Where people and brands want to be Annual Report 2019 Report Annual HAMMERSON PLC ANNUAL REPORT 2019 Strategic Report Financial Statements 1 2019 overview 126 Statement of Directors’ 2 Our portfolio responsibilities 4 Letter from the Chair 127 Independent auditors’ report of the Board 135 Group financial statements 6 Our business model 141 Notes to the financial statements 8 Engaging with our stakeholders 182 Company financial statements 10 Chief Executive’s review 184 Notes to the Company financial 14 Our markets statements 16 Our strategy 18 Key Performance Indicators Other Information 20 Operating review 190 Additional disclosures 34 Sustainability review – EPRA measures 42 Our people – Portfolio analysis 45 Health, safety and security – Share of Property interests 46 Property portfolio review – Premium outlets 50 Financial review – Proportionally consolidated 58 Risks and uncertainties information 202 Property listing Corporate 204 Ten-year financial summary Governance Report 205 GHG emissions 2019 66 Chair of the Board’s introduction 206 Shareholder information 68 Board Leadership and Company 208 Glossary Purpose 78 Division of Responsibilities 80 Composition, Succession and Evaluation 85 Audit, Risk and Internal Control 89 Directors’ Remuneration report 123 Directors’ report Visit our website www.hammerson.com for more information about us and our business @hammersonplc hammerson hammerson hammerson_plc Our purpose We create vibrant, continually evolving spaces, in and around thriving cities, where people and brands want to be. We seek to deliver value for all our stakeholders and to create a positive and sustainable impact for generations to come. 2019 overview IFRS loss1 Equity shareholders’ funds1 £(781)m £4,377m (2018: £268m loss) (2018: £5,433m) Adjusted earnings per share2 EPRA NAV per share2 28.0p £6.01 (2018: 30.6p) (2018: £7.38) Basic (loss)/earnings per share1 Total portfolio value3 (102.1)p £8,327m (2018: 34.1p loss) (2018: £9,938m) Dividend per share Net debt4 25.9p £2,843m (2018: 25.9p) (2018: £3,406m) Leasing activity4 Global emissions intensity ratio (mtCO2e/£m) £22.6m 12 2 (2018: £27.7m) (2018: 122) All the above metrics included discontinued operations. 1. Attributable to equity shareholders. 2. Calculations for adjusted and EPRA figures are shown in note 12 to the financial statements on pages 157 and 159. 3. Proportionally consolidated, including premium outlets and recognition of UK retail parks impairment following reclassification as assets held for sale. 4. Proportionally consolidated, excluding premium outlets. See page 50 of the Financial review for a description of the presentation of financial information. Our portfolio Where people and brands want to be We are focusing our portfolio on the highest quality flagship destinations and premium outlets in key cities across the UK and Europe. By applying our expertise and skills, we have significant opportunities to generate value for all stakeholders over the longer term. As at 31 December 2019 Flagship destinations 21 Premium outlets Portfolio value1 20 Retail parks £8.3bn 9 Flagship destinations: UK 28% Flagship destinations: France 15% Countries Flagship destinations: Ireland 10% Premium outlets: Value Retail 24% 14 Premium outlets: VIA Outlets 8% Developments and UK other 9% Lettable area Retail parks: UK 6% 2.2m m2 Tenants 4,700 Shopper visits per year 410m 1. As at 31 December 2019. Proportionally consolidated, including premium outlets and recognition of UK retail parks impairment following reclassification as assets held for sale. See page 50 of the Financial review for a description of the presentation of financial information. A full list of our properties is shown on pages 202 and 203. 2 Hammerson plc Annual Report 2019 Bullring and Grand Central, Birmingham As part of our Net Positive strategy we implemented Our portfolio Strategic Report numerous energy saving initiatives across our UK portfolio. A key project was our partnership with Grid Edge, where we have introduced AI technology Hede Fashion across our two Birmingham venues to manage the Outlet, Gothenburg heating and cooling A 2,400m2 extension systems. This has helped opened at Hede Fashion deliver gas savings of 25% Outlet in October in 2019. introducing 15 new brands to the scheme. This resulted in a 37% increase in the number of guests to the centre. Dundrum, Dublin We received planning consent for a 107 apartment residential development adjacent to Dundrum Town Centre. We expect to start on site in the second half of 2020, and the project will be Italie Deux, Paris our first onsite City Quarters scheme. In 2019 we sold 75% of this central Paris flagship destination for €473 million. The transaction includes the forward sale of the onsite Italik extension, which is due to open in Q4 2020. This transaction was the largest retail deal in France in 2019. Flagship destinations: UK Flagship destinations: France Flagship destinations: Ireland Premium outlets: Value Retail Premium outlets: VIA Outlets Retail parks: UK Properties sold in February 2020 www.hammerson.com 3 Letter from the Chair of the Board Building balance sheet strength A resilient performance in a very challenging market, as we take decisive, proactive action to build balance sheet strength, maintain vibrancy and safeguard the business for the long term Hammerson has once again faced a joint venture, which has consolidated our earnings per share were down 8.5% to 28.0p, challenging market over the past 12 months. position in this key growth market. In VIA and net asset value has declined from 738p This was especially the case in the UK, where Outlets and Value Retail we have interests to 601p. We expect too that EPS will fall we saw a series of high profile CVAs and in many of the strongest premium outlets significantly further in 2020 as a result of our administrations. Consumers continue to in Europe. substantial disposal programme. demand a seamless omnichannel experience As mentioned, our flagships in France and We recognise that these are challenging results, from brands and this has put huge pressure Ireland also produced a resilient operational demonstrated by the valuation declines with a on many traditional retailers, particularly performance. Sales and footfall remained portfolio now valued at £8.3bn, and a capital those which have not invested in their robust in France. For many brands, return of -9.8%. We have achieved cost savings fulfilment capabilities over the past decade. Les Terrasses du Port in Marseille continues in the last 18 months and negotiated This pressure has been exacerbated in many to be their top performing location in the tenaciously with our tenants. In the context of retail categories, most notably department country. At Dundrum, we once again the tough conditions across UK retail, however, stores and undifferentiated high street attracted a number of brands to the Irish it has not been possible to maintain previous fashion, by falling gross margins, cost market for the first time. At the end of 2019, levels of profitability. The 2019 dividend is in pressures from higher wages, business rates, we secured planning approval in Dundrum line with 2018 and the 2020 dividend will be and increasing costs of providing a for our first private rental scheme as part rebased to a sustainable level of 14.0p per share, comprehensive offer, including online returns. of City Quarters, our strategy to maximise removing the direct link between earnings In the UK, another year of political the unique land bank surrounding our generated and dividend paid, while covering uncertainty damaged consumer confidence, flagship locations. REIT and SIIC tax obligations. and made longer term decision making by Insight is at the heart of our business, and it is both brands and investors more difficult. Accelerated delivery clear that across all our markets consumers, against strategy Our strategy has continued to evolve to brands, investors and partners want and need recognise these shifts, and we are working compelling, urban destinations. The polarising As I highlighted in my update last year, hard to maintain footfall and vibrancy in divide between engaging, in-demand venues reducing debt remains our focus, and that our flagship destinations, while continuing and ones which are struggling is widening. will continue to be the case for the near term. to make strategic disposals and optimise This is evidenced by the decisions brands are The substantial disposals we achieved during our portfolio. We remain confident that making about where they open stores, as well the past 12 months have ensured our balance we can build a stronger future by leveraging as rental levels and footfall. sheet is now in a stronger position, and the expertise, talent and assets held by protects us against further potential pressure the business. Our results on valuations. We remain committed to Our priority in 2019 was to reduce debt reducing debt in the next 12 months, to We are, of course, not a business only through our disposal programme. In an further strengthen the balance sheet. operating in the UK. Our flagships in France environment where there have been very and Ireland have performed more strongly. We are also determined to put strong few buyers, we achieved disposals of £542m, We continue to take action to focus our foundations in place for the future. We have in excess of our £500m target. This allowed portfolio around the most prime European made excellent progress on our City Quarters us to cut net debt from £3.4bn to £2.8bn, urban assets. Our diversified portfolio makes strategy. In Birmingham, our Martineau demonstrating our commitment and ability us resilient and is a real strength. Galleries scheme has received planning to build balance sheet strength, even in a permission; the same is the case for our planned Premium outlets remains one of the most tough market. The additional retail parks hotel in Leeds; and we expect to be on site in attractive parts of the retail sector.