Hammerson plc · LSE:HMSO
Hammerson — FY2006 Earnings Presentation
54 slides from Hammerson's earnings presentation, Feb 26, 2007
Slide 1: Results 2006
RESULTS 2006 Monday, 26 February 2007 1
Slide 2: Financial Performance
FINANCIAL PERFORMANCE • Total portfolio return 18.8% • EPRA NAV per share £15.00 +21.3% • Adjusted earnings per share 32.8 pence +5.1% • Return on shareholders’ equity 25.3% • Total dividend per share 21.68 pence +10.0% 1 Good morning. As John Nelson said, it was an another excellent year for Hammer
Slide 3: Overview 2006
OVERVIEW 2006 • Capital recycling totalled over £1.4 billion • Completion of 9 place Vendôme development showed £81 million profit or 94% above cost • Active asset management halved vacancy rate to 3.4% • Strong projected income growth from signed leases at recent developments • Major current develo
Slide 4: Strategy in a REIT Environment
STRATEGY IN A REIT ENVIRONMENT • Tax exempt businesses in both UK and France • Existing business model delivering outperformance • Focus on two European markets and two sectors • Substantial development programme • Continued recycling of capital 3 We do not envisage any fundamental change to our str
Slide 5: Capital Allocation and Recycling
CAPITAL ALLOCATION AND RECYCLING £million 1000 800 600 400 200 0 2002 2003 2004 2005 2006 -200 -400 -600 Existing portfolio Developments Acquisitions Disposals LxB Acquisition 4 This shows activity over the last five years. The purple bar in 2006 represents the acquisition of the LxB portfolio for £
Slide 6: Portfolio
PORTFOLIO As at 31 December 2006 France 25% Shopping centres 52% Developments 8% Offices 28% Germany 1% Retail parks 20% UK 74% Investment properties 92% Total portfolio: £6.7 billion 5 This is the shape of the portfolio which has a current value of £6.7 billion. It is a portfolio of the highest qua
Slide 7: Financial Review
FINANCIAL REVIEW Thank you John. I would like to highlight the key points of the results for 2006. 7
Slide 8: Net Rental Income
NET RENTAL INCOME (£ million) 2006 2005 Properties owned throughout 2006 and 2005 185.3 179.6 Acquisitions 25.0 6.5 Properties sold 9.6 15.7 Developments 17.5 8.7 Exchange translation and other - (0.2) Net rental income 237.4 210.3 7 This slide compares rental income for last year with 2005. On the
Slide 9: Income Statement
INCOME STATEMENT 2006 2005 (£million) (£million) Reported Reported Adjusted profit before tax 94.5 89.4 Gains on properties revaluation 664.8 575.5 Bond redemption costs (34.0) - Profit on sale of properties 95.8 32.1 Fair value of swaps (16.1) 1.6 Goodwill impairment (12.6) - Profit before tax 792.
Slide 10: Income Statement (Adjusted)
INCOME STATEMENT 2006 2005 (£million) (£million) Reported Adjusted Reported Adjusted earnings earnings Adjusted profit before tax 94.5 94.5 89.4 89.4 Gains on properties revaluation 664.8 - 575.5 - Bond redemption costs (34.0) - - - Profit on sale of properties 95.8 - 32.1 - Fair value of swaps (16.
Slide 11: Taxation
TAXATION • REIT election effective 1 January 2007 • Entry tax provision £101 million • Deferred tax write-back £457 million • Net £1.1 million current tax credit in year • Closing deferred tax balance of £103 million 10 I have already mentioned the write back of deferred tax on REIT election. Overal
Slide 12: Dividend
DIVIDEND (pence) CAGR: 8.2% 25 21.68 19.71 20 17.92 16.83 15.80 15 10 5 0 2002 2003 2004 2005 2006 11 We are proposing an increase in the final dividend of 10%. Over the past five years the dividend has grown at a compound annual rate of 8.2%. A few words about our policy for 2007 and beyond. In 200
Slide 13: Cash Flow
CASH FLOW (£ million) 2006 2005 Cash generated from operations 171 175 Net interest (112) (110) Bond redemption costs (32) - Tax (21) (20) Cash flows from operating activities 6 45 Acquisitions (249) (308) Capital expenditure (251) (223) Disposals 628 224 128 (307) Dividends (58) (51) Other cash flo
Slide 14: Balance Sheet
BALANCE SHEET (£ million) 31 Dec 2006 31 Dec 2005 Property assets 6,716 5,732 Net debt (2,243) (2,049) Other net liabilities (205) (151) 4,268 3,532 Deferred tax (103) (406) Equity shareholders’ funds 4,165 3,126 EPRA NAV per share £15.00 £12.37 Gearing 54% 66% 13 Reflecting that increase, net debt
Slide 15: NAV Analysis
NAV ANALYSIS Shareholders’ EPRA NAV* funds* (£ per share) (£ million) 31 December 2005 3,533 12.37 UK REIT conversion charge (101) (0.35) Bond redemption (34) (0.12) Dividend (58) (0.20) Revaluation – equity changes 89 0.31 – income changes 665 2.33 Retained profit (excluding revaluations and bond r
Slide 16: Capital Returns
CAPITAL RETURNS Year to 31 December 2006 Shopping Centres Retail Parks Offices Total Value Return Value Return Value Return Value Return £m % £m % £m % £m % UK 2,350 10.9 1,203 7.8 1,384 26.0 4,937 14.5 France 1,100 17.4 118 9.3 489 16.9 1,707 16.7 Germany 72 (5.8) - - - - 72 (5.8) Total 3,522 12.1
Slide 17: Financing
FINANCING • Three new financings: - £300 million 5.25% bonds due 2016 - £330 million five-year sterling bank facility - €700 million 4.875% bonds due 2015 • Cash and undrawn facilities totalled £900 million at 31 Dec 2006 • Weighted average maturity of debt 10 years • 99% of debt unsecured 16 In 200
Slide 18: Financial Summary
FINANCIAL SUMMARY • REIT conversion charge of £101 million • Deferred tax written back £457 million • Capital return of 14.6% • Strong financial position 17 To summarise. As a REIT we will benefit from the removal of tax on capital gains. In the future, disposal decisions can be made without the fet
Slide 19: Markets
MARKETS Thank you Simon. I would like to say a few words now about our markets. 19
Slide 20: Occupational Markets - Retail
OCCUPATIONAL MARKETS - RETAIL UK: Modest rental growth in 2006 at prime shopping centres with retailers looking for additional incentives. We expect retailers generally to see positive sales growth in 2007 at the strongest trading locations, leading to further increases in rental levels. France: Dem
Slide 21: Occupational Markets - Offices
OCCUPATIONAL MARKETS - OFFICES Central London: Buoyant market in 2006 with increased take-up and limited supply leading to strong rental growth and a reduction in rent-free periods. Continued demand for space and further reductions in vacancy are anticipated to lead to higher rents in 2007 despite i
Slide 22: Property Investment Markets
PROPERTY INVESTMENT MARKETS • Further strong increases in capital values in UK and France in 2006 • Borrowing costs now at or above prime property yields in UK and France • Future capital growth in UK likely to be driven more by asset management initiatives and underlying rental growth than by furth
Slide 23: Operational Review
OPERATIONAL REVIEW … and start with a look at our performance in the UK against the IPD benchmark. 23
Slide 24: Hammerson UK Performance vs IPD
HAMMERSON UK PERFORMANCE vs IPD % %5 25 20 Hammerson average 15.1% 15 IPD average 13.8% 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Hammerson UK IPD Annual Universe (except quarterly universe for 2006) Investment 23 This chart shows Hammerson’s performance in the UK versus IPD. As you c
Slide 25: Shopping Centre Performance
SHOPPING CENTRE PERFORMANCE • Diversified tenant base • Average unexpired lease term eight years • Occupancy 97.7% • UK shopping centres 8% reversionary • French shopping centres 7% reversionary • Rental indexation in France 7.1% from January 2007 24 Hammerson’s shopping centres in the UK and France
Slide 26: Retail Parks Update
RETAIL PARKS UPDATE • Three developments completed • Five retail parks acquired for £427 million in August 2006 • Development potential • Occupancy 97.1% • Average unexpired lease term 15 years • Portfolio 15% reversionary 25 In the first half of the year, we successfully completed three retail park
Slide 27: Office Letting Update
OFFICE LETTING UPDATE Scheme Size Percentage let or Cash rents Cash rents under offer contracted at under offer 31 Dec 2006 31 Dec 2006 31 Dec 2006 m² % £m £m One London Wall, 18,500 100 4.2 - London EC2 Moorhouse, 30,000 94 9.7 0.5 London EC2 99 Bishopsgate, 31,200 92 15.2 1.8 London EC2 Exchange T
Slide 28: Additional Contracted Income
ADDITIONAL CONTRACTED INCOME £ million 60 50 40 30 20 10 0 2006 2007 2008 2009 UK completed offices Bishops Square Retail parks 9 place Vendôme Notes: (1) Hammerson’s share of income shown for joint ventures (2) The bar chart shows rent receivable and not income smoothing under IFRS 27 I am going to
Slide 29: Development
DEVELOPMENT As John has shown, development has made a major contribution to Hammerson’s outperformance over the last ten years. 29
Slide 30: Hammerson's Development USPs
HAMMERSON’S DEVELOPMENT USPs • Track record of profitable schemes • Retailer relationships • Excellent reputation with city councils/ local authorities • Outstanding long-term development pipeline • Strength and depth in development team 29 We have a good track record of creating profitable schemes
Slide 31: 9 Place Vendôme, Paris 1er
9 PLACE VENDOME, PARIS 1ER • 50:50 JV with AXA REIM • Completed in April 2006 • Hammerson cost £86 million • Year end valuation £167 million • Development surplus 94% 30 The major development completion in 2006 was 9 place Vendôme. Some of you will have seen it on our investors’ tour last year. This
Slide 32: Current Developments
CURRENT DEVELOPMENTS Current projects Ownership Area Cost at Value at Estimated total Projected Let or under Forecast interest m² 31 Dec 06(1) 31 Dec 06 development annual income offer at completion date % £m £m cost(1) £m 26 Feb 06 £m % (2) (2) (2) (2) Shopping centres Cabot Circus, Bristol 50 92,0
Slide 33: Cabot Circus, Bristol
CABOT CIRCUS, BRISTOL • 92,000 m² retail and leisure scheme • 50:50 JV with Land Securities • Anchored by House of Fraser and Harvey Nichols • Completion Sep 2008 • 51% let or under offer 32 Construction and letting are progressing well at Cabot Circus with leases for around 51% of the projected sch
Slide 34: Highcross Quarter, Leicester
HIGHCROSS QUARTER, LEICESTER • 60,000 m² extension • Totalling over 105,000 m² on completion • 60:40 JV with Hermes • Anchored by John Lewis • Completion Sep 2008 • 42% let or under offer 33 We are carrying out a major expansion of the existing Shires shopping centre. Completion is also scheduled fo
Slide 35: Union Square, Aberdeen
UNION SQUARE, ABERDEEN • Interest increased to 100% in July 2006 • Hybrid retail scheme totalling 49,000 m² • Estimated total development cost £215 million • Completion Sep 2009 • 28% let or under offer 34 At Union Square in Aberdeen we secured 100% control by buying out our joint venture partner in
Slide 36: Old Broad Street, London EC2
125 OLD BROAD STREET, LONDON EC2 • Office - 29,400 m² Retail - 1,600 m² • Completion Dec 2007 • Sale of 50% interest in Nov 2006 • Profit on cost of £46 million already crystalised • Hammerson’s total development costs £45 million • Hammerson’s projected annual income £9 million 35 At the beginning
Slide 37: Threadneedle Street, London EC2
60 THREADNEEDLE STREET, LONDON EC2 • Hammerson ownership 100% • 18,800 m² of offices • 1,000 m² of retail space • Demolition work started Aug 2006 • Completion Nov 2008 36 The other major City development is 60 Threadneedle Street, which is adjacent to 125 Old Broad Street. We have retained 100% own
Slide 38: Parinor Expansion, Paris
PARINOR EXPANSION, PARIS • 24,100 m² retail redevelopment • Parinor will total over 90,000 m² • Started Oct 2006 • Phased completion Apr/ Nov 2008 • 21% let or under offer 37 Turning now to Paris, where we are undertaking a major extension and improvement programme at Parinor. The total development
Slide 39: Future Development Pipeline
FUTURE DEVELOPMENT PIPELINE Major retail-led schemes Retail parks • New Retail Quarter, Sheffield • Berkshire Retail Park, Theale • Eastgate & Harewood Quarters, Leeds • Fife Central Retail Park, Kirkcaldy • Queensgate, Peterborough • Abbey Retail Park, Belfast • Eden Quarter, Kingston-upon-Thames •
Slide 40: New Retail Quarter, Sheffield
NEW RETAIL QUARTER, SHEFFIELD 39 In Sheffield our 105,000 m² city centre development received planning consent last August. John Lewis will anchor the scheme and we will now progress site assembly through a CPO with an inquiry to take place later this year. We are already seeing very good interest f
Slide 41: Eastgate & Harewood Quarters, Leeds
EASTGATE & HAREWOOD QUARTERS, LEEDS 40 In Leeds, the council passed a resolution to grant planning consent for our proposed 100,000 m² development this month. This scheme, in which our interest is 90%, will also be anchored by a new store for John Lewis. The majority of the site is controlled by us
Slide 42: Northgate, London E1
NORTHGATE, LONDON E1 41 Northgate is just to the north of Broadgate and Spitalfields. Over the last year we have been advancing our scheme proposals to create a mixed-use development totalling 100,000 m². Approximately 65,000 m² will now be offices and the balance, a hotel and apartments. A planning
Slide 43: Les Fontaines, Cergy-Pontoise
LES 3 FONTAINES, CERGY-PONTOISE 42 At our existing centre at Cergy-Pontoise, we are in discussions with co- owners to develop a 30,000 m² extension, of which Hammerson’s ownership would be 18,000 m². The project could start on site in 2009. These four schemes illustrate the potential of our pipeline
Slide 44: Summary
SUMMARY • High quality £6.7 billion portfolio • Strong performance in 2006 • Substantial future growth from new contracted income, reviews and indexation • Development programme and pipeline generating excellent returns • Strategy well suited to REIT environment • Good dividend growth potential 43 S
Slide 45: Hammerson
Hanmerson 45
Slide 46: Appendices
APPENDICES 46
Slide 47: Earnings Per Share (EPS) 2006
EARNINGS PER SHARE (EPS) 2006 Pence per share Diluted EPS per income statement 356.9 Revaluation movement on investment properties (233.3) Profits on disposal of investment and development properties (33.6) (ii) Goodwill impairment 4.4 (iii) Movement in fair value of financial instruments 5.7 (iv) D
Slide 48: Net Asset Value (NAV)
NET ASSET VALUE (NAV) 31 December 2006 £ per share NAV per share per the financial statements £14.60 Effect of exercise of options and ESOP shares 0.01 Diluted NAV £14.61 (ii) Fair value of financial instruments 0.03 (iii) Deferred tax 0.36 Diluted EPRA NAV £15.00 Triple net NAV £14.39 47 48
Slide 49: Top Ten Properties
TOP TEN PROPERTIES Valuation Passing Total return Let by 31/12/06 rent** 2006 income £m £m % % WestQuay 588 24.9 17.8 98 Bishops Square 511* 25.6* 20.3 100 Brent Cross 395* 17.1* 10.9 100 Bullring 318* 15.1* 12.5 99 The Oracle 281* 13.2* 11.9 99 Italie 2 277 13.3 21.0 99 Les 3 Quartiers 217 10.5 16.
Slide 50: ERV of Vacant Space
ERV OF VACANT SPACE ERV vacant at Occupancy 31 Dec 06 % £m UK shopping centres 1.1 98.9 UK retail parks 1.4 97.3 UK offices 3.2 95.6 French retail 1.7 97.6 French offices 1.9 89.0 Germany 1.3 73.6 Group Total 10.6 96.6 49 50
Slide 51: Rent Reviews
RENT REVIEWS Outstanding 2007 2008 2009 Total £m £m £m £m £m Rents passing from leases 40 13 22 24 99 subject to review Projected rent after review at 46 15 24 25 110 current ERV Potential rent increases 6 2 2 1 11 50 51
Slide 52: Lease Expiries and Breaks
LEASE EXPIRIES AND BREAKS 2007 2008 2009 Total £m £m £m £m Rents passing from leases 22 10 8 40 subject to expiries or break Current ERV 26 10 9 45 Potential rent increases 4 - 1 5 51 52
Slide 53: Additional Contracted Income
ADDITIONAL CONTRACTED INCOME Scheme 2006 2007 2008 2009 £m £m £m £m Bishops Square, London E1 0.4 13.4 25.6 25.6 Other completed UK offices 0.8 4.1 11.8 13.7 Retail parks 0.8 2.1 3.5 5.1 9 place Vendôme, Paris 0.4 2.4 5.2 5.9 Cabot Circus, Bristol - - 0.6 5.4 Highcross Quarter, Leicester - - 0.4 3.2
Slide 54: Disclaimer
DISCLAIMER This presentation contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or imp