HAMMERSON HAS a High Quality Portfolio and an OUTSTANDING TRACK RECORD
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ANNUAL 2007 REPORT Hammerson plc Annual Report 2007 Hammerson plc Annual Report HAMMERSON HAS A HIGH QUALITY PORTFOLIO AND AN OUTSTANDING TRACK RECORD Hammerson plc 10 Grosvenor Street London W1K 4BJ www.hammerson.com CONTENTS INDEX Hammerson’s portfolio of prime real Who we are 001 SUBJECT PAGE SUBJECT PAGE estate assets was valued at £7.3 billion Financial highlights 002 at 31 December 2007 and provides Accounting policies 74 Investment and development properties 71, 87 Section Business highlights 003 a secure and growing income stream Chairman’s statement 005 Acquisitions 37, 38, 102, 105 Investment in own shares 71, 101, 104, 106 that will be enhanced as we exploit Board of Directors 008 our extensive development pipeline. Adjustment for non-cash items in the Investment in subsidiary companies 105 Senior management UK 010 Senior management France 012 cash flow statement 73, 102 Investment proposition 14-19 Administration expenses 47, 80 Investments 71, 91 We have achieved strong returns in Investment proposition Analysis of movement in net debt 73 Joint ventures 88 recent years and this is demonstrated Robust business model 014 by our outperformance in the UK Auditors’ report Key Performance Indicators (KPIs) 27 Section Active asset management 016 of the IPD index in nine out of Development expertise 018 group financial statements 68 Markets and outlook 5, 24 the last ten years. Our ten major investments 020 parent company financial statements 103 Net finance costs 47, 70, 83 Board of Directors 8 Notes to the accounts 74 Our strategy is to invest in, develop Chief Executive’s statement 023 Borrowings 51, 71, 73, 92, 94, 104, 106 Obligations under finance leases 71, 99 and manage prime real estate assets Business framework 024 in the retail and office sectors in Property markets and outlook 024 Business framework 24 Operating profit 70, 78 Section two key markets, the UK and France. Risk management 026 Business highlights 3 Our ten major investments 14, 20 Key performance indicators 027 Business review 34 Payables – current liabilities 71, 92 Financial and property returns 028 Corporate responsibility 029 Cash and deposits 51, 71, 73, 92, 94, 104 Pensions 55, 66, 81 Business review 034 Chairman’s statement 5 Per share data 49, 86 Financial review 046 Chief Executive’s statement 23 Plant, equipment and owner-occupied property 71, 88 Company balance sheet 104 Principal group addresses 110 The Board is committed to maintaining Corporate governance 052 Consolidated balance sheet 71 Principal subsidiary companies 107 a high standard of corporate governance Directors’ responsibilities 056 Consolidated cash flow statement 73 Profit before tax 46, 70 within the Company. Section Directors’ report 057 Consolidated income statement 70 Property portfolio 112 Remuneration report 060 Consolidated statement of recognised Receivables 71, 91, 105 Financial statements Independent auditors’ report income and expense 72 Reconciliation of equity 72 on the group financial statements 068 Contingent liabilities 102 Real Estate Investment Trusts (REITs) 47, 85 Portfolio review Consolidated income statement 070 Section Corporate governance 52 Remuneration report 60 Consolidated balance sheet 071 Shareholder information Consolidated statement of Corporate responsibility 29 Returns 27, 28, 35, 37, 67 recognised income and expense 072 Development pipeline 7, 44 Risk management 26, 94 Reconciliation of equity 072 Directors’ emoluments 65, 81 Segmental analysis 79 Consolidated cash flow statement 073 Directors’ report 57 Senior management 10 Analysis of movement in net debt 073 Notes to the accounts 074 Directors’ responsibilities 56 Share capital 57, 71, 99 Independent auditors’ report on the Dividends 5, 47, 57, 72, 85, 105 Shareholder information 109 parent company financial statements 103 Equity 71, 101, 106 Sociétés d’Investissements Immobiliers Côtées (SIIC) 47, 85 Company balance sheet 104 Notes to the Company accounts 105 Fair value of financial instruments 96, 107 Strategy 23 Ten-year financial summary 108 Financial highlights 2 Tax 47, 70, 71, 83 Shareholder information 109 Financial review 46 Ten-year financial summary 108 Glossary of terms 127 Treasury shares 57, 71, 102 The group’s critical mass and track Hammerson property portfolio 111 record in each of its sectors has earned Glossary of terms 127 it a reputation for the high quality Index 129 Section of its developments and for innovative asset management. Designed and produced by Merchant in collaboration with JohnstonWorks. Type origination by cont3xt ltd. Theme photography by Julian Calder. Printed by The Midas Press. Think White is produced with 100% ECF pulp that is fully recyclable. It is FSC certified and is made from 50% post-consumer recycled fibre within an ISO14001 and ISO9001 accredited mill. WHO WE ARE Section Hammerson has been creating exciting retail destinations and office properties for over 50 years. With a £7 billion real estate portfolio in the UK and France, we add value by developing and actively managing high quality buildings to meet the needs of our clients, our partners and our shareholders. Annual Report 2007 001 FINANCIAL HIGHLIGHTS PERFORMANCE DATA Net rental income Adjusted profit before tax(1) £276m £117m (2006: £237m) (2006: £95m) Property assets Equity shareholders’ funds £7,275m £4,355m (2006: £6,716m) (2006: £4,165m) PER SHARE DATA Adjusted earnings per share(1) Total dividend per share 40.3p 27.3p (2006: 32.8p) (2006: 21.68p) Adjusted net asset value per share, EPRA basis(1) £15.45 (2006: £15.00) RATIOS Return on shareholders’ equity Interest cover 4.5% 1.9x (2006: 25.3%) (2006: 1.8x) Gearing 57% (2006: 54%) Note (1)The calculations for basic and adjusted figures are shown on pages 46 and 49 and in note 10 on page 86. 002 Annual Report 2007 BUSINESS HIGHLIGHTS Section In January 2007 Hammerson became a UK REIT. REIT The group now has tax-exempt status in both structure the UK and France. Leases in respect of 80,000m² of space were signed Leasing or renewed in 2007. The vacancy rate reduced from 3.4% at the start of 2007 to 1.8% at the year end. The group maintained its policy of actively recycling Asset capital. A total of £537 million was raised from disposals, including the sale of 9 place Vendôme disposals in Paris and a 50% interest in WestQuay Shopping Centre, Southampton. During 2007 Hammerson invested a total of £824 million Capital of which £423 million represented expenditure on the development programme. Good progress was made on expenditure advancing future development projects. Acquisitions in the year included: Ravenhead Retail Park, St Helens; Grand Maine shopping mall, Angers, Maine et Loire in France; and Stockley House, London SW1. Hammerson has a secure and growing income Income stream, with passing rents of £308 million, a weighted average unexpired lease term security of more than ten years and a portfolio which is 7% reversionary. Hammerson has a strong balance sheet. During Financing the year, a new £340 million five-year bank facility was arranged. This brings to £590 million the total of cash and undrawn committed facilities available to the group at the year end. Annual Report 2007 003 CHAIRMAN’S stateMENT Section “I am pleased to report strong growth in rental income and earnings by Hammerson in 2007.” John Nelson Results And dividend debt levels, has recently resulted in slower growth in consumer Last September, I made reference to the slowdown in activity in spending. Nevertheless, retailers continue to take space in major the UK commercial property market and the emerging weaknesses new schemes and existing prime retail locations are generally in global financial markets. Since then the problems within the experiencing low vacancy levels. international banking sector have increased markedly. These have In the City of London office market, the buoyant demand seen exacerbated the weaker demand from investors for commercial for much of 2007 slowed during the last few months of the year. property in the UK and been reflected in falls in real estate values. There is continuing demand for well configured prime office space in Against this background, I am pleased to report strong growth in central London in a market where available space is currently limited. rental income and earnings by Hammerson in 2007. The group’s However, in view of the level of development completions over the adjusted earnings per share increased by 23% or 7.5 pence to next two years and reflecting the reduced levels of activity in the 40.3 pence, reflecting new lettings, rent reviews, rent indexation financial services sector, the City occupational market may soften. in France and the completion of developments. For the time being, it appears likely that the UK investment market Hammerson’s adjusted NAV increased by 3.0% to £15.45 in 2007. for commercial property will remain subdued. However, as and An increase of 9.0% in the first six months of the year was partly offset when the banking market stabilises, and with the prospect of lower by a decline of 5.5% in the second half, the latter reflecting the decline interest rates, conditions in the real estate investment market in real estate values in the UK in the last few months of the year. should improve. The Board is recommending a final dividend of 15.3 pence per share, In France, which accounts for nearly 30% of our business, demand making a total for 2007 of 27.3 pence, an increase of 25.9% on from retailers for space in shopping centres remained healthy. last year. The office occupational market in central Paris also remained strong with demand from a broad spread of occupiers. There was continued MARket BAckgRound good investor interest in both these key markets with a further general Following 11 years of increasing real estate values in the UK, increase in values in 2007.