deferred tax 0.5 0.5 1.7 1.2 C. COMMENTARY Hammerson has been a UK REIT since 1 January 2007 and a French SIIC since 1 January 2004 and therefore substantially all of the Group's property rental income and gains on properties are exempt from tax. 6. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE A. DISPOSALS As part of the Group's strategy to focus on the retail sector, the following entities and office properties were disposed of between July 2012 and June 2013: Entity Hammerson (99 Bishopsgate) Limited Hammerson Bishopsgate LLP 99 Bishopsgate Management Limited 10 Gresham Street LLP Hammerson Gresham Street Unit Trust Hammerson (Victoria) Limited 125 OBS Limited Partnership Hammerson 125 OBS Unit Trust 125 OBS (General Partner) Limited Hammerson (125 OBS LP) Limited Hammerson (Leadenhall Court) Limited Property Principal Place, London, EC2 London Wall Place, London EC2 Harbour Quay, London E14 Puddledock, London EC4 In anticipation that they will be disposed of by 31 December 2013, properties which remain as held for sale at 30 June 2013 include: Victoria Station, SW1 Spitalfields, E1 The income and expenditure of the entities and properties shown above have been classified as discontinued operations in both the current and prior periods. B. RESULT FOR THE PERIOD Year ended 31 December 2012 Six months ended 30 June 2013 Six months ended 30 June 2012 Capital Capital Capital Adjusted and other Total Adjusted and other Total Adjusted and other Total £m £m £m Notes £m £m £m £m £m £m 28.0 - 28.0 Gross rental income 3A 7.4 - 7.4 16.9 - 16.9 (0.3) - (0.3) Ground and equity rents payable - - - (0.2) - (0.2) 27.7 - 27.7 Gross rental income, after rents payable 7.4 - 7.4 16.7 - 16.7 4.0 - 4.0 Service charge income 0.9 - 0.9 2.1 - 2.1 (6.7) - (6.7) Service charge expenses (0.9) - (0.9) (4.2) - (4.2) (2.7) - (2.7) Net service charge expenses - - - (2.1) - (2.1) (0.9) - (0.9) Other property outgoings (0.1) - (0.1) (0.8) - (0.8) (3.6) - (3.6) Property outgoings (0.1) - (0.1) (2.9) - (2.9) 24.1 - 24.1 Net rental income 3A 7.3 - 7.3 13.8 - 13.8 0.7 - 0.7 Management fees receivable 0.2 - 0.2 0.4 - 0.4 (1.1) - (1.1) Cost of property activities (0.3) - (0.3) (0.7) - (0.7) (0.4) - (0.4) Administration expenses (0.1) - (0.1) (0.3) - (0.3) 23.7 - 23.7 Operating profit before other net gains 7.2 - 7.2 13.5 - 13.5 - 30.4 30.4 Gain/(Loss) on the sale of investment properties - 6.2 6.2 - (1.0) (1.0) - (1.4) (1.4) Revaluation gains/(losses) on investment properties - 3.0 3.0 - 7.7 7.7 - - - Revaluation gains on development properties - - - - 16.9 16.9 - 29.0 29.0 Other net gains - 9.2 9.2 - 23.6 23.6 23.7 29.0 52.7 Operating profit 7.2 9.2 16.4 13.5 23.6 37.1 (3.9) (0.1) (4.0) Net finance costs (1.8) 0.4 (1.4) (2.0) (0.2) (2.2) 19.8 28.9 48.7 Profit before and after tax and profit for the period attributable to equity shareholders 2, 8A 5.4 9.6 15.0 11.5 23.4 34.9 C. CASHFLOWS FROM DISCONTINUED OPERATIONS Year ended Six months ended Six months ended 31 December 30 June 30 June 2012 2013 2012 £m £m £m 26.5 Cash flows from operating activities (6.6) 14.3 352.5 Cash flows from investing activities 187.1 1.6 (0.7) Cash flows used in financing activities (64.6) (1.8) 378.3 Net cash inflow from discontinued operations 115.9 14.1 D. SUMMARY OF ASSETS AND LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE 31 December 2012 30 June 2013 30 June 2012 £m £m £m 194.5 Investment properties 15.9 548.1 - Development properties - 69.8 7.0 Interests in leasehold properties - 7.5 1.8 Current receivables 0.1 4.2 9.3 Cash and deposits - 5.1 212.6 Assets held for sale 16.0 634.7 63.3 Non-current borrowings - 63.8 6.9 Obligations under finance leases - 7.5 3.7 Payables - 3.9 15.2 Current payables 2.2 11.4 1.3 Current borrowings - 1.3 90.4 Liabilities associated with assets held for sale 2.2 87.9 122.2 Net assets associated with assets held for sale 13.8 546.8 7. DIVIDENDS The Directors have declared an interim dividend of 8.3 pence per share, payable on 3 October 2013 to shareholders on the register at the close of business on 23 August 2013. The dividend will be paid as a PID, net of withholding tax where appropriate. There will be no scrip alternative although the dividend reinvestment plan remains available to shareholders. Equity dividends PID Non-PID Total Six months ended Year ended Six months ended pence per pence per pence per 30 June 2013 31 December 2012 30 June 2012 share share share £m £m £m Current period 2013 interim dividend 8.3 - 8.3 - - - Prior periods 2012 final dividend 4.0 6.0 10.0 71.1 - - 2012 interim dividend 7.7 - 7.7 - 54.8 - 11.7 6.0 17.7 2011 final dividend - 66.1 66.1 Dividends as reported in the consolidated statement of changes in equity 71.1 120.9 66.1 2012 final dividend withholding tax (paid July 2013) (4.6) - - 2012 interim dividend withholding tax (paid January 2013) 8.7 (8.7) - 2011 final dividend withholding tax (paid July 2012) - - (8.0) 2011 interim dividend withholding tax (paid January 2012) - 6.2 6.2 Dividends paid as reported in the consolidated cash flow statement 75.2 118.4 64.3 8. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE The European Public Real Estate Association (EPRA) has issued recommended bases for the calculation of certain per share information and these are included in the following tables. A. EARNINGS PER SHARE The calculations for earnings per share use the weighted average number of shares, which excludes those shares held in the Hammerson Employee Share Ownership Plan, which are treated as cancelled. Year ended Six months ended Six months ended 31 December 2012 30 June 2013 30 June 2012 Pence Pence Pence Earnings Shares per Earnings Shares per Earnings Shares per £m million share £m million share £m million share 89.7 711.7 12.6 Basic - continuing operations 78.4 711.8 11.0 12.3 711.3 1.7 48.7 6.8 Basic - discontinued operations 15.0 2.1 34.9 4.9 138.4 19.4 Basic - total 93.4 13.1 47.2 6.6 - 0.2 - Dilutive share options - 0.3 - - 0.2 - 138.4 711.9 19.4 Diluted 93.4 712.1 13.1 47.2 711.5 6.6 Adjustments: Other net losses/(gains) ¹ 36.3 5.1 - continuing operations 22.2 3.1 38.3 5.4 (29.0) (4.1) - discontinued operations (9.2) (1.3) (23.6) (3.3) 7.3 1.0 13.0 1.8 14.7 2.1 (43.2) (6.1) Adjustment for associate (39.3) (5.5) - - Change in fair value of derivatives ¹ (9.4) (1.3) - continuing operations 8.3 1.2 (3.5) (0.5) 0.1 - - discontinued operations (0.4) - 0.2 - (9.3) (1.3) 7.9 1.2 (3.3) (0.5) 13.8 2.0 Bond redemption - premium and costs 3.9 0.5 13.8 2.0 41.7 5.9 Floating rate reset bonds redemption - premium and costs - - - - 0.1 - Non-controlling interests in respect of the above ² 0.2 - (0.1) - 148.8 20.9 EPRA 79.1 11.1 72.3 10.2 Notes 1 The adjustments in respect of continuing and discontinued operations are derived from notes 2 and 6B respectively. 2 Non-controlling interests relate to continuing operations. B. NET ASSET VALUE PER SHARE 31 December 30 June 30 June 2012 2013 2012 Net asset Equity Net asset Net asset value shareholders' value value per share funds Shares per share per share £ £m million £ £ 5.40 Basic 3,890.6 712.9 5.46 5.34 n/a Company's own shares held in Employee Share Ownership Plan - (1.0) n/a n/a n/a Unexercised share options 2.5 0.4 n/a n/a 5.41 Diluted 3,893.1 712.3 5.47 5.35 (0.41) Fair value adjustment to borrowings (248.3) (0.35) (0.34) 5.00 EPRA triple net 3,644.8 5.12 5.01 (0.02) Fair value of derivatives 3.3 - - 0.41 Fair value adjustment to borrowings 248.3 0.35 0.34 0.03 Adjustment for associate 25.2 0.04 - - Deferred tax 0.5 - - 5.42 EPRA 3,922.1 5.51 5.35 9. INVESTMENT AND DEVELOPMENT PROPERTIES CONTINUING OPERATIONS Investment Development properties properties Total Cost Valuation Cost Valuation Cost Valuation £m £m £m £m £m £m Balance at 1 January 2013 4,546.3 5,182.7 266.5 275.7 4,812.8 5,458.4 Exchange adjustment 38.3 67.2 11.1 13.1 49.4 80.3 Additions - capital expenditure 25.0 25.0 54.8 54.8 79.8 79.8 - asset acquisitions 192.0 192.0 - - 192.0 192.0 217.0 217.0 54.8 54.8 271.8 271.8 Disposals (59.2) (61.0) - - (59.2) (61.0) Transfers (94.5) (47.3) 94.5 47.3 - - Capitalised interest 0.8 0.8 5.6 5.6 6.4 6.4 Revaluation - (28.8) - 5.8 - (23.0) Balance at 30 June 2013 4,648.7 5,330.6 432.5 402.3 5,081.2 5,732.9 DISCONTINUED OPERATIONS Investment properties Cost Valuation £m £m Balance at 1 January 2013 176.6 194.5 Additions (0.6) (0.6) Disposals (162.3) (181.0) Revaluation - 3.0 Balance at 30 June 2013 13.7 15.9 * Shown as assets held for sale. See note 6D. Properties are stated at fair value as at 30 June 2013, valued by professionally qualified external valuers, DTZ Debenham Tie Leung, Chartered Surveyors. The valuations have been prepared in accordance with the RICS Valuation - Professional Standards (incorporating the International Valuation Standards) March 2012. 10. INVESTMENT IN ASSOCIATE On 21 August 2012 the Group gained significant influence over Value Retail PLC and associated entities and equity accounted for its investment from that date. See also note 11. A. Share of results of associate Year ended Six months ended 31 December 2012 30 June 2013 Hammerson Hammerson 100% share 100% share £m £m £m £m 61.9 18.1 Revenue 90.4 25.0 (1.7) (0.6) Depreciation and amortisation (2.1) (0.6) 60.2 17.5 Operating profit before other net gains 88.3 24.4 124.3 38.1 Revaluation gains on investment properties 121.8 38.8 (35.9) (9.1) Other net operating costs (48.6) (12.5) 148.6 46.5 Operating profit 161.5 50.7 1.3 0.4 Interest income 1.7 0.3 (15.7) (4.2) Interest expense (26.2) (7.1) (17.6) (3.4) Change in fair value of financial instruments 11.9 4.6 - 12.0 Change in fair value of participative loans - revaluation movement - 1.7 - - Change in fair value of participative loans - other movement - 0.2 116.6 51.3 Profit before tax 148.9 50.4 (1.7) (0.3) Current tax charge (1.7) (0.3) (23.3) (3.5) Deferred tax charge (24.9) (5.3) 91.6 47.5 Profit for the period 122.3 44.8 12.7 1.6 Foreign exchange translation differences 33.3 6.4 104.3 49.1 Total comprehensive income 155.6 51.2 Reconciliation to note 8A Year ended Six months ended 31 December 2012 30 June 2013 Hammerson Hammerson 100% share 100% share £m £m £m £m 91.6 47.5 Profit for the period 122.3 44.8 (124.3) (38.1) Revaluation gains on investment properties (121.8) (38.8) 17.6 3.4 Change in fair value of financial instruments (11.9) (4.6) - (12.0) Change in fair value of participative loans - revaluation movement - (1.7) - - Capitalised loan finance fees written off 1.2 0.5 23.3 3.5 Deferred tax charge 24.9 5.3 (83.4) (43.2) Adjustment for associate (107.6) (39.3) 8.2 4.3 EPRA adjusted earnings of associate 14.7 5.5 B. Share of assets and liabilities of associate 31 December 2012 30 June 2013 Hammerson Hammerson 100% share 100% share £m £m £m £m - 58.5 Goodwill on acquisition of associate - 65.7 2,224.6 579.1 Other non-current assets 2,432.2 739.9 2,224.6 637.6 Non-current assets 2,432.2 805.6 140.3 43.5 Other current assets 152.7 29.9 87.3 21.7 Cash and deposits 118.3 33.3 227.6 65.2 Current assets 271.0 63.2 2,452.2 702.8 Total assets 2,703.2 868.8 (40.8) (9.8) Current liabilities (49.1) (12.6) (944.3) (235.2) Other liabilities (1,056.7) (314.8) (132.8) (33.0) Fair value of financial instruments (127.3) (28.5) (273.6) (39.2) Deferred tax (313.0) (74.4) (1,350.7) (307.4) Non-current liabilities (1,497.0) (417.7) (1,391.5) (317.2) Total liabilities (1,546.1) (430.3) 1,060.7 385.6 Net assets 1,157.1 438.5 42.8 Participative loans 64.9 428.4 Total investment in associate 503.4 The analysis above excludes liabilities in respect of distributions received in advance from VR amounting to £14.7 million (31 December 2012: £10.2 million) which are included within non-current liabilities in note 18. * The Group's total investment in associate includes long-term debt which in substance forms part of the Group's investment. These participative loans are not repayable in the foreseeable future. Reconciliation to note 8B 31 December 2012 30 June 2013 Hammerson Hammerson share share £m £m 428.4 Total investment in associate 503.4 5.7 Fair value of derivatives (2.2) 39.2 Deferred tax 74.4 (28.7) Goodwill as a result of deferred tax (47.0) 16.2 Adjustment for associate 25.2 444.6 EPRA adjusted total investment in associate 528.6 C. Reconciliation of movements in investment in associate Year ended Six months ended 31 December 2012 30 June 2013 £m £m - Balance at 1 January 428.4 381.7 Transfer from other investments on 21 August 2012 - - Acquisitions 61.1 47.5 Share of results of associate 44.8 (2.4) Dividends (37.5) - Revaluation movement on participative loan 0.2 1.6 Foreign exchange translation differences 6.4 428.4 503.4 11. OTHER INVESTMENTS 31 December 30 June 30 June 2012 2013 2012 £m £m £m - Value Retail PLC and associated entities ('VR') - 288.9 1.4 Other investments 1.4 1.5 1.4 1.4 290.4 Prior to 21 August 2012, the Group had concluded that it did not have significant influence over any of the investments in Value Retail PLC and associated entities as, despite holding certain limited voting rights, the Group had no means to influence financial and operating policies through its voting rights or otherwise. The interests were therefore classified as available for sale investments. On 21 August 2012, the Group acquired additional stakes in the sponsor entities of Bicester Investors Limited Partnership, Bicester Investors II LP, VR European Holdings BV and Value Retail PLC, increasing its interest in these Value Retail holding companies to 22%. These investments have been equity accounted from the date of acquisition of the additional stakes, and disclosed as Investment in Associate (see note 10), as the Group has significant influence through its ownership interest from this date. In addition to the interests in the holding companies, the Group has non-equity interests of differing proportions in the entities which own VR's outlet Villages. When aggregated the Group's share of VR's operating profit before other net gains amounts to 27.6% for the period ended 30 June 2013. 12. RECEIVABLES: NON-CURRENT ASSETS 31 December 30 June 30 June 2012 2013 2012 £m £m £m 47.0 Loans receivable 49.7 22.7 1.1 Other receivables 1.0 2.8 18.5 Fair value of interest rate swaps - 3.3 66.6 50.7 28.8 Loans receivable comprises a loan of €58 million (£49.7 million) (31 December 2012: £47.0 million) to Value Retail European Holdings BV bearing interest at 10% and maturing on 11 September 2016. This loan is classified as available for sale. At 30 June 2012, loans receivable comprised a loan to Value Retail PLC of €28 million (£22.7 million). 13. RECEIVABLES: CURRENT ASSETS 31 December 30 June 30 June 2012 2013 2012 £m £m £m 53.2 Trade receivables 54.9 38.5 - Loans receivable - 29.1 38.6 Other receivables 68.7 36.3 0.2 Corporation tax 0.1 0.1 10.7 Prepayments 4.6 11.6 - Fair value of currency options - 0.2 102.7 128.3 115.8 14. CASH AND DEPOSITS 31 December 30 June 30 June 2012 2013 2012 £m £m £m 45.1 Cash at bank 62.0 48.3 12.0 Short-term deposits 8.0 31.3 57.1 70.0 79.6 Currency profile 43.3 Sterling 45.4 66.5 13.8 Euro 24.6 13.1 57.1 70.0 79.6 15. PAYABLES: CURRENT LIABILITIES 31 December 30 June 30 June 2012 2013 2012 £m £m £m 36.3 Trade payables 27.1 31.6 132.3 Other payables 117.9 108.0 25.3 Accruals 22.3 20.3 49.8 Deferred income 52.4 46.1 243.7 219.7 206.0 16. BORROWINGS A. MATURITY 31 December 30 June 30 June 2012 2013 2012 £m £m £m 1,142.4 After five years 1,167.4 742.7 737.7 From two to five years 546.8 928.4 - From one to two years 410.9 - 1,880.1 Due after more than one year 2,125.1 1,671.1 158.0 Due within one year 151.4 251.7 2,038.1 2,276.5 1,922.8 B. ANALYSIS 31 December 30 June 30 June 2012 2013 2012 £m £m £m Unsecured 197.9 £200 million 7.25% sterling bonds due 2028 197.9 197.8 297.1 £300 million 6% sterling bonds due 2026 297.2 297.0 247.9 £250 million 6.875% sterling bonds due 2020 248.0 247.9 401.2 €500 million 2.75% euro bonds due 2019 424.2 - 298.7 £272 million (2012: £300 million) 5.25% sterling bonds due 2016 270.9 298.5 388.9 €480 million 4.875% euro bonds due 2015 411.0 387.8 151.6 Bank loans and overdrafts 358.1 448.5 1,983.3 2,207.3 1,877.5 11.1 Fair value of currency swaps 22.9 1.7 1,994.4 2,230.2 1,879.2 Secured 43.7 Euro variable rate mortgage due 2016 46.3 43.6 64.6 Sterling variable rate mortgage due 2015 - 65.1 2,102.7 2,276.5 1,987.9 * Associated with assets previously held for sale. Security for secured euro borrowings as at 30 June 2013 is provided by a first legal charge on a property, for which the Group's share of the carrying value was £102.4 million. C. UNDRAWN COMMITTED FACILITIES 31 December 30 June 30 June 2012 2013 2012 £m £m £m 630.0 Expiring after more than two years 616.0 426.0 D. CURRENCY PROFILE 31 December Borrowings 30 June 30 June 2012 excluding Fair value of 2013 2012 Total currency swaps currency swaps Total Total £m £m £m £m £m 913.7 Sterling 1,372.1 (463.2) 908.9 959.0 1,189.0 Euro 881.5 486.1 1,367.6 1,028.9 2,102.7 2,253.6 22.9 2,276.5 1,987.9 17. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of borrowings, currency and interest rate swaps, together with their carrying amounts included in the balance sheet, are as follows: 31 December 2012 30 June 2013 30 June 2012 Book Fair Book Fair Book Fair value value value value value value £m £m £m £m £m £m 2,091.6 2,381.1 Borrowings, excluding currency swaps 2,253.6 2,501.9 1,986.2 2,227.7 11.1 11.1 Currency swaps 22.9 22.9 1.7 1.7 2,102.7 2,392.2 Total 2,276.5 2,524.8 1,987.9 2,229.4 - - Currency options - - (0.2) (0.2) (11.6) (11.6) Interest rate swaps 3.3 3.3 3.2 3.2 (11.6) (11.6) 3.3 3.3 3.0 3.0 Financial instruments associated with assets held for sale included in above table 64.6 64.6 Borrowings, excluding currency swaps - - 65.1 65.1 3.0 3.0 Interest rate swaps - - 3.1 3.1 At 30 June 2013, the fair value of financial instruments exceeded their book value by £248.3 million (31 December 2012: £289.5 million) equivalent to 35 pence per share (31 December 2012: 41 pence per share) on an EPRA net asset value per share basis. The fair values of the Group's borrowings have been estimated on the basis of quoted market prices, representing Level 1 fair value measurements as defined by IFRS 7 Financial Instruments: Disclosures. The fair values of the Group's outstanding interest rate swaps have been estimated by calculating the present values of future cash flows, using appropriate market discount rates, representing Level 2 fair value measurements. The fair value of the Group's currency swaps has been estimated on the basis of the prevailing forward rates at the half-year, also representing Level 2 fair value measurements. 18. PAYABLES: NON-CURRENT LIABILITIES 31 December 30 June 30 June 2012 2013 2012 £m £m £m 29.7 Net pension liability 31.6 30.9 30.5 Other payables 39.3 32.9 3.9 Fair value of interest rate swaps 3.3 3.4 64.1 74.2 67.2 19. SHARE CAPITAL 31 December 30 June 30 June 2012 2013 2012 £m £m £m 178.2 Called up, allotted and fully paid 178.2 178.2 Ordinary shares of 25p each Number Movements in issued share capital Number of shares in issue at 1 January 2013 712,830,959 Share options exercised - Executive Share Option Scheme 9,699 Share options exercised - Savings-related Share Option Scheme 22,396 Number of shares in issue at 30 June 2013 712,863,054 20. ADJUSTMENT FOR NON-CASH ITEMS IN THE CASH FLOW STATEMENT Six months Six months Year ended ended ended 31 December 30 June 30 June 2012 2013 2012 £m Note £m £m 7.3 Amortisation of lease incentives and other costs 5.2 3.1 (0.5) Increase in accrued rents receivable 0.3 (0.1) 6.8 Non-cash items included within net rental income 3A 5.5 3.0 1.5 Depreciation 0.7 0.8 4.9 Share-based employee remuneration 3.0 2.3 0.8 Exchange and other items (0.7) 1.0 14.0 8.5 7.1 Other information DIRECTORS David Tyler Chairman David Atkins Chief Executive Gwyn Burr Peter Cole Timon Drakesmith Terry Duddy Jacques Espinasse Judy Gibbons John Hirst Jean-Philippe Mouton Tony Watson CBE Senior Independent Director Non-Executive Director GENERAL COUNSEL AND COMPANY SECRETARY Sarah Booth PRINCIPAL GROUP ADDRESSES United Kingdom Hammerson plc, 10 Grosvenor Street, London W1K 4BJ Tel +44 (0) 20 7887 1000 Fax +44 (0) 20 7887 1010 France Hammerson France SAS, 48 rue Cambon, Paris 75000, France Tel +33 (1) 56 69 30 00 Fax +33 (1) 56 69 30 01 Registered office 10 Grosvenor Street, London W1K 4BJ Registered in England No. 360632 WEBSITE This Half-year Report, the most recent Annual Report and other information are available on the Company's website, www.hammerson.com. The Company operates a service whereby all registered users can choose to receive, via e-mail, notice of all Company announcements which can be viewed on the website. UK REIT TAXATION As a UK REIT, Hammerson plc is exempted from corporation tax on rental income and gains on UK investment properties but is required to pay Property Income Distributions (PIDs). UK shareholders will be taxed on PIDs received at their full marginal tax rates. A REIT may in addition pay normal dividends. The 2013 interim dividend is being paid as a PID to enable the Company to meet its PID obligations. For most shareholders, PIDs will be paid after deducting withholding tax at the basic rate. However, certain categories of shareholder are entitled to receive PIDs without withholding tax, principally UK resident companies, UK public bodies, UK pension funds and managers of ISAs, PEPs and Child Trust Funds. Hammerson's website includes a form to be used by shareholders to certify if they qualify to receive PIDs without withholding tax. Further information on UK REITs is available on the Company's website. DIVIDEND REINVESTMENT PLAN (DRIP) Shareholders can reinvest dividend payments in additional shares in Hammerson under the DRIP operated by the Company's Registrar by completing an application form online at www.capitashareportal.com or calling Capita IRG Trustees: Tel: 0871 664 0381 (from the UK calls cost 10p per minute plus network extras) or +44 (0) 20 8639 3402 (from overseas) email: [email protected]. As the Company will not be offering shareholders a scrip dividend alternative, the DRIP will be continue to be available to those shareholders who have already completed an application form and such shareholders should take no action unless they wish to receive their dividend in cash, in which case they should contact Capita Registrars to cancel their instruction. ADVISERS J.P. Morgan Cazenove and Deutsche Bank are joint broker and financial adviser to the Company, and Lazard is its financial adviser. FINANCIAL CALENDAR Ex-dividend date 21 August 2013 Record date 23 August 2013 Election date for DRIP 8 September 2013 Interim dividend payable 3 October 2013 A copy of this announcement will be submitted to the National Storage Mechanism and will shortly be available at www.hemscott.com/nsm.do. Glossary of terms Adjusted figures (per share) Reported amounts adjusted to exclude certain items as set out in note 8 to the accounts. Anchor store A major store, usually a department, variety or DIY 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 property value during the period after taking account of capital expenditure and exchange translation movements, calculated on a monthly time-weighted basis. DTR Disclosure and Transparency Rules, issued by the United Kingdom Listing Authority. Dividend cover Adjusted earnings per share divided by dividend per share. Earnings per share (EPS) Profit for the period attributable to equity shareholders divided by the average number of shares in issue during the period. EBITDA Earnings before interest, tax, depreciation and amortisation. 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. Equivalent yield (true and nominal) The capitalisation rate applied to future cash flows to calculate the gross property value. The cash flows reflect the timing of future rents resulting from lettings, lease renewals and rent reviews based on current ERVs. The true equivalent yield assumes rents are received quarterly in advance. The nominal equivalent yield assumes rents are received annually in arrears. The property true and nominal equivalent yields are determined by the Group's external valuers. 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 external valuers. Gearing Net debt expressed as a percentage of equity shareholders' funds. Gross property value Property value before deduction of purchaser's costs, as provided by the Group's external valuers. Gross rental income Income from rents, car parks and commercial income, after accounting for the net effect of the amortisation of lease incentives. IAS International Accounting Standard. IASB International Accounting Standards Board. IFRS International Financial Reporting Standard. Initial yield Annual cash rents receivable (net of head and equity rents and the cost of vacancy, and, in the case of France, net of an allowance for costs of approximately 5.2%, primarily for management fees), as a percentage of gross property value, as provided by the Group's external valuers. Rents receivable following the expiry of rent-free periods are not included. Rent reviews are assumed to have been settled at the contractual review date at ERV. Interest cover Net rental income divided by net cost of finance before capitalised interest and change in fair value of derivatives. Interest rate or currency swap (or derivatives) An agreement with another party to exchange an interest or currency rate obligation for a pre-determined period of time. IPD Investment Property Databank. An organisation supplying independent market indices and portfolio benchmarks to the property industry. Like-for-like/underlying net rental income The percentage change in net rental income for completed investment properties owned throughout both current and prior periods, after taking account of exchange translation movements. LTV (Loan to value) Net debt expressed as a percentage of the property portfolio value. Net asset value per share (NAV) Equity shareholders' funds divided by the number of shares in issue at the balance sheet date. Net rental income Income from rents, car parks and commercial income, after deducting head and equity rents payable, and other property related costs. Occupancy rate The ERV of the area in a property, or portfolio, excluding developments, which is let, expressed as a percentage of the total ERV of that property or portfolio. Over-rented The amount by which the 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 the completion of a development. Property Income Distribution (PID) A dividend, generally subject to withholding tax, that a UK REIT is required to pay from its tax-exempt property rental business and which is taxable for UK-resident shareholders at their marginal tax rate. 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 or passing rents 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). Return on shareholders' equity (ROE) Capital growth and profit for the period expressed as a percentage of equity shareholders' funds at the beginning of the period, all excluding deferred tax and certain non-recurring items. Reversionary or under-rented The amount by which the ERV exceeds the rents passing, together with the estimated rental value of vacant space. Scrip dividend A dividend received in the form of shares. SIIC Sociétés d'Investissements Immobiliers Côtées. 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 growth 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. Total shareholder return Dividends and capital growth in the share price, expressed as a percentage of the share price at the beginning of the year. Turnover rent Rental income which is related to an occupier's turnover. 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 ERV of that property or portfolio. Yield on cost Rents passing expressed as a percentage of the total development cost of a property. DISCLAIMER This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. Many of these risks and uncertainties relate to factors that are beyond Hammerson's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Company's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. Hammerson does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Company should not be relied upon as a guide to future performance. This information is provided by RNS The company news service from the London Stock Exchange END IR UNUWROKABUAR

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Hammerson PLC Interim / Quarterly Report 2013