Hammerson plc Hammerson plc Innovation with imagination Annual Report 2011 Annual Report 2011 Hammerson plc 10 Grosvenor Street, London, W1K 4BJ www.hammerson.com Directors’ report | Overview | Key financial highlights Contents Key financial highlights Directors’ report Income Capital Ratios Overview Net rental income (£m) Property assets (£m) Return on shareholders’ equity (%) Key financial highlights IFC Who we are 1 +4.0% +7. 3% 2011 11.2 Chief executive’s report 2 Chairman’s statement 4 2011 296 2011 5,720 2010 21.1 At a glance 6 2010 285 2010 5,331 Case studies 8 Adjusted net asset value per share, Business & financial review Adjusted earnings per share1 (pence) EPRA basis1 (£) Gearing (%) Market background 16 Responding to market dynamics 18 -3.0% +7.1% 2011 52 Key performance indicators 20 2011 19.3 2011 5.30 2010 52 Financial and property returns 22 Risk management and 24 2010 19.9 2010 4.95 principal uncertainties Corporate responsibility 26 Total dividend per share (pence) Connected reporting framework 28 Human resources 30 Business review 32 +4.1% 1 The calculations for adjusted figures are shown on pages 39 and 40 and in note 10 to the accounts. 2011 16.6 Financial review 39 2 The profit before tax for the year ended 31 December 2011 was £346.3 million (2010: £620.2 million) and diluted earnings per share 2010 15.95 Governance were 47.3p (2010: 87.2p). Board of Directors 44 Q&A with the Chairman 46 UK Code 48 Remuneration report 54 Additional disclosures 65 Financial statements Directors’ responsibilities 67 Independent auditor’s report on the 68 Group financial statements Consolidated income statement 70 Consolidated statement 71 of comprehensive income Consolidated balance sheet 72 Consolidated statement 73 of changes in equity Consolidated cash flow statement 75 Analysis of movement in net debt 75 Notes to the accounts 76 Independent auditor’s report on the 109 parent company financial statements Company balance sheet 110 Notes to the Company accounts 111 Ten-year financial summary 114 Property portfolio UK shopping centres 115 UK retail parks 117 This report is printed on Hello Silk paper which is FSC® France retail 120 Certified and was manufactured at a mill that is certified Offices 122 to the ISO14001 and EMAS environmental standards. Printed by Fulmar Colour Other information Fulmar Colour are ISO14001 certified, CarbonNeutral®, The Directors present the Annual Report for the year ended 31 December 2011. Pages 1 to 66 Glossary of terms 123 Alcohol Free, FSC and PEFC Chain of Custody certified. of this Annual Report comprise a Directors’ report that has been drawn up and presented in The inks used are vegetable oil based. Index 125 accordance with English company law and the liabilities of the Directors in connection with that Designed and produced by Salterbaxter Shareholder information 126 report shall be subject to limitations and restrictions provided by such law. Hammerson plc | Annual Report 2011 Directors’ report | Overview | Who we are Overview Who we are Hammerson has been creating and managing some of the most exciting retail destinations and office buildings in Europe for over 60 years. Hammerson’s Business & financial review vision is to be the best owner-manager and developer of retail property within Europe. We specialise in prime regional shopping centres and convenient retail parks. Our aim is to outperform through two Governance areas of focus: income growth and high quality property, both of which are underpinned by our Financial statements capital strength. Property portfolio Other information Other Hammerson plc | Annual Report 2011 1 Directors’ report | Overview | Chief executive’s report Chief executive’s report Strategic overview Hammerson’s business model Own prime properties in the best locations Ensure buildings are modern, well maintained and relevant for customers Maintain significant scale in key markets Retail property specialism to foster innovation Ensure venues are positively differentiated from competition Drive income growth through optimum tenant mix and high occupancy We conducted a full review of our strategy. Our revised strategy will enhance the focus on income growth and efficiency, and therefore we anticipate being able to grow dividends We concluded that Hammerson should be a at a higher rate than in recent years. specialist retail property company. We have leading positions in both the UK and French retail property markets, where we will increase our presence in successful locations We believe that this strategy will enable us to: through development or acquisition. We will concentrate on regionally – generate superior returns dominant shopping centres, convenient retail parks and premium – deepen customer relationships designer outlet villages. Our intention is to remain an active recycler of capital in order to secure opportunities to create higher returns – capitalise on multi-channel opportunities for shareholders. – position Hammerson to exploit acquisitions Within our London office portfolio, we will continue to implement and developments our business plans to increase the value of our office assets and – attract further JV investment developments. Our intention is to sell our standing office investments over the medium-term to maximise value. We have a small number of For further details see pages 16 to 19 London office development projects and strategic mixed-use sites that offer superior returns, where we will continue to allocate capital to increase the overall value of the projects. Where appropriate, we will Strategy introduce funding or JV capital to de-risk projects and reduce our In the latter part of 2011 we conducted a full review of our strategy overall commitment. to assess the optimum allocation of capital and how we could best exploit our skills to generate attractive long-term returns for Maximising income from our portfolio shareholders. We concluded that Hammerson should be a specialist In 2011 we signed 355 leases in respect of over 100,000m2, two retail REIT focused on successful properties in winning locations. per cent above the estimated rental values. Overall occupancy at the Retail assets already represent 89% of our portfolio, and have generated year end was 97.9%, compared to 97.3% at December 2010, and consistent growth in net rental income, providing a sustainable basis for despite a background of weakening consumer confidence in the year, capital appreciation. Our standing office investments will be sold over retailer sales at our centres outperformed national benchmarks. Total the medium-term to maximise value, with capital redeployed to retail like-for-like net rental income for the year increased 2.5% on 2010, assets, increasing our retail focus and scale. Our aim is to be the best with the UK retail portfolio generating 4.6% growth. owner-manager and developer of retail property within Europe. We introduced a number of innovative new retail formats in 2011. We believe that this strategy will enable us to: In France, we brought Burberry’s flagship Parisian store to 54-60 • generate superior returns through increased scale as we reduce costs, rue du Faubourg Saint-Honoré, and the first PSG (Paris Saint Germain) leverage our operating platform and grow income streams mall boutique to O’Parinor, Paris. In the UK we brought the first European • deepen retailer relationships and lead the industry in capitalising on Locker Room store to Brent Cross, London, and Boxpark to The multi-channel opportunities Goodsyard, London, which uses shipping containers as retail units to • place Hammerson in a stronger position to exploit retail acquisition bring new brands to the Shoreditch area. and development opportunities Catering and leisure form an increasingly important part of our offer to • attract further JV capital requiring specialist retail asset management consumers. We launched a new restaurant quarter, Spiceal Street, at skills, allowing us to recycle capital into higher-return assets Bullring, introducing three new restaurant brands set around St Martin’s Square and the iconic Selfridges building. At Les Terrasses du Port, our major retail and leisure development in Marseille, we have signed the 2 Hammerson plc | Annual Report 2011 Directors’ report | Overview | Chief executive’s report Overview Strategic focus Case studies For more information go to: Enhance key customer relationships Forever 21 Page 8 International trends Primark Page 9 CRM investments Coordinated leasing Address multi-channel growth Page 10 Social media Click & Collect trends House of Fraser.com Page 11 Business & financial review Transfer of online formats to physical Create the best experience Spiceal Street Page 12 Customer appeal Exceptional places Page 13 Maintain loyalty Left: Spiceal Street, Bullring, Birmingham Right: Italie2, Paris Governance Financial statements Financial luxury Parisian caterer Hediard, and at WestQuay we opened the We have identified and are progressing several extensions and first Toby Carvery Express, a new ‘grab and go’ concept for Mitchells redevelopments within our portfolio where we know the local and Butlers. We are looking to increase further footfall and dwell times catchment and tenant requirements well. These projects show strong by introducing cinemas to a number of our properties in both the returns and have an aggregate cost of around £320 million. The majority UK and France. of these projects will complete over the next two years. We continue to work with our customers to anticipate and respond to Planning consents