Where more happens Annual Report 2016 HAMMERSON PLC ANNUAL REPORT 2016 Contents Our mission Strategic Report 01 Highlights 02 Our portfolio 04 Our strategy 06 Our business model We own, operate and develop physical 08 Chief Executive’s review 11 Our Product Experience Framework in action destinations where more happens – that 12 Our strategy in action interact seamlessly with digital and bring 18 Key performance indicators 20 Executive team together the very best retail, leisure and 22 Business Review 34 Sustainability Review entertainment brands. We seek to deliver 40 Our people 43 Financial Review value for all our stakeholders, and to 53 Risks and uncertainties create a positive and sustainable impact Corporate Governance Report for generations to come. 60 Chairman’s letter 62 Your Board 64 Board activity: an insight into the year 72 Nomination Committee Report 74 Audit Committee Report 78 Directors’ Remuneration Report 80 Directors’ Remuneration Report: Policy 96 Directors’ Remuneration Report: Implementation Report 115 Compliance with the UK Corporate Governance Code 120 Directors’ biographies 122 Directors’ Report Financial Statements 125 Directors’ responsibilities 126 Independent Auditor’s Report 130 Primary Financial Statements 136 Notes to the accounts 170 Company Primary Statements 172 Notes to the Company accounts Other information 178 Additional disclosures 187 Development pipeline 188 Property listing 190 Ten-year financial summary 191 Shareholder information 194 Glossary 196 Index 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 and inside front cover images: Victoria Gate, Leeds HIGHLIGHTS HIGHLIGHTS REPORT STRATEGIC 2016 Overview – Good operational and financial Adjusted profit2 performance £231m (+9%) – Iconic new retail destinations in 2015: £211 million GOVERNANCE Leeds, Birmingham and IFRS profit Southampton £317m – Secured ownership of Dundrum (-56%) Town Centre, Dublin 2015: £727 million Adjusted earnings per share2 – Significant incremental investment into premium outlets 29.2p (+9%) – £635m disposals completed 2015: 26.9p FINANCIAL STATEMENTS Dividend per share – £25m income from new lettings Portfolio value1 24.0p (+8%) £10.0 billion 2015: 22.3p Shareholders’ equity 6% £5,776m 17% 34% (+5%) 2015: £5,517 million INFORMATION OTHER UK shopping centres France EPRA NAV per share2 Ireland UK retail parks Premium outlets 13% Developments & other £7.39 (+4%) 2015: £7.10 9% 21% Total property return 1. As at 31 December 2016, including £54m Ireland loan interests (2015: £690m) and VIA Outlets acquired. 2. See note 10 on pages 148 and 149 and glossary for definitions. 5.7% 2015: 12.4% HAMMERSON.COM 1 OUR PORTFOLIO Destinations where more happens We are an owner, manager and developer of retail destinations in Europe. Our portfolio includes investments in prime shopping centres in the UK, France and Ireland, convenient retail parks in the UK and premium outlets across Europe. – 13 countries – 19 premium outlets – 23 shopping centres – 2.2 million m2 lettable area – 18 retail parks – 4,800 tenants 1 Bullring, 2 Dundrum Town Centre, 3 Les Terrasses du Port, 4 Brent Cross, Birmingham Dublin Marseille London 5 Bicester Village, 6 Italie Deux, 7 The Oracle, 8 Les Trois Fontaines, Oxford Paris Reading Cergy Pontoise 9 Westquay, 10 Elliott’s Field, 11 Victoria, 12 Cyfarthfa Retail Park, Southampton Rugby Leeds Merthyr Tydfil A full list of destinations in our portfolio is on pages 188 and 189 or at hammerson.com 2 HAMMERSON PLC ANNUAL REPORT 2016 OUR PORTFOLIO REPORT STRATEGIC GOVERNANCE 11 022 5 12 1 1 10 7 4 7 4 9 88 6 FINANCIAL STATEMENTS 3 3 OTHER INFORMATION OTHER UK shopping centres France shopping centres Ireland shopping centres UK retail parks Premium outlets HAMMERSON.COM 3 OUR STRATEGY Within an evolving landscape… Trends in our markets We lead the way in identifying trends in the retail property market. The structural trends below influence our strategy, drive our priorities and guide our performance. Multichannel Convenience Urbanisation Consumers are digitising their lives. The Time-short lifestyles and Successful city accelerating use of mobile technology and multichannel retail are raising economies are seeing online social interaction is driving the the expectations for convenient population growth, growth of ‘multichannel’ retail. Within retail, driving demand for easier, drawing investment in a multichannel world, the shopping faster access to goods; better and infrastructure, transport experience remains anchored around more accurate information; and and culture. City-centre the physical store. The store provides 43% enhanced services. The rise of retail and leisure direct brand engagement and acts click & collect is a key indicator destinations are a core part as the showroom. Retailers use their of consumers research of this trend and allows shoppers of the urban environment physical space and online platforms in a products online on to research and purchase goods and benefit from the complementary way to drive increased a smartphone while on-the-move or at home and increasing wealth of sales across all channels. in-store collect in-store or in-centre. the urban population. Polarisation Shoppers are becoming increasingly discerning about their choice of retail destination and the level of service expected (see ‘Experience’ and 23% 3.9bn ‘Convenience’). As a result, retailers place a of online purchases are people, 53% of the world’s premium on those retail destinations which deliver collected from a store population, live in an shoppers’ needs. Therefore the best locations are urban environment becoming relatively more valuable and the retail property market is polarising. Experience There is an increasing blurring between retail and entertainment. Responsibility Shoppers expect retail destinations to provide a broader blend Consumers, retailers and investors are more discriminating of of retail, entertainment and dining options and hence successful the way companies conduct themselves. Stakeholders recognise retail destinations are evolving into social hubs. their role in challenging companies and hence consumers demand transparency from the brands they endorse. Communities expect property owners and developers to bring a wider positive 36% social impact and shareholders demand best practice corporate governance in return for investment. of ‘Millennials’ prioritise a shopping centre with a good selection of coffee shops and cafés, over retail of shoppers actively brand mix (34%) choose to buy brands 1/ they believe are having 3 a positive social or Retail tourism environmental impact Shopping is increasingly enjoyed by international tourists as part of a travel experience. Discounted premium brands at attractive retail outlets make the journey even more memorable. Global markets The internationalisation of consumer brands, retailers and capital Shopping rated the number one activity for overseas travellers providers has increased in recent years, in part due to improved #1 (88%) versus sight-seeing (77%) and fine dining (39%) communication. Property companies compete for capital, occupiers and employees in a global marketplace, raising the standard for success. For further detail on markets and trends for our property sectors see the Business Review pages 22-33 4 HAMMERSON PLC ANNUAL REPORT 2016 OUR STRATEGY REPORT STRATEGIC …our strategy is designed to benefit Our strategy Set out below are the three elements of our strategy which are designed to benefit from these market trends. Focus on growing consumer markets GOVERNANCE Our portfolio is concentrated around retail property which is aligned to consumer requirements in a multichannel world: the experience of large prime shopping centres; the convenience of retail parks; and the draw of luxury-brand premium outlets. We choose locations by identifying significant, growing cities and catchments in selected European countries, and where we can gain market share. Response to trends Multichannel, Polarisation, Experience, Convenience, Urbanisation, Retail Tourism FINANCIAL STATEMENTS Our vision We create desirability for consumers, brands, commercial partners and communities. OTHER INFORMATION OTHER Create differentiated Promote financial efficiency destinations and partnerships Our talented people apply insight and market expertise to create A singular retail focus, strong and efficient capital structure and operate destinations which offer exceptional experiences to and operational excellence enables us to attract valuable attract retailers and shoppers. Our Product Experience partners. These include global capital providers, international Framework purposefully guides our asset and development joint venture partners and expert operating collaborators who management to consistently enhance our destinations and help us broaden our market reach, increase scale and strengthen realise their income potential. our business. Response to trends Response to trends Experience, Convenience, Retail Tourism, Polarisation, Urbanisation, Multichannel, Polarisation, Responsibility Global Markets, Responsibility For further information on how we are delivering on our strategy, see pages 12-17 HAMMERSON.COM 5 OUR BUSINESS MODEL Creating long-term value Our vision We create desirability for consumers, brands, commercial partners and communities. We utilise key resources…