Annual Report 2017 Where more happens HAMMERSON PLC ANNUAL REPORT 2017 Strategic Report 01 Highlights 02 Our portfolio 04 Letter from the Chairman 06 Our business model 08 Chief Executive's Review 13 Overview of our market 16 Our strategy 18 Key Performance Indicators 20 Product Experience Framework 28 Business review 41 Sustainability review 46 People 49 Property portfolio review 53 Financial review 61 Risks and uncertainties Corporate Governance Report 70 Chairman’s introduction 72 Board of Directors 74 Group Executive Committee 76 Board activity 82 Nomination Committee report 84 Audit Committee report 88 Directors’ remuneration report 114 Compliance with the UK Corporate Governance Code 119 Directors’ Report Financial Statements 121 Statement of Directors’ Responsibilities 122 Independent Auditors’ report 129 Group financial statements 135 Notes to the financial statements 169 Company financial statements 171 Notes to the company financial statements Other information 177 Additional disclosures 187 Development pipeline 188 Property listing 190 Ten-year financial summary 191 GHG emissions 192 Shareholder information 194 Glossary Visit our website www.hammerson.com for more information about us and our business Follow us on twitter @hammersonplc Watch us on youtube Search hammerson Follow us on LinkedIn Search hammerson Follow us on Instagram Search hammerson_plc Cover image: Festival of Light at Westquay, Southampton Inside front cover image: Concorde Street at Cabot Circus, Bristol We own, operate and develop retail destinations where more happens, that interact seamlessly with digital and bring together the very best brands. We seek to deliver value for all our stakeholders, and to create a positive and sustainable impact for generations to come. 2017 highlights Leasing volume1 Adjusted earnings per share3 +34% (2017 new leasing: 31.1p £33 million) (2016: 29.2p) IFRS profit2 Basic earnings per share2 £388m 49.0p (2016: £317m) (2016: 40.2p) Equity shareholders’ funds EPRA NAV per share3 £6,024m £7.76 (2016: £5,776m) (2016: £7.39) Dividend per share Total portfolio value4 25.5p £10,560m (2016: 24.0p) (2016: £9,971m) 1. Proportionally consolidated portfolio, excluding premium outlets. See page 53 of the Financial Review for a description of the presentation of financial information. 2. Attributable to equity shareholders. 3. Calculations for adjusted and EPRA figures are shown in note 10 to the accounts on pages 146 and 147. 4. Proportionally consolidated, including premium outlets. HAMMERSON.COM 1 OUR PORTFOLIO Destinations where more happens Our properties are located in significant, growing cities in selected European countries. We focus on retail property aligned to consumer requirements in a multichannel world. The portfolio includes high-quality shopping centres in the UK, France and Ireland, convenient retail parks in the UK and premium outlets across Europe. Portfolio value1 £10.6 bn Shopping centres: UK 33% Shopping centres: France 18% Shopping centres: Ireland 9% Retail parks: UK 12% Premium outlets: pan European 21% Developments and other 7% 14 countries 22 shopping centres 15 retail parks 20 premium outlets 2.3 million m2 lettable area 4,900 tenants 440 million shopper visits per annum 1. As at 31 December 2017. Proportionally consolidated, including premium outlets. See page 53 of the Financial Review for a description of the presentation of financial information. A full list of our properties is shown on pages 188 and 189. 2 HAMMERSON PLC ANNUAL REPORT 2017 PORTFOLIO LOCATIONS AND 2017 HIGHLIGHTS OUR PORTFOLIO STRATEGIC REPORT Elliott’s Field Phase 2 completed: a carbon UK shopping neutral BREEAM centres: record Outstanding scheme leasing volumes +49% Norwegian Outlet Oslo acquired: VIA Outlets platform now 11 outlets Dundrum Town Centre, Dublin: strong ERV growth +3% Bicester Village extension: opened with 33 new stores Westquay, Southampton: dining and leisure extension drove footfall +6% Les 3 Fontaines, Cergy: adjoining centre acquired and development started Shopping centres: UK Shopping centres: France Shopping centres: Ireland Retail parks: UK Premium outlets: pan European For information on all our properties see pages 188 and 189 and our website www.hammerson.com/property. HAMMERSON.COM 3 LETTER FROM THE CHAIRMAN Responding to market dynamics Strong financial performance Our focus as a Board is to maximise shareholder value over the medium to long term. Despite the market backdrop, which was tougher than the previous year, I am pleased to report that Hammerson’s financial performance in 2017 was strong and this should help to underpin future returns for shareholders. IFRS profit was £388 million, £71 million higher, principally due to higher revaluation gains from our Premium outlets. Adjusted earnings for the year grew by £16 million to £246 million and adjusted earnings per share grew by 6.5% to 31.1p. The improvement arose largely from a rise in rental income across the Group, in particular our Irish portfolio and Premium outlets earnings. As a share of gross rental income, costs fell by a full percentage point from 22.6% to 21.6%. During the year, equity shareholders’ funds increased by 4.3% to £6,024 million and on an EPRA basis net asset value rose by 5.1%. This resulted in an EPRA net asset value per share of 776p at the end of December, up 5.0%. At the same time, our net debt position remained conservative, with a loan to value ratio of 36%, unchanged from the previous year. The Board has proposed a final divided of 14.8p per share, bringing the total dividend to 25.5p, up 6.3% on last year and in line with our focus on consistent income growth for shareholders. Major transaction announced 2017 will also be marked as the year we reached agreement to acquire intu properties plc (see page 12). The proposed acquisition of intu will enable us to achieve our strategic goals more successfully. Its portfolio contains many large, high-footfall shopping centres that match retailers’ needs in today’s multichannel world. The portfolio also increases our exposure to another higher-growth market in Spain. The enlarged business will bring together the talent of both companies and will create an enhanced operating team for the combined portfolio. Following the acquisition, we believe that the Company will have a stronger income profile and superior growth prospects. Our strategy “The proposed acquisition Focus on growing consumer markets of intu will enable us to For information achieve our strategic on our strategy, Create differentiated see pages 16 goals more successfully.” and 17. destinations David Tyler – Chairman Promote financial efficiency and partnerships 4 HAMMERSON PLC ANNUAL REPORT 2017 LETTER FROM THE CHAIRMAN STRATEGIC REPORT Clear strategy We are alert to the effects of increasing interest rates which could have Ahead of the proposed acquisition, we made good progress this year a dampening effect on economic growth or increase volatility in in delivering our strategy: to focus on growing consumer markets; capital markets. create differentiated destinations; and promote financial efficiency Thanks to our high-quality portfolio and strong balance sheet position and partnerships. we are confident we can steer the business through expected economic We increased our investment in faster-growth markets by putting conditions in our markets. more investment into Premium outlets, completing our acquisition of Structural consumer trends Pavilions, Swords in north Dublin, and opening new retail and leisure Technology is changing all aspects of our lives including retail and space at our Shopping centres, including Westquay, Southampton. consumer habits. Our share price has been weaker this year in part because However, it is our strategy to create differentiated destinations which the market is cautious about how structural changes will affect our increasingly sets us apart. Thanks to our size we are able to dedicate business, in particular how retailers adapt to a multichannel marketplace. specialist teams to support this. Our Product Experience Framework We spend a good deal of time as a Board determining how to respond to has brought together innovative retailers, stylish design, consistent structural trends. For example, you can read about our Board Strategy customer services and exciting events (see pages 20-27). We are Day on page 78. Our capital allocation strategy has focused on investing recognised as a leader in creating destinations which are attractive to in Shopping centres, Retail parks and Premium outlets with a shoppers, draw high footfall and hence provide the most productive combination of retail, dining and leisure experiences that inspire space for our retail partners. shoppers to visit again and again. These venues will draw high footfall We continue to be a chosen operator for global investors, further and therefore benefit from strong leasing demand even as retail evolves extending our joint venture partnerships this year. We have also to become increasingly multichannel. We have also focused on continued to take advantage of the low interest rate environment to locations in growing cities in selected European countries. strengthen our balance sheet and lower our cost of debt. Our We frequently assess our properties and sell those that do not match ambitious Net Positive strategy demonstrates our commitment to these characteristics; this year we have sold £400 million of deliver meaningful change in the areas of carbon and resource use. properties. The proceeds from disposals are reinvested into higher- Economic and consumer backdrop growth opportunities, which lifts the overall quality of our portfolio. In the UK, consumer spending has been softer as inflation reached a As a result, we believe we will be a beneficiary of the market changes. 10-year high, putting pressure on household income (see chart 1). Uncertainty about the UK’s exit from the EU has impacted business investment and the UK economy is expected to deliver subdued economic growth over the next two to three years. In Europe, economic growth was higher in 2017 and this has supported our businesses in France and Ireland and in Premium outlets.