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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
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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
+34%
(2017 new leasing:
£33 million)
Adjusted earnings per
share3
31.1p
(2016: 29.2p)
IFRS profit2
Basic earnings per share2
£388m
(2016: £317m)
49.0p
(2016: 40.2p)
Equity shareholders’ funds
EPRA NAV per share3
£6,024m
(2016: £5,776m)
£7.76
(2016: £7.39)
Dividend per share
Total portfolio value4
25.5p
(2016: 24.0p)
£10,560m
(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
Shopping centres: France
Shopping centres: Ireland
Retail parks: UK
Premium outlets: pan European
Developments and other
33%
18%
9%
12%
21%
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.
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PORTFOLIO LOCATIONS AND 2017 HIGHLIGHTS
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Elliott’s Field Phase 2
completed: a carbon
neutral BREEAM
Outstanding scheme
UK shopping
centres: record
leasing volumes
+49%
Dundrum Town
Centre, Dublin:
strong ERV
growth +3%
Bicester Village
extension: opened
with 33 new stores
Les 3 Fontaines,
Cergy: adjoining
centre acquired
and development
started
For information on all our properties see
pages 188 and 189 and our website
www.hammerson.com/property.
Norwegian Outlet
Oslo acquired: VIA
Outlets platform
now 11 outlets
Westquay,
Southampton:
dining and leisure
extension drove
footfall +6%
Shopping centres: UK
Shopping centres: France
Shopping centres: Ireland
Retail parks: UK
Premium outlets: pan European
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.
“The proposed acquisition
of intu will enable us to
achieve our strategic
goals more successfully.”
David Tyler – Chairman
Our strategy
Focus on growing
consumer markets
Create differentiated
destinations
For information
on our strategy,
see pages 16
and 17.
Promote financial efficiency
and partnerships
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Clear strategy
Ahead of the proposed acquisition, we made good progress this year
in delivering our strategy: to focus on growing consumer markets;
create differentiated destinations; and promote financial efficiency
and partnerships.
We increased our investment in faster-growth markets by putting
more investment into Premium outlets, completing our acquisition of
Pavilions, Swords in north Dublin, and opening new retail and leisure
space at our Shopping centres, including Westquay, Southampton.
However, it is our strategy to create differentiated destinations which
increasingly sets us apart. Thanks to our size we are able to dedicate
specialist teams to support this. Our Product Experience Framework
has brought together innovative retailers, stylish design, consistent
customer services and exciting events (see pages 20-27). We are
recognised as a leader in creating destinations which are attractive to
shoppers, draw high footfall and hence provide the most productive
space for our retail partners.
We continue to be a chosen operator for global investors, further
extending our joint venture partnerships this year. We have also
continued to take advantage of the low interest rate environment to
strengthen our balance sheet and lower our cost of debt. Our
ambitious Net Positive strategy demonstrates our commitment to
deliver meaningful change in the areas of carbon and resource use.
Economic and consumer backdrop
In the UK, consumer spending has been softer as inflation reached a
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. There is
good momentum in the Eurozone economy with encouraging GDP
growth set to continue over the short to medium term. With reduced
political uncertainty and falling unemployment this should support a
more confident consumer outlook in Europe.
Chart 1
Real household consumption growth
%
5
4
3
2
1
0
-1
We are alert to the effects of increasing interest rates which could have
a dampening effect on economic growth or increase volatility in
capital markets.
Thanks to our high-quality portfolio and strong balance sheet position
we are confident we can steer the business through expected economic
conditions in our markets.
Structural consumer trends
Technology is changing all aspects of our lives including retail and
consumer habits. Our share price has been weaker this year in part because
the market is cautious about how structural changes will affect our
business, in particular how retailers adapt to a multichannel marketplace.
We spend a good deal of time as a Board determining how to respond to
structural trends. For example, you can read about our Board Strategy
Day on page 78. Our capital allocation strategy has focused on investing
in Shopping centres, Retail parks and Premium outlets with a
combination of retail, dining and leisure experiences that inspire
shoppers to visit again and again. These venues will draw high footfall
and therefore benefit from strong leasing demand even as retail evolves
to become increasingly multichannel. We have also focused on
locations in growing cities in selected European countries.
We frequently assess our properties and sell those that do not match
these characteristics; this year we have sold £400 million of
properties. The proceeds from disposals are reinvested into higher-
growth opportunities, which lifts the overall quality of our portfolio.
As a result, we believe we will be a beneficiary of the market changes.
Outlook
As a result of the adjustments retailers are making to respond to
structural changes in their market and the consumer conditions in the
UK, the backdrop is becoming more demanding. However, our
portfolio contains high-quality retail property which is in demand by
retailers; our teams are some of the most skilled in the sector at
creating positive customer experiences; and we have a strong balance
sheet. As a result, we are in a strong position to manage the consumer
conditions in the UK and stand to benefit from improving consumer
confidence in France and Ireland and fast-growing Premium outlets.
This will support future returns for shareholders.
Following the completion of the acquisition of intu we believe that the
Company will be further strengthened and will provide enhanced
opportunities for all our stakeholders alike.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Ireland
France
United Kingdom
Source: Oxford Economics
David Tyler
Chairman
HAMMERSON.COM 5
OUR BUSINESS MODEL
Creating long-term
stakeholder value
Our vision is to create desirability for consumers, brands,
commercial partners and communities.
We utilise
key resources…
The success of our business depends
on a number of principal inputs.
Through clear operational activities…
These are the operational activities that we undertake
to deliver our strategy.
Focus on growing consumer markets
Investment management
We employ market expertise to recycle our portfolio, taking
advantage of acquisition opportunities in growing consumer
markets which enhance the quality of our portfolio and future
returns and disposing of lower growth assets at the right time.
Create differentiated destinations
Developing venues
We have a proven track record in creating sustainable retail and
leisure destinations which anticipate future consumer needs
and ensure that retailers will thrive for years to come.
Asset management
We skilfully manage our portfolio in a sustainable way to
generate income growth and to attract tenants and shoppers.
Promote financial efficiency and
partnerships
Financing and capital providers
We manage and control our costs, both operational and
financial, and optimise our capital base to support the delivery
of our strategy. Our relationships enable us to source capital, to
access growth markets, to create a larger operational platform,
and generate income growth.
For information on our strategy,
see pages 14 and 15.
High-quality
property
Talented
people
Retail
insight
Financial
capital
For information on our talented people, see page 46.
For information on our financial capital, see page 53.
For information on our high-quality property
portfolio,see page 49 and visit our website:
hammerson.com/portfolio.
For information on our retail insight, see pages
13 to 15.
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Uniquely differentiated by our
Product Experience Framework…
Our Product Experience Framework is embedded
across everything we do providing a unique point
of differentiation and sustainability.
To deliver value
for our stakeholders
By successfully employing our business model
we aim to deliver a positive result for all our
stakeholder groups.
Iconic
destinations
Retail
specialism
Shareholders
Retailers
Shoppers
Experience
led
Customer
first
People
Communities
Partners
For information on our Product Experience
Framework, see pages 20 to 27.
Overleaf David Atkins describes how
we have delivered for our stakeholders.
Positive Places: For information on the Group’s
sustainability strategy see pages 41 to 45.
HAMMERSON.COM 7
CHIEF EXECUTIVE’S REVIEW
Where more happens
for our stakeholders
“Our product is in high demand by retailers and
shoppers. In 2017, we let more space by value than in
any other year in Hammerson’s 75-year history. This
gives me confidence that we are a beneficiary of the
structural changes occurring in retail. Our retail
partners tell us that they want more space in high-
footfall locations alongside other exciting brands to
deliver stores that support a multichannel strategy.”
David Atkins, Chief Executive
Chart 2
Annual leasing volume across our portfolio (£m)1
33.3
29.5
27.9
24.9
24.5
23.9
18.7
2011
2012
2013
2014
2015
2016
2017
1. Proportionally consolidated portfolio, excluding premium outlets. Excludes
development leasing.
It is clear our retail portfolio is delivering wide-reaching value for all
our different stakeholders. Our retail partners confirm to us that their
stores in our centres also contribute to growing their sales outside the
store, via online platforms or as a result of increased brand awareness.
This year we conducted research into the ‘True Value of Retail’. The
findings highlight that the value of our retail venues is not just
commercial, and quantified the wider value our shopping centres have
to the local economy, employment and connected communities. As we
enjoyed the celebrations of our 75th anniversary I was also reminded
how Hammerson’s values draw together a wide network of employees,
alumni and operating partners.
“Even as retailers face increased cost
pressures and softer instore sales, they are
prioritising space in our Shopping centres,
Retail parks and Premium outlets.”
David Atkins, Chief Executive
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Shareholders
We have delivered another year of attractive earnings and
dividend per share growth for shareholders. We have achieved
this by having not just the right properties, but also the right
people and retail innovation.
The underlying operational performance of the business was
good this year. The volume of new leasing was up and vacancy
down across all segments. We missed our target of 2%
LFL NRI growth (1.7%, inc Ireland) as a result of weaker
performance in UK Retail Parks which we expect to improve
this year. We continue to increase our income efficiency,
reducing our cost:income ratio and also our cost of debt.
Therefore, I expect to continue our track record level of
dividend growth going forward.
Chart 3
Total dividend per share growth (pence)
CAGR +7.4%
22.3
20.4
19.1
25.5
24.0
16.6
17.7
2011
2012
2013
2014
2015
2016
2017
The EPRA net asset value per share grew by 5.0% and the
Group’s total property return was 6.8%. We continue to
recycle capital from lower performing assets to enhance
our growth. The total volume of retail property transactions
in the wider market was lower this year and the demand for
secondary assets is becoming tougher. However, there are
still buyers for high-quality retail properties across Europe.
We delivered our £400m disposal target this year and are
advancing planned disposals for 2018.
Retailers
Our business strategy is aligned with that of our retailers.
We know from our regular discussions with them that they
want space in high-footfall locations alongside other exciting
brands and leisure space, in growing catchments across
Europe. Therefore, retailers are prioritising space in our
Shopping centres, Retail parks and Premium outlets because
they are more productive than other locations.
In 2017 we let more space by value than in any other year in
Hammerson’s history, a clear sign that we are benefiting from
the structural changes occurring in retail.
This year has undoubtedly been a tougher one for retailers and
restaurants, particularly in the UK where consumer incomes
have been squeezed, and currency effects and inflation have
increased cost pressures. Whilst we have seen some mid-market
restaurants announce closures and poor performance in the
women’s high-street fashion sector, other categories such as
grab ‘n’ go food, sport and aspirational fashion have performed
well. The table below highlights the categories and brands which
have been most active in taking space this year.
Retailers acknowledge the greater productivity of our
locations and also that online sales are serviced through their
stores. As a result, instore sales is becoming a less appropriate
metric to track leasing demand.
We maintain a constant dialogue with our retail and
catering tenants to ensure we understand their needs.
An important aspect of this is the ability to relocate and
‘right-size’ tenants in our properties. By taking back space
from underperforming retailers or restaurants and relocating
or upsizing successful ones we support our tenants, deliver
the most popular categories and brands for customers and
also drive rental growth.
Chart 4
Current demand in leasing
‘Ath-leisure’ (sports fashion) and well-being
Exceptional dining experiences
Personal luxuries
Differentiated branded apparel
Homeware brands
Consumer brands communicating direct to consumers
For information on our Financial Performance, see
pages 53 to 60.
HAMMERSON.COM 9
®
Chief Executive’s review continued
Shoppers
We ensure that our retail venues continue to attract and delight
shoppers by combining exciting events with outstanding
services, accessible locations and seamless digital capabilities.
Footfall at our centres in the UK increased by 0.4% and by
1.6% in France, outperforming the national benchmarks,
demonstrating shoppers are drawn to our destinations over
other retail venues. Our spectrum of events this year was
even more diverse and imaginative including a new iconic
theatre at Italie Deux, Paris, communal screens showing
the Wimbledon tennis tournament, a spectacular ice rink,
a visually stunning garden at Dundrum Town Centre,
Dublin, and summer beaches at Brent Cross, London and
The Oracle, Reading.
Retail Specialism: Style Seeker
Another industry first during 2017 was the launch of Style
Seeker. Using leading edge artificial intelligence, Style
Seeker delivers an online product search tool within our
retail environments. This allows customers to snap clothing
they have seen on friends, on-screen, or in magazines. The
search feature then suggests matches within Hammerson’s
retail destinations based on shape, colour and pattern.
Encouraging shoppers to experiment with new brands and
retailers, we have seen Style Seeker inspire product
purchases and simplify shopping journeys.
A significant number of brands have signed up, including
Harvey Nichols, Selfridges, John Lewis, Reiss and
Anthropologie. Consumer engagement has been equally
impressive, with over 360,000 products listed and more
than 150,000 product images delivered to customers
since launch.
Style Seeker is fully integrated into the Plus app in all our
UK centres and we intend to expand its presence to
France and Ireland during 2018 as well as explore additional
product categories.
We understand that technology is evolving quickly, so we
benefit from partnering with third parties holding specialised
digital skillsets. A highlight for us this year was the launch of
our app, Style Seeker (see case study box opposite).
It is important that shoppers experience a consistent level of
service at our centres. We have started to hallmark this
experience and introduce our brand in a customer-facing
environment.
For information on our
Product Experience Framework
see pages 20 to 27.
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Partners
Our partnerships and relationships make us a stronger
business and give us a competitive edge.
As the retail property backdrop evolves rapidly, skilled
operators become more valuable. Through our international
joint ventures we already operate around £8 billion of assets
on behalf of our JV partners and will continue to strengthen
these partnerships further.
Our relationship with luxury outlet operator Value Retail has
again enabled us to increase our shareholding in the group
and also acquire more outlets in VIA Outlets and hence
increase our exposure to this fast-growth European market.
Our network of partnerships allows us to source global
investors and provides us with access to a depth of capital
markets supporting our refinancing of over £1.2 billion
this year.
Outlook
2018 will be a transformational year for the business with the
completion of our proposed acquisition of intu as well as moving
forward with key developments at Les 3 Fontaines, Cergy; Italie Deux,
Paris; and Brent Cross and Croydon, London, which represent the
latest era of retail and leisure destinations.
We are focused on adapting our business to match consumer trends
and will continue to deliver the best retail space in the strongest
consumer markets. The combination of our high-quality portfolio and
skilled team ensures we can manage any consumer weakness in the
UK and benefit from long-term retail market trends.
David Atkins
Chief Executive
HAMMERSON.COM 11
People
Success as a retail property specialist is about people and
insight, not just our assets. We are building teams to support
our delivery of the best retail space. We have enhanced our
talent pool this year with new skills, particularly in the areas
of speciality leasing, digital and commercialisation.
As the business grows, I believe it is important to maintain a
culture of openness and close collaboration. We relaunched
our internal communications platform to facilitate better
interaction between our offices in London, Dublin, Reading
and Paris and our shopping centres. Colleagues can more
easily share insights, stimulate conversations and discuss
news flow relevant to the business.
In our employee survey we again achieved a supportive result
with over 75% of participants stating Hammerson is a ‘great
place to work’. We will review the feedback from the survey to
inform our priorities for the coming year.
2017 marked Hammerson’s 75th anniversary, and for me it was a
personal highlight of the year to be able to bring together the
wider Hammerson ‘family’ to celebrate. I was reminded how the
values of ambition, collaboration, respect and responsibility
continue to connect our current employees, alumni and partners.
“Over 80% of staff participated in
our employee survey and over
75% stated that Hammerson is a
‘great place to work’.”
Communities
Our retail destinations sit at the heart of the communities
they serve, as we demonstrated in our ‘True Value of Retail’
report this year. They create jobs, trigger further investment,
establish new destinations, increase visitor numbers and grow
local spending. Our regional destinations across Europe
support approximately 40,000 jobs, the vast majority of which
are awarded to local people, and have generated c.£2.5 billion
of inward investment.
A focus on sustainability continues to underpin everything
we do as a business. This year I was proud to set out our
commitment to become Net Positive for carbon, resource-use,
water and social-economic impacts by 2030, becoming
the first real estate company globally to commit to this
ambitious target.
For information on our people and
communities see pages 41 to 47.
For information on our True Value of Retail
report and Net Positive see our website.
David Atkins reflects on
the intu acquisition
What is the
rationale for the
acquisition?
The acquisition will create a £21 billion pan-European portfolio of high-quality retail and leisure
destinations, with enhanced exposure to higher-growth markets which will benefit from evolving
consumer trends. It will unlock growth opportunities by bringing together Hammerson’s and intu’s
leading assets, which have strong fundamentals, under a superior combined operating platform.
How will the
combined
business
be stronger?
In line with our strategy to focus on growing consumer markets, the acquisition will increase
ownership of high-quality destination shopping centres including: intu Trafford Centre, Manchester;
intu Lakeside, Essex; and intu Metrocentre, Gateshead and Puerto Venecia, Zaragoza, Spain.
With the rapidly evolving role of retail destinations, this is the right time to pursue this acquisition.
Together, we will be better positioned to invest meaningful resources into enhancing and
differentiating our retail and leisure destinations through events, customer services and improved
digital capabilities.
Following the acquisition, our portfolio growth prospects with be enhanced with exposure to two of
Europe’s higher-growth economies of Ireland and Spain and additional sources of capital to forge
ahead with ambitions to expand the Premium outlets portfolio. It will provide the opportunity for
significant rationalisation of the combined property portfolio through a proposed disposal programme
of at least £2 billion over the short to medium term. This will both strengthen our combined balance
sheet and provide liquidity to reinvest in higher return opportunities.
We will have more retail space in large high-quality centres which are desirable to retailers. Access to
shared data and customer insights will further improve our consumer knowledge and help provide
insights to retailers. We will draw on our complementary digital strategies, including intu’s affiliate
website and Hammerson’s bespoke apps, to deliver highly productive space that enables retailers to
succeed in its centres in a multichannel landscape.
The acquisition will provide employees from both Hammerson and intu additional opportunities and
exciting personal development and growth prospects.
What are the
financial
benefits?
The transaction is expected to be earnings accretive in the first full financial year after completion. It is
anticipated that dividend growth will be at least in line with Hammerson’s track-record. The enlarged
group will achieve approximately £25 million of run-rate cost synergies per annum, with a one-off
integration cost of approximately £40 million.
In addition, there will be opportunities for further cost savings from operational efficiencies and
refinancing. As a result of the enhanced operating platform, we have greater confidence in delivering
positive like-for-like net rental income growth.
Does this dilute
your exposure to
higher-growth
markets?
Hammerson remains the only European REIT with meaningful strategic investment in European
Premium outlets and the proposed disposal programme will provide increased capital to grow this
faster. The addition of a portfolio in Spain is aligned with Hammerson’s strategy of focusing on
growing consumer markets and adds three significant Spanish shopping centres which allows us to
expand our offer to our retail partners. The combined expertise will better position us to build the
attractive enlarged development pipeline in the UK, France and Ireland and the significant Spanish
development pipeline.
What are the
next steps?
An Extraordinary General Meeting of Hammerson shareholders to vote on the transaction is scheduled
for April 2018. Shareholder documents will be distributed around four weeks ahead of that date. If
shareholder approval is obtained, the only remaining condition will be competition regulatory approval
and following receipt of that approval, the transaction is anticipated to complete in Q4 2018.
12
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OVERVIEW OF OUR MARKET
Retail is evolving
An intimate knowledge
of market trends
With decades of experience as an
operator and developer of European
retail property, we have an intimate
knowledge of our property markets.
The financial performance of our
properties is also determined by its
relevance and attractiveness to
retailers and shoppers. Therefore, the
property and consumer trends
described here shape our strategy and
inform our decisions around capital
allocation, project priorities and
resource deployment.
Our dedicated Insight team monitors
the latest consumer habits and retail
trends to better understand our
markets. They analyse the data
collected from across our own portfolio
and digital apps; gather insights from
close relationships with international
retailers; commission research reports
and surveys; and visit best-in-class
retail destinations around the world.
Thanks to our scale and positive
reputation, we are able to attract and
employ specialists outside the property
arena to enhance our capabilities; for
example, specialists in customer service
delivery, dining experiences,
commercialisation and events.
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Today’s retail journeys combine
stores and online
The purchase of every item involves a number of steps – a retail
‘journey’ – beginning with product discovery and leading to trial and
test, purchase, delivery and collection and, in some cases, return. Each
of these steps can take place either in a store or online, making it a
‘multichannel’ retail journey. Consumers select their retail journey,
and the combination of instore and online steps, based on a range of
criteria, from physical convenience to a desire to be entertained or
surprised. For nearly all purchases the store remains the cornerstone
of the retail journey and plays a critical role. Only a small share (c.10%)
of purchases do not interact with a store.
Table 5
Store, digital and multichannel shopping
journey preferences
Journey
Discovery
Trial &
Test
Purchase
Delivery
or
Collection
Return
% of all
shopping
journeys
Store only
Multichannel
Online only
Multichannel
Multichannel
Multichannel
Multichannel
Multichannel
Store
Digital
35%
15%
10%
7%
6%
5%
4%
18%
25 other multichannel combinations
Source: AT Kearney, ‘On Solid Ground: Brick-and-Mortar is the Foundation of
Omnichannel’
Many retailers have invested in their websites to allow them to interact
with customers at multiple steps on their shopping journey. As these
websites become easier to use, payment software becomes safer and
mobile devices grow more sophisticated, consumers make more purchases
online. The market share of online transactions differs by country; the UK
has one of the highest levels of online sales, 18%, with France at 10% and it
is lower in Ireland (Source: Centre for Retail Research).
Our survey of retailers confirms that they measure the productivity of
stores based on ‘total sales’ combining instore and online. 60%
allocate the sales from their website to a store in the same catchment
as the consumer. 49% of retailers view the store as important or very
important to drive online transactions.
“We no longer think of our shops and our
online business as separate channels; we
think about them as one”
Clothing retailer
The role of the store is therefore evolving. Increasingly we see retailers
putting much more emphasis on showcasing products, providing
service and fulfilling click & collect. 50% of retailers told us they
anticipate some sort of design change to match the evolving role of
their stores. Bulky goods retailers anticipate increased area for online
order collection and increased area for staff to support customer
service. Fashion retailers told us they anticipate increased selling
space to better display merchandise.
HAMMERSON.COM 13
Consumers expect an enhanced experience
Successful retail destinations provide customers with a mix of
shopping, dining and leisure; retail may not be the primary driver for a
visit. These destinations create an experience which attracts more
customers and encourages them to stay longer and therefore also
supports strong leasing demand from retailers.
39% of shopping centre visitors agree that they
visit because of the range of leisure facilities
including restaurants and cinemas.
There has been a rapid increase in the amount of dining space at retail
destinations; this growth is now stabilising. Now the range of
attractions at retail venues is broadening and could include pop-up
markets, catwalk shows, virtual reality or ice-rinks. Recent European
consumer spending data show a trend for more fulfilment through
‘experiences’ over possessions.
Overview of our market continued
Retailer preferences
The trend for more multichannel shopping journeys influences
retailers’ plans for the amount, the type and the location of their stores.
There is growing demand for stores in large, high footfall locations and
alongside complementary retailers. 82% of shoppers responded that
the main reason for choosing a shopping destination was the breadth
of retail selection. Therefore, retailers prefer to be clustered together
in the same locations to optimise their interaction with customers.
This drives a convergence by retailers and shoppers towards the same
leading locations. Data collected by MasterCard in the catchments of
Hammerson’s UK shopping centres shows our centres growing in
popularity at the same time as online sales grow.
With the evolving role of the store, many retailers are also looking to
enhance their space with stand-out fixtures and fittings, hands-on
customer service and an online order pick-up and returns desk.
88% of retailers confirmed that their investment
priority was improving customer service through
in-store technology.
Generally we expect fashion retailers to require fewer stores to cover
the same market catchment. The process of store rationalisation by
some high-street women’s fashion brands has begun and will favour
leading locations. The winning fashion categories taking more space
are sports fashion and differentiated branded apparel.
Consumer-goods brands are also taking advantage of the opportunity
to enhance their brand visibility in these preferred retailer locations.
For example, car manufacturers, make-up brands and luxury coffee
and chocolate brands are taking space, sometimes for a shorter
duration to enhance customer awareness.
As occupier demand is clustering towards fewer, more productive
locations, these retail venues are expected to outperform with higher
rental growth.
How we are responding
– Predominantly own retail venues which are large, high-quality and
How we are responding
– Dedicated teams to design and deliver an enhanced customer
leading in their catchment.
experience, including a greater emphasis on events.
– Foster close relationships with retailers to understand their store
– Increase the share of space of leisure and add more dining space
requirements (eg size, additional storage, frontage).
with a considered approach.
– Create vibrant, differentiated retail and leisure destinations which
– Translate the best-practice customer service expertise of Value
attract high footfall.
Retail across the rest of the portfolio.
– Accelerate rotation rates to introduce new categories and brands.
How this is aligned
to our strategy
How this is aligned
to our strategy
These structural trends influence our strategy, drive our priorities and guide
our performance.
Focus on growing
consumer markets
Create differentiated
destinations
Promote financial
efficiency and partnerships
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Frictionless retail
Time-short lifestyles and multichannel retail are raising consumers’
expectations for a retail journey which is ‘frictionless’, delivering
convenient, faster access to goods and services. Therefore retail
locations which are well-connected to transport links, make it easy to
identify and locate items, and offer convenient shopping with a mix of
services, are also performing well.
Global shopping tourism
The level of global tourism is increasing, driven by the growth of the
middle income demographic bracket in emerging economies and also
falling travel costs. Shopping is increasingly being enjoyed by these
international tourists as part of a travel experience. Discounted
premium brands at attractive retail outlets make the experience even
more memorable.
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This convenience trend supports the retail park format where parks
are close to major road junctions and with an abundance of free
parking. It also underpins the value in retail destinations which are
embedded in the centre of major cities.
Thanks to the combination of online purchase and certainty of
fulfilment, click & collect now accounts for around one quarter of
retailers’ online orders in the UK and is expected to be the fastest
growing channel, faster than the growth of online only sales. Click &
collect is also attractive to retailers as 32% of clothing and footwear
shoppers using click & collect indicated they made an additional
purchase when collecting their most recent online order.
Chart 6
Split and growth of European tourism spend, by source
nationality (2017)
Greater China
South and East Asia
Gulf/Middle East
Russia
India
US
Other
Share
48%
14%
10%
5%
3%
1%
19%
100%
2017
growth
+16%
+17%
-2%
+28%
+38%
+22%
+10%
Source: Global Blue
Chinese and East Asian tourists contribute the largest share of
European shopping tourism spend while emerging markets such as
India are growing very rapidly.
As a result of this trend we are seeing an increase in demand for
storage space and also logistics providers such as Doddle and Collect+.
Retail landlords are also starting to develop websites and apps
(see Style Seeker page 10) to support a frictionless multichannel
experience for their visitors.
How we are responding
– Own a diversity of retail formats which includes convenient
How we are responding
– Increase our investment in leading European premium outlets.
retail parks.
– Use the Value Retail and VIA operating and marketing platforms to
– Support click & collect journeys with dedicated facilities
promote the destinations internationally.
(eg Collect+ desks, Amazon lockers, click & collect parking bays).
– Focus our investment portfolio on top European cities which are
– Advance our bespoke Style Seeker app as well as others.
major tourism destinations.
How this is aligned
to our strategy
How this is aligned
to our strategy
Future trends
we are
monitoring
Digital
payments
Chat-bots
and AI
Virtual and
augmented reality
Internet of things
and smart cities
Loyalty
and big data
Driverless
cars
HAMMERSON.COM 15
OUR STRATEGY
Designed to make more happen
Our strategy is designed in response
to the evolving trends in the retail
property landscape. We seek to realise
our vision by putting our three
strategic priorities to work through the
skill and expertise of our people.
Strategic priority
Why it’s important
What we did in 2017
Our near-term priorities
Read more about our strategy
Our market: trends influencing our strategy pages 13 to 15.
Our progress: KPIs on pages 18 and 19.
Our performance: Business Review on pages 28 to 40.
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Westquay, Southampton
Focus on growing
consumer markets
Our portfolio is concentrated around retail property, aligned
to consumer requirements in a multichannel world: large
high quality shopping centres; convenient retail parks; and
luxury brand premium outlets. We choose locations by
identifying significant, growing cities in selected European
countries where we can gain market share.
We specialise in retail property because it offers attractive and
sustainable long-term returns, with lower volatility than other
commercial property due to a granular and diverse tenant mix.
The value of retail property is further underpinned by its
contribution to the surrounding community.
– Extended and enhanced leading shopping centres,
including full opening of 17,000 m2 dining and leisure
extension at Westquay, Southampton
– Increased investment in Premium outlets by
£130 million, now 21% of portfolio
– Focused on largest assets in France – sold £295 million to
reinvest into Les 3 Fontaines, Cergy, and Italie Deux
extensions
– Delivered project milestones of Brent Cross development
– Delivered high-yield retail park extensions and
reconfigurations
– Complete acquisition and integration of intu portfolio
– Continue with capital recycling at similar run-rate to 2017,
targeting £500 million in 2018, as part of £2 billion disposals
from enlarged group over the short to medium term
– Invest to extend our leading shopping centres in UK,
France and Ireland
– Advance major London developments, start on-site at
Brent Cross
– Support Premium outlets extensions and assess
opportunities to increase exposure
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The Riverside, The Oracle
Batavia Stad, Amsterdam
Create differentiated
destinations
Our talented people apply insight and market expertise to
create and operate destinations which offer exceptional
experiences to attract retailers and shoppers and which have
a positive impact socially and environmentally. The Product
Experience Framework purposefully guides asset and
development management to consistently enhance our
destinations and realise their income potential.
Our strategy is to proactively manage the portfolio to drive
consistent rental growth. Attractive income returns are a
key part of our investment case. Skilful retail property
operators are increasingly valuable to global investment
partners.
Promote financial efficiency
and partnerships
Our singular retail focus, strong and efficient capital
structure and operational excellence attracts valuable
partners. These include global capital providers,
international joint venture partners and expert operating
collaborators who help us broaden our market reach,
increase scale and strengthen our business.
Prudent capital management ensures our risk profile
remains conservative. We set conservative internal
guidelines which provide headroom to comfortably grow the
portfolio. We diversify our sources of capital. Our preferred
source of debt is Group-level, unsecured funding and we
have a platform of successful JV partners.
– Leased to popular consumer categories including auto
– Extended our partnership in Value Retail and VIA
brands, sports fashion and leisure; introduced innovative
new retailers and restaurants
Outlets with APG. Expanded VIA Outlets platform to
over €1 billion
– Enlarged and broadened the range of our events programme
– Reduced our cost:income ratio by 100 basis points
– Developed digital customer tools with our partners:
– Continued active approach to refinancing with early
Style Seeker, Chat-bot, Plus app
– Enhanced our customer services and facilities for
children and families
redemption of 2020 bond and new financing secured on
Dundrum
– Extended JSE register, now 14% of shares in issue
– Added more catering, focusing on innovative brands or
– Introduced Responsible Procurement Policy committing
those with a proven track-record
that our suppliers comply with applicable laws
– Launched our Net Positive sustainability initiative
– Introduce popular retail and leisure categories and
brands responding to consumer preferences
– Enhance our events programme, further exploring
inventive opportunities for all our public spaces
– Partner with technology providers or provide
seed-investment to develop new digital innovations
– Maintain financial leverage in line with 40% loan to value
guidance and strong investment-grade credit ratings
– Support our joint venture partners; monitor our total
joint venture exposure
– Enhance the operating structure of VIA Outlets to match
its enlarged size
– Introduce more flexibility into our retail and leisure spaces
– Evaluate refinancing opportunities in combined balance
to respond and adapt to dynamic retailer demands
sheet with intu
– Leverage our brand relationships and tourism insights
across Premium outlets portfolio
HAMMERSON.COM 17
KEY PERFORMANCE INDICATORS
Monitoring our performance
We monitor Key Performance Indicators, or KPIs, to ensure we are
achieving our strategic priorities and delivering value for our stakeholders.
The KPIs comprise financial and operational measures and each links to the
three elements of our strategy.
Financial KPIs
Chart 7
Chart 8
Chart 9
Growth in adjusted EPS
6.5%
Growth in like-for-like NRI*
1.7%
Total property return
6.8%
Chart 10
Cost ratio*
21.6%
24.2
2.3
2.2
2.1
2.1
13.6
12.5
12.4
9.5
2.0
1.7
8.5
8.2
12.6
10.5
8.6
6.5
3.5
23.1
22.8
22.6
21.6
6.8
5.7
4.0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Description
Adjusted earnings per share
(EPS) is the Group’s primary
profit measure and reflects
underlying profit divided by the
average number of shares in
issue and is calculated in line
with EPRA guidelines as
explained on page 177.
Performance
In 2017, adjusted EPS increased
by 1.9 pence, or 6.5%, to 31.1p.
This was driven by increased net
rental income, particularly from
our Irish shopping centres,
higher earnings from our
premium outlets and favourable
foreign exchange movements.
This was partly offset by income
foregone from property
disposals during 2016 and 2017.
Target
Description
Net rental income (NRI) is the
Group’s primary revenue
measure. Like-for-like NRI
growth is key to growing
earnings and dividends. Growth
is achieved through the
implementation of our Product
Experience Framework which
helps us enliven and enhance
our properties.
Performance
Like-for-like NRI grew by 1.7%
in 2017, slightly below our target
of 2.0%. Income at our UK and
French shopping centres grew
by 1.8% and 2.6% respectively,
whilst NRI at our UK retail
parks fell by 2.5%.
The Group performance of 1.7%
includes growth of 7.4% from
our Irish centres. Prior to the
conversion of our secured loans
the underlying property income
was classified as finance income.
Weighted IPD benchmark
Hammerson performance
Description
Total property return (TPR) is
the main metric we use to
measure the income and capital
growth of our property portfolio.
It is calculated on a monthly
time-weighted basis consistent
with IPD’s methodology.
We judge our success in
generating superior property
returns by comparing our
performance with a weighted
IPD All Retail benchmark.
Performance
During 2017, the Group’s
properties produced a total
return of 6.8%. The Group’s
investment and development
portfolios produced total
returns of 4.3% and 6.9%
respectively. Premium outlets
produced the highest return of
16.8%.
At the date of this report, our
IPD benchmark is unavailable.
Description
The EPRA cost ratio is the
measure by which we monitor
the operational efficiency of our
business. It is calculated as total
operating costs, being property
outgoings and net
administration costs, as a
percentage of gross rental
income for our property
portfolio.
Performance
During 2017, the ratio has
reduced by 100bp to 21.6%.
The reduction is principally due
to lower property costs, which,
as a percentage of the gross
rental income denominator,
have fallen from 10.7% to 9.7%.
The administration costs
proportion of the ratio is
unchanged at 11.9%.
Link to strategy
Link to strategy
Link to strategy
Link to strategy
More in the
Financial Review
on page 54
More in Table 96 on
page 179
More in the Property
Portfolio Review on
page 52
More in the Financial
Review on page 55
* Proportionally consolidated excluding premium outlets. See the Financial Review on page 53 for further explanation.
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LINK TO REMUNERATION
The remuneration of Executive Directors
is aligned closely with our financial KPIs
through the Company’s Annual Incentive
Plan (AIP) and Long Term Incentive
Plan (LTIP).
For 2017, the AIP contains the first three
financial KPIs: growth in adjusted EPS,
growth in like-for-like NRI; and total
property return.
The performance against all of the KPIs is
taken into account when considering the
personal element of the AIP along with other
specific objectives.
Growth in adjusted EPS and total property
return are also two of the three LTIP
performance measures.
Remuneration report on pages
88 to 113.
Operational KPIs
Chart 11
Chart 12
Chart 13
Chart 14
Occupancy*
98.3%
Leasing activity*
£33.3 million
98.3
97.7
97.7
97.5
97.5
29.5
27.9
Global emissions
intensity ratio
150mtCO2e/£m
33.3
221
Voluntary staff turnover
12.0%
12.0
10.9
10.3
9.8
97.0
23.9
24.9
180
172
155
150
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2014
2015
2016
2017
Target
Description
Keeping our properties
occupied ensures we generate
rental income and enlivens our
destinations. The occupancy
ratio measures the amount of
space which is currently let. The
ratio is calculated in line with
EPRA guidance using the
estimated rental value (ERV) of
occupied space.
Performance
Occupancy remains above our
97.0% target, with the portfolio
98.3% occupied at the end of
2017. This was higher than the
prior year due to the strong
leasing performance during
2017. The most significant
increase was in France, where
the level of occupancy increased
from 96.5% to 97.9%.
Description
Our leasing strategy is designed
to improve brand mix and
differentiate our destinations.
This KPI shows the amount of
income secured across the
investment portfolio including
new lettings and lease renewals.
Performance
2017 was a record year for
leasing, with increased
volumes at each of our sectors.
During the year we secured
£33.3 million of income, which
is £8.4 million, or 34%, higher
than 2016.
In total we signed 460 leases
representing 167,400m2 of
space. For principal leases,
the rent was 8% higher than
December 2016 ERVs and
7% higher than the previous
passing rent.
Description
Reducing carbon emissions is a
key sustainability target. This
ratio measures the amount of
CO2e emissions from our
properties and facilities,
including corporate offices, and
is calculated over the 12 months
ended 30 September with the
denominator being adjusted
profit before tax for the same
period.
Performance
The ratio has reduced by 3% to
150mtCO2e/£m during 2017 due
to an increase in the Group’s
adjusted profit before tax and
lower emissions in the UK.
These factors were partly offset
by increased emissions from gas
for heating our French assets
and newly acquired Irish
properties where property
ownership was secured during
2016 and 2017.
Description
Our talented people are a key
resource and we strive to retain,
engage and develop them.
Since 2014 we have monitored
voluntary staff turnover to
highlight any potential signs of
demotivation or other people-
related issues and include both
corporate and shopping
centre-based employees in this
measure.
Performance
In 2017, voluntary staff turnover
remained low at 12.0%. The
slight increase compared with
2016 was due to nine additional
leavers from our London and
Reading offices when compared
to the prior year. However, the
turnover remains low compared
to wider industry averages.
Link to strategy
Link to strategy
Link to strategy
Link to strategy
More in Table 93 on
page 178
More in the Business
Review on pages 28
to 35
More in the Sustainability
Review on page 41 and
Mandatory GHG report
on page 191
More in the People section on
page 46
HAMMERSON.COM 19
Iconic destinations
We create outstanding,
architecturally significant
destinations where brands
want flagship stores and
shoppers want to spend time
– all connected by seamless,
experience-enhancing
technology and convenient
transport links. With the
continued structural change in
retail, our venues and retail
space are being designed to
maximise flexibility to more
easily respond to the changing
needs of both our tenants
and customers.
What we’ve done
Fully opened in early 2017,
Westquay South created an
exceptional regional leisure
destination for the South
Coast, set against the exquisite
backdrop of Southampton’s
historic city walls. This major
extension to Westquay
attracted over 20 restaurants,
many of which opened
outside London for the first
time, alongside a ten screen
cinema and bowling alley.
The distinctive location has
enabled us to create an
esplanade within the
development, delivering a
dedicated programme of
events which has increased the
number of early evening
shoppers and overall footfall
to Westquay. The success of
Westquay South has provided
further inspiration to the
development teams at Brent
Cross and Croydon and clearly
demonstrates how valuable
well curated event space is to
the shopper experience.
Image: Festival of Light at Westquay, Southampton
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Retail specialism
Retail is at the heart of
what we do. We build
strong relationships with our
retailers and support them in
their multichannel journey.
For example, by providing
flexible space for retailers’
changing needs and
considering future retail
challenges such as logistics.
As developers of new space,
we work together with
our retailers on these
opportunities. We focus on
inspiring customers to shop
and enjoy unique experiences
in our centres, together with
ensuring that we have the
right offer – across numerous
categories and price points,
from established retailers to
exciting brand showcases and
new concepts.
What we’ve done
Our destinations continue to
be a gateway for both new
and expanding brands, as
consumer brands continue to
market direct to shoppers, our
space is increasingly relevant.
At Victoria, Leeds brands such
as Dyson, Nespresso and John
Lewis Smart Home have all
utilised our space to maximum
effect during 2017. Bullring
was selected as the destination
for the first ever UK VW brand
showcase. A new experiential
format, it aimed to engage a
wider customer base providing
VW with brand exposure to
customers that might not be
actively looking to buy a new
car. The VW store has seen
strong engagement, with more
than 25,000 customer visits in
December 2017 alone.
Image: Victoria Gate, Leeds
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Experience led
Shopping remains an
experience-led activity and
its popularity in our physical
destinations continues,
demonstrated by our annual
footfall growth. Customers are
looking for exciting ways to
spend their ever precious free
time. Shared experiences in
our centres – through leisure,
events and dining – offer
original and engaging ways
to socialise with friends
and family.
What we’ve done
Our impressive and diverse
programme of events saw a
50% increase in the number
of event days delivered in
our centres during 2017.
Engaging with customers and
creating a sense of theatre
was fundamental to their
success. Highlights included
the Festival of Light and SKATE
at Westquay, the Garden of
Pure Imagination at Dundrum,
as well as our ongoing
programme of fashion, food,
student and family related
events. During the Riverside
relaunch at The Oracle, a Las
Vegas style light and fountain
show spectacular delivered a
footfall increase of 14%
compared to the previous
week. Targeting our key
customer profiles, these events
attract hundreds of thousands
of customers and offer
compelling reasons to keep
visiting our venues.
Image: River of Light at The Oracle, Reading
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Customer first
The success of our retail
destinations relies on first
class customer service and
providing reasons for
shoppers to visit. A refreshing
line-up of brands and
world-class entertainment
encourages shoppers to spend
time at our venues and make
the most of our varied offer.
From the moment our
shoppers check stores and
centre opening times on our
App, to their arrival in the car
park to enjoy our varied
retailer offer, every step of the
journey aims to deliver a
seamless, supported and
enjoyable experience.
What we’ve done
In 2017, we launched a range
of exciting new initiatives to
improve the service we
provide to our customers.
A sector leading chatbot at
Bullring, the latest in AI
technology, updated shoppers
on Black Friday offers and
provided transport updates
during the snow. Over 120,000
parcels were handled through
our customer service desks
and click & collect services
during the year. Comfortable
and engaging family rooms
are now common place in our
centres, and our handsfree
shopping service, which allows
shoppers to drop their bags
while they carry on enjoying
everything our malls have to
offer, delivered a significant
increase in average dwell
time. We continue to transform
our customers’ experience and
deliver these initiatives across
the UK, Ireland and France.
Image: Customer services at Les Terrasses du Port, Marseille
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BUSINESS REVIEW
UK shopping centres
Like-for-like NRI
growth
1.8%
(2016: 2.4%)
Occupancy
98.1%
(2016: 97.8%)
Leasing activity
£13.4m
(2016: £9.0m)
Leasing vs ERV
+8%
(2016: +6%)
Retail sales growth
-2.7%
(2016: -1.1%)
Footfall growth
0.4%
(2016: -0.5%)
Net rental income
In 2017, like-for-like net rental income increased by 1.8%. All UK centres
generated growth with the exception of Bullring, Cabot Circus and Union
Square, for which 2016 income was boosted principally by turnover rent,
surrender premiums and backdated rent reviews respectively. Net income
from car parks fell on a like-for-like basis due to a combination of the
partial closure at some centres to facilitate refurbishment works, a more
general fall in transaction volumes and increased business rates.
Occupancy and leasing
Occupancy levels continued to be high at 98.1% with the majority of
centres showing a reduction in vacancy over the year. At 31 December
2017, tenants in administration accounted for only 16 units in the
portfolio, representing 0.3% of the Group’s passing rents, and 12 of
those units continued to trade. Administrations provide the
opportunity to improve the tenant mix at our centres through the
introduction of new brands.
Strong demand from tenants underpinned significant leasing progress
in 2017, with 181 leases contracted, representing £13.4 million of
annual rental income and 52,400m2. In respect of principal leases,
rents were secured at 8% above December 2016 ERVs and 6% above
previous passing rents.
Leases signed in 2017 with international brands, premium operators
and new food and beverage providers have broadened the offer at our
centres. Key leasing deals concluded during the year included:
– New brands secured at Bullring, including Russell & Bromley,
Coach and Volkswagen’s first UK shopping centre store;
– Flannels and Tim Hortons opened their first Scottish stores
at Silverburn;
– At Cabot Circus, an upsized Oliver Bonas and the first Department
of Coffee and Social Affairs outside London;
– The trend at Brent Cross for retailers to seek additional space has
continued, with major operators, including Zara and JD Sports,
upsizing their stores; and
– Lettings to restaurant operators Mowgli, Tasty Plaice and
Comptoir Libanais at Grand Central include some portfolio firsts.
“Our high-quality centres have had a strong
year in 2017 with record leasing volumes.”
Mark Bourgeois, Managing Director UK and Ireland
Sector overview
Our high-quality centres are differentiated by their scale, catchment
size and superior brand mix. The latter includes large anchor tenants
and flagship stores for international brands.
Not all retail is equal and not all locations are well placed to support
the future needs of brands. The role of expert operators is more
significant than ever before to successfully differentiate venues with a
mix of retail formats, events, dining and leisure. Therefore, occupiers
are increasingly choosing our type of well-invested, high-footfall
locations to support their growth and multichannel strategies.
Information on our strategy, the economic and consumer backdrops
and consumer trends as they impact the UK shopping centre portfolio
is set out in the Letter from the Chairman, Our Business Model, the
Chief Executive’s Review, the Overview of Our Market and Our
Strategy on pages 4 to 11 and 13 to 17.
Our portfolio
Our UK shopping centres are within, or close to, highly populated city
centres in England and Scotland and together the portfolio
accommodates more than 1,000 tenants in 820,000m2 of space.
Catering and leisure brands occupy around 13% of the space at our
centres, an increase of a third over the last five years.
Cabot Circus, Bristol
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HAMMERSON PLC ANNUAL REPORT 2017
Our creative approach to asset management is illustrated by the
reconfiguration of the former department store at Highcross,
Leicester, further details of which are set out in the case study
opposite. Since the year end we also announced that Next and River
Island have chosen to relocate from Broad Street, Reading and
significantly increase their physical presence at The Oracle as part of a
major enhancement of the centre.
Product Experience initiatives
The customer experience at our centres has been significantly
enhanced through a range of initiatives formulated through our
Product Experience Framework.
Further details on Style Seeker, handsfree shopping, exciting events
and other Product Experience activities are provided in Our Business
Model, the Chief Executive’s Review, Overview of Our Market, Our
Strategy and the case studies on pages 6 to 11, 13 to 17 and 20 to 27.
Sales and footfall and occupancy cost
Despite the market backdrop and its impact on consumer spending,
Hammerson centres have proved to be relatively resilient retail
destinations. On a same-centre basis, retail sales at the UK shopping
centre portfolio as a whole fell by 2.7%, but increased by 3.0% when
the new extensions at Westquay, Southampton and Victoria Gate,
Leeds are taken into account. Benchmark UK retail market sales fell
by 3.0% over the year. Performance by centre and retail category has
been mixed. Stronger performances from men’s fashion, sound,
picture & technology, sports & outdoors and leisure were offset by
weaker results posted by some of the larger mid-range fashion
retailers. It should be noted that our till-based sales analysis does not
reflect the significant additional online sales generated through the
halo effect of our flagship destinations. This aspect of the
multichannel experience continues to grow strongly.
The Tyco (ShopperTrak) footfall benchmark for 2017 was -2.8%, but
our centres continued to outperform the index, with the addition of
new space driving positive growth of 0.4% for the portfolio overall.
Reflecting lower sales and increased business rates, the occupational
cost ratio for the portfolio increased from 20.1% at the end of 2016 to
21.7% at 31 December 2017. Again, it should be noted that this ratio is
calculated from till-based sales and takes no account of the online
transactions supported by the stores including click & collect and
instore online ordering.
In 2017 we installed two additional
photovoltaic arrays at Westquay
which is expected to produce
approximately 6% of the on-site
landlord electricity demand.
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Grand Central, Birmingham
Creative asset management
in action
Work to reconfigure the former House of Fraser store at
Highcross, Leicester is underway. Over 10,000m2 of
upgraded space is being created over three floors and three
units have already been let. International fashion brand
Zara will anchor the refurbished space and JD Sports will
upsize its unit. The project will also accommodate a new
leisure offer, Treetop Adventure Golf. The project is
expected to complete in the second half of 2018, with the
first unit expected to be handed over in June, and will
deliver an enhanced customer experience at the centre.
HAMMERSON.COM 29
Business review continued
UK retail parks
“Our record low vacancy, strong retailer
demand and positive visitor feedback
demonstrate the attractiveness of our modern
parks portfolio.”
Andrew Berger-North, Director, UK Retail Parks
Sector overview
Retail parks tend to be situated in out-of-town locations and offer
efficient and flexible space formats with units generally larger and
rents per square metre lower than those in shopping centres.
Better-located parks are adjacent to major trunk roads, making them
easily accessible by car, and offer free parking. We have chosen to
operate shopping parks, hybrid parks and key homeware parks where
occupational demand is strongest.
Retailer demand for space remains high, particularly in respect of the
DIY, homeware and furnishing sectors. Retailers with expansion plans
include Fabb Sofas, Oak Furniture Land, Sofology, ScS, Tapi Carpets
and Wren Kitchens. Discounters including B&M, Iceland Food
Warehouse, Aldi and Lidl are rapidly increasing their presence at
retail parks.
Fashion retailers are also keen to establish new stores at retail parks to
benefit from a cost-effective way of filling gaps in their store footprint
between city centres and large regional shopping centres. This trend is
leading to improved tenant fit-outs, greater interaction with retailers’
multichannel strategies to support click & collect sales and also helps
to drive a wider food and beverage offer. Similar to other formats,
some clothing brands which suffered profit declines in 2017 have
moderated their expansion plans.
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HAMMERSON PLC ANNUAL REPORT 2017
Leasing vs ERV
+11%
(2016: +4%)
Footfall growth
- 0.4%
(2016: 2.2%)
Like-for-like NRI
growth
-2.5%
(2016: 2.4%)
Occupancy
99.4%
(2016: 98.6%)
Leasing activity
£6.3m
(2016: £4.9m)
Elliott’s Field Shopping Park, Rugby
The new retail park at Elliott’s Field,
Rugby has achieved the significant
milestone of being the first BREEAM
Outstanding carbon neutral retail park
in the world. We collaborated with the
design team to ensure that the building
was operationally efficient and worked
with the tenants to deliver highly energy
efficient store fit-outs. The scheme is
designed so that the solar photovoltaic
arrays on the roofs generate sufficient
clean electricity to meet the regulated
energy needs of the site, including the
tenanted areas.
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Our portfolio
Hammerson is one of the largest direct owners of retail parks in the
UK and our portfolio comprises 15 convenient retail parks providing
360,000m2 and accommodating nearly 300 tenants. Our parks are
intentionally located on the edge of town centres with ample free car
parking and are let to a wide spectrum of retailers including
homewares, fashion and bulky goods.
Product Experience initiatives
Most of our parks now have dedicated customer-facing websites, the
content of which has been enhanced to include, for example, retailer
offers. For the next phase of innovation we are reviewing the potential
to further heighten the customer experience through the provision of
uniformed customer service representatives and rest room facilities,
along with improved seating areas.
Net rental income
Like-for-like net rental income decreased by 2.5% in 2017, the
reduction principally reflecting surrender premiums received in the
prior year totalling £3.2 million. The surrenders resulted from
proactive tenant rotation which has improved the brand mix at a
number of parks including Ravenhead Retail Park in St. Helens and
Imperial Retail Park in Bristol. No such premiums have been received
in 2017. If the 2016 premiums were excluded from the calculation, the
underlying like-for-like net rental income would have grown by 2.4%.
Occupancy and leasing
Strong retailer demand has continued to support high occupancy which
stood at 99.4% at the end of 2017. ERVs were largely unchanged over the
year, with a marginal fall of 0.1%. At 31 December 2017 three units were
in administration in the portfolio, and one of those continued to trade.
Annual rental income of £6.3 million has been secured from 34
contracted leases across the portfolio which represented 33,500m2
of space. For principal leases, rents were contracted at 11% above
December 2016 ERV and 9% above their previous passing rent. Key
leasing deals in 2017 include Fabb Sofas at Abbotsinch Retail Park in
Paisley, Oak Furniture Land at Cyfarthfa Retail Park in Merthyr Tydfil
and Mothercare at Parc Tawe.
In June we completed the final letting of the £10 million, 8,000m2
extension of Fife Central Retail Park, Kirkcaldy to Oak Furniture
Land. The project involved the creation of four new units by
reconfiguring the former Homebase unit. All of the new units were
pre-let at rental levels more than double those of the previous tenant,
and 100 new jobs have been created as a result of the extension.
At Rugby, we completed the second phase of the development of the
successful Elliott’s Field Shopping Park. Further details are provided
in the Developments review on page 36.
Footfall
In 2017, there were an estimated 70 million customer visits to our retail
parks, representing a marginal 0.4% reduction on the prior year, but an
outperformance of the Springboard Retail Parks index of -0.8%. Our
shopping parks performed particularly strongly with footfall up 1.4%.
We optimise the tenant mix and prioritise investment in our retail
parks with the aid of in-depth customer surveys, which also confirm
the relative success of these strategies. Our investment in the portfolio
is providing a more rounded shopping experience for customers as
demonstrated by the change in the Net Promoter Score from 15% in
2015 to 28% this year. Our consumer research shows that when
overall experience is rated as 4+, a customer will spend 81% more and
dwell at the park for 11% longer than customers awarding a lower
experience score. The current average rating for our portfolio is 4.3.
Cyfarthfa Retail Park,
Merthyr Tydfil
We relocated B&Q from the shopping park to an adjacent
site where we developed its flagship Eco Learning Store,
designed and constructed to meet the retailer’s “Net
Positive“ objectives. The site vacated was then redeveloped
into new units accommodating a full-line M&S, River Island,
H&M, Next and Outfit (Arcadia). As a result of this and other
improvements, over the period since 2015 dwell time at the
park has risen by 78% and the drive-time catchment
increased by 27%. The overall improvement to the customer
experience is demonstrated by shoppers awarding the park
a Net Promoter Score of 43%.
Cyfarthfa Retail Park, Merthyr Tydfil
HAMMERSON.COM 31
Business review continued
Ireland
Like-for-like NRI
growth1
7.4%
(2016: n/a)
Occupancy
99.7%
(2016: 99.5%)
Leasing activity
£1.9m
(20162: £0.8m)
Leasing vs ERV
+10%
(2016: n/a)
“I am delighted with the progress we have made
in 2017 with implementing our acquisition
strategy, including the completion of the final
loan conversion at Pavilions, Swords.”
1. Proforma figure assuming properties owned throughout 2016 and 2017.
2. Since acquisition of properties.
3. Footfall and sales data not available for Ireland portfolio.
Simon Betty, Director of Retail (Ireland)
Sector overview
The Irish economy continues to prosper, with GDP growth in Q3 2017
of 4.2% on the previous quarter and 10.5% compared with Q3 2016.
Growing employment, driven by inward foreign investment, remains
a key driver of economic productivity. Consumer sentiment continued
its upward trajectory in 2017 reflecting the dissolution of fears that
emerged following the UK’s EU referendum in 2016. Confidence
levels, as measured by ESRI, were 7.3% higher in December 2017 than
at the beginning of the year.
Dublin’s urban population of 1.3 million and significant tourism
industry (9.6 million visitors in 2016) underpin demand for retail
space in the city which accounts for over 70% of Ireland’s total retail
expenditure and 50% of national GDP. Grafton Street and Henry
Street in the centre of Dublin are the focus for Ireland’s prime retail
offer and there are also a number of high-quality shopping centres
along the M50 motorway which borders the city. The wider economy
and the property market continue to grow strongly, although prime
retail rents remain comfortably below their peak in 2006/7. A number
of new retailers have recently entered the Irish market, including
COS, Victoria’s Secret, & Other Stories, Hotel Chocolat and Smiggle
while numerous other international retailers and catering operators
have space requirements in Dublin.
Our portfolio
The portfolio was secured through the joint acquisition of a loan
portfolio from the National Asset Management Agency (NAMA) in
October 2015, and the subsequent consensual agreement to acquire
the secured property assets from the borrowers during 2016. The
assets have been acquired over the following timeframe:
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HAMMERSON PLC ANNUAL REPORT 2017
– July 2016
– Dundrum Town Centre (‘Dundrum’), Ireland’s pre-eminent
shopping and leisure destination, was acquired in a 50:50 joint
venture with Allianz;
– The Dublin Central development site, which is wholly owned by
Hammerson; and
– Land adjoining the Pavilions shopping centre in Swords, north
Dublin, also wholly owned by Hammerson.
– December 2016
– A 50% co-ownership with Irish Life of the Ilac Centre, located on
Henry Street, one of Dublin’s busiest retail thoroughfares.
– September 2017
– A 50% co-ownership with IPUT and Irish Life of
Pavilions shopping centre in Swords, north Dublin.
The portfolio provides 220,000m2 of high-quality shopping centre
space, with over 300 tenants and annual footfall of nearly 50 million.
It also includes 27 acres of development land. Our share of the total
passing rent for the portfolio is €46.9 million (£41.6 million).
In addition to the centre-based staff who transferred to the Group
when we secured ownership of Dundrum, we now have a new office at
the shopping centre itself which accommodates a team of 12, including
three colleagues who joined from the previous Dundrum asset
manager, Chartered Land. We are integrating the Dundrum assets
into our existing UK operating structure to maximise efficiencies and
implement our asset management strategy.
As part of the integration process we have upgraded the IT
infrastructure at Dundrum to improve the footfall and sales data
collection processes which has paved the way for the introduction in
2018 of the Group’s Plus app. This will align the centre with the
Hammerson standard and provide new insight into the behaviour of
our Dublin shoppers.
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Net rental income
In 2017, the Ireland portfolio generated net rental income of
£34.8 million. Income from the portfolio in the prior year comprised
a combination of finance income, derived from the property assets
secured against the debt, and net rental income for the period for
which the relevant assets were owned directly. On a pro-forma basis,
the like-for-like net rental income growth from 2016 to 2017 would be
7.4%. This strong performance was primarily driven by Dundrum,
where additional income arose from the settlement of rent reviews
and new lettings as well as active asset management and increased car
park and commercialisation revenue.
Pippa O’Connor opens the POCO Jeans pop-up at Dundrum
Occupancy and leasing
Tenant demand for space continues to be strong, and the portfolio is
virtually fully occupied at 99.7%.
The high occupancy rate can act to limit fulfilment of demand;
nevertheless we have a clear leasing strategy to deliver rental growth
and enhance the tenant mix and overall experience at each of the
centres. During 2017 we signed leases representing £1.9 million of
annual rental income and 7,100m2 of space, with principal leases
at 4% above previous passing rents and 10% above ERV at
31 December 2016.
At Dundrum, key leasing transactions included first Irish stores for
Smiggle and Hotel Chocolat and Moss Bros’s second store in Ireland.
Since the year end, a lease has been signed with Fallon & Byrne as
part of the repositioning of the catering and leisure offer at the
Pembroke district at Dundrum. Further details are shown in the
case study opposite.
At Pavilions, despite taking ownership only in September, we signed
Superdrug and Butlers Chocolate Cafe. Since the year end, River
Island has committed to a store upsize and we have also contracted
with Smiggle.
The Moor Mall South redevelopment at the Ilac Centre was
completed, revitalising that part of the scheme. Five new brands have
been introduced to the centre including Regatta, The Works and BBs
Coffee. The project was fully let on opening and generated a rental
uplift of £146,000 per annum for Hammerson, more than doubling
the previous passing rent. Since the year end, Smiggle has also signed
at the Ilac Centre for its first store in central Dublin.
Garden of Pure Imagination, Dundrum
Product Experience initiatives
Applying our Group-wide commercialisation and Product Experience
Framework strategies to Ireland will generate additional income,
enliven the customer experience and drive footfall. In 2017, initiatives
at Dundrum included Volvo’s Irish launch of its new XC60, pop-up
stores for Pippa O’Connor’s POCO Jeans and Nespresso, the ‘Garden
of Pure Imagination’ designed by celebrity gardener Diarmuid Gavin
and the Grotto and German Market during the Christmas period.
The food and beverage market in Ireland lags that in the UK and
presents opportunities to increase the provision and introduce fresh
catering brands to Dublin.
Dundrum Town Centre, Dublin
Fallon & Byrne is set to open a new flagship food hall,
delicatessen and restaurant at Dundrum Town Centre,
significantly enhancing the centre’s food and beverage offer.
Fallon & Byrne’s new 900m2 speciality food hall will be split
over two floors, enabling customers to choose from a wide range
of the best Irish and international artisan products and brands.
Shoppers will also enjoy an ‘al fresco’ dining option with a new
outdoor terrace that will surround the front of the store.
To be located in Ashgrove Terrace, Fallon & Byrne will anchor
Hammerson’s Pembroke Square development project. Plans for
this project are set to reinvigorate a currently underutilised part
of the centre, creating a vibrant new hub for aspirational dining
and leisure concepts at Dundrum with a modern interpretation
of the historic buildings providing a unique backdrop.
HAMMERSON.COM 33
Business review continued
France
Like-for-like NRI
growth
2.6%
(2016: 2.2%)
Occupancy
97.9%
(2016: 96.5%)
Leasing activity
£9.8m
(2016: £9.0m)
Leasing vs ERV
+5%
(2016: +5%)
Retail sales growth
0.1%
(2016: 3.1%)
Footfall growth
1.6%
(2016: 2.8%)
“In addition to our active tenant engineering
strategy, the return of indexation will help
drive future income growth at our French
centres.”
Jean-Philippe Mouton, Managing Director, France
Sector overview
Shopping centres in France have similar characteristics to those in the
UK and Ireland. Online retailing is not as advanced in France when
compared to the UK. Nonetheless it is growing rapidly and retailers
are beginning to focus on their multichannel strategies in a similar
way to retailers operating in the UK.
French leases differ from those in the UK and Ireland. They are
subject to annual indexation changes instead of five-yearly rent
reviews and have three or six-year break clauses, although in practice
these are seldom exercised.
Occupancy and leasing
At 97.9%, occupancy levels were 140 basis points higher than in
December 2016. Occupancy improved at six of our eight centres,
with occupancy above 99% at Les Terrasses du Port, Italie Deux
and Nicetoile.
Our retenanting strategy continued during 2017 as we signed 155
leases, representing £9.8 million of annual rental income and
49,400m2 of space. The strategy is designed to improve tenant mix,
increase the number of flagship stores, reduce vacancy and deliver
rental growth.
The retail environment has strengthened during 2017, particularly in
the second half of the year, as the outlook for GDP and employment
has improved.
For principal leases, the new rents were 5% above December 2016
ERVs and 8% above the previous passing rents. Key leasing
transactions included:
Our portfolio
We own and manage eight high-quality shopping centres in France
which accommodate over 900 tenants and attract over 80 million
visitors each year. At 31 December 2017, the three largest centres, Les
Terrasses du Port in Marseille, Italie Deux and Les 3 Fontaines in
Paris, accounted for over 85% of the value of the portfolio.
Stronger French economic confidence, political stability and
indexation forecasts will all help to enhance future income growth.
Net rental income
Net rental income totalled £95.3 million in 2017 and on a like-for-like
basis increased by 2.6%. Les 3 Fontaines and Les Terrasses du Port
were the two strongest performing centres with higher gross rental
income associated with recent leasing activity.
Following four years of being flat or negative, indexation has improved
in 2017. In the first quarter of 2018, 70% of leases, by rental income,
will benefit from an indexation increase of 1.6%.
– strong letting activity at Les Terrasses du Port with 23 new leases
signed representing £1.5 million of rent. This included first lettings
in the French portfolio for Coach, Nespresso, Dim and Benetton
and a combined Micromania/Zing store, the latter being their
second store in France
– two new Pandora stores at Italie Deux and Les 3 Fontaines
– an upsized 2,355m2 flagship H&M unit at O’Parinor
– the renewal of the UGC cinema lease and the opening of Furet du
Nord at SQY Ouest to anchor the refurbishment of the centre
– Kusmi Tea at Nicetoile
Administrations have reduced and at 31 December 2017 a total of
27 units were in administration. All of these units continue to trade
and represent only 0.5% of the Group’s passing rent.
Sales, footfall and occupancy cost
Retail sales, calculated on a same-centre basis, have increased by 0.1%,
which is 110 basis points higher than the CNCC Index which fell by
1.0%. Footfall in our centres increased by 1.6% in 2017, compared with
a 1.8% decline in the CNCC Index.
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HAMMERSON PLC ANNUAL REPORT 2017
Les Terrasses du Port has again traded strongly, whilst the Paris centres
continue to experience a more subdued performance as security,
political and macro-economic concerns have hindered growth, although
their performance improved in the second half of the year.
The occupational cost ratio decreased from 15.2% at the beginning of
the year to 13.8% at 31 December 2017. The reduction is due to the
increase in sales and also the disposals of Saint Sébastien, Nancy and
Place des Halles, Strasbourg (see page 50).
Les Terrasses du Port, Marseille
Product Experience initiatives
As part of our Product Experience Framework we continue to develop
a group-wide approach to enhancing our digital and customer
innovation offer, whilst ensuring initiatives are optimised for
individual centres. In 2017, we have:
– introduced a digital children’s play area in Les Terrasses du Port
– deployed the ‘Short Edition’ short story machines in a further
five centres
– worked with the University of Paris Dauphine on a handsfree
shopping initiative
– worked with L’Ecole Bleue, an architecture and design school, to
model initiatives for the ‘shopping centre of the future’
We are also due to launch our ‘Style Seeker’ visual search app (see page
10) at Italie Deux in the spring. With further expansion across our
portfolio planned during 2018.
At Les Terrasses du Port in Marseille,
we have agreed a two-year energy
performance contract with two of our
supply chain partners, designed to
reduce electricity demand within the
managed areas of the centre. The
contract incentivises electricity reductions
with financial benefits over and above
the cost of implementation shared
between Hammerson and our tenants.
So far the contract is performing ahead
of expectations and landlord electricity
demand has been reduced by over 8%
at the site.
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Le 13ème Art, Italie Deux
In September 2017, a theatre Le 13ème Art opened at Italie
Deux to replace a former cinema closed for more than 10
years. In the heart of Paris, this original cultural venue hosts
two performance halls (900 seats and 130 seats) and
contains a recording studio.
Le 13ème Art is the first iconic theatre to open in Paris for
over 100 years and offers an eclectic programme with shows,
events and TV recordings for both a family and international
audience. It is expected to host about 1,000 events per year.
Located at the main entrance of Italie Deux, the new venue
improves the visibility of the centre and provides a cultural
offer to drive more footfall, especially during weekends.
Since September, the shopping centre has also opened on
Sundays.
The former cinema unit was bought in 2016 and completely
transformed for a total cost, including acquisition, of
€14 million.
After Italie Deux was renovated in 2013, Le 13ème Art is a
new step in a wider regeneration project for the site. The
Italik project, an extension of the existing scheme, will be
launched in 2018 (see page 37).
HAMMERSON.COM 35
Business review continued
Developments
“In 2017 we have progressed our major
schemes, whilst completing a number of
smaller-scale retail park projects. 2018 will
be an exciting year with Les 3 Fontaines,
Cergy extension now on-site and Brent Cross
due to start in H2.”
Peter Cole, Chief Investment Officer
Our pipeline
Our development opportunities include retail park schemes, major
developments in London and Paris and a number of other potential
projects across the portfolio. This pipeline provides the opportunity to
significantly grow the business, enhance our assets and create new
destinations to meet the future demands of retailers and customers.
Expenditure is carefully controlled and we will commit to projects
only when the level of risk is acceptable. This will vary for each project
and is dependent on a variety of factors including general market
conditions, pre-letting, construction cost and programme certainty,
funding and financial viability.
At £89 million, calculated on a proportionally consolidated basis,
committed capital expenditure was relatively low at the end of 2017,
and represented the cost to complete the on-site retail park schemes,
land acquisitions relating to our major developments and smaller
capital projects within our investment portfolio. Together with our
ongoing capital recycling strategy, this position allows the Group to
retain flexibility over the commitment to development and provides
liquidity to fund future schemes.
Completed developments
In November the 7,900m2 second phase of development at Elliott’s
Field, Rugby, was completed. Built on land adjacent to the 17,000m2
shopping park which we opened in 2015, the new phase fills a gap in
the catchment for homewares and is now fully let to retailers
including DFS, Dwell, Furniture Village, Oak Furniture Land and
Sofology. Contributing to the Group’s Net Positive commitment
explained on page 43, this new development has demonstrated its
best-in-class sustainability credentials.
On-site developments
The £16 million redevelopment of Parc Tawe in Swansea is due to
complete in February 2018. Having started on-site in December 2016,
the 21,400m2 project has created a modern, mixed retail and leisure
park with new public realm and improved pedestrian links to the city
centre. The scheme is 91% pre-let with lettings secured including
Iceland Food Warehouse, Office Outlet, Tenpin bowling, Mothercare,
Toys R Us and Lidl. The redevelopment also features Hammerson’s
second carbon neutral Costa Eco Pod and the first Denny’s American
Diner in the UK.
Construction of the 8,700m2, £44 million extension of the Orchard
Centre, Didcot, is on target to complete in March 2018. Didcot’s
affluent and rapidly growing catchment will be served by retailers
including Boots, Costa, H&M, River Island, Starbucks and TK Maxx.
The scheme is anchored by Marks & Spencer, and is 62% pre-let.
Good progress has been made on the development strategy at
Les 3 Fontaines, Cergy, Paris. The existing centre has been
refurbished and, following the acquisition of the adjoining Cergy 3
centre, enabling works commenced in January 2018, with the main
works due to start on site in March. When complete, the project will
extend the retail area to over 100,000m² and create one of the leading
shopping centres in the Paris region. As part of the wider development
of the centre of Cergy, the project will add 33,000m²
to the existing shopping centre and has a total development cost of
£225 million. The scheme is expected to open in Q2 2021 and is
currently 22% pre-let to tenants including Pret A Manger and Vapiano.
Table 15
On-site developments
Scheme1
Parc Tawe, Swansea
Orchard Centre, Didcot
Les 3 Fontaines extension, Cergy, Paris
Total
Lettable area m2
21,400
8,700
33,000
63,100
Expected
completion
Q1 2018
Q1 2018
Q2 2021
Value
31 December
20172
£m
n/a
29
n/a
Estimated cost to
complete3
Estimated annual
income4
£m
3
12
201
216
£m
2
3
16
21
Let5
%
91
62
22
1. Group ownership 100% for on-site schemes.
2. Values are not included for extension projects which are incorporated into the
value of the existing property.
3. Incremental capital cost including capitalised interest.
4. Incremental income net of head rents and after expiry of rent-free periods.
5. Let or in solicitors’ hands by income at 22 February 2018.
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In each of the Group’s portfolio sectors, there are several
opportunities, including major developments, with the potential to
significantly grow the business and create modern, iconic retail
destinations. We have continued to progress a number of these
schemes over the course of 2017, although we must achieve further
milestones before we are in a position to start on-site.
Brent Cross extension
Substantive progress has been made on the proposed extension and
refurbishment of Brent Cross shopping centre in north-west London,
in conjunction with our joint venture partner, Aberdeen Standard
Investments. Doubling the size of the existing centre, the project
will deliver an extended 175,000m2 shopping destination for
north London with a modern and vibrant retail, catering and leisure
offer, a key component of the regeneration of the Brent Cross
Cricklewood district.
The detailed reserved matters planning application was approved in
October and in December the compulsory purchase order was
confirmed. Agreements have been reached with John Lewis and Marks
& Spencer to anchor the expanded centre, and further pre-lettings are
under negotiation. The extension will also include up to 150 new retail
stores, 50 new restaurants, state-of-the-art cinema and leisure offers,
hotel accommodation and improved public spaces. Following a
competitive tender process, Laing O’Rourke has been selected as the
preferred contractor for the retail extension and, under a pre-construction
services agreement, will work with the partners to finalise the design
and procurement for the project. Tender returns from potential
main contractors for the highway works have been received and it is
anticipated that an appointment will be made in April 2018. Assuming
Development Agreement staging conditions are satisfied, construction
could commence in 2018 with completion in 2022. The London
Borough of Barnet and Network Rail are bringing forward the new
Brent Cross railway station on the Thameslink line which is expected
to open at the same time and provide a new rail connection for the
regeneration scheme. The Group’s estimated development cost to
complete the project is in the region of £475-550 million.
Croydon town centre
In November, the Croydon Partnership, a 50:50 joint venture with
Westfield, secured a resolution to grant outline planning consent
for the revised plans for the redevelopment of the Whitgift Centre. The
Greater London Authority (GLA) has also approved the scheme which
now includes a new Marks & Spencer anchor store incorporated
within three levels of retail with over 300 shops, restaurants and cafes,
a multiplex cinema and up to 1,000 homes. The scheme is part of the
wider large-scale regeneration already underway in the town and will
establish Croydon as the major retail and leisure destination for south
London. The partnership already holds 75% of the Whitgift Centre and
the whole of Centrale, the other covered shopping centre in Croydon,
which is anchored by Debenhams and House of Fraser. It is intended
that the remaining land interests required to implement the scheme
will be secured later in 2018, utilising the local council’s compulsory
purchase powers as necessary. The earliest start on-site could be
during 2019, subject to finalising detailed design and completing
agreements with anchor tenants. Hammerson’s total future costs for
the development will be around £650-700 million.
Italie Deux extension
Having obtained planning consent and agreement with our co-owners,
we anticipate starting work on the Italik project, a 6,400m2 extension
to Italie Deux in the spring. The £38 million project will generate
additional annual rental income of £2 million, is 56% pre-let to tenants
including Pret A Manger and M&S Simply Food and is expected to
open at the end of 2019.
The Goodsyard
The Goodsyard in Bishopsgate, on the edge of the City of London, is a
4.2ha site owned 50:50 with our partner, Ballymore Properties. The
planning application for a large mixed-use development was called in
by the Mayor of London in September 2015 and then deferred in April
2016 to allow for further consultation with the GLA’s planning officers
and potential redesign of some elements of the proposed scheme. This
work is progressing and we are now targeting a submission to the GLA
of the amendments necessary by the end of 2018 to allow the Mayor to
determine the scheme.
Other schemes
The Group has a number of pipeline schemes which will enhance the
overall quality of our portfolio. These include potential projects in the
UK adjacent to existing assets in Aberdeen, Bristol, Glasgow and
Leeds. Our Irish portfolio provides exciting opportunities at the
Dundrum estate, Dublin Central and Pavilions in Swords.
The nature and design of these schemes are fluid and they are at
different stages of development. Progress to delivery is dependent on
a variety of factors including: planning permission; retailer demand;
anchor tenant negotiations; scheme design; funding; and financial
viability. Further details of these schemes are included in the
Development Pipeline table on page 187.
Brent Cross Extension
HAMMERSON.COM 37
Business review continued
Premium outlets
“During 2017 both of our premium outlets
portfolios have achieved strong sales growth
and completed a number of significant
improvement projects to enhance the visitor
experience.”
Timon Drakesmith, Chief Financial Officer and
Managing Director, Premium outlets
Value Retail1
VIA Outlets1
Year ended
31 December
2017
2,701
8
35.4
76
5
16
95
Year ended
31 December
2016
2,504
8
34.6
72
6
8
96
Year ended
31 December
2017
Year ended
31 December
2016
948
13
29.4
32
9
14
90
436
7
12.7
34
18
4
92
Table 16
Operational summary
Brand sales (€m)2
Brand sales growth (%)3
Footfall (millions)2
Average spend per visit (€)2
Average sales density growth (%)4
Like-for-like net rental income growth (%) 5
Occupancy (%)
1. Figures reflect overall portfolio performance, not Hammerson’s ownership share
and 2016 figures have been restated at 31 December 2017 exchange rates.
2. Figures include acquired assets from the date of acquisition.
3. Sales growth at VIA Outlets in 2017 includes sales at Mallorca Fashion Outlet for
the second half of the year and excludes all other assets acquired in 2016 and 2017.
4. Average sales density growth excludes assets acquired in 2017 and 2016.
5. Like-for-like NRI growth includes extensions due to multiple tenant relocations
from the existing schemes into the new phases. We estimate that the extensions
have contributed approximately 1-2% to like-for-like NRI growth.
Sector overview
Outlets offer a distribution channel for brands to sell excess inventory
at a material discount to the original price. Premium outlets are at the
top of this sector, providing international fashion and luxury brands in
an upscale shopping environment, where retailers are able to
maintain and protect their brand identity.
Over recent years, the European outlets sector has seen both strong
sales growth and increasing retailer demand. The market for
discounted luxury and fashion items is attractive for international
tourists, in particular from China, Russia, South East Asia and the
USA. Spending patterns of wealthy tourists can be influenced by
security concerns and currency movements. The latter factor
particularly has encouraged visitors to the UK in 2016 and 2017.
There are a limited number of specialist outlet operators in
Europe, and planning consents for new schemes are often difficult
to achieve. Growth of new space therefore tends to be delivered
through extensions to existing schemes and brands are attracted to
well-managed centres where they can be confident of strong footfall
and sales.
Our portfolio
Our exposure to the sector, which has increased over recent years to
be over 20% of the Group’s property portfolio, is gained through our
investments in Value Retail (VR) and VIA Outlets (VIA). The sector
has many similarities with our directly managed properties and we
utilise the knowledge gained from the sector to enhance the brand
experience across our other portfolios.
We hold interests in the VR holding companies as well as direct
investments in the Villages. Details of our investment are shown in
note 13 of the financial statements.
Since the year end, we increased our investment in Value Retail
through the acquisition of a number of direct investor interests in
Villages including Bicester Village and La Vallée Village, Paris for a
total cost of £76 million. Following this acquisition we have an
economic interest in Bicester Village, the largest asset within VR,
of 50%.
VIA is an outlets joint venture formed in 2014 in partnership with
APG, Value Retail and Meyer Bergman in which we have a 47% stake.
Both investments are externally managed, although we have a strong
relationship with both management teams. Timon Drakesmith is a
Board member of Value Retail and is Chairman of the VIA Outlets
Advisory Committee.
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Value Retail (VR)
Portfolio overview
Value Retail operates nine high-end Villages in the UK and Western
Europe which provide over 189,000m2 of floor space and more
than 1,000 stores. VR focuses on international fashion and luxury
brands and attracts long-haul tourists and wealthy domestic
customers. The Villages, which include Bicester Village outside
London, La Vallée Village, Paris and La Roca Village, Barcelona, are
ranked among the best outlet centres in Europe.
In 2017, the Villages had an average sales density of €15,700/m2 and
generated total sales of €2.7 billion, placing them in the top echelons
of the premium outlets sector. The Villages actively target the growing
shopping-tourism market as well as attracting footfall from affluent
domestic catchments. This strategy has been very successful and VR
has delivered annual compound brand sales growth in excess of 13%
over the last 10 years.
Income
Brand sales growth at 8% has again been strong in 2017. Bicester Village
achieved the highest growth rate as it benefited from increased
overseas visitors, attracted by the weak sterling exchange rate, as well
as new domestic marketing initiatives. Performance was further
enhanced with the opening of a 5,800m2 extension in October
(see case study opposite).
Average sales densities increased by 5%, the strongest performances
being at Bicester Village and the two Spanish Villages: La Roca Village,
Barcelona and Las Rozas Village, Madrid. Kildare Village, Dublin
suffered the weakest sales density growth as the extension which
opened in late 2016 has marginally diluted densities in 2017.
The strong sales performance resulted in like-for-like net rental
income growth of 16%, with the strongest contributions from Bicester
Village and Las Rozas Village.
Occupancy and leasing
VR’s success is driven by a forensic leasing and asset management
strategy which acts to enhance and refresh the Villages and fulfil the
customer experience. This strategy drives sales and recurring footfall.
During 2017, 254 leases were signed, with a total of 125 new brands
introduced to the Villages. Key new stores included five Prada stores
including the first store in Ireland at Kildare Village; Polo Ralph
Lauren at Inglostadt Village; Chloé at La Vallée Village and the only
Clarins outlet store in Europe at Kildare Village.
Occupancy across the Villages remained high at 95%. Occupancy at
premium outlets tends to be slightly lower than the Group’s other
sectors to support proactive retenanting and remerchandising.
VR management continue to develop successful marketing campaigns
across the portfolio, including partnerships with brands such as the
Paul Smith Stripe pop-ups and the Disney X Coach promotion. At
Fidenza in September, VR co-organised the inaugural Green Carpet
Fashion Awards during Milan Fashion week which included the
identification and mentoring of new designers. Also in 2017, the
‘Privilege’ guest reward programme was further expanded across
the Villages.
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Developments and extensions
The 3,300m2 extension at Fidenza Village, Milan, which opened in
October 2016, has performed strongly and helped to generate
double-digit sales growth across the whole Village during 2017.
The extension introduced a number of new luxury shops including
Armani, Michael Kors and Prada. A new Jimmy Choo store also
opened in the existing Village in May, its first outlet store in Italy.
Bicester extension
In October 2017, the 5,800m2 extension opened at Bicester
Village. The extension is on land adjacent to the existing
Village, and a key element of the project involved the
relocation of a Tesco store in early 2016 ahead of
construction works starting in the summer.
The scheme has increased the existing Village by over 25%
and added 500 additional car parking spaces. The project
also involved a new enlarged VIP suite, an enhanced food
and beverage offer, improved road access and new
landscaping across the entire Village.
33 new units have been created, of which 30 were let and
trading on the opening day. New brands which opened at the
Village included Christopher Kane, Cowshed and Under
Armour. The extension enabled 11 existing brands to
relocate within the scheme with a number upsizing
including a new Polo Ralph Lauren flagship store.
250,000 guests were welcomed in the weekend after the
opening of the extension and this strong trading continued
over the Christmas period.
The total development cost was £100 million and the project
has achieved a yield on cost in excess of 15%.
HAMMERSON.COM 39
Business review continued
VIA Outlets (VIA)
Portfolio overview
At 31 December 2017, VIA operated 11 outlets in nine European
countries, providing over 260,000m2 of floor space and 1,100 stores.
The centres include Batavia Stad Amsterdam Fashion Outlet,
Fashion Arena Prague Outlet and Zweibrücken Fashion Outlet on
the Germany/France border.
VIA’s strategy is to create a significant pan-European portfolio by
acquiring existing European outlet centres with strong catchments,
focused on mainstream fashion brands and with potential for growth
through active asset and development management. Utilising VR’s
expertise and brand relationship, the VIA management team have
implemented initiatives to enhance each centre’s appearance, tenant
mix, the provision of flagship stores and international brands, the
leisure and catering offers, tourism marketing and overall centre
management. This strategy has delivered strong operational and
financial performance since formation and the transition from an
acquisition vehicle to a leading premium outlet operator has been
successful.
During 2017, VIA acquired three outlets: Zweibrücken in Germany;
Vila do Conde in Porto and Norwegian Outlet in Oslo (see page 49
for details). These new centres enabled VIA to achieve its original
€1 billion portfolio milestone. At 31 December 2017 the total portfolio
was valued at €1.4 billion, of which the Group’s 47% share was
£600 million.
Income
Like-for-like brand sales growth was 13% in 2017. Double-digit growth
was achieved at Batavia Stad Amsterdam Fashion Outlet, Fashion
Arena Prague Outlet, Freeport Lisbon Fashion Outlet and Mallorca
Fashion Outlet.
The enhancements made to the marketing strategies to increase
tourist marketing have been very successful with tax-free sales
increasing by over 34% in 2017 and a wider range of tourists now
visiting the centres.
Like-for-like net rental income growth was 14%, with strong
contributions from Landquart Fashion Outlet and Fashion Arena
Prague Outlet.
Occupancy and leasing
Occupancy levels remained high at 90% during 2017.
The strong sales growth explained above reflects the benefits of VIA’s
management initiatives introduced across the portfolio and 309 leases
were signed during 2017, including 115 new brands.
Key leasing transactions included Lacoste at Landquart Fashion
Outlet, Coach at Zweibrücken Fashion Outlet, Hackett at Freeport
Lisbon Fashion Outlet and Polo Ralph Lauren opened a 1,100m²
flagship store at Mallorca Fashion Outlet in August.
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HAMMERSON PLC ANNUAL REPORT 2017
Developments and extensions
As well as enhancing the existing centres, VIA has been actively
looking to extend a number of the centres to improve the tenant mix
and increase footfall. In May, a 5,500m2 extension opened at Batavia
Stad Amsterdam Fashion Outlet with 45 new units and increased the
area of the centre by more than 25%. Key brands included Farinella,
G-Star, Samsonite, Skechers and Tommy Hilfiger and footfall at the
centre has increased by 15% since opening.
In November, the major reconfiguration and enhancement of Freeport
Lisbon Fashion Outlet completed (see case study below).
At Mallorca Fashion Outlet a Nike flagship store and two other units
opened in 2017 from space created from the reconfigured cinema.
The former Nike store is now being reconfigured to create five new
units and the works are due to complete in summer 2018.
Freeport Lisbon Fashion Outlet
VIA Outlets acquired Freeport Lisbon Fashion Outlet in
November 2014. At this date the centre was the largest
outlet in Europe by gross area, although due to its size a
proportion of the centre was closed.
At acquisition, the VIA team had identified a reconfiguration
opportunity by creating a new mall through to a previously
closed plaza. The plaza was redeveloped to provide an
authentic food experience with outdoor seating areas and
the north mall area of the scheme was mothballed. These
works reduced the lettable area of the centre by 8%.
A full refurbishment of the centre with enhanced finishes to
improve the overall ascetics of the scheme was completed in
November 2017. The works also included a new information
centre, VIP lounge, children’s play area, redesigned
entrances and improved car park access. The total cost of all
the works at the centre was €26 million and the yield on cost
was 11%.
The project has increased the centre’s appeal to premium
brands and tourists and transformed the visitor experience.
Sales and footfall have increased by 21% and 7% respectively
since the opening. New brands to the centre include Coach,
Furla, Hackett and Tumi which trade alongside existing
premium brands such as Armani and Hugo Boss.
SUSTAINABILITY REVIEW
Positive Places
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Our sustainability
vision is to create retail
destinations that deliver
net positive impacts
economically, socially
and environmentally.
In 2017 we continued to implement our sustainability vision with
further reductions in carbon emissions across the portfolios and
improvements in carbon intensity, one of our corporate KPIs.
This year we set a new target for the business to become net positive
for carbon emissions, resource use, water and socio-economic impacts
by 2030 (see page 43). This is a significant increase in ambition and
will require us to expand on our achievements to date. However, the
challenge has already inspired impressive results from the teams,
including our BREEAM Outstanding Retail Park at Elliott’s Field.
More details on our Net Positive targets and how we will achieve them
and on our sustainability strategy and performance are available in
our 2017 Sustainability Report and on our website.
For more information view our website
www.hammerson.com.
Our Positive Places strategy
Five core commitments underpin our work to create more
positive places, each with their own set of targets, actions
and key programmes.
Challenge and innovate
Challenging the status quo and trialling new solutions to
transition to a more sustainable business model.
Protect and enhance
Minimising resource consumption and delivering
restorative projects to protect our environment.
Upskill and inspire
Investing in and rewarding our people to encourage change
in line with sustainability related objectives.
Partner and collaborate
A stakeholder-led approach to create collaborative projects
and evolve from client to partner.
Serve and invest
Delivering social value to the communities we serve,
measured in jobs, skills, civic pride and investment.
HAMMERSON.COM 41
“Our BREEAM Outstanding, carbon neutral
retail park opened this year at Elliott’s Field,
illustrates what can be achieved through
innovation, collaboration and ambition”
Louise Ellison, Group Head of Sustainability
Our 2017 Sustainability Highlights
– Delivered the world’s first BREEAM
Outstanding, carbon neutral retail
park at Elliott’s Field, Rugby
– Developed the second zero energy
Costa Coffee EcoPod at Parc Tawe,
Swansea
– Managed exposure to Minimum
Energy Efficiency Standards (MEES)
risk out of the UK portfolio
– Installed additional 910kWp clean
electricity capacity
– Achieved 3% improvement in the
carbon intensity of the business, one
of our corporate KPIs
– Recycled 73% of waste across our UK,
France and Ireland portfolios
– Supported over 100 people with skills
training and into employment at our
shopping centres
– Supported over 70 business start-ups
in France and 400+ entrepreneurs in
the UK through Initiative France and
Pop-Up Business.
STRATEGIC REPORTSUSTAINABILITY REVIEW
Sustainability review continued
Responding to our material issues
Positive Places, our sustainability strategy, is designed to ensure our sustainability work focuses on our material issues - those areas that have the
most significant impact on our operations and where we can bring about the most effective change. Materiality studies carried out in 2010 and
2014 identified energy security and demand; waste management and resource use; and community engagement as three of the most important
areas of focus for us. An overview of our progress in these areas is set out below. Full details of our annual and five-year sustainability targets and
progress against them is set out in our Sustainability Report. Targets, data and performance reported here and within our Sustainability Report
are independently assured by JLL Upstream and Deloitte. Our mandatory GHG reporting is set out on page 191 of this report.
Strategic
Priority
What this
means
What we
did in 2017
Energy security and
Waste management and
Community engagement
demand
resource use
Rising demand for electricity is placing
unprecedented pressure on the UK
electricity supply infrastructure. This
presents risks of short and medium
term price rises, secure supply or
‘brown outs’, and potential for further
energy efficiency regulation.
Waste management and resource use
Nurturing strong links with our
generate significant costs for the
business and for our retailers and are
key contributors to climate change,
depletion of scarce resources and loss of
biodiversity.
communities directly supports the long
term success of our assets, while the
investment that accompanies our centres
leads to significant local employment and
business opportunities.
Continued to focus on reducing our
Increased focus on recycling
energy demand through management
and targeted investment in technology
such as LED lighting and solar PV.
Managed our exposure to MEES risk
out of the UK portfolio in a timely and
cost effective way, supporting tenant
cost savings and minimising disruption
to transactions.
and re-use and trialled two new
technologies for organic waste –
BioWhale and BioHiTech Waste
digester.
Published a socio-economic footprint
study for the business illustrating the
positive socio-economic impact our assets
have within the local economy and the
cumulative impact they have nationally.
Continued to monitor regulatory risk
including changes to the international
market for recycled plastics to ensure
business risks are minimised.
Maintained portfolio-wide programme of
community engagement activities focused
on employment and skill, young people,
health and well-being and regeneration.
Outcomes
7% reduction in electricity demand
generating savings of over £400k for
retailers and JV partners.
Generating approximately 150mWh on
site clean electricity producing 9% yield
on cost at Westquay, Southampton.
Managed all short term EPC risk out of
the portfolios ahead of implementation
of MEES regulations.
73% recycling achieved.
5,720 tonnes organic waste to anaerobic
digestion.
23 of 29 directly managed centres
achieved 100% diversion of waste
from landfill.
Invested £2 million in work with
476 local community groups and
organisations.
Supported 100+ people with training
and into work through employment
and skills brokerages.
Gave over 900 young people exposure
to business skills training through local
projects such as Education Business
Partnership Barnet and Braveheart
in Glasgow.
Chart 17
Chart 18
Table 19
Electricity demand for
landlord services (mWh)1
Savings and income from waste
management (£000)
Community contributions
2,674
2,743
29,311
32,733
2,709
29,277
37,823
35,725
34,254
269
2,039
582
2,333
455
2,641
2015
2016
2017
2015
2016
2017
UK shopping centres
French shopping centres
UK retail parks
Savings from avoided landfill tax
Income from sale of waste
Direct contributions
(£000)
Indirect contributions
(£000)
Total beneficiaries
(number)
2017
2016
2,223 2,197
260
629
476
434
1. Includes directly managed assets owned continuously for the three years from January 2015. See our 2017 Sustainability Report for more details on our basis of reporting for
our environmental targets.
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Our Net Positive objective
To be Net Positive we must put more back into our environment and our society than we take out. We aim to achieve this by 2030, with
clear five year targets to ensure we remain on track.
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Carbon
Net Positive means carbon emissions avoided exceed
emissions generated. Our target for 2020 is to avoid
or offset 31,000mt CO2e.
In 2017 we:
– Reduced our Net Positive carbon emissions by 9%
against the 2015 baseline
– Offset 52 tonnes of carbon emissions through
on-site clean electricity generation
– Installed renewable capacity sufficient to offset a
further 192 tonnes of carbon emissions each year
In 2018 we plan to:
– Install additional renewable electricity capacity
– Continue to reduce emissions from energy demand
– Explore potential significant offset programmes
Resource use
Net Positive means waste avoided, recycled or re-used
exceeds materials used that are neither recycled,
renewable or sent to landfill.
In 2017 we:
– Diverted 8,000 tonnes of demolition waste from
landfill
– Replaced 38 tonnes of steel with Forest Stewardship
Council (FSC) Certified timber at our Elliott’s Field
Phase 2 development at Rugby
– Diverted 5.5 tonnes of clothes hangers from waste
into re-use or recycling
In 2018 we plan to:
– Review the use of materials in the Brent Cross,
London design to reduce resource impacts
– Expand our clothes hanger re-use partnership
across our centres
– Continue to improve recycling rates
Water
Net Positive means water replenished by external
projects exceeds water consumed from mains supply.
Our target for 2020 is to avoid 395,000m3 of potable
water demand. We have achieved 41,500m3 to date.
In 2017 we:
– Installed rainwater harvesting at Elliott’s Field,
Rugby
– Worked with the Brent Cross design team to
reduced operational water demand within the future
Brent Cross, London development
– Trialled extremely low-water flush toilets at
The Oracle, Reading
In 2018 we plan to:
– Roll out a utilities metering that will significantly
improve our ability to manage water demand
– Explore opportunities for expanding rainwater
harvesting across the portfolio
Socio-economic
Net Positive means making a measurable positive
impact on socio-economic issues relevant to our local
communities beyond a measured baseline.
In 2017 we:
– Calculated our socio-economic impact revealing
that our assets support over 40,000 full-time jobs,
82% of them local to the asset
– Created asset-specific dashboards of key local issues
In 2018 we plan to:
– Continue our programme of portfolio-wide
community engagement initiatives
ESG Benchmarking scores
Table 20
FTSE4Good/Sustainalytics
GRESB
DJSI
Oekom
CDP
Carbon Clear FTSE 100
EPRA sBPR Reporting
2017
91
2016
82
Green Star 4
Score 77
Green Star 4
Score 68
63
Prime
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Prime
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Gold Award
14/99
Gold Award
HAMMERSON.COM 43
STRATEGIC REPORTSUSTAINABILITY REVIEW
Sustainability review continued
A portfolio with positive social impacts
Our True Value of Retail research, published in June 2017, reveals the
scale of impact that well managed retail assets make on local economies.
For more information on our employee engagement
work see the sustainability pages of our website.
Jobs
created
40,000
Jobs to
local people
82%
Jobs to
under 25s
48%
Annual
wages
Taxes from
employment
Business rates
generated
£800m
£300m
£250m
Estimated attributable inward investment
£2.4bn
Supporting young people and enterprise
We continue our cross-portfolio relationship with Initiative France
and Pop-Up Business in the UK and Ireland. Initiative France
supported over 70 entrepreneurs to set up enterprises at Italie Deux
and Les 3 Fontaine, Cergy in Paris, in 2017.
Pop-Up Business runs two-week business skills workshops and
seminars for anyone with a business idea to help them get started.
In 2017 Pop-Up Business supported over 400 individuals with
workshops and seminars and provided an opportunity to trade in our
shopping centres. This led to over 100 small business being started.
We extended our relationship with The Teenage Market in 2017 with
seven events organised at three of our UK centres. 117 market stalls
were run by young people often getting their first taste of trading.
Developments with positive impacts
on individuals
– Westquay South – pre-employment training provided to 140
long-term unemployed people.
– Cyfarthfa Retail Park – 600 full-time equivalent retail jobs, 95% of
employees are local residents, 57% under 25 and 35% previously
unemployed.
– Six Community groups funded through the Elliott’s Field Retail
Park Community Grants Fund.
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HAMMERSON PLC ANNUAL REPORT 2017
The Teenage Market offers a free platform for young people
to showcase their creative talents by providing an
opportunity to sell products such as arts and crafts,
jewellery, clothing etc. in a market style environment at one
of our centres. In 2017, we expanded the delivery of our
Teenage Market events to new locations including Croydon
and Southampton, providing a total of 117 stalls.
“I joined The Teenage Market a year
ago. Being one of the younger traders
I was quite anxious as to how my
small range of crafts would be
received, but I was instantly made to
feel welcome and have always
achieved steady sales. I really
appreciate the opportunity to
participate in The Teenage Market,
and I love to see people’s reactions to
what I have made. My confidence,
organisational and social skills have
increased, all of which will help me in
the future.”
Ella Whitworth
Leeds Teenage Market trader
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Community Day 2017
Our ever popular Community Days ran throughout the business in
2017 with 297 staff in the UK and Ireland and 117 staff in France
participating. 27 different activities were arranged, all designed to
make a positive impact. Whether it was erecting fences, painting walls,
inspiring children to participate in sport or collecting food for a food
bank, there was plenty for people to get involved with. Just one
event with Sports Inspired kept 200 Barnet school children, and
29 Hammerson people, busy for a day playing a range of different
sports – many for the first time.
Volunteers from our new office and centre teams in Dublin spent their
first Community Day experiencing various tasks from sorting out
Lego pieces and painting in Barretstown to going out on to the streets
in Dublin to provide aid for the homeless.
The centre teams also organised a range of events, with some centres
running activities over a week. Community Day remains a popular
annual fixture with our people. Our many new starters each year are
often surprised by the enthusiasm the business shows for this event,
but the results in terms of team and relationship building, well-being
and reaffirming the importance of our culture and values are validated
each year.
Employee Engagement
The Butterfly Bank platform continues to work as a very effective
means of engaging staff across the business in sustainability and in
volunteering activities. It raises awareness, in a fun but practical way,
of what each of us can do to support a more sustainable way of living.
This seems to be engaging people very effectively with the idea that
they can do things that make a difference. For example over 500 meat
free Mondays have been inspired since April. This equates to over a
year of meat free days, saving almost two tonnes of carbon.
We have also continued to use the Butterfly Bank platform to
encourage our people to participate in a wide range of volunteering
opportunities. We have successfully extended the platform to our
suppliers with 16 contractor teams from seven of our centres now
actively involved in volunteering and personal sustainability
initiatives. In addition to Community Day, 2,227 hours of volunteering
were contributed by Hammerson UK and Ireland people in 2017.
For more information on our employee engagement
work see the sustainability pages of our website.
Hammerson volunteers give a womens’ refuge in Barnet a home
and garden makeover (June 2017)
Our Brent Cross team clean up the river Brent (June 2017)
Key numbers:
414
of Hammerson
people participated
27
Key numbers:
3,913
different events
hours of volunteering
571
meat free Mondays
achieved
HAMMERSON.COM 45
STRATEGIC REPORTSUSTAINABILITY REVIEW
PEOPLE
Our people
Culture aligned with business strategy
At Hammerson we believe our culture is vital in supporting the
delivery of our strategic priorities.
Our values; ambition, respect, collaboration and responsibility,
continue to guide our day-to-day behaviours and define how we work
with colleagues and external stakeholders. But our culture is more
than just our values. We are committed to developing a truly inclusive
environment where colleagues can bring their ‘whole self’ to work and
maximise their contribution.
In support of this objective, in 2017 we developed the next phase of
our Diversity and Inclusion strategy and this will inform our activities
through to the end of 2019. Our commitment to drive meaningful and
sustainable change in this area was also evidenced by our actions
during the course of the year with particular highlights being our
recognition of National Inclusion Week and World Day for Cultural
Diversity and the launch of our UK Shopping Centre Apprentice
Programme. This initiative, which has so far seen us employ three
apprentices across our UK portfolio, allows us to attract young people
into the property industry and for them to undertake a Level 2
accreditation in Facilities Management or Business Administration.
The Company’s culture and values are reinforced by our Code of Conduct
which includes matters associated with anti-bribery and sets the ethical
tone at Hammerson. All colleagues are expected to follow its guidance on
personal behaviour, dealing with stakeholders, anti-fraud measures, share
dealing, and security of information. In addition we have a suite of policies
in place including a Whistleblowing policy.
The Company runs an induction programme for new starters
specifically covering internal controls at which the Code of Conduct
and whistleblowing procedures are explained. In 2018 we will
introduce an online training module to augment the existing training
on anti-bribery and corruption. Colleagues will be required to
undertake the training module including a short test of their
understanding of a bribery risk and the policies and procedures in
place at Hammerson. Colleagues are also required to keep a gifts and
entertainments register in which they record gifts and entertainments
offered to or received from third parties.
46
HAMMERSON PLC ANNUAL REPORT 2017
Headcount
Group
UK and Ireland
449
587
Voluntary staff turnover
France
138
Group
12.0%
UK and Ireland
13.2%
France
8.7%
These are reviewed from time to time by the General Counsel and
Company Secretary to ensure that gifts and entertainments are of an
acceptable level.
The Company subscribes to the independent charity Public Concern
at Work so that colleagues may have free access to its confidential
helpline and counselling service.
See the Risks section on page 61, the Audit Committee
report on page 85 and the section on compliance with
the UK Corporate Governance Code on page117.
A positively engaged team
Growth in recent years has seen our headcount increase and by the
end of 2017 Hammerson directly employed 587 people across the UK,
France and Ireland.
We go to great lengths to attract the best people available and
retaining and developing talent remains a key objective. To this end
we continue to monitor voluntary employee turnover and, in the
12 months to December 2017, this figure stood at 10% for our UK and
Ireland property and corporate teams. In France, the corresponding
figure was 8.7% and within our UK shopping centre operations
business we experienced 18.2% churn; a figure that continues to track
below our 20% objective for this area of the organisation.
Such high levels of retention continue to provide the solid foundation
from which our employees grow, develop and fulfil their potential.
But we recognise that employee engagement is more than simply
retaining people; it is about ensuring they remain highly motivated
and positively engaged with the business as a whole.
We continue to measure this through our annual employee survey
where we have set ourselves the target to achieve a positive
engagement score – as measured by the Great Place to Work Trust
Index – of at least 70%. In 2017 we achieved a score of 71% for our
UK and Ireland business and 72% in France. Furthermore, just over
75% of our employees responded positively to the key engagement
statement “taking everything into account I would say this is a great
place to work”.
Enhanced management information now allows us to consider the
results of the survey in more detail and we were delighted to see that
many functions across the Group achieved engagement scores greater
than 80%. This proves to us what can be achieved and ensures we
remain focused on improving engagement still further throughout
the organisation.
Employee survey highlights
– Over 80% employee
participation
– 71% Trust Index Score in
UK and Ireland
– 72% Trust Index Score in
France
– 75% of employees state
Hammerson is “a great place
to work”
– Lowest ever gender
differential in engagement
scores; down to 1%
During the course of 2017 we continued to develop our internal
communications strategy. In November we launched our new Group
Intranet as well as OnDemand, our new internal communications
brand. In addition, employees were kept well informed on a wide
range of business matters via regular presentations, management
briefings and intranet announcements
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Developing talent and planning for the future
The competition for talent within the European real estate market is
tougher than ever and the need for us to develop our own talent
pipeline has never been greater. For some years our response to this
challenge has been to invest heavily in our people; from the junior
surveyors on our UK Graduate Programme to senior managers
looking to develop their skills and further their careers.
In support of this, 2017 was a year in which we significantly improved
our training and development offering to the business whilst
continuing to focus heavily on senior management succession.
In the summer we launched the Hammerson Learning Management
System (LMS) to our UK and Ireland business. This platform enables
us to host a broad suite of e-learning materials which colleagues are
encouraged to use for professional and personal development.
Furthermore, the LMS provides a direct link to QA Training’s
extensive menu of personal development and management
programmes; the utilisation of which increased significantly during the
year. In the future, we will use the LMS across the entire Group and use
it to improve our induction and on-boarding programmes as well as
offering a one-stop-shop for all statutory and compliance training.
Throughout 2017 we maintained the Group’s senior management
succession plan and this was reviewed with the Board as part of our
established governance. Our meaningful investment of time and
energy in this area once again yielded positive results and all of our
senior management vacancies were filled with internal candidates.
This was particularly satisfying within our Paris office where,
following the departure of two senior managers, we were able to
restructure the management team by promoting talent from within.
Ever more inclusive
Our objective to develop a more inclusive business is well established.
It is also supported by pragmatic activities; all designed to deliver
sustainable change for the benefit of our customers, partners,
employees and shareholders.
During 2017 we continued to implement our Diversity and Inclusion
strategy whilst developing our plans for the next two years. As part of our
objective to improve female representation in senior management roles
we increased our target slightly from 30% to 33%; aligned with the
voluntary objective set by the Hampton-Alexander review. By the end of
the year female colleagues occupied 33.3% of such roles across our UK
and Ireland management team. The position in France continues to be
more challenging where only one of our 11 senior managers is female.
In looking to the future, we have previously stated an objective that
at least 30% of the senior management roles on the Group’s senior
management succession plan have female colleagues identified
as potential successors within the medium term (ie. 1-3 years).
This target has also been increased to 33% and, as at the end of 2017,
35.1% of these roles had female successors identified.
Whilst the attention given to gender representation in senior
management roles is understandable, we remain focused on ensuring
that female colleagues are well represented in the Group’s
‘professional’ level roles. This enables us to benefit from greater
diversity on a day-to-day basis and also ensures we are well placed to
achieve the objectives stated above. As at the end of 2017, 47% of the
Group’s professional positions were filled by female colleagues;
something we are immensely proud of.
HAMMERSON.COM 47
People continued
We are mindful that healthy gender representation in itself does not
make an organisation truly inclusive and, in looking to support both
male and female parents, we significantly improved our maternity and
shared parental leave policies and terms in 2017. Furthermore, we
continue to promote the benefits of flexible working for all of our
colleagues and, as at December 2017, over 6% of our workforce have
an agreed flexible working arrangement in place.
As a matter of course, we welcome and fully consider all suitable
applications for employment, irrespective of gender, race, ethnicity,
religion, age, sexual orientation or disability. All employees are eligible
to participate in career development and promotion opportunities.
Support also exists for employees who become disabled to continue in
their employment or to be retrained for other suitable roles.
Gender pay gap reporting
Following legislation introduced by the UK government, companies
with more than 250 UK employees are now required to publish their
gender pay gap. This is an important step as the requirement for
organisations to be more transparent about pay should highlight
unfair practices and speed up the process of putting them right.
We are not required to report our gender pay gap as neither of our UK
employment entities employs more than 250 people. However, with a
combined UK headcount of almost 400, we are committed to striving
for gender equality across the business and our decision to publish is a
clear demonstration of this commitment. The tables below show the
gender pay picture for Hammerson in accordance with the
government requirements.
Chart 21
All employee numbers and
gender split
Chart 22
Board
286
301
Chart 23
Chart 24
Senior management
(excluding Board)
Shopping Centre General
Managers
30
11
Male
Female
8
2
13
7
Table 25
Pay element
Difference in mean hourly rate of pay
Difference in median hourly rate of pay
Proportion of male employees who received bonus pay
Proportion of female employees who received bonus pay
Difference in mean bonus pay
Difference in median bonus pay
% difference
47.1%
35.6%
91.1%
89.6%
66.6%
48.6%
We are mindful that these figures suggest that a significant pay gap
exists between male and female employees at Hammerson. However,
this is a consequence of male employees occupying the majority of UK
senior management roles. This is illustrated by the quartile
distribution below:
Table 26
Quartile split
Lower
Lower middle
Upper middle
Upper
% Male
% Female
21.7
38.5
58.7
63.7
78.3
61.5
41.3
36.3
For some years we have undertaken our own internal pay audit,
albeit based on a slightly different formula to that required by the UK
government for gender pay gap reporting purposes. At the heart of this
analysis has been consideration of the salaries paid to male and female
colleagues carrying out like-for- like work and we have always been
satisfied that this demonstrates the fair pay and reward practices that
exist within the Company.
We are committed to reducing our gender pay gap over time and our
on-going efforts to foster an inclusive culture will help us to achieve
this. In addition, we will continue to leverage our competency based
selection processes to ensure that we recruit and promote female
talent within the business. We strongly believe that this approach
will result in increased female representation in more of our more
highly paid senior management positions in the future.
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PROPERTY PORTFOLIO REVIEW
Stable investment markets
Investment markets
Investment markets for the Group’s property sectors have remained broadly stable during the year, with yields largely unchanged.
For UK shopping centres, transaction volumes totalled £1.6 billion in 2017, approximately 40% lower than 2016. The key transactions were a 7.5%
stake in Bluewater, Kent and a 50% stake in intu Chapelfield, Norwich. Whilst the year was less active, there was still demand for high-quality
centres from sovereign wealth funds, REITs and institutional investors and yields were unchanged for this type of asset during 2017. Demand for
more secondary centres has been subdued and these properties have suffered outward yield movements of 25-75 basis points.
Investment transactions for the UK retail parks market totalled £2.7 billion in 2017, approximately 10% higher than in 2016. Investors have
remained selective, favouring lot sizes of less than £50 million where yields have remained stable, with some inward yield shift for the best parks.
UK funds have been the most active buyers in the market, although few large schemes have transacted during the year and a number of these have
suffered outward yield shift of 25-50 basis points.
In France, as with 2016, there were relatively few shopping centre transactions with total volumes of €1.0 billion (2016: €0.8 billion). This was
largely due to a lack of sellers in the market and demand for high-quality centres remained strong with yields at record low levels of 3.5%-4.5%.
In Ireland, investment markets remained active and although volumes were approximately 50% lower than in 2016, they remained higher than
recent average levels. Foreign investors accounted for approximately 35% of acquisitions and yields for high-quality Dublin shopping centres
remained unchanged in 2017 at approximately 4.0%-5.0%.
The European outlets sector has again witnessed strong investor demand, with volumes of €1.1 billion in 2017 (2016: €1.6 billion). As with the
Group’s other property sectors, investment yields have remained stable, with those for the best European outlet centres ranging from 4.5%-5.5%.
Portfolio valuation
The Group’s total portfolio, including premium outlets, was valued at £10,560 million at 31 December 2017, an increase of £589 million or 5.9%
during 2017. Movements in the portfolio valuation are shown in Table 27.
Table 27
Movement in portfolio value
Proportionally consolidated, including premium outlets
Value at 1 January 2017
Revaluation (losses)/gains on properties
Additions
Acquisitions
Capital expenditure
Disposals
Capitalised interest
Exchange
Value at 31 December 2017
Investment
£m
Development
£m
Total
(excl. Outlets)
£m
7,885
(3)
149
109
258
(507)
–
117
7,750
397
24
110
41
151
(1)
1
4
576
8,282
21
259
150
409
(508)
1
121
8,326
Premium
outlets
£m
1,689
225
238
41
279
–
–
41
2,234
Total
Group
£m
9,971
246
497
191
688
(508)
1
162
10,560
Acquisitions
During 2017, acquisition expenditure totalled £497 million and the principal transactions were:
– the acquisition of a 50% co-ownership in Pavilions shopping centre, Swords in north Dublin for £123 million in September. This was the final
conversion to property ownership of the Irish loan portfolio acquired in October 2015 and required an additional cash payment of £56 million
in 2017 (see page 154 of the Financial Statements for further details). The 45,400m2 centre generates passing rent of £7 million (50% share)
and is anchored by Dunnes Stores with more than 90 stores and restaurants, an 11-screen cinema and 2,000 car parking spaces.
– in October we acquired Cergy 3 shopping centre which is adjacent to our existing Les 3 Fontaines centre in Cergy Pontoise in north west Paris
for a cost of €81 million (£72 million). The 11,000m2 centre is anchored by Fnac and has 46 units. A major extension project has recently
started on the existing scheme (see page 36) and we are able to manage the leasing and customer services across both centres to enhance the
overall customer experience.
– three premium outlet centres acquired by VIA Outlets: Zweibrücken Fashion Outlet on the Germany/France border in February; Vila do Conde,
Porto in March and Norwegian Outlet, Oslo in September. The Group’s share of the acquisition costs was £238 million, which required a cash
payment of £130 million with the remainder being funded from secured bank finance. The former two centres were part of a portfolio of four
properties acquired from the IRUS fund, where the acquisition of the other two centres completed in December 2016. Norwegian Outlet in Oslo is a
fully-let 13,300m2 centre with 77 units occupied by international brands including Diesel, Gant, Guess, Hugo Boss and Superdry. Since acquisition,
work has been undertaken to improve the marketing strategy, tenant mix and the centre’s aesthetics to enhance the customer experience.
HAMMERSON.COM 49
Property portfolio review continued
Capital expenditure
In 2017, capital expenditure totalled £191 million. Table 28 shows the expenditure on a sector basis and also analyses the spend between the
creation of additional area and the creation of value through the enhancement of existing space.
Table 28
Capital expenditure analysis
Proportionally consolidated, including premium outlets
Capital expenditure – creating area
Capital expenditure – no additional area
Tenant incentives
UK shopping
centres
£m
UK retail parks
£m
France
£m
Ireland
£m
Developments
and UK other
£m
Premium outlets
£m
Group
£m
7
23
(2)
28
29
19
(2)
46
10
22
–
32
1
1
–
2
20
22
–
42
26
10
5
41
93
97
1
191
Capital expenditure on UK shopping centres totalled £28 million, with the most significant improvement projects including works to reconfigure
the former House of Fraser store at Highcross (see page 29 for further details) and a new 2,750m2 Next store at The Oracle.
£46 million was incurred on UK retail parks, with the main projects creating area being the second phase of development at Elliott’s Field, Rugby
and an extension project at Kirkcaldy (see page 31). Expenditure classified as not creating additional area principally related to the redevelopment
of Parc Tawe, Swansea and further details are provided on page 36.
In France, the most significant projects included the creation of the theatre at Italie Deux, Paris (see page 35) and reconfiguration works at Place
des Halles, Strasbourg which were completed prior to the disposal of the centre in December.
Capital expenditure on Developments and the UK other portfolios totalled £42 million of which £41 million was on the Group’s development
properties. In the table above, expenditure on the Orchard Centre, Didcot is classified as creating area and costs incurred working up the future
major development projects at Brent Cross and Croydon are classified as creating no additional area until works start on-site. Further details of
these projects are included in the Business Review on pages 36 and 37.
For Premium outlets, capital expenditure totalled £41 million, of which £20 million was incurred by Value Retail and £21 million by VIA Outlets.
The schemes classified as creating area were the extensions at Bicester Village, Freeport Lisbon Fashion Outlet and Batavia Stad Amsterdam
Fashion Outlet. Other capital expenditure includes tenant incentives of £5 million with the remaining expenditure incurred across both outlet
portfolios to enhance the existing and recently acquired properties.
Disposals
Disposals totalled £508 million during 2017, or £416 million after deducting the 35.5% non-controlling interest in Place des Halles, Strasbourg.
We therefore achieved our disposal target of £400 million announced at the beginning of 2017 and the three principal disposals during the
year were:
– in July, we sold Westwood and Westwood Gateway Retail Parks in Thanet for total proceeds of £80 million reflecting a net initial yield of 6.5%.
The Group acquired the Westwood Retail Park in 2002 and repositioned the asset through extensions and tenant engineering. In 2005, the
adjacent Westwood Gateway was constructed and since the original acquisition, we created a total of 15,000m2 of lettable space and increased
rental income by over 200%.
– in November, we announced the disposal of Place des Halles, Strasbourg for total proceeds of €291 million (£258 million), of which the Group’s
64.5% share was €188 million (£166 million). The disposal of the 41,600m2 centre completed in late December.
– also in December, we announced the sale of Saint Sébastien, Nancy for €162 million (£143 million) of which £129 million of the disposal was
completed and funds were received by the year end. The Group acquired the 24,000m2 shopping centre in 2014 for €130 million (£109 million)
and repositioned the centre through a renovation project and an enhanced tenant mix.
These latter two disposals are consistent with our strategy of focusing our French portfolio on our three wholly-owned major shopping centres
being Les 3 Fontaines and Italie Deux, both in Paris, and Les Terrasses du Port in Marseille.
To support the recently announced intu acquisition we will continue with our capital recycling strategy and are targeting disposals of
£500 million in 2018. We have already sold two UK retail parks: Battery Retail Park in Birmingham for £57 million and Wrekin Retail Park in
Telford for £35 million. These disposals were in line with December 2017 valuations.
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Valuation change
Table 29 below analyses the sources of the valuation change for the Group’s property portfolio, including premium outlets, during 2017.
Table 29
Components of valuation change
Proportionally consolidated, including premium outlets
UK shopping
centres
£m
UK retail parks
£m
France
£m
Ireland
£m
Developments
and UK other
£m
Premium outlets
£m
Group
£m
Yield
Income
Development and other
7
37
(20)
24
(32)
(1)
6
(27)
2
6
(19)
(11)
3
36
(41)
(2)
4
6
27
37
24
198
3
225
8
282
(44)
246
During 2017, the Group’s portfolio achieved a revaluation gain of £246 million of which income growth generated an uplift of £282 million.
In the UK, shopping centres produced a gain of £24 million with increases at Bullring, Westquay and Union Square. UK retail parks incurred a
deficit of £27 million, principally due to outward yield shift at a number of parks.
The underlying value of the French portfolio decreased by £11 million, principally due to the recognition of additional purchasers’ costs at
Les Terrasses du Port.
The Irish assets recorded a valuation deficit of £2 million. This reflected a £46 million adverse movement associated with an increase in Irish
stamp duty, announced in October, from 2% to 6%. This adverse valuation change was largely offset by the impact of income growth from leasing
activity at Dundrum Town Centre and Ilac shopping centre totalling £36 million.
Developments and UK other properties produced a surplus of £37 million, of which £24 million was from the Development portfolio and was
principally associated with the progress made on the 33,000m2 Les 3 Fontaines extension. UK other properties generated a surplus of £13 million
with the most significant change at our Bristol High Street properties following a re-gear of the head lease.
Premium outlets performed strongly, achieving a surplus of £225 million, including significant income growth of £198 million. The Value Retail
Villages produced a surplus of £198 million, predominately from Bicester Village. VIA Outlets generated a revaluation surplus of £27 million with
the largest increases at Batavia Stad Amsterdam Fashion Outlet and Fashion Arena Prague Outlet. The surplus was suppressed due to the
recognition of acquisition related costs on the three acquisitions completed in the year.
Further valuation, returns and yield analysis is included in Tables 99 and 100 in the Additional Disclosures on page 181.
ERV growth
Table 30
Like-for-like ERV growth
Proportionally consolidated, excluding premium outlets
2017
2016
UK shopping
centres
%
UK retail parks
%
0.9
1.6
(0.1)
0.2
France
%
0.9
(2.2)
Group
investment
portfolio
%
0.9
–
Ireland
%
2.7
9.0
The UK other portfolio is not shown above and produced like-for-like ERV growth of 1.6% (2016: -1.2%).
Like-for-like ERV at the Group’s investment properties grew by 0.9% in 2017 compared to no growth in 2016.
ERV growth at UK shopping centres was 0.9%, lower than the 1.6% growth achieved in 2016. The strongest performing centres were Bullring, The
Oracle and Westquay where ERVs grew by more than 2%. ERVs at Silverburn fell by 3% associated with a number of lease expiries at the centre.
ERV at UK retail parks reduced by 0.1%. The recognition of growth continues to be hindered by the high occupancy levels across the portfolio
which act to minimise the opportunity to prove new rental levels to the valuers.
ERVs in France increased by 0.9%, with Les Terrasses du Port achieving growth of 3.1% associated with the strong leasing performance and
enhanced tenant mix at the centre in 2017.
Ireland produced the highest level of growth at 2.7%, having generated 9.0% in 2016 following the initial loan conversions in the second half of
2016. All three shopping centres achieved like-for-like ERV increases with Dundrum Town Centre generating growth of 2.9%.
HAMMERSON.COM 51
Property portfolio review continued
Returns
Property returns
Table 31
Property returns analysis
Proportionally consolidated, including premium outlets
Income return
Capital return
Total return
UK shopping
centres
%
UK retail parks
%
4.5
0.7
5.2
5.4
(2.5)
2.8
France
%
4.4
(1.3)
3.1
Ireland
%
Developments
%
Premium outlets
%
Group
%
4.0
0.2
4.2
2.1
4.7
6.9
4.8
11.5
16.8
4.5
2.2
6.8
The UK other portfolio is not shown above and produced an income return of 5.2%, a capital return of 8.8% and a total return of 14.5%.
The Group’s property portfolio generated a total return of 6.8% in 2017, reflecting a capital return of 2.2% and an income return of 4.5%. The best
performing sector was Premium outlets which generated a total return of 16.8%, principally due to the revaluation surplus of £225 million across
the two outlet portfolios.
We compare the individual portfolio returns against their respective IPD benchmarks and compare the Group’s portfolio against a weighted
60:40 UK All Retail Universe:Bespoke Europe (excluding UK) All Retail Universe index. These indices include returns from all types of
retail property.
As neither annual IPD benchmarks are available until after this Annual Report has been published, it is not yet possible to accurately estimate the
Group’s comparative performance. The UK IPD Quarterly All Retail Universe to December 2017 is available and reported a total return of 6.9%,
200 basis points higher than the Group’s UK portfolio return of 4.9%. The Quarterly IPD index included a total return of 2.9% for Shopping
centres, 8.4% for Standard shops and 7.5% for Retail warehouses. Compared to the quarterly index, the Group’s shopping centres outperformed
their comparative IPD index by 230 basis points, whilst UK retail parks underperformed due to a number of the Group’s larger parks suffering
outward yield shift as investors favoured smaller lot size parks in 2017.
In 2017, the Reported Group portfolio (see Financial Review on page 53 for explanation) produced a total return of 4.2%, whilst properties held by
our joint ventures and associates generated a total return of 8.8%. The performance of the latter portfolio was boosted by the strong return from
Premium outlets. An analysis of the capital and total returns by business segment is included in Table 99 on page 181.
Shareholder returns
Table 32
Return
Total shareholder return over one year
Total shareholder return over three years p.a.
Total shareholder return over five years p.a.
% Benchmark
(0.4) FTSE EPRA/NAREIT UK index over one year
0.4 FTSE EPRA/NAREIT UK index over three years p.a.
6.2 FTSE EPRA/NAREIT UK index over five years p.a.
%
12.7
4.9
11.7
For the year ended 31 December 2017, the Group’s return on shareholders’ equity was 8.3%, which compares to the Group’s estimated cost of
equity of 8.2%. The income element of the return on equity tends to be relatively low given the high-quality nature of the Group’s property
portfolio. The capital element of the return was driven by the portfolio’s valuation performance during the year.
Hammerson’s total shareholder return for 2017 was -0.4%, which represents an underperformance of the FTSE EPRA/NAREIT UK index by
13.1 percentage points as the wider index has risen relative to the Company’s subdued share price performance during 2017. Over the last five
years, the Group’s average annual total shareholder return has been 6.2%, compared to 11.7% for the FTSE EPRA/NAREIT UK index.
52
HAMMERSON PLC ANNUAL REPORT 2017
FINANCIAL REVIEW
Delivering consistent financial
performance
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IFRS profit for
the year*
£388.4 million
(+22.4%)
Adjusted EPS1
31.1p
(+6.5%)
Shareholders’
funds*
£6,024 million
(+4.3%)
EPRA NAV per
share2
£7.76
(+5.0%)
Dividend per share
25.5p
(+6.3%)
Cost ratio3
21.6%
(2016: 22.6%)
* Attributable to equity shareholders.
1. See note 10B to the financial statements for calculation.
2. See note 10D to the financial statements for calculation.
3. See Table 98 on page 180 for further analysis.
Further explanation of the accounting treatments of the Group’s
different types of ownership is provided in note 1 to the financial
statements on page 136 and in the Glossary on pages 194 and 195.
Alternative Performance Measures (APMs)
The Group uses a number of APMs, being financial measures not
specified under IFRS, to monitor the performance of the business.
These include a number of the Group’s key performance indicators on
pages 18 and 19. Many of these measures are based on the EPRA Best
Practice Recommendations (BPR) reporting framework which aims
to improve the transparency, comparability and relevance of the
published results of listed European real estate companies. The
Group’s key EPRA metrics are shown in Table 92 within the
Additional Disclosures section on page 177.
For other APMs, the Financial Review and Additional Disclosures
sections contain supporting information, including reconciliations to
the IFRS financial statements. Definitions for APMs are also included
in the Glossary.
HAMMERSON.COM 53
“The Group has again produced strong earnings
and net asset growth. We have also completed
significant refinancing activity to boost liquidity
and reduce the average cost of debt.”
Timon Drakesmith, Chief Financial Officer and
Managing Director, Premium outlets
Presentation of financial information
The information presented in this Financial Review is derived from
the Group’s financial statements, prepared under IFRS. A significant
proportion of the Group’s property interests is held in conjunction
with third parties in joint ventures and associates. Under IFRS,
the results and net investment in these holdings are equity accounted
and presented within single lines in the income statement and
balance sheet.
The Group has property interests in a number of sectors and
management reviews the performance of the Group’s property
interests in shopping centres, retail parks, UK other properties and
developments on a proportionally consolidated basis to reflect the
Group’s different ownership shares. Management does not
proportionally consolidate the Group’s premium outlet investments
in Value Retail and VIA Outlets, which are externally managed by
experienced outlet operators, independently financed and have
operating metrics which differ from the Group’s other sectors. Except
for property valuation and returns, we review the performance of our
premium outlet investments separately from the proportionally
consolidated portfolio. The key financial metrics for our premium
outlets are: income growth; earnings contribution; property
valuations and returns; and capital growth.
Within the Financial Review, the Group Financial Statements and the
Additional Disclosures, properties which are wholly owned or where
the Group’s share is in a joint operation, are defined as being held by
the ‘Reported Group’, whilst those in joint ventures and associates are
defined as ‘Share of Property interests’.
Financial review continued
Profit for the year
The Group’s IFRS profit for the year, attributable to equity shareholders, was £388.4 million, £71.1 million higher than for the prior year. This was
principally due to higher revaluation gains on the Group’s premium outlets portfolio which generated a net revaluation gain of £225.2 million in
2017 compared with £138.4 million in 2016.
Management principally reviews the Group’s profit on an adjusted basis to monitor the Group’s underlying earnings as it excludes capital and
non-recurring items such as valuation movements, gains or losses on the disposal of properties and other one-off exceptional items. This
approach is consistent with other property companies and we follow EPRA guidance to calculate adjusted figures. A reconciliation of IFRS profit
to adjusted profit for the year is shown in Table 33.
Table 33
Reconciliation of IFRS profit for the year to adjusted profit for the year
Proportionally consolidated, including premium outlets
IFRS profit for the year attributable to equity shareholders
Adjustments:
Loss on sale of properties*
Recycling of net exchange gain on disposal of foreign operations, net of non-controlling interest s
Net revaluation (gains)/losses on property portfolio*
Net revaluation gains on premium outlet properties
Debt and loan facility cancellation costs*
Change in fair value of derivatives*
Deferred tax on premium outlets
Other adjustments
Adjusted profit for the year (note 10B)
Adjusted EPS, pence
* Proportionally consolidated.
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
388.4
317.3
15.5
(8.2 )
(21.3)
(225.2)
41.5
21.3
35.0
(0.7)
246.3
31.1
24.0
–
13.4
(138.4)
0.4
2.7
14.3
(3.0)
230.7
29.2
Analysis of the Group’s IFRS income statement split between underlying ‘Adjusted’ profit and ‘Capital and other’ profit is shown in note 2 of the
financial statements on page 139 and further details of the EPRA adjustments are provided in note 10B of the financial statements on page 146.
Adjusted profit
The Group’s adjusted profit for 2017 was £246.3 million, £15.6 million or 6.8%, higher than in 2016. Table 34 bridges adjusted profit and adjusted
EPS between the two years. The movements in each line are shown at constant exchange rates with the impact of foreign exchange movements
included in ‘Foreign exchange and other’. Explanations of the movements are provided later in this Financial Review.
Table 34
Reconciliation of adjusted profit for the year
Including premium outlets
Adjusted profit – Year ended 31 December 2016
Net rental income:
Acquisitions
Disposals
Development and other
Like-for-like portfolio
Increase in net administration expenses
Decrease/(Increase) in net finance costs
Increase in premium outlets earnings
Tax and non-controlling interests
Foreign exchange and other
Adjusted profit – Year ended 31 December 2017
54
HAMMERSON PLC ANNUAL REPORT 2017
Reported
Group
£m
62.6
2.8
(15.3)
5.3
1.7
(5.5)
(1.9)
4.1
–
0.2
0.1
59.6
Share of
joint ventures
Share of
associates
Adjusted profit
for the year
Adjusted EPS
£m
143.2
19.8
–
1.1
1.0
21.9
(0.1)
(15.0)
6.7
0.8
3.2
£m
24.9
–
–
–
–
–
–
–
0.9
–
0.2
160.7
26.0
£m
230.7
22.6
(15.3)
6.4
2.7
16.4
(2.0)
(10.9)
7.6
1.0
3.5
246.3
pence
29.2
2.9
(1.9)
0.8
0.3
2.1
(0.2)
(1.4)
1.0
0.1
0.3
31.1
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Net rental income
Table 35
Analysis of net rental income
Proportionally consolidated, excluding premium outlets
Like-for-like investment properties
Acquisitions
Disposals
Developments and other
Foreign exchange
Net rental income
Reported
Group
£m
Share of Property
interests*
£m
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
179.4
9.0
21.9
12.3
–
222.6
101.8
33.4
0.1
12.5
–
147.8
281.2
42.4
22.0
24.8
–
370.4
278.5
19.8
37.3
18.4
(7.5)
346.5
Change
£m
2.7
22.6
(15.3)
6.4
7.5
23.9
* Share of Property interests includes £1.4 million of like-for-like net rental income from Nicetoile which is accounted for as an associate (see note 13 of the financial statements).
In 2017, net rental income (NRI) increased by £23.9 million to £370.4 million, or by £16.4 million at constant exchange rates. The like-for-like
portfolio produced additional income of £2.7 million, with the most significant contributions from The Oracle, Silverburn, Les Terrasses du Port
and Les 3 Fontaines. UK retail parks suffered a £1.6 million, or 2.5%, like-for-like NRI reduction associated with £3.2 million of surrender
premiums received in 2016. Like-for-like growth on the Reported Group properties was 0.9%, whilst for properties held by the Group’s
proportionally consolidated joint ventures and associates, growth was 1.1%.
In 2017 the Group’s growth in like-for-like NRI KPI on page 18 of 1.7% includes the performance of our Irish shopping centres where the
underlying net rental income received in 2016 prior to the conversion to property ownership of the secured loans was treated as finance income.
The like-for-like NRI performance by sector is further explained in the Business Review on pages 28 to 40.
Acquisitions generated £22.6 million of additional income which relates to the conversion of the Irish loan portfolio to real estate in 2016 and
2017. Disposals reduced income in 2017 by £15.3 million, reflecting the sales in 2016 of 50% of Grand Central, Birmingham; Villebon 2, Paris and a
number of UK retail parks (Manor Walks and Westmorland, Cramlington; Thurrock Shopping Park, Essex) and Westwood and Westwood
Gateway Retail Parks in July 2017. Developments increased net rental income by £6.4 million following the completion of Victoria Gate, Leeds
and the leisure extension at Westquay South, Southampton towards the end of 2016. Further analysis of net rental income is provided in Tables
93 and 96 of the Additional Disclosures on pages 178 and 179 respectively.
Administration expenses
Table 36
Administration expenses analysis
Proportionally consolidated, excluding premium outlets
Employee and corporate costs
Management fees receivable
Net administration expenses*
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
61.0
(12.1)
48.9
54.6
(8.5)
46.1
* In 2017, £0.5 million (2016: £0.4 million) of the Group’s proportionally consolidated administration expenses related to the Group’s Share of Property interests.
At £48.9 million, net administration expenses increased by £2.8 million, or £2.0 million at constant exchange rates. This resulted from higher staff
costs to support our new Irish operations and the delivery of the major developments in London and Paris. Whilst headcount numbers were
broadly unchanged during 2017, average staff costs increased as head office recruitment was offset by the transfer, to a third party operator, of a
team of operational staff at Dundrum Town Centre in the first half of 2017. The increase in employee and corporate costs of £6.4 million was
partly offset by £3.6 million higher management fee income, principally from our Irish and UK shopping centre joint ventures.
Our accounting policy is to capitalise the cost of staff working directly on on-site development projects. In 2017 only £0.1 million of staff costs
were capitalised on the Group’s on-site retail park development schemes, compared with £1.6 million in 2016 when both Victoria Gate, Leeds and
Westquay South, Southampton were completed.
Cost ratio
The EPRA cost ratio for the year ended 31 December 2017 was 21.6%, 100 basis points lower than 2016. Compared with the prior year ratio, the
administration expenses element of the ratio remained unchanged at 11.9%, whilst the property costs element has fallen from 10.7% to 9.7%. The
reduction in the property costs ratio is associated with lower vacancy and bad debt costs in 2017. The downward trend in the ratio reflects
management’s continued focus on delivering operating efficiencies across the Group. The calculation of the cost ratio is included as Table 98 of
the Additional Disclosures on page 180.
HAMMERSON.COM 55
Financial review continued
Loss on sale of properties and recycling of net exchange gains
During 2017, we sold five properties raising proceeds, after deducting selling costs, of £399 million, and 74% of the proceeds related to the sales of
Place des Halles, Strasbourg and Saint Sébastien, Nancy. Compared to their valuations at 31 December 2016, these five disposals resulted in a loss
of £15.5 million, or 3.7%. The losses principally related to Westwood and Westwood Gateway Retail Parks, Thanet and Saint Sébastien, Nancy.
Following the sale of Place des Halles, Strasbourg and Saint Sébastien, Nancy in late 2017, £27.8 million of net exchange gains previously
recognised in equity have been recycled in the income statement. The majority of this figure related to the sale of Place des Halles, Strasbourg
where there was a 35.5% non-controlling interest. After taking account of the non-controlling interest, the recycled net exchange gains
attributable to equity shareholders was £8.2 million and this has been excluded from the Group’s adjusted earnings.
Potential business acquisition costs
The Group recognised £6.5 million of costs in relation to professional advisor fees to support the acquisition of intu properties plc which was
announced on 6 December 2017. These costs have been excluded from the Group’s adjusted earnings and further details of this major acquisition
are provided in the Chief Executive’s Review on page 12.
Share of results of joint ventures and associates, including investments in premium outlets
The Group has interests in 15 joint ventures and the share of the results of joint ventures under IFRS for the year ended 31 December 2017 was
£180.5 million (2016: £169.2 million). Further details are provided in note 12 to the financial statements.
As explained at the beginning of the Financial Review on page 53, for management reporting purposes we review the Group’s property portfolio
on a proportionally consolidated basis, to reflect the Group’s different ownership shares. We do not proportionally consolidate the Group’s
premium outlet investments in Value Retail (VR) and VIA Outlets (VIA). These are externally managed by experienced outlet operators,
independently financed and have operating metrics which differ from the Group’s other properties. Due to the differing nature of the Group’s
control, VIA is accounted for as a joint venture and VR is accounted for as an associate.
Table 37 below shows the contribution to the Group’s adjusted profit from joint ventures and associates, split between the proportionally
consolidated properties and the investments in premium outlets.
Table 37
Contribution to adjusted profit
Share of results – IFRS
Revaluation gains on properties
Other adjustments
Total adjustments
Adjusted earnings contribution
Analysed as:
Share of Property interests
Premium outlets
Joint ventures
(incl. VIA)
£m
Associates
(incl. VR)
£m
Year ended
31 December
2017
Total
£m
Joint ventures
(incl. VIA)
£m
Associates
(incl. VR)
£m
Year ended
31 December
2016
Total
£m
180.5
(46.3)
26.5
(19.8)
160.7
147.5
13.2
223.0
(198.3)
1.3
(197.0)
26.0
1.4
24.6
403.5
(244.6)
27.8
(216.8)
186.7
148.9
37.8
169.2
(29.1)
3.1
(26.0)
143.2
137.0
6.2
137.1
(120.6)
8.4
(112.2)
24.9
1.3
23.6
306.3
(149.7)
11.5
(138.2)
168.1
138.3
29.8
Adjusted earnings from the Share of Property interests increased by £10.6 million primarily due to increased income from Dundrum Town
Centre and Grand Central, in which the Group sold a 50% interest in December 2016.
Adjusted earnings from premium outlets of £37.8 million were £8.0 million higher than in 2016, or £7.6 million at constant exchange rates. The
Group’s share of VIA earnings increased by £7.0 million due principally to acquisitions including Zweibrücken Fashion Outlet and Vila do Conde
Porto Fashion Outlet in the first half of 2017 and the Wroclaw, Seville and Mallorca Fashion Outlets in the second half of 2016. VR’s earnings
increased by £1.0 million as strong net rental income growth was partly offset by higher finance and administration costs, the latter associated
with the enhanced management structure implemented in 2016.
Further details of the Group’s joint ventures and associates are shown in notes 12 and 13 to the financial statements respectively. The operating
performance of our premium outlets is described in the Business Review on pages 38 to 40 and the combined profit contribution is in Table 103 of
the Additional Disclosures on page 183.
56
HAMMERSON PLC ANNUAL REPORT 2017
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Finance costs
Net finance costs, calculated on a proportionally consolidated basis, as shown in note 2 to the financial statements, totalled £170.4 million in 2017,
compared with £96.6 million in 2016. The increase is principally due to the exceptional cost of £41.1 million to redeem the £250 million 2020
6.875% bonds in October 2017 which is included in the Debt and loan facility cancellation costs of £41.5 million (2016: £0.4 million).
Adjusted finance costs, which excludes items such as the change in fair value of derivatives and debt cancellation costs, totalled £107.6 million in
2017, an increase of £14.1 million, or £10.9 million at constant exchange rates. The increase principally arose from reduced finance income
following the conversion of the Irish loans to property in 2016 and 2017 and the reduction in loans to Value Retail in the second half of 2016.
Interest capitalised on a number of retail park development schemes totalled £0.8 million in 2017, which was £4.3 million lower than in 2016
when both Victoria Gate, Leeds and Westquay South, Southampton were completed.
The supporting calculation for adjusted finance costs is shown in Table 106 of the Additional Disclosures on page 185.
Tax
The Group has tax exempt status in the UK, France and Ireland and is exempt from corporation tax on rental income and gains arising on property
sales. The current tax charge in 2017 was £1.8 million, £0.9 million lower than 2016, as the prior year included a number of one-off charges.
We publish guidance explaining the Group’s tax strategy and have updated this for 2018 and ‘Hammerson’s Approach to Tax for the year ending
31 December 2018’ is on the Group’s website www.hammerson.com.
Dividends
The Directors have proposed a final dividend of 14.8 pence per share. Together with the interim dividend of 10.7 pence, the total for 2017 is
25.5 pence, representing an increase of 6.25% compared with the prior year. The final dividend is payable on 26 April 2018 to shareholders on the
register at the close of business on 16 March 2018. 7.4 pence will be paid as a PID, net of withholding tax where appropriate, with the balance of
7.4 pence paid as a normal dividend.
The Company will not be offering a scrip dividend alternative, but for shareholders who wish to receive their dividend in the form of shares, the
Dividend Reinvestment Plan (DRIP) will be available.
Net assets
During 2017, equity shareholders’ funds increased by £248 million, or 4.3%, to £6,024 million at 31 December 2017. Net assets, calculated on an
EPRA basis, were £6,164 million and on a per share basis increased by 37 pence to £7.76. The movement during the year is shown in Table 38.
Table 38
Movement in net assets
Proportionally consolidated, including premium outlets
31 December 2016
Property revaluation
Proportionally consolidated property portfolio
Premium outlet properties
Adjusted profit for the year
Loss on sale of properties
Debt and loan facility cancellation costs
Change in deferred tax
Dividends
Foreign exchange and other movements
31 December 2017
Equity
shareholders’
funds
£m
5,776
21
225
246
246
(16)
(42)
(35)
(194)
43
6,024
Adjustments1
£m
89
–
–
–
–
–
–
35
–
16
140
EPRA
net assets
£m
5,865
EPRA NAV
pence
per share
739
21
225
246
246
(16)
(42)
–
(194)
59
6,164
2
28
30
31
(2)
(5)
–
(24)
7
776
1. Adjustments in accordance with EPRA best practice shown in note 10D to the financial statements on page 147.
The increase in EPRA net assets was principally due to property revaluation gains of £246 million, mainly in the UK shopping centres,
Developments and Premium outlets portfolios as explained in the Property Portfolio Review on page 51. Adjusted profit also increased net assets
by £246 million, although this was offset by dividends of £194 million. Foreign exchange and other movements totalled £59 million, mainly
reflecting the weakening of sterling against the euro over the course of 2017.
HAMMERSON.COM 57
Financial review continued
Investment and development properties
The valuation of investment and development properties in the Reported Group at 31 December 2017 was £4,686 million, £78 million lower than
the prior year. The movement in investment and development properties is shown in note 11 to the financial statements.
Details of the Group’s property portfolio valuation calculated on a proportionally consolidated basis plus the Group’s premium outlets is provided
in the Property Portfolio Review on page 49.
Investment in joint ventures and associates, including investments in premium outlets
Details of the Group’s joint ventures and associates are shown in notes 12 and 13 to the financial statements respectively. Table 39 shows the
Group’s investment in joint ventures and associates on both IFRS and Adjusted bases, split between the proportionally consolidated Share of
Property interests and investments in premium outlets.
Table 39
Adjusted investment
IFRS investment in joint ventures/associates
Adjustments (see notes 12C/13D)
Adjusted investment in joint ventures/associates
Analysed as:
Share of Property interests
Premium outlets
31 December 2017
31 December 2016
Joint ventures
(incl. VIA)
£m
Associates
(incl. VR)
£m
3,674
57
3,731
3,312
419
1,099
88
1,187
31
1,156
Total
£m
4,773
145
4,918
3,343
1,575
Joint ventures
(incl. VIA)
£m
Associates
(incl. VR)
£m
3,737
19
3,756
3,514
242
988
87
1,075
29
1,046
Total
£m
4,725
106
4,831
3,543
1,288
During 2017, the total adjusted investment in the Group’s Share of Property interests decreased by £200 million to £3,343 million due primarily
to a £275 million capital repayment following the secured financing of Dundrum Town Centre in September 2017. This was partly offset by
property revaluation gains of £19 million and profits retained by the joint ventures.
The Group’s total adjusted investment in premium outlets increased by £287 million in 2017 to £1,575 million. Property revaluation gains
contributed £225 million to the uplift with further capital advances of £130 million to VIA Outlets to fund the three outlet acquisitions completed
during 2017. These were partly offset by £130 million of cash distributions received from VR associated with earnings and surplus cash generated
from the refinancing of Bicester Village in December 2017.
An analysis of the Group’s combined investment in premium outlets is shown in Table 104 in the Additional Disclosures on page 183.
Financing and cash flow
Our financing strategy is to generally borrow on an unsecured basis on the strength of the Group’s covenant to maintain operational flexibility.
Borrowings are arranged to maintain short term liquidity and to ensure an appropriate maturity profile. Acquisitions may initially be financed
using short term funds before being refinanced with longer term funding when market conditions are appropriate. Short term funding is raised
principally through syndicated revolving credit facilities from a range of banks and financial institutions with which we maintain strong working
relationships. Long term debt mainly comprises the Group’s fixed rate unsecured bonds, private placements and secured bank borrowing within
certain joint ventures. Derivative financial instruments are used to manage exposure to fluctuations in foreign currency exchange rates and
interest rates, but are not employed for speculative purposes. The Board regularly reviews the Group’s financing strategy and plans and approves
financing guidelines against which it monitors the Group’s financial structure. These guidelines, together with the relevant metrics, are
summarised in Table 40 which illustrates the Group’s robust financial position.
58
HAMMERSON PLC ANNUAL REPORT 2017
Table 40
Key financing metrics
Proportionally consolidated, excluding premium outlets
Guideline1
Net debt (£m)
Gearing (%)2
Loan to value (%)2
Liquidity (£m)
Weighted average interest rate (%)
Weighted average maturity of debt (years)
Interest cover (times)
Net debt/EBITDA (times)3
FX hedging (%)
Debt fixed (%)
Maximum 85%
No more than 40%
At least 2.0
Less than 10.0
70-90%
At least 50%
F
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A
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E
G
I
C
R
E
P
O
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T
31 December
31 December
2017
3,501
58
36
958
2.9
5.6
3.4
9.3
78
78
2016
3,413
59
36
592
3.1
5.5
3.5
9.5
79
70
1. Guidelines should not be exceeded for an extended period of time.
2. See Table 108 on page 185 for supporting calculation.
3. EBITDA includes the interest received from the Irish loan assets. See Table 109 on page 186 for supporting calculation.
Net debt position
On a proportionally consolidated basis, net debt at 31 December 2017 was £3,501 million, an increase of £88 million during the year. This
comprises loans and other borrowings of £3,676 million, the fair value of currency swaps of £90 million less cash and deposits of £266 million.
Cash and deposits were £135 million higher than at 31 December 2016 due to the receipt of the sale proceeds from Place des Halles, Strasbourg at
the end of the year which were used to repay floating rate debt facilities in January 2018. The movement in proportionally consolidated net debt is
analysed in Table 41.
Table 41
Movement in proportionally consolidated net debt
Net debt at 1 January 2017
Net cash inflow from operations
Acquisitions
Disposals (net of Place des Halles dividend and non-controlling interests’ share of retained cash)
Development and other capital expenditure
Equity dividends paid
VIA Outlets acquisition funding and distributions
Value Retail acquisitions, loan repayments and distributions
Exchange and other cash flows
Net debt at 31 December 2017
Total
£m
3,413
(166)
179
(399)
158
192
115
(110)
119
3,501
The Group’s weighted average interest rate was 2.9% for 2017, 20 basis points lower than the 3.1% average rate in 2016.
2017 has been another active year from a financing perspective and the following activities were completed:
– in January, funds were received from our £400 million private placement signed in November 2016. The fixed rate notes were denominated, post
swaps, in sterling (£50 million) and euro (€387 million), had maturities of seven, nine, 11 and 14 years and a weighted average coupon of 1.7%.
– in April, a new £360 million unsecured revolving credit facility was signed with a syndicate of 14 banks at an initial margin of 90 basis points.
The facility has a maturity of five years and may be extended by a further two years. This refinanced an existing £175 million facility which was
due to mature in April 2018 and had an initial margin of 150 basis points.
– the two other revolving credit facilities of £415 million and £420 million were extended by one year and now mature in April 2022 and we
repaid and cancelled the €1.5 billion short term facility used to fund acquisitions in Ireland and Birmingham.
– in September, together with our 50% joint venture partner, Allianz, we arranged a €625 million seven-year loan secured on Dundrum Town
Centre, Dublin. At the date of the borrowing, the loan to value was below 40% and the all-in interest cost was fixed at 1.9%.
– in October, we redeemed the Group’s £250 million 6.875% unsecured 20-year bonds which were due to mature in 2020. We incurred a one-off
redemption premium of £41 million which has been treated as an exceptional financing cost. The redemption was funded using liquidity from
recent refinancing activity and contributed to the reduced weighted average cost of debt.
HAMMERSON.COM 59
Financial review continued
Following this refinancing activity the Group’s liquidity at 31 December 2017, comprising cash and undrawn committed facilities, was
£958 million, £366 million higher than at the beginning of the year. Also, the Group’s weighted average maturity of debt was maintained at
5.6 years (2016: 5.5 years).
We manage exposure to foreign exchange translation differences on euro-denominated assets through a combination of euro borrowings and
derivatives. At 31 December 2017, the value of euro-denominated liabilities as a proportion of the value of euro-denominated assets was 78%,
compared with 79% at the beginning of the year. Interest on euro debt also acts as a hedge against exchange differences arising on net income
from our overseas businesses. The 4% strengthening of the euro against sterling during 2017 has resulted in modest gains to net asset value
and earnings.
The Group’s unsecured bank facilities and the private placement senior notes contain financial covenants that the Group’s gearing should not
exceed 150% and that interest cover should be not less than 1.25 times. Two of our unsecured bonds contain a covenant that gearing should not
exceed 150%, whilst the covenant on the remaining bonds is that gearing should not exceed 175%. The bonds have no covenant for interest cover.
The Group’s financial ratios are comfortably within these covenants.
Fitch and Moody’s rate Hammerson’s unsecured credit as A– and Baa1 respectively. In May, Moody’s changed its outlook from negative to stable,
citing the Group’s financial discipline and stable operating performance since the UK’s EU referendum decision in June 2016 and also reaffirmed
the Group’s rating in December following the announcement of the all-share offer to acquire intu properties plc. Fitch reaffirmed the Group’s
long-term rating in November, and following the intu acquisition announcement in December placed the rating on ‘rating watch negative’ (RWN).
This indicates that the rating could stay at its present level or potentially be downgraded as a result of the transaction. Fitch expect to resolve the
RWN once the transaction has closed or upon confirmation of the new capital structure.
At 31 December 2017, the Group’s loan to value was 36% and gearing was 58%, compared with 36% and 59% respectively at the beginning of the
year. Supporting calculations are in Table 108 in the Additional Disclosures on page 185.
At 31 December 2017, the Group’s share of net debt in VR and VIA totalled £686 million (2016: £468 million). On a proforma basis, proportionally
consolidating this net debt with the Group’s share of property values held by VR and VIA, the Group’s gearing would be 69% and loan to value
would be 40%.
Table 42
Debt maturity profile at 31 December 2017 (£m)
Proportionally consolidated, excluding premium outlets
1200
1000
800
600
400
200
0
497
443
441
440
49
141
275
350
346
87
298
90
198
21
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Secured debt
Euro bonds
Private placements
Revolving credit facilities
Sterling bonds
The above analysis excludes cash and deposits and the fair value of currency swaps.
60
HAMMERSON PLC ANNUAL REPORT 2017
RISKS AND UNCERTAINTIES
An integrated approach to
risk management
The effective integration of risk management underpins our operating, financial
and governance activities. Our approach to risk management will support the
acquisition of intu properties plc and its effective integration.
Risk overview
Effective risk management supports the successful delivery of our
strategy as outlined on pages 16 and 17 and underpins our business
model (see pages 6 and 7). Our risk management policies and
procedures are designed to reduce the chances of financial loss,
protect our reputation and improve efficiency across our business.
The Board determines the Group’s risk appetite and assesses
the residual risk for each of the Group’s principal risks and this process
is supported by the use of our Risk Management Framework (RMF)
and Risk Dashboard.
Given the work undertaken the Board is able to confirm that it has
carried out a robust assessment of the Group’s principal risks during
2017, which are presented in this section of the Annual Report.
Risk management responsibilities
The responsibility for risk management ultimately rests with the
Board. However, it is imperative that the approach to risk is integrated
across the business and is instilled in the Group’s culture and values
(see People on page 46). This approach is supported by the relatively
low headcount across the Group which enables effective
communication and collaboration. Also, our management structure
means that the senior team is actively involved in designing,
monitoring and ensuring adherence to the Group’s risk management
policies and procedures, including the identification of new and
emerging risks.
Chart 43 illustrates the key roles and responsibilities in relation to risk
management and demonstrates the interaction between the Board and
the various management teams and sub-committees in ensuring
effective risk management is applied across the Group’s activities.
Risk review process
The RMF is structured around our principal risks, although it also
contains a number of other less material operational risks. For each
risk area, the RMF details mitigating factors and actions, management
responsibility and recent internal and external audit reviews and is
summarised on pages 63 to 68.
Chart 43
Key roles and responsibilities for the Group’s risk management strategy
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Board
– Overall responsibility for corporate strategy, governance, performance,
internal controls and risk management
– Defines the Group’s appetite for risk and monitors risks to ensure these
are effectively managed, including agreeing actions where necessary
Audit Committee
– Reviews effectiveness of the RMF and internal controls on behalf of
the Board
– Ensures compliance with relevant legislation, rules and regulations
– Oversees effectiveness of the Group’s internal audit arrangements
Group Executive
Committee
– Manages the business and delivery of strategy
– Reviews the RMF and prioritises actions and allocates resources to
effectively manage risk
– Oversees Health and Safety
Risk and Controls
Committee
– Responsible for integration of the RMF throughout the business
– Monitors compliance with the Group’s internal control systems
– Manages the internal audit arrangements
Divisional management
(UK, France, Ireland and
Premium outlets) and
other committees
– Responsible for implementation of risk mitigation and monitoring
compliance with internal controls and procedures at the operational
level of the business
– Reviews the RMF to identify risk trends and recommend actions
– Oversees divisional, project and other specific risk management
activities
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HAMMERSON.COM 61
STRATEGIC REPORTRISKS AND UNCERTAINTIES
Risks and uncertainties continued
As well as being regularly reviewed by management, the RMF is available
to all staff via the Group’s intranet. We also produce a quarterly Risk
Dashboard which contains both current and forward-looking risk
metrics for each of the principal risks.
In addition to the integration impact of the acquisition on the Group’s
existing risks, we have created a new principal risk ‘Acquisition
completion’ solely associated with the completion of the transaction,
expected in Q4 2018, which reflects the following risks:
To further integrate risk management across the Group, we undertake
a formal six-monthly management review of the RMF, with feedback
from each management committee being collated and reported to the
Audit Committee. A key change to our risk reporting during 2017 was
to increase the number of principal risks from nine to 11, with the
inclusion of new risks for ‘Environmental’ following the Group’s Net
Positive commitment announced in March and ‘Acquisition
completion’ in relation to the intu acquisition announced in
December (see below for further details).
The RMF is also used to determine the annual internal audit plan (see
page 86), which is structured to ensure an appropriate coverage of the
Group’s principal risks, as well as review areas of change within the wider
business and risks which have not been subjected to recent audit review.
Risk appetite and assessment
As part of its risk management activities, the Board assesses the
residual risk for each of the Group’s 11 principal risks. This is done by
assessing the overall level of risk and impact of specified mitigating
factors and actions. The level of residual risk is then considered within
the context of the Board’s risk appetite, which reflects its combined
attitude to financial, operational and reputational risks.
The residual risk levels at 31 December 2017 are shown on the
Risk Heat Map on Chart 44, with the red-coloured area in the top
right-hand corner of the diagram being an assessment which would
exceed the Board’s risk appetite. The heat map also shows the
movement in the residual risk level during 2017. The heat map shows
that the general risk environment in which the Group operates has
increased over the course of 2017, with a number of the Group’s
principal risks moving towards the top right of the map. These
movements reflect the continued level of uncertainty associated with
the future impact of the UK’s exit from the EU, the dynamic nature of
the retail market, and the inclusion of risks associated with the intu
acquisition explained below.
As adverse risk events rarely occur in isolation, this increased general
level of risk was discussed at the 2017 Board Strategy Day in October
and factored into the Group’s 2018 five-year Business Plan. Key
actions agreed at the Strategy Day and incorporated into the Business
Plan include further medium term disposals consistent with the
Group’s recycling strategy and additional investment in our Product
Experience Framework to enhance the customer experience across
our portfolio, particularly from a digital perspective.
Acquisition of intu properties plc
On 6 December 2017, we announced an all-share offer for intu
properties plc. The benefits and strategic rationale for this acquisition
are explained in the Chief Executive’s Review on page 12.
The significant scale and effort required to integrate and complete the
acquisition impacts a number of the Group’s principal risks and these
factors were assessed by the Board prior to approving the transaction.
The key risks impacted are: Macro-economic; Property investment;
Treasury; and People. The Board was satisfied that these risks remain
within the Group’s risk appetite.
62
HAMMERSON PLC ANNUAL REPORT 2017
– the failure to obtain shareholder or regulatory approval
– the adverse financial and reputational impact if the enlarged group
fails to deliver the forecast performance or identified synergies
– the organisational stress associated with completing the
transaction and integrating the two businesses
– the risk of retaining and motivating key employees and teams
during and after the acquisition process
These risks are mitigated by the due diligence work undertaken prior
to announcing the acquisition, the immediate and on-going investor
relations programme and the continued efforts of experienced
internal teams and specialist external advisors to support the
acquisition, approval process and prepare the future integration plans.
An Integration Committee has been formed, chaired by David Atkins,
and supported by external advisors. We have also appointed an
Integration Director, who is an existing employee, to lead the
integration project. The committee will plan and prioritise tasks and
allocate resources to manage the organisational stress, particularly
from employee and systems perspectives.
Chart 44
Risk Heat Map
h
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11
1
2
5
3
8
7
10
4
6
9
Low
Medium
High
Probability
1 Macro-economic
5 Treasury
9
People
2 Retail market
6 Partnerships
3 Property investment
7
Tax and regulatory
4 Property development 8
Catastrophic event
10
11
Environmental
(NEW)
Acquisition
completion (NEW)
Risk appetite
Exceeds Group’s
risk appetite
In line with Group’s
risk appetite
Lower than Group’s
risk appetite
Risk Management Framework
Further details of the Group’s 11 principal risks as extracted from the Group’s Risk Management Framework and their alignment to the Group’s
strategy (see pages 16 to 17) are shown below.
Risk
Mitigation factors/actions
Change during 2017 and outlook
1. Macro-economic
Executive responsibility: David Atkins
Impact
Probability
Residual risk assessment: Medium/High
– We own and operate retail
– Diversified portfolio (sectors, geography and
Economic growth prospects have generally improved
property in a number of property
sectors and European countries.
– Our financial performance is
directly impacted by the
macro-economic environment in
these countries. Key factors
impacting our retailers and
shoppers are GDP and disposable
income growth, employment
levels, inflation, business and
consumer confidence, interest
rates and foreign exchange
movements.
Link to strategy
tenants)
– Monitoring of macro-economic research
– Economic review at annual Board Strategy Day
– Business Plan projections stress tested
– Resilient business model and financial position
– Low level of capital commitments
– Application of our Product Experience
Framework to ensure our portfolio attracts
retailers and shoppers
across Europe during 2017. The exception to this
trend is in the UK which continues to suffer from the
uncertainty associated with the UK’s exit from the EU
and growth forecasts remain subdued.
Inflationary pressures have increased and interest
rates may rise in 2018 which could have a dampening
effect on economic growth. Foreign exchange markets
have been less volatile during 2017, although remain
sensitive to external shocks.
The intu acquisition will increase the Group’s
exposure to the UK but we believe that the
combination of the high-quality property portfolio
and our management expertise will act to deliver
value for stakeholders. We are also committed to
retaining operational and financial flexibility in case
of macro-economic weakness.
See Letter from the Chairman on pages 4 to 5.
2. Retail market
Executive responsibility: David Atkins
Impact
Probability
Residual risk assessment: Medium/High
– We own and operate retail
property in a dynamic
marketplace. Failure to anticipate
and address developments in
consumer and occupational
markets, such as multichannel
retailing and digital technology,
will result in financial
underperformance and future
obsolescence.
– Retailer profitability is under
pressure due to increased costs
and weak retail sales.
Link to strategy
– High-quality retail portfolio which appeals to
both retailers and consumers
– The application of our Product Experience
Framework to ensure the relevance of our
portfolio
– Bespoke leasing strategies to enhance tenant
2017 has been a record year for leasing across the
business. This demand demonstrates that our
portfolios are able to support retailers’ evolving
multichannel strategies, for example through
accommodating flagship stores in our shopping
centres and click & collect at our retail parks.
mix
– Increasing catering, leisure and events offer
– Favourable tourist trends to Europe support
further premium outlet sales growth
– Our people have a wealth of retail experience
– Digital strategy to allow us to gain detailed
consumer insight and communicate with
our shoppers
We continue to enhance our properties to ensure
they meet customer requirements and offer both a
shopping and leisure experience with an increased
focus on catering and events.
This strategy, delivered through our Product
Experience Framework, is key to continuing to attract
both retailers and shoppers in an evolving retail market.
See Overview of our Market on pages 13 to 15.
HAMMERSON.COM 63
STRATEGIC REPORTRISKS AND UNCERTAINTIES
Risks and uncertainties continued
Risk
Mitigation factors/actions
Change during 2017 and outlook
3. Property investment
Executive responsibility: David Atkins/Peter Cole
– Board approval for all significant investment
decisions
– Thorough due diligence, research and risk
assessment to support investment decisions
– Properties held ‘ready for sale’
– Diversification of portfolio by sector and
geography limits impact of downturn in
single market
– Twice yearly independent valuations
– Stress tests included in annual Business Plan
– Poor investment decisions
involving acquisitions and
disposals result in suboptimal
returns.
– Property valuations fall,
adversely impacting the Group’s
financial position and delivery of
future plans.
– Opportunities to divest of
properties are missed, or are
limited by market conditions,
which reduce financial returns
and adversely impact the Group’s
funding strategy.
Link to strategy
4. Property development
Executive responsibility: Peter Cole
– Property development is complex
– Proven track record of developing iconic
and inherently risky. Major
projects have long delivery times
with multiple milestones and are
management intensive.
Unsuccessful projects result in
adverse financial and
reputational outcomes.
– Over-exposure to developments
increases the potential financial
impact of an economic downturn
and construction price inflation
which could overstretch the
Group’s financial capacity.
Link to strategy
destinations
– Development plans and exposure included in
business planning process
– Board approves all major commitments
– Regular management project reviews including
project risk reporting
– Clear project ownership and resourcing plans
– We regularly use fixed price contracts and
projects have appropriate contingencies
– Post-completion reviews undertaken to
identify future improvements
Impact
Probability
Residual risk assessment: Medium/High
Property investment markets have remained broadly
stable in 2017 and whilst investors remain selective
we have successfully completed our planned
£400 million disposal programme.
All our recent Irish loan acquisitions have also been
converted to direct property ownership and are
performing well.
Property valuations are forecast to be broadly stable
in 2018. Valuations should be supported by the
continuing low interest rate environment and
investor demand for the secure income yield provided
by high-quality retail property.
As announced at the time of the intu acquisition we
plan to dispose of at least £2 billion of property in the
short to medium term to strengthen the enlarged
group’s balance sheet and provide liquidity for
reinvestment opportunities.
See Property Portfolio Review
on pages 49 to 52.
Impact
Probability
Residual risk assessment: Low
The completion of our two shopping centre schemes
in Leeds and Southampton in late 2016 has reduced
our short term development exposure.
At 31 December 2017 committed capital expenditure
was £89 million (2016: £68 million) and our
development portfolio represented only 5%
(2016: 4%) of our total property portfolio.
During 2017 we continued to progress with our
major development schemes and have recently
started on-site with the extension to Les 3 Fontaines
in Paris. There are still a number of further milestones
to achieve in terms of planning and leasing before we
can commence our other schemes. We also need to
ensure the financial viability of the schemes is
appropriate to reflect the risks associated with the
macro-economic and retail market conditions at the
time of commitment.
See Business Review on pages 36 and 37.
64
HAMMERSON PLC ANNUAL REPORT 2017
Risk
Mitigation factors/actions
Change during 2017 and outlook
5. Treasury
Executive responsibility: Timon Drakesmith
Impact
Probability
Residual risk assessment: Medium/High
– Poor treasury planning or
external factors, including
failures in the banking market,
may lead to the Group having
insufficient liquidity.
– The Group’s financial position is
unable to support the delivery of
our strategy, particularly major
developments.
– Deterioration in our financial
position due to property
valuation declines could result in
a breach of borrowing covenants.
– Significant fluctuations in
sterling or euro or a significant
increase in interest rates could
result in financial losses.
Link to strategy
– Treasury planning to ensure appropriate
liquidity levels are maintained
– Board approves and monitors key financing
At 31 December 2017 our balance sheet and key
financing metrics remained robust, with liquidity of
£958 million, loan to value of 36% and gearing of 58%.
metrics
– Annual Business Plan includes a financing plan
and associated stress tests
– Capital provided by a diverse range of
counterparties (banks, bond investors and
JV partners)
– All major investment approvals supported by a
financing plan
– At 31 December 2017 we estimate that property
values (including premium outlets) could fall
by 35% and net rental income by 49% before
our most stringent borrowing covenants would
be exceeded
– Interest rate and currency hedging programme
used to mitigate market volatility
During 2017 we have completed significant
refinancing which has increased the average debt
maturity to 5.6 years, reduced the weighted average
cost of debt to 2.9% and there are no significant debt
maturities in the next two years.
Interest rates are forecast to increase slightly over the
short to medium term but remain low by historic
standards. The financial markets remain supportive
for companies in a strong financial position.
Whilst the intu acquisition will initially act to increase
leverage, the £2 billion disposal programme in the
short to medium term will support our commitment
to maintaining a strong financial position.
See Financial Review on pages 58 to 60.
6. Partnerships
Executive responsibility: Peter Cole/Timon Drakesmith
Impact
Probability
Residual risk assessment: Low
– A significant proportion of the
Group’s properties are held in
conjunction with third parties.
These structures can limit the
Group’s control and may reduce
liquidity.
– Operational effectiveness may
also be adversely impacted if
partners are not strategically
aligned.
– Our premium outlet investments
are externally managed and this
reduces control and transparency
over performance and
governance.
Link to strategy
– Proven track record of working successfully
with diverse range of partners
– Contracts provide liquidity for partners whilst
protecting Group interests
Our partners provide capital to support our strategy of
owning high-quality retail property, particularly major
shopping centres. At 31 December 2017 58% (2016:
53%) of the Group’s portfolio is held with third parties.
– Annual joint venture business plans ensure
operational and strategic alignment
– VIA Outlets, whilst externally managed, is a
joint venture which enables effective
governance
– Board representation for both Value Retail and
VIA Outlets
– Value Retail and VIA Outlets are both subject
to external audit and the properties are valued
by Cushman & Wakefield
The increase in 2017 was due to the strong valuation
growth from our premium outlets and £400 million of
disposals which were all wholly-owned.
We remain comfortable that our third-party
ownership structures do not adversely impact
performance or liquidity with a number of joint
venture stakes successfully traded in the investment
market over recent years.
The intu acquisition will act to reduce the proportion
of the portfolio held with third parties to
approximately 40%.
See notes 12 and 13 to the financial
statements on pages 149 to 157.
HAMMERSON.COM 65
STRATEGIC REPORTRISKS AND UNCERTAINTIES
Risks and uncertainties continued
Risk
Mitigation factors/actions
Change during 2017 and outlook
7. Tax and regulatory
Executive responsibility: Timon Drakesmith
– There is an increasing burden
– Maintenance of our low-risk tax status in
the UK
– Regular meetings with key officials including
from HMRC and government
– Participation in policy consultations and in
industry-led dialogue with policy makers
through bodies such as REVO, BPF, EPRA etc.
– Regular tax compliance reviews
– Advance planning for future regulatory and
tax changes
from compliance and regulatory
requirements which can act to
impede operational and financial
performance.
– The real estate sector has
suffered a rising tax burden
through recent increases in
stamp duty and business rates.
These adversely impact financial
performance.
– The UK’s future exit from the EU
creates uncertainty over the
future UK tax and regulatory
environment.
Link to strategy
8. Catastrophic event
Executive responsibility: David Atkins
– Our operations, shopper safety,
– Continuity plans at both corporate and
reputation or financial
performance could be
significantly affected by a major
event such as a terrorist or
cyber-attack, power shortage or
civil unrest.
Link to strategy
individual property levels
– Core crisis group for dealing with major incidents
– Enhanced physical security measures
implemented
– Regular dialogue with security agencies to
assess threat levels and best practice
– Mock terrorist incident staged in Bullring in
late 2017
– Recent internal audits for business continuity
and cyber security
– Insurance cover for terrorism and property
damage
– Third-party support and testing for IT security
– Internal communications to enhance cyber
security awareness
Impact
Probability
Residual risk assessment: Medium
There continues to be uncertainty over future
regulatory and tax matters associated with the UK’s
exit from the EU.
In addition, the recent 4% increase in Irish stamp
duty reduced the valuation of our portfolio by
£46 million.
We believe the Group is appropriately structured to
mitigate the impact of future tax changes and
continue to review all new legislation.
Also, the implementation in the UK of the living wage,
the apprenticeship levy and increases in business
rates, whilst not having a significant direct impact on
the Group, have an adverse financial impact on the
wider retail sector.
See Note 8 to the financial statements on
pages 144 to 145.
Impact
Residual risk assessment: Medium/High
Probability
There have been a number of terrorist incidents at
public venues during 2017 and the current threat level
across Europe remains very high.
The wider use of digital technology across the Group
increases the risks associated with cyber security.
We regularly review and continue to implement
improvements to our processes and procedures to
counter the threat of a major incident. However, it is
not possible to fully mitigate these risks and the
related impacts.
66
HAMMERSON PLC ANNUAL REPORT 2017
Risk
Mitigation factors/actions
Change during 2017 and outlook
9. People
Executive responsibility: David Atkins
– The Group has a relatively small
headcount which can act to
curtail the achievement of
business objectives, particularly
in times of significant activity.
– A failure to recruit and retain key
executives and staff with
appropriate skills would also
adversely impact corporate
performance.
Link to strategy
– Annual Business Plan contains a human
resources plan, covering team structures,
training and talent management initiatives
– Succession planning undertaken across the
senior management team
– Board approval required for significant
management changes
– Annual employee appraisal process undertaken
– Staff training and development supported and
encouraged
– Staff turnover and employee engagement
monitored
Impact
Probability
Residual risk assessment: Low
People are a key factor in the Group’s performance.
We continue to encourage and support their training
and development and launched a new e-learning
platform in 2017.
During the year, staff turnover has remained low at
12.0% and we have again undertaken an all-staff
‘Great Place to Work’ survey. The results show high
levels of employee engagement and satisfaction.
We are acutely aware that the intu acquisition may
adversely impact staff motivation and heighten job
security concerns. We are planning revised team
structures which will provide new opportunities and
will ensure all staff are treated fairly throughout the
integration process.
See People section on pages 46 to 48.
10. Environmental (NEW)
Executive responsibility: David Atkins
– The Group’s operations could be
– Experienced sustainability team is empowered
to design and implement the Group’s
environmental and corporate responsibility
strategy in conjunction with the wider business
– Detailed environmental risk framework
maintained
– Green energy contracts in place across portfolio
– Core crisis group for dealing with major incidents
– Annual Board review of sustainability
performance and future strategy
– External assurance of environmental reporting
adversely impacted by an
environmental incident such as
extreme weather, flooding or
energy supply issues.
– The Group’s reputation and
financial performance are
adversely impacted by the failure
to achieve our Net Positive
targets or other environmental
objectives.
– Emerging environmental
regulations and legislation may
act to increase costs or make
properties obsolete.
Link to strategy
Impact
n/a
Probability
n/a
Residual risk assessment: Low
In March 2017 we launched our Net Positive targets
within our existing Positive Places sustainability
framework.
To achieve these ambitious targets we need to
collaborate with our retailers to reduce the
environmental impact of our existing portfolio.
We also need to ensure our new developments are
designed to deliver environmental excellence and
reduce the Group’s carbon footprint.
We made further progress to reduce our environmental
impact during 2017. Key achievements were a 9%
like-for-like emissions reduction and the installation
of new clean energy generation.
See Sustainability Review on pages 41 to 45 and
www.sustainability.hammerson.com.
HAMMERSON.COM 67
STRATEGIC REPORTRISKS AND UNCERTAINTIES Risks and uncertainties continued
Risk
Mitigation factors/actions
Change during 2017 and outlook
11. Acquisition completion (NEW)
Executive responsibility: David Atkins
Impact
n/a
Probability
n/a
Residual risk assessment: Medium
– The acquisition fails to obtain
shareholder or regulatory
approval.
– Significant Board involvement and oversight
throughout the acquisition process
– Due diligence exercise completed with support
The all-share intu acquisition was announced in
December 2017. Work to support the approval
process and integration has commenced.
– The enlarged group’s reputation
from experienced advisory team
and financial position are
adversely impacted by the failure
to achieve the forecast financial
performance or deliver the
identified synergies.
– There is significant organisational
stress associated with completing
the transaction and integrating
the two businesses.
– The acquisition may result in
staff retention and motivational
issues for key employees and
teams.
Link to strategy
– Financial modelling of the combined group
included sensitivity analysis
– Comprehensive investor roadshow post
announcement with over 60 individual
meetings
– Competition clearance work commenced with
experienced internal and advisory teams
– Detailed synergies assessment supported by
PwC opinion
– Proactive staff communications
Management are committed to maximising the
opportunities from the acquisition whilst effectively
managing the risks associated with the transaction.
2018 will involve significant work to complete the
transaction, and to plan and implement the effective
integration of the two businesses.
See Chief Executive’s Review on page 12.
68
HAMMERSON PLC ANNUAL REPORT 2017
Viability statement
The Directors have considered the future viability of the Group taking
into account its current position, strategy, principal risks and future
prospects. The Group’s strategy and business model are explained on
pages 16 to 17 and 6 to 7 respectively. These are designed in response
to the evolving trends in retail property markets, as explained on
pages 13 to 15, to create long term value for our stakeholders.
Assessment of prospects
As explained on page 78, the Board held its annual Strategy Day in
October 2017 at which it reviewed the Group’s strategy and future
performance, taking into account macro-economic and retail market
projections from a number of external commentators including
Oxford Economics, Cushman & Wakefield, PMA, Bank of England and
the Company’s banking advisors. The proposed intu acquisition was
also reviewed.
The output from this event was incorporated into the Group’s 2018
Business Plan which was initially prepared on a ‘stand-alone’ basis,
excluding the intu acquisition. This plan was updated to incorporate
the financial projections of the intu acquisition sourced from the due
diligence exercise to produce a ‘Combined Plan’. Both of these
five-year plans were reviewed and approved by the Board in late 2017.
The plans were both structured around the Group’s strategy and
include income and balance sheet projections, funding plans and
portfolio strategies, including acquisitions, disposals and
developments. There were compiled on a property-by-property basis
and the key base case assumptions included:
– Forecast economic conditions, including broadly stable GDP
growth and future interest and foreign exchange rates
– Stable property market conditions, including modest yield and
ERV movements
– Financial markets remaining available to the Group to refinance
maturing facilities and bonds
– The ability to complete disposal plans broadly in line with forecast
values
In addition to the business planning process, the Board also considers
the long term prospects of the Group when approving capital
expenditure requests for major development schemes. The Board
receives twice yearly updates on the Group’s development schemes,
including the future pipeline projects many of which have forecast
completion dates outside of the five-year business planning period.
Assessment of period
There are a number of factors which influence the period of
assessment:
– The Group’s annual Business Plan covers a five-year period
– The Group has a stable, diverse, secure income stream with
the majority of leases containing five-year, upward only, rent
reviews with an average unexpired lease term of six years at
31 December 2017
– The time-scale for the delivery of the Group’s major development
schemes is approximately five years and currently extends
beyond 2022
– The Group has diverse sources of funding with an average maturity
of 5.6 years
Assessment of viability
The Combined Plan was assessed against a number of scenarios,
including modelling changes in property values, rental income and
disposal and reinvestment assumptions. These are consistent with
adverse changes to the Group’s principal risks which are most likely to
impact the viability of the Group being: Macro-economic, Retail
market, Property investment and Treasury risks. These scenarios,
when combined with mitigation actions available to management
associated with flexibility over future capital expenditure and
disposals plans, supported the Group’s predicted ability to overcome
these adverse economic and property market conditions over the
forecast period. The Board were also comfortable that the viability
assessment was valid on a stand-alone basis.
In addition, stress tests were undertaken on the Combined Plan to
understand how far values and rental income would have to decline
to breach the Group’s existing gearing and interest cover financial
covenants. The calculations for the 2017 year-end position are
disclosed in the explanation of the Group’s Treasury principal risk
on page 65.
Conclusion
Based on the assessment of the prospects and viability of the Group,
the Directors have concluded that they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over a five-year period to 31 December 2022.
This five-year period is unchanged from the period adopted for the
2016 Viability Statement.
Going Concern Statement
The Directors have reviewed the current and projected financial
position of the Group, making reasonable assumptions about future
trading performance, property valuations and capital expenditure
plans. The review considered the Group’s current liquidity position,
its debt maturity profile, future commitments and forecast cash flows.
Based on this review the Directors are able to conclude that they
have a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for at
least the next 12 months and continue to adopt the going concern
basis in preparing the financial statements for the year ended
31 December 2017.
2017 Strategic Report
Pages 1 to 69 of this Annual Report constitute the Strategic Report.
It has been approved and signed on behalf of the Board on
23 February 2018.
David Atkins
Director
Timon Drakesmith
Director
HAMMERSON.COM 69
STRATEGIC REPORTRISKS AND UNCERTAINTIES CORPORATE GOVERNANCE REPORT
Promoting long-term success
Dear Shareholders
I am pleased to present the Corporate
Governance report for 2017. As in previous
years, this report should be read in
conjunction with the section on how we have
complied with the UK Corporate Governance
Code on pages 114 to 118. I confirm that the
Company has complied in full with the UK
Corporate Governance Code during 2017.
During the year Hammerson has continued to deliver its strategy:
focusing on growing consumer markets, creating differentiated
destinations and promoting financial efficiency and partnerships.
You can read my commentary on our progress on pages 4 to 5. One of
the major areas of focus for the Board in 2017 was the proposal to
acquire intu properties plc and we believe the acquisition will result in
stronger income and superior growth prospects for the Company.
You can read more about the process the Board followed when
considering the proposed acquisition on page 79.
Culture and diversity
The Company’s success depends on our continued commitment to
high standards of corporate governance and the Board recognises that
a strong culture within the business brings benefits to the Company
and its employees, as well as to all our stakeholders. I believe that the
Board plays a key role in shaping Hammerson’s culture across the
organisation. During the year the Board had a number of
opportunities to engage with colleagues from many areas of the
business both formally and informally. This enables the Directors to
monitor how far our core values: ambition, respect, collaboration
and responsibility, have been embedded in the business. You can
read more about the Board’s activities on pages 77 to 80.
“The Board recognises that a strong
culture within the business brings
benefits to the Company and its
employees, as well as to all our
stakeholders.”
David Tyler – Chairman
70
HAMMERSON PLC ANNUAL REPORT 2017
The Board believes in the benefits of diversity and in 2017 the
Nomination Committee has spent time reviewing succession
planning and talent development in our business. The Nomination
Committee has noted with interest a number of external reports
which have been published during the course of 2017 on the broad
subject of diversity in the workplace. I was co-chair of the Parker
Review Committee which published a report into the ethnic diversity
of UK boards. I and my fellow Directors on the Nomination
Committee strongly support the initiatives within our business to
promote diversity. The Board monitors the development of the
Company’s diversity and inclusion strategy and the Nomination
Committee continues to keep diversity on the Board itself under close
review. You can read more about this in the Nomination Committee
report on pages 82 to 83 and the People section of the Strategic Report
on pages 46 to 48.
Stakeholders
We have a comprehensive investor relations programme and during
the year I met personally with representatives of major shareholders
in the UK and the Netherlands to discuss the implementation of our
strategy and the progress of our business. I found these meetings very
informative which allowed me to provide useful feedback to the Board.
The Board is very conscious that there are a number of stakeholders in
our business model and it is our job to consider the interests of each
stakeholder group when making decisions which may affect them.
The Board naturally spent a good deal of time discussing the potential
effects on our stakeholders as part of its evaluation of the proposed
acquisition of intu properties plc.
2017 was a significant milestone for the business as we marked our
75th birthday. During the year there were a number of opportunities
for Directors to meet with colleagues from many areas of the business,
former colleagues and other stakeholders. I was delighted to take part
in some of these events and to meet many of the people who have
helped to make this business the success it is today. I took the
opportunity to reflect on our progress which is a tribute to the
talented people who work and have worked in the business.
At Hammerson we realise that our business has an impact on the
communities in which we operate and therefore our vision is to create
sustainable, high-quality destinations which deliver a positive result
for all of our stakeholders both now and in the future. For example
in March 2017, we launched our objective to become Net Positive
by 2030. More information about this initiative can be found on
page 43 and on our website www.hammerson.com.
The General Counsel and Company Secretary also discussed
corporate governance and compliance matters in a number of
conference calls held with shareholders and other interested parties
during 2017.
Board changes and effectiveness
The Nomination Committee annually reviews the composition
of the Board to ensure it has the appropriate skills, knowledge and
experience for the business. In 2017 there were no Board changes.
Clearly, the Nomination Committee will continue to be thoughtful
about the composition of the Board.
One of my responsibilities is to ensure that the Board is performing
effectively and as part of this process we carry out an annual review
facilitated internally, and externally every three years. The review in
2017 was conducted internally and I am pleased to report that we
believe that the Board continues to operate effectively. I am satisfied
that each Director makes a valuable contribution to the work of the
Board. You can read more about the process followed and the
outcomes of the review on page 81.
I am satisfied that our governance structures remain effective and
support the business. When the new UK Corporate Governance Code
is published in 2018 we will review our governance structures to
ensure we remain fully compliant.
Looking ahead
The Board and I look forward to an exciting year in the evolution of
Hammerson’s business. One of our main responsibilities will be to
oversee preparations in the business for the completion of the
acquisition of intu properties plc. We will be assisted in this by a highly
committed and experienced senior management team supported by
enthusiastic, engaged and hardworking colleagues, as well as
experienced external advisory teams.
I continue to admire both the skills and the enthusiasm for the
business of the many colleagues I have met this year. I would like
to thank all of our colleagues very much for their contribution
during 2017.
David Tyler
Chairman
The Company has complied in full
during 2017 and to the date of
this report with the provisions of
the UK Corporate Governance
Code published in April 2016. The
Code is publicly available at the
website of the Financial Reporting
Council at www.frc.org.uk.
HAMMERSON.COM 71
GOVERNANCECORPORATE GOVERNANCE REPORT Corporate Governance report continued
BOARD OF DIRECTORS
Leading the business
David Tyler
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
Chairman
Chief Executive
Appointed to the Board
12 January 2013 and
appointed Chairman
on 9 May 2013
Appointed to the Board
1 January 2007 and
appointed Chief Executive
on 1 October 2009
Chief Investment
Officer
Chief Financial
Officer and Managing
Director, Premium Outlets
Executive Director
Appointed to the Board
1 October 1999
Appointed to the Board
30 June 2011
Appointed to the Board
1 January 2013
Skills and experience
Peter Cole is a Chartered
Surveyor who joined the
Company in 1989 as a
Senior Development
Surveyor. He was
appointed to the board
of the Company’s UK
business in 1992. In 1999
he assumed responsibility
for Hammerson’s
development, acquisition
and disposal programme.
He implemented the
disposal of the London
offices in 2012 and he
has led the Company’s
major regeneration and
investment projects.
Previous roles
President and general
council member of the
City Property Association.
Skills and experience
Timon Drakesmith is a
Chartered Accountant
who joined the Company
in 2011 as Chief Financial
Officer. He has experience
of working in commercial
property having spent six
years as finance director at
Great Portland Estates plc.
He is currently a non-
executive director of
Value Retail PLC and
The Merchants Trust PLC,
and chairman of VIA
Outlets’ advisory and
investment committees.
Previous roles
Finance director of the
MK Electric division and
group director of financial
operations of Novar plc,
and other financial roles
at Credit Suisse, Barclays
and Deloitte Haskins
& Sells.
Skills and experience
Jean-Philippe Mouton
joined Hammerson in
2003 with responsibility
for property leasing,
development and asset
management in France.
In 2006 he assumed
responsibility for
managing the French
portfolio as Director of
Operations and in 2009
became the Managing
Director of Hammerson’s
French business. He also
has Board responsibility
for marketing where he
can draw on experience
gained while working
for Disneyland Paris.
Previous roles
Director of strategic
planning at Disneyland
Paris and positions
at The Walt Disney
Company and Standard
Chartered Bank.
Committee
membership
N R
Skills and experience
David Tyler is an
experienced chairman
and is currently chairman
at J Sainsbury plc and
Domestic & General.
He has over 40 years’
experience in both
executive and non-
executive roles in a variety
of businesses spanning the
consumer, retail, business
services and financial
services sectors. He is
the co-chair of the Parker
Review Committee.
Previous roles
Chairman of Logica plc
and 3i Quoted Private
Equity plc, finance
director of GUS plc and
of Christie’s International
plc, and senior financial
and general management
roles with County
NatWest Limited
and Unilever PLC.
Non-executive director
of Burberry Group plc,
Experian plc and Reckitt
Benckiser Group plc.
Skills and experience
David Atkins is a Chartered
Surveyor who joined the
Company in 1998. His
career at Hammerson
began with responsibility
for strategy and
investment performance,
working on a number of
overseas transactions,
particularly in France. In
2002 he took responsibility
for the UK retail parks
portfolio and, in 2006, for
the wider UK retail
portfolio. In 2016 he
was appointed as a
non-executive director
of Whitbread PLC. He
is a member of the policy
committee of the British
Property Federation,
a director and trustee
of the Reading Real Estate
Foundation and a governor
and trustee of
Berkhamsted Schools
Group.
Previous roles
Member of the executive
boards of the European
Public Real Estate
Association and Revo
(previously known
as BCSC) and a
member of the Revo
Educational Trust.
72
HAMMERSON PLC ANNUAL REPORT 2017
Key to Committee membership
A Audit Committee
N Nomination Committee
R Remuneration Committee
Committee Chairman
Pierre Bouchut
Gwyn Burr
Terry Duddy
Andrew Formica
Judy Gibbons
Non-Executive Director
Non-Executive Director
Non-Executive Director
and Senior Independent
Director
Non-Executive Director
Non-Executive Director
Appointed to the Board
13 February 2015
Appointed to the Board
1 May 2012
Appointed to the Board
3 December 2009
Appointed to the Board
26 November 2015
Appointed to the Board
1 May 2011
Committee
membership
Committee
membership
NA
NA
R
Committee
membership
N R
Committee
membership
NA
Committee
membership
NA
R
Skills and experience
Pierre Bouchut has
considerable senior
management experience
in finance, European retail
and European property.
He is currently an adviser to
Koninklijke Ahold Delhaize
N.V. having stood down as
chief operating officer,
Europe and Indonesia on
1 January 2018. He is also
a non-executive director
and chairman of the audit
committee of Firmenich SA.
Previous roles
Senior management roles
and chief financial officer
at Delhaize Group SA,
Carrefour SA, Casino,
Guichard-Perrachon SA
and Schneider Electric SA.
Non-executive director of
La Rinascente SpA and
non-executive member
of the advisory boards of
Qualium Investissement
and Lombard Odier
Asset Management
(Switzerland) SA.
Skills and experience
Gwyn Burr has expertise
in marketing and leading
customer service
processes for major retail
brands. She is currently a
member of the board,
remuneration committee
and chairman of the
nominations committee
of Sainsbury’s Bank plc.
She is also a non-executive
director of Just Eat plc,
Metro AG, Taylor Wimpey
plc and Ingleby Farms and
Forests ApS. Gwyn will be
stepping down as a
non-executive director of
DFS Furniture plc in
Spring 2018.
Previous roles
Senior roles in marketing,
customer service and
financial services at Asda
plc. Customer service
and colleague director
at J Sainsbury plc.
Non-executive director of
the Principality Building
Society, director of the
Incorporated Society of
British Advertisers and
chair of Business in the
Community, community
investment board.
Skills and experience
In addition to the
capabilities and
experience of managing a
large public company,
Terry Duddy brings
specific insight into
customer behaviour and
retail markets. He is
currently the chairman
of retailTRUST, senior
independent director
of Debenhams plc and
a non-executive director
of Majid Al Futtaim
Properties LLC.
Previous roles
Chief executive of Home
Retail Group plc, director
of DSG Retail Limited
and trustee of Education
and Employers
Taskforce.
Skills and experience
Andrew Formica is an
actuary, having qualified in
Australia and the UK. He
has considerable
experience in capital
markets and fund
management, including
property management,
and has managed
portfolios and businesses
across Europe and
globally. In 1993 he joined
the Henderson Group,
where he has held various
senior positions, and in
2008 became the chief
executive of Henderson
Group plc. He became the
co-chief executive of Janus
Henderson Group Plc in
May 2017. He is also the
deputy chairman of the
Investment Association.
Previous roles
Non-executive director
of TIAA Henderson Real
Estate Limited.
Skills and experience
Judy Gibbons has
a background in
e-commerce, software,
internet technologies,
digital media and mobile
applications. She also has
extensive experience in
marketing and
international business.
She is currently a
non-executive director
of Michael Kors Holdings
Limited and Virgin Money
Giving Limited. She is
chair of Which? Limited
and a trustee of House of
Illustration, Nesta and
Somerset House Trust.
Previous roles
Non-executive director
of Guardian Media Group
plc and O2 plc, corporate
vice-president of
Microsoft Corporation
and venture partner of
Accel Partners. Senior
roles in marketing and
product development
at Apple Inc. and
Hewlett-Packard.
HAMMERSON.COM 73
GOVERNANCECORPORATE GOVERNANCE REPORT
Corporate Governance report continued
GROUP EXECUTIVE COMMITTEE
Managing the business
See the Directors’
biographies
on page 72.
David Atkins
Chief Executive
Peter Cole
Chief Investment Officer
Timon Drakesmith
Chief Financial Officer and
Managing Director,
Premium Outlets
Jean-Philippe Mouton
Managing Director, France
Joined Group Executive
Committee 2007 and appointed
Chairman in 2009
Joined Group Executive
Committee 1999
Joined Group Executive
Committee 2011
Joined Group Executive
Committee 2009
Committee membership
Committee membership
Committee membership
Committee membership
CR
F
I
F
I
IT
F
HS
I
RC
CR
F
HS
I
Andrew Berger-North
Director, UK
Retail Parks
Sarah Booth
General Counsel and
Company Secretary
Mark Bourgeois
Managing Director,
UK and Ireland
Gérald Férézou
Deputy Managing
Director, France
Joined Group Executive
Committee 2013
Joined Group Executive
Committee 2011
Joined Group Executive
Committee 2017
Joined Group Executive
Committee 2013
Committee membership
Committee membership
Committee membership
Committee membership
CR
IT
HS
UI
I
RC
CR
IT
HS
I
RC
UI
F
RC
Andrew is a chartered surveyor
and joined Hammerson
in 2003. He was appointed
Director, UK Retail Parks in
2005. Andrew is responsible for
all aspects of the retail parks
portfolio, including acquisitions,
disposals, development and
asset management.
Sarah was appointed as General
Counsel on 29 March 2010 and
as Company Secretary on 22
September 2011. Before joining
Hammerson she was general
counsel at Sodexo UK and prior
to that legal and corporate
development director at
Christian Salvesen PLC. Sarah
began her career at Dickson
Minto WS where she qualified as
a solicitor.
Mark joined Hammerson in
2017 as Managing Director of
UK and Ireland. Mark began his
career at KPMG; he then
qualified as a chartered surveyor
with Donaldsons. Most recently
he was at Capital & Regional plc
where, as an executive director,
he led the management and
development of their shopping
centre portfolio.
Gérald joined Hammerson as
a property analyst in 2006 and
took on responsibility for the
French investment programme
in 2008. In 2013 he became
Deputy Managing Director of
Hammerson’s French business.
Gérald began his career in
corporate finance roles at
Arthur Andersen and Nexity.
Key to Committee membership
CR Corporate Responsibility Board
IT
F
Group IT Committee
Hammerson France Management Board
HS Health and Safety Committee
74
HAMMERSON PLC ANNUAL REPORT 2017
I
Investment Committee
RC Risk and Controls Committee
UI
UK and Ireland Management Board
Committee Chairman
See the Directors’
biographies
on page 72.
Hammerson’s governance structure
Hammerson plc Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Group Executive
Committee
Risk and Controls
Committee
Corporate
Responsibility
Board
Group IT
Committee
Hammerson
France
Management
Board
Health and
Safety
Committee
Investment
Committee
UK and
Ireland
Management
Board
Hammerson’s governance structure is illustrated above. The Board
has delegated a number of its responsibilities to its Audit, Nomination
and Remuneration Committees. The terms of reference of each of
these Committees and the Board’s schedule of reserved matters can
be found at www.hammerson.com. When the need arises, a standing
Disclosure Committee is convened to consider timely and accurate
disclosure of any information required to be disclosed to meet legal
and regulatory obligations under the Listing Rules.
For further information about the Board and its Committees see the UK
Corporate Governance Code compliance section of this report on page
114, the Nomination Committee report on page 82, the Audit Committee
report on page 84 and the Directors’ remuneration report on page 88.
Responsibility for operational matters, including the implementation of
the Group’s Business Plan and strategy, is delegated by the Hammerson
plc Board to the Chief Executive, David Atkins. The Group Executive
Committee which is chaired by David Atkins is responsible for managing
the business, delivering the strategy, managing risk, establishing
financial and operational targets and monitoring performance against
those targets, as set out in its own terms of reference. The Group
Executive Committee meets formally once a month. The members also
meet most weeks for informal discussions on day-to-day issues.
The Group Executive Committee is supported by the following
committees which are each chaired by a Group Executive Committee
member:
– Corporate Responsibility Board
– Group IT Committee
– Hammerson France Management Board
– Health and Safety Committee
– Investment Committee
– UK and Ireland Management Board
The Group Executive Committee also receives regular updates on the
Value Retail and VIA Outlets businesses, which are externally
managed. Timon Drakesmith is a board member of Value Retail PLC
and is chairman of VIA Outlets’ advisory and investment committees.
The Risk and Controls Committee supports the Audit Committee
by promoting the application of the Risk Management Framework
around the business and manages the internal audit programme.
See page 61 for further information.
At its meetings the Group Executive Committee receives a number of
regular reports including on finance, trading and marketing, the
property portfolio, human resources, corporate communications and
the Group’s Risk Management Framework. It also receives regular
update reports from each of the committees. The Group Executive
Committee monitors the progress of the strategic and operational
objectives through the delivery of the Business Plan. It reviews the
Group’s Risk Management Framework and internal controls in
conjunction with the Risk and Controls Committee. It has
responsibility for ensuring development and succession plans are in
place so that the business has people of the right calibre and skills to
deliver the Business Plan.
During the year, in addition to the regular reports described above, the
Group Executive Committee:
– Received a report on cyber security arrangements within the
Group
– Reviewed an update report on Sustainability targets and outcomes
for 2016 and priorities for 2017, including the launch of the Group’s
Net Positive strategy in March
– Reviewed and approved a proposal for Board approval for the VIA
acquisition of Norwegian Outlet, Oslo
– Reviewed and approved the Modern Slavery Act statement for
Board approval to publish on the Company’s website
– Discussed the rationale for, and approved the formation of, an
Investment Committee to focus on capital allocation and
investment, which was implemented in July 2017
– Monitored security arrangements at the Group’s shopping centres
– Received a presentation on the post-completion review of the
Victoria Gate, Leeds development and lessons learnt
– Received an update presentation on the Group’s internal
communications and launch of a new intranet
Hammerson has established an Integration Committee, formed of
members of the Hammerson management team, to plan and manage
the integration of the Hammerson and intu businesses, following the
acquisition of intu properties plc.
HAMMERSON.COM 75
GOVERNANCECORPORATE GOVERNANCE REPORT Corporate Governance report continued
Board activity
An insight into the year
How governance supported the delivery of Hammerson’s strategy in 2017
Hammerson’s governance framework is designed to support our strategy and is underpinned by the Company’s culture and values. These values:
ambition, respect, collaboration and responsibility, are central to the way we run the business. The Company’s success depends on the Board’s
continual commitment to high standards of corporate governance and a strong, positive culture across the business while managing effectively
the risks and uncertainties of the markets in which we operate. We have set out below how the Board’s governance role links to the strategic
objectives of the business and the risks identified in the Risk Management Framework and what the Board did during the year to support those
objectives.
Strategic
priority
Board
Risk Management
Key Board activities
governance role
Framework
in 2017
Focus on growing
consumer markets
– Determine risk appetite
– Macro-economic
– Oversight of acquisitions/
– Retail market
disposals programme as part
of active management of our
property portfolio, realising
proceeds to recycle into
higher growth opportunities
– Property investment
– Property development
– Tax and regulatory
– Acquisition completion
– Oversight of major
development projects
– Review and approve
corporate acquisitions
– Strategy Day – reviewed
strategic focus and risks
– Recommended the potential
acquisition of intu properties plc
– Approved disposal of
Westwood and Westwood
Gateway Retail Parks, Thanet,
Saint Sébastien, Nancy and
Place des Halles, Strasbourg
– Approved purchase of Cergy 3
shopping centre and
committed to the extension
project
– Oversight of the portfolio
– Retail market
– Approved launch of Net
Create
differentiated
destinations
– Review of the development
– Property development
pipeline
– Ensure balance of interests
between all stakeholders
– Acquisition completion
– Catastrophic event
– People
– Environmental
Positive strategy
– Visited Westquay,
Southampton
– Visited Victoria, Leeds
– Considered value-add
initiatives and technologies
– Oversaw progress in Croydon
Partnership’s development
plans for the Whitgift Centre,
Croydon
– Approved £360 million
Revolving Credit Facility
– Approved early redemption
of £250 million 6.875% bonds
due 2020
– Together with 50% joint
venture partner, Allianz Real
Estate, approved €625 million
seven-year loan secured
against Dundrum Town
Centre, Dublin
Promote
financial efficiency
and partnerships
– Oversight of Group’s financial
– Macro-economic
performance
– Review of capital structure
– Review of major changes to
corporate structure
– Treasury
– Partnerships
– Tax and regulatory
– People
– Environmental
– Acquisition completion
See our strategy on page 16 and the
Risk Management Framework on page 63.
76
HAMMERSON PLC ANNUAL REPORT 2017
Visiting the business
Getting out and about in the business is important for the Board as this enables the Non-Executive Directors to see first-hand how our assets are
run and, importantly, meet local teams. This provides an experience of the business which cannot be replicated in the board room and also
enables the Directors to engage with teams at all levels in the business. Such activities give a real insight into how the culture and values of the
business work in a day-to-day setting. The Board generally undertakes one or two visits to operational locations during the year and holds at least
one Board meeting at a Hammerson location other than the head office. All of this gives the Directors an opportunity to review operations, meet
local teams and discuss their particular challenges.
Board visit to Westquay, Southampton
In 2017 the extension to Westquay, Southampton was launched.
The June Board meeting at Westquay, Southampton enabled the
Board to make a visit of the extension and the existing shopping
centre. The visit, scheduled over two days, included a tour of
Southampton, a walking tour of the asset and an opportunity for
the Board to meet colleagues from the local asset management
and development teams. The Board also received a presentation
from the Group Product Manager and the General Manager of
the shopping centre. During the visit the Board had informal
opportunities for discussion and engagement with the local
teams and gained an insight into the operational challenges of
running this shopping centre.
For more information see the iconic destinations
section on page 20.
Board visit to Victoria, Leeds
The Board made a visit to Victoria, Leeds in May which was
scheduled outside the normal formal calendar of Board meetings.
Allocating a full day to the visit enabled the Directors to
undertake a series of meetings including opportunities for
discussion and interaction with the local teams responsible for
development, leasing and centre management.
Following the completion of Victoria Gate and its opening in
October 2016, this was an opportunity for the Board to tour the
Company’s interests in Leeds, accompanied by the Asset
Manager, and view the shopping centre first-hand. Following the
tour the local teams involved in the Board’s visit provided the
Directors with key highlights as well as insights into the risks and
challenges of running this centre and how these were being
managed. The Asset Manager gave a presentation covering the
shopping centre business plan and an overview of the asset.
The Development Manager gave a review of the development
to opening in October 2016 and discussed the challenges and
successes and how the risks were managed during the
development. He also gave an update on future development
opportunities in Leeds. The Group Head of Insight provided an
analysis of tenant and shopper data and the leasing team
provided insight into the leasing strategy and the retail tenant
mix. The presentations concluded with a talk from the General
Manager of the shopping centre on the approach to management
of the centre and initiatives underway to deliver the business
plan and results achieved. Lunch provided a further informal
opportunity for the Directors to engage with colleagues working
in the shopping centre.
Feedback from the Directors indicated that they had found the
visit very informative and that a full day to concentrate on meeting
the teams and visiting the asset had worked well. Future visits like
this will continue to be scheduled for the Board where possible.
HAMMERSON.COM 77
GOVERNANCECORPORATE GOVERNANCE REPORT Judy Gibbons’ perspective
on the Board Strategy Day
“This year’s Strategy Day provided an excellent forum for
the Board and management to step back and look at the
wider context in which the Company is operating. The
extensive and well-planned materials in the pre-reading
helped the attendees to prepare well and consider the issues
they felt were important to focus on.
On the day itself we had the benefit of some excellent
external speakers who presented their views on trends in
technology and how these are influencing consumer
behaviour. This led to a productive discussion as to how
these changes are affecting the retailers and what more we
can do to add value to their businesses. We also benefitted
from the contribution to discussions made by all the
Group Executive Committee and other senior colleagues
who attended.
The second part of the day was focused on reviewing the
business in the light of these changes and discussing our
strategic goals and approach going forward.
I find the Board Strategy Day one of the most stimulating
events in the Board’s calendar as it provides an opportunity
for an in-depth review of the business and an evaluation of
multiple scenarios that we need to be prepared for.”
Corporate Governance report continued
Board Strategy Day
The annual Board Strategy Day took place in the autumn. The strategy
of the business is at the core of the Board’s activities during the year.
The Strategy Day allows the Board to focus on debating ideas and
reflecting on the future direction of the business in an environment
outside the board room. It is also an opportunity to reflect on progress
to date against the strategy. In preparation for the day, the Board
received a background reading pack, including:
– Institutional investors’ feedback from meetings held with the
Chief Executive, Head of Investor Relations and Group Financial
Controller in London and Amsterdam during July 2017
– A background review of the economy and markets in which the
business operates
– Key demographic, shopper, retail and technology trends
– Hammerson’s performance benchmarked against that of its peers
– The economic outlook in the UK, France and Ireland
The morning was focused on customer, retail and technology
trends and Hammerson’s response to these. Interesting insights
were provided by two external guest speakers which stimulated
discussion on ways in which Hammerson should respond to the
trends. The Non-Executive Directors also contributed personal
perspectives and views, based on their own business experience.
The scope of the agenda included a set of questions to help frame the
discussions including:
– How has Hammerson delivered against its strategy?
– What has changed in economic and market trends?
– Why will customers visit Hammerson’s destinations in the future?
– Are Hammerson’s assets fit for purpose as customer behaviour and
retail demand evolve?
– How does Hammerson maximise shareholder value?
The second half of the day was spent evaluating Hammerson’s
portfolio in the light of its vision and strategic priorities. The
discussion ranged over ideas not just for the next year’s Business Plan
but over a three to five-year period and enabled the exploration of
some less conventional ideas. The Board discussed considerations in
connection with acquisition opportunities. In addition the Board
spent some time considering a potential acquisition of intu properties
plc and more details are provided in the case study on the opposite
page. Following the Strategy Day certain insights and ideas generated
were further discussed and refined for incorporation into the Business
Plan and future strategy.
The importance of the Strategy Day lies in the opportunity for the
Board to be ambitious in setting its strategic goals and to explore and
evaluate new themes and ideas, which is particularly important for the
Non-Executive Directors who are not involved in the day-to-day
business. You can read Judy Gibbons’ reaction to the day on the right.
78
HAMMERSON PLC ANNUAL REPORT 2017
Governance supporting the
strategy: proposed acquisition
of intu properties plc
During 2017, in the context of considering acquisition
opportunities aligned with the Company’s strategy, the
Board considered a potential transaction involving intu
properties plc. Early discussions included a consideration of,
among other matters:
– Rationale for the transaction
–
intu properties plc’s portfolio
– Potential cost synergies
– Brand and digital considerations
– Key risks
– Key financial considerations
Further preliminary work took place over the next few months so
that by the time of the Board Strategy Day in early October, the
Board was able to consider the opportunities and risks of such a
transaction in greater detail. At the Board Strategy Day the
Directors debated a range of merger and acquisition options and
considered the relative merits of a transaction involving intu
properties plc in comparison with other options. At subsequent
meetings, the Board reviewed a number of key considerations
including:
– The quality of the retail assets that would be acquired
– The benefits of greater scale, reduced costs and synergies
– Financial considerations and analysis
– The mechanics to effect the acquisition
The Board concluded that the acquisition of intu properties plc
presented the most compelling and feasible opportunity which
would support the Company’s longer-term strategic ambitions
and deliver financial returns for shareholders and positive
benefits for other stakeholders. Following this the Board
authorised further discussions with intu properties plc.
Management and the Board’s advisors produced a number of
detailed papers to help the Board consider various aspects of the
acquisition opportunity. In particular the Board considered:
– A risk analysis
– Financial projections
– The effect on the Group’s key stakeholders including
colleagues, major shareholders, customers and partners
–
Its responsibilities under the terms of the UK Takeover Code
and other legal requirements
– The terms of the transaction
Day-to-day consideration of the transaction was delegated to a
committee of the Board, monitored by the Board as a whole to
ensure that all duties were fulfilled. Procedures were put in place
to deal with any potential leak of market-sensitive information
and monitored by the Board’s Disclosure Committee.
A number of Board meetings were held to discuss the merits and
risks of the proposed transaction, review the progress of
negotiations and approve next steps. In between formal Board
meetings, the Chairman and the Chief Executive and other
members of senior management kept the Board informed of
significant developments.
During the period prior to the announcement of the potential
transaction, the Board received advice from internal
Hammerson teams including legal, treasury and finance
functions. Hammerson’s external legal team, corporate brokers,
corporate sponsor and investment advisory banks also provided
advice and guidance.
In early December the Board approved the formal terms of the
transaction and the contents of the announcement.
On 6 December 2017, the Company announced its recommended
all-share offer for intu properties plc.
See Chief Executive’s Review on page 12.
HAMMERSON.COM 79
GOVERNANCECORPORATE GOVERNANCE REPORT Corporate Governance report continued
Engagement with stakeholders
The Board is committed to engaging closely with its stakeholders and
taking their views into account.
Institutional shareholders
Hammerson has a comprehensive investor relations programme
through which the Chief Executive, Chief Financial Officer and Head
of Investor Relations meet regularly with the Company’s institutional
shareholders to discuss strategic issues as well as present the
Company’s results. For the presentation of the half-year results, the
Group Financial Controller stood in for the Chief Financial Officer
during his leave of absence. In 2017 the investor relations programme
included attendance at a number of industry conferences, and
institutional shareholders, including those based in South Africa, were
invited to join site visits to a number of centres in the UK and France.
As part of this programme meetings were held to discuss our
sustainability strategy and performance. The Chairman held nine
shareholder meetings in 2017 and the opportunity to meet the Senior
Independent Director was offered. Meetings were also held by the
General Counsel and Company Secretary to discuss institutional
shareholders’ governance priorities and feedback from these meetings
was reported to the Board.
Table 45
Analysis of shares held as at 31 December 2017
Annual General Meeting
The Annual General Meeting (AGM) provides an opportunity for all
shareholders to hear a presentation on the Company’s activities and
performance and ask questions in addition to voting on the resolutions
proposed. The Board and members of the operational management
team attend the AGM and are available to meet shareholders informally
after the meeting. The 2018 AGM will be held on 24 April 2018.
Employees and other stakeholders
The Board’s visits to Victoria, Leeds and Westquay, Southampton gave
the Directors the opportunity to meet colleagues in the business and
to gain a first-hand view of the experience of our shoppers and hear
about our relationship with retailers. They also met and held
discussions with colleagues below Board level at the Board Strategy
Day where consideration of the Company’s stakeholders was central
to the debate. Hammerson’s 75th birthday celebrations during the
year have provided further opportunities to engage informally with
colleagues across the business and other stakeholders, including
retailers and partners. In early 2018 the Board will receive a report on
the employee engagement survey which was conducted in late 2017
and will review and discuss the results.
Number of shares held
0-500
501-1,000
1,001-2,000
2,001-5,000
5,001-10,000
10,001-50,000
50,001-100,000
100,001-500,000
500,001-1,000,000
1,000,001 +
Total
Number of
shareholders
% of total
shareholders
Holding
% of total capital
781
320
319
334
180
289
116
179
60
98
29.1854
11.9581
11.9207
12.4813
6.7265
10.7997
4.3348
6.6891
2.2422
3.6622
139,595
249,404
474,287
1,044,925
1,288,758
6,923,281
8,621,018
40,217,587
41,890,214
693,377,349
2,676
100
794,226,418
0.0176
0.0314
0.0597
0.1316
0.1623
0.8717
1.0855
5.0637
5.2743
87.3022
100
As at 31 December 2017 the following interests in the voting rights over the issued share capital of the Company had been notified in accordance
with DTR 5.
Table 46
Share capital and substantial shareholders
Blackrock, Inc.
APG Asset Management N.V.
Coronation Asset Management (Pty) Ltd 1
Peel Holdings (IOM) Limited
Legal & General Investment Management Ltd
Rockcastle Global Securities Limited
Ordinary shares
of 25p each
72,969,764
62,111,208
55,529,051
36,230,050
25,717,084
23,701,816
At 31 December
2017 percentage of
total voting rights
9.190
7.830
7.000
4.567
3.610
2.988
1. On 9 February 2018 Coronation Asset Management (Pty) Ltd notified the Company that it had increased its shareholding to 8.03% of the Company’s issued share capital.
No other changes to table 46 have been disclosed to the Company between 31 December 2017 and 23 February 2018.
80
HAMMERSON PLC ANNUAL REPORT 2017
Board effectiveness
Review process
Every three years the Board carries out an external Board effectiveness review. In the intervening years the review is conducted internally. The
Board’s evaluation of its own performance provides an opportunity to consider ways of identifying greater efficiencies, maximising strengths and
highlighting areas for further development.
Board effectiveness review 2017
Following an external review in 2016, the Board conducted an internal review led by the Chairman with the support of the General Counsel and
Company Secretary during the year. The 2017 review was conducted by means of an online questionnaire. It was carefully structured and
designed to enable the Board to comment on progress against matters identified in the previous review as well as assist in identifying any
potential for improvement in the process of the Board and its Committees. The questionnaire also focused on, amongst other matters, the
purpose and impact of Board effectiveness reviews and questions on leadership and effectiveness.
The results of the review were considered by the General Counsel and Company Secretary and the Chairman following which they were discussed
at the December Board meeting. A number of key themes emerged from the review including continuing the Board’s focus on the culture of the
business and increasing opportunities for the Non-Executive Directors to gain first-hand experience of the Group’s assets. Having considered
the findings of the review, the Directors were satisfied that the Board operated effectively in 2017 and there were no particular areas of concern.
Areas of focus arising from the review to be addressed in the year ahead are set out below.
Table 47
Recommendations arising from the 2017 review
Agreed actions for 2018
Continued focus at Board level on the culture of the business.
In addition to informal opportunities to gauge the culture of the business,
the Board will receive a formal presentation on the outcome of the 2017
employee engagement survey and an update report on the internal
communications project which aims to standardise and improve
employee communications, including through the use of a new intranet.
Provide further opportunities for Non-Executive Directors to visit the
business on an informal basis.
The Non-Executive Directors intend to arrange their own individual
programme of ad hoc visits of Hammerson’s assets.
Review the Board’s work plan.
The General Counsel and Company Secretary will work with the
Chairman and the Board to identify other topics to be added to the
Board’s work plan. Consideration will be given to extending the Board’s
Strategy Day over a two-day period to allow more time for discussion.
Progress during the year on the main recommendations arising from the external evaluation in 2016 are set out below:
Recommendations – 2016
Completion of 2016 recommendations
Review the annual Board and Committee meetings calendar and
schedule of Board calls.
Keep monitoring the culture of the business.
Following discussion with the Directors and the General Counsel and
Company Secretary to canvass views, the Chairman proposed a number
of changes to the schedule of meetings.
Continued focus on annual visits to assets. Visits to Victoria, Leeds and
Westquay, Southampton enabled the Board to meet colleagues in the
wider business and see the culture of the business first-hand.
You can read more about the visits on page 77.
Review the Board papers to ensure greater consistency and improved
design and that they continue to be forward-looking and avoid
duplication between papers.
The General Counsel and Company Secretary has worked with
colleagues on guidance to ensure greater consistency in the Board
papers. The Board’s feedback on improvements has been positive.
Non-Executive Directors’ visibility around the business.
Non-Executive Directors who were able to schedule visits to
Hammerson’s assets during the year found these very informative.
HAMMERSON.COM 81
GOVERNANCECORPORATE GOVERNANCE REPORT
NOMINATION COMMITTEE REPORT
The right skills, experience,
independence and knowledge
Nomination Committee members
David Tyler (Chairman)
Pierre Bouchut
Gwyn Burr
Terry Duddy
Andrew Formica
Judy Gibbons
Dear Shareholders
I am pleased to present the
Nomination Committee report covering
the Committee’s key activities in 2017.
This report should be read in
conjunction with the separate report
on compliance with the UK Corporate
Governance Code which provides
other details about the Committee.
It can be found on pages 114 to 118
of this report.
Changes to the Board
During 2017 there were no changes to the membership of the Board.
Looking forward to 2018, the Committee will continue to oversee the
membership and composition of the Board particularly in the light of
the proposed acquisition of intu properties plc which was announced
in December 2017.
Board experience and balance
During the year we again reviewed the composition of the Board and
its Committees. As part of this review the Committee considered:
– The number and balance of Executive and Non-Executive
Directors
– Committee membership
– Length of tenure
– Background, professional skills and experience
– Independence
– Diversity including age, gender and ethnicity
We also gave thought to how well the skills, knowledge and
experience of the Board continue to ensure that we can support the
business to deliver effectively against our strategic objectives both
now and in the future. The Committee discussed emerging
requirements for skills and experience on the Board as noted in the
2017 Board effectiveness review and areas which could be included in
future selection criteria such as digital and commercial experience
and experience in fashion retail.
Following this review the Committee is satisfied that the Board
currently has an appropriate mix of skills, knowledge and experience
to operate effectively. The individual Directors bring a range of skills
gained in diverse business environments and have excellent track
records gained from working in a number of sectors. In addition to a
wide range of skills, experience of serving on other external boards
Chart 48
Gender
Chart 49
Years of service
Chart 50
Age
Male: 8 – 80%
Female: 2 – 20%
0-3 years: 1 – 10%
3-6 years: 4 – 40%
6-9 years: 3 – 30%
9+ years: 2 – 20%
41-50: 1 – 10%
51-60: 5 – 50%
61- 65: 4 – 40%
82
HAMMERSON PLC ANNUAL REPORT 2017
Table 51
Skills and experience on the Board
Audit; risk management
Customer service; customer behaviours
Digital technology; marketing
Finance; banking; fund management
French market; international business
Mergers and acquisitions
Property; regeneration projects
Retail
Shareholder relations
Non-Executive Director
Executive Director
enables the Directors to bring the benefit of a different perspective to
debate in Board meetings. During the year two Non-Executive
Directors served as executives on other boards. Two Executive
Directors currently serve in non-executive roles on external boards.
The skills and experience on the Board are summarised in Table 51
above and the Directors’ biographies on pages 72 to 73 provide further
information about the particular skills, knowledge and experience
each Director brings to the Board.
Diversity
The Board recognises the benefits of diversity in its broadest sense at
all levels of the business. In February 2018 the Board adopted a new
diversity policy which sets out the Board’s ambitions and objectives
regarding diversity at Board and senior management level. This policy
affirms the Board’s belief in the benefits of diversity in its widest sense
in the board room as well as throughout the business. Diversity on the
Board and in senior teams brings wider perspectives and enables more
effective discussions and better decision-making. The Board’s policy
aims to achieve at least one third women on the Board and Group
Executive Committee by 2020. Currently there are two female
directors on the Board, representing 20% of its composition, and one
female member of the Group Executive Committee. Gender diversity
and other measures of diversity on the Board are illustrated in the
charts on the opposite page and further measures of diversity are in
the People section of the Strategic Report on page 48.
When drawing up selection criteria for a Board recruitment process
the Committee will have regard to diversity in its widest sense but will
remain focused on recruiting on merit the best candidate for any role.
The Committee also supports and receives updates about initiatives
within the business to create and promote a diverse organisation.
For further information about the work taking place to promote and
support diversity and inclusion at Hammerson, see page 47.
Succession planning
The Committee has spent time considering this important area during
the year. The Committee received an update paper on succession
planning for the Executive Directors and the Chief Executive reported
to the Committee on discussions he had held with individual
Directors. As Chairman of the Committee I also ensure that I keep
closely in touch with the Executive Directors and other members of
the senior management team on matters of career development and
succession. The Committee also considered the senior management
succession plan which includes Executive Directors, members of the
Group Executive Committee and all senior management roles in the
business. The Committee reviewed the succession plans in place for
each senior management role which take into account the immediate,
emerging and longer-term succession plan for such roles. We were
satisfied that the plan was sufficiently robust to enable vacancies to be
filled on a short to medium term interim basis as well as taking into
account individuals of sufficient calibre to fill future vacancies on a
longer-term basis. The Committee acknowledges that in a business
the size of Hammerson it is not always possible to identify internal
successors for all roles.
The Committee takes a keen interest in the talent pipeline for the
future and is regularly updated by the Group HR Director on the steps
taken to provide learning and career development opportunities for
high potential colleagues in the business. In addition, the Directors
have opportunities to meet talented individuals both when visiting the
business and more formally in the board room when they are invited
to present on particular subjects.
Gender pay gap reporting
During the year the Committee received a report on progress on the
Company’s approach to reporting on the gender pay gap and the steps
being taken to prepare the data for publication on the Group’s website,
which is required by April 2018. The Committee approved the
approach being taken and the Company’s continued commitment to
fair pay practices. You can read more about this on page 48.
The Committee will continue to support the Board in 2018 by
ensuring the Board has the appropriate skills, knowledge and
experience to operate effectively and deliver the Company’s strategy.
We will also continue to support the work that is being undertaken on
succession planning and diversity and inclusion at all levels
throughout the business.
David Tyler
Chairman of the Nomination Committee
HAMMERSON.COM 83
GOVERNANCECORPORATE GOVERNANCE REPORT
AUDIT COMMITTEE REPORT
Independent scrutiny
and oversight
Audit Committee members
Pierre Bouchut (Chairman)
Gwyn Burr
Andrew Formica
Judy Gibbons
Dear Shareholders
I am pleased to present the
Committee’s report for the year. This
report should be read in conjunction
with the section on how we have
complied with the UK Corporate
Governance Code which is on pages
114 to 118.
During 2017, the Committee has continued to provide independent
scrutiny of the processes in place to monitor the Company’s financial
and non-financial reporting. This included oversight of the viability
statement process and ensuring that this Annual Report meets the
criteria for fair, balanced and understandable reporting. We have also
overseen the Group’s systems of internal control and risk
management. At every meeting the Committee considers the Risk
Management Framework. This forms a basis for discussion to confirm
that risks are appropriately identified and categorised, that their
potential impact on the Group is understood and appropriate
resources are in place to mitigate them to ensure they remain within
the Group’s risk appetite. I confirm on behalf of the Committee that
no significant failing or weaknesses in the Group’s control structures
were identified in 2017.
Valuation of the portfolio
A key responsibility of the Committee is to consider the valuation
process in relation to the Group’s property portfolio and satisfy
ourselves that it has been carried out appropriately. This is the
Committee’s most significant financial judgement. The Committee
has scrutinised the valuations and, in addition, I met Cushman &
Wakefield (the Valuer) independently and I am satisfied with the
conclusions reached by the Valuer. Further details of the Committee’s
assessment of significant financial judgements are set out in greater
detail on page 87.
New External Auditor
Following the process to appoint a new external auditor which
culminated in the appointment of PricewaterhouseCoopers LLP
(PwC) and approval of this appointment by shareholders at the 2017
Annual General Meeting, I am pleased to welcome PwC as the
Company’s new External Auditor. A key focus this year has been
ensuring the effective transition of the external audit process from
Deloitte LLP to PwC and we describe the induction process in more
detail on page 85. Both the Committee and I welcome the fresh
perspective that the new audit team brings and the significant
transition work undertaken during the year. We look forward to
working with PwC in the future.
Committee members
Each of my fellow Committee members brings a wide knowledge and
significant experience in business at a senior level in financial
reporting, risk management, internal controls and strategic
management which enables us to discharge our duties properly. I also
fulfil the requirement of bringing recent and relevant financial
experience to the Committee.
More information can be found on Committee
members on page 73.
84
HAMMERSON PLC ANNUAL REPORT 2017
Financial Reporting Council review
During the year the Company received a letter from the Financial
Reporting Council (FRC) concerning its review of the Company’s
2016 Annual Report. It should be noted that the object of the FRC’s
review is not to verify that the information in the Annual Report is
correct but rather to consider compliance with reporting
requirements. I am very pleased to report that the FRC raised no
significant findings and had no questions that they wished to raise.
The letter highlighted a number of matters which, while not requiring
a formal response, the FRC believed would improve existing
disclosures and these have been addressed in this Annual Report.
Audit Committee effectiveness review
The annual review of the effectiveness of the Committee was carried
out internally during the year. The Committee and senior
management attendees were invited to respond to questions on the
content, management, and quality and focus of discussion during
meetings. Views were also sought on some of the specific activities the
Committee undertakes, for example, overseeing property valuations
and considering significant financial judgements. I am pleased that
responses indicated that the Committee is performing well with no
particular concerns.
Anti-bribery and corruption
The Committee considered the policies and procedures in place in the
Group to prevent bribery and corruption and were satisfied that these
were appropriate. These include the Code of Conduct, Anti-Fraud
Policy and Response Plan, Whistleblowing Policy and Gifts and
Entertainments Policy. The Code of Conduct sets the ethical and
cultural tone at Hammerson and all employees are expected to follow
it. You can read more about the management of these risks in the
Risk section on page 61 and the People section on page 46 of the
Annual Report.
Whistleblowing arrangements
During the year the Committee monitored the Group’s
whistleblowing arrangements and received an annual Whistleblowing
and Fraud report. Two incidents were raised during the year, which
were treated as whistleblowing and were reported to the Committee.
The first related to allegations of operational shortcomings and the
second to allegations of specific control weaknesses. One is concluded
and the other is ongoing. I view the reporting of such incidents as a
positive reflection of our culture in which colleagues feel able to raise
their concerns which can then be properly investigated. You can read
more about Hammerson’s Whistleblowing Policy on page 117.
I am satisfied that the regular discussion and challenge which the
Committee has had with senior management, PwC, the Risk and
Controls Manager and the Valuer, together with the continuing high
quality of reports and information, has enabled us to discharge our
duties and responsibilities effectively.
Pierre Bouchut
Chairman of the Audit Committee
Transition to PwC, the Company’s
new External Auditor
Following the decision to undertake an audit tender during
2016, a recommendation to appoint
PricewaterhouseCoopers LLP (PwC) as the Group’s new
External Auditor for the 2017 financial year was approved by
the Board in October 2016, and was subsequently approved
by shareholders at the 2017 AGM.
In order to achieve as smooth a transition as possible, a plan
was drawn up early on with the aim of familiarising the new
lead audit partner, Paul Cragg, and his team with the
Hammerson business. PwC shadowed the work of Deloitte
LLP (Deloitte), the outgoing External Auditor, during the
year end process for 2016 and attended the January and
February 2017 Audit Committee meetings.
Meetings were held with PwC to discuss and agree the
transition process, following which PwC prepared a detailed
plan covering, amongst others, the following key steps:
– Meetings and regular communication with Deloitte to
agree handover protocol and arrange necessary
correspondence
– Introductory meetings with senior management across
the business to enhance PwC’s understanding of the
Group and key business processes
– Review of Deloitte’s papers following the 2017 AGM to
enable PwC to gain assurance over the December 2016
closing balances
– Regular meetings with the Hammerson finance team
– Visits to shopping centres in the UK and France to see
first-hand how these assets are run
– Visit to Bicester Village to gain insight into how a
premium outlet is run
– Visit to Elliott’s Field, Rugby to gain insight into the retail
parks business
– Early engagement with EY LLP, the auditor for
Value Retail
– Appointment of PwC to complete the Group’s first year
Irish statutory entity audits for the 2016 year end
– Appointment of PwC as External Auditor for the Group’s
French subsidiary audits
– Meetings with the local finance teams in France and
Ireland and at VIA Outlets
– Meetings with the Group’s Valuer to understand the
valuation process, and
– Understanding the Group’s processes and controls prior
to the 2017 half-year review
PwC and the Group’s finance teams keep in regular, frequent
contact. The transition period has gone smoothly and we
look forward to working with PwC over the coming years.
HAMMERSON.COM 85
GOVERNANCECORPORATE GOVERNANCE REPORT Audit Committee report continued
Effectiveness of the External Auditor
Following this first year that PwC has been the External Auditor, the
Committee considered the effectiveness of the External Auditor as
part of the 2017 year end process. The Committee sought the views of
key members of the finance team and their feedback confirmed that
PwC had carried out a smooth handover process from Deloitte, the
outgoing External Auditor, and had performed well and provided an
appropriate level of challenge to management. The Committee has
concluded that overall PwC has carried out its audit for 2017
effectively and efficiently.
Non-audit services
The Committee recognises the need for objective and independent
auditors and how such objectivity might be, or appear to be,
compromised through the provision of non-audit services by the
External Auditor. During the year the Committee considered the
extent of the non-audit services provided by PwC. Details of the
provision of non-audit services and associated fees are included
in the Annual Report on page 117 and the full policy is available at
www.hammerson.com. Details of the fees paid to PwC during the year
are shown in Note 4 to the financial statements on page 142.
Fair, balanced, understandable
The Committee adopted the same approach as in previous years to
ensuring that the 2017 Annual Report is fair, balanced and
understandable. The process was led by an internal editorial team
consisting of members drawn from Group Finance, the Company
Secretariat, Corporate Communications, Investor Relations and
Marketing. The editorial team met regularly to review progress and
ensure balanced reporting with appropriate links between key themes
and sections of the Annual Report. A paper was presented to the
Committee to help them challenge and test the assessment that the
report was fair, balanced and understandable. The Committee
together, with senior management, reviewed the report during its
production period and the Committee and then the Board were able
to confirm that the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the necessary information for
shareholders to assess the Company’s position, performance, business
model and strategy.
Viability statement
The Committee reviewed management’s work on assessing the
potential risks to the business and the appropriateness of the
Company’s choice of a five-year assessment period. Following this
review, the Committee was satisfied that management has conducted
a robust assessment and recommended to the Board that it could
approve and make the Viability statement on page 69.
Internal audit
As reported in last year’s Audit Committee report, new internal audit
arrangements were implemented in 2016 which use a combination of
internal and external resources to monitor the Group’s internal audit
procedures. These arrangements enable the Risk and Controls
Manager, who leads internal audit activities, to draw on expertise in
specific areas from outside the Company where a high degree of
specialist technical knowledge is required.
86
HAMMERSON PLC ANNUAL REPORT 2017
In order to determine the internal audit programme for 2017, the
Group’s Risk Management Framework was reviewed and key risks
which had not been subject to recent internal audit or key areas of
change were identified. The proposed programme was discussed and
agreed with the Risk and Controls Committee ahead of a review by the
Audit Committee. Having satisfied itself that the programme was
based on a thorough review of the Group’s key business activities and
related risk areas, the Committee approved the proposed programme.
During 2017 audits were carried out on the following activities:
– Starters, leavers and change processes
– Shopping centre operations
– Treasury
– VIA Outlets (lease management and credit control)
– Completion of 2016 internal audit recommendations
The Committee received an internal audit update report at each
meeting to review progress on the programme. Each of the audits
confirmed that these areas were appropriately controlled. Some
recommendations for improvement were identified and agreed
with management and responsibility for implementation was
assigned. The Committee also received reports on progress on any
outstanding actions from earlier audits and the expected timetables
for their completion.
In addition, the Committee also received updates on preparation for
the implementation of policies and procedures in compliance with the
General Data Protection Regulation which will apply from May 2018.
In 2018 the Committee expects to continue to follow a risk-based
approach to internal audit. Risk areas scheduled for audits in 2018
include sustainability reporting, the integration of the Irish assets,
joint venture asset management services, VIA Outlets management
information, turnover rents in France and the supplier payment
process.
Effectiveness of internal audit
As reported last year, it was agreed that a review of the Group’s new
internal audit arrangements would be undertaken in 2017.
The review of the effectiveness of the internal audit was carried out
using a specifically created online survey tool and was completed by
Committee members, certain members of senior management who
had received and reviewed audit reports, and also participants who
had been directly involved in an internal audit. The responses to
the survey were analysed and collated into a report which was
reviewed and discussed with the Chairman of the Committee.
The survey responses indicate that the Group’s internal audit
function is performing well with no significant concerns raised.
The responses also confirmed that the change to the new internal
audit arrangements has resulted in an improved approach for the
Group which provides effective assurance over the Group’s risk and
controls environment.
Significant financial judgements
In preparing the Group’s and Company’s accounts there are a number of areas requiring the exercise by management of particular judgement or a
high degree of estimation. The Committee’s role is to assess whether the judgements and estimates made by management are reasonable and
appropriate. Set out below are the key financial reporting and significant financial judgements which were addressed by the Committee during
the year.
Table 52
Key financial reporting and significant
financial judgements considered in relation to
the financial statements
Valuation of the Group’s property portfolio
The valuation of the Group’s property portfolio is a key recurring risk
due to its significance in the context of the Group’s net asset value.
Valuations are inherently subjective due to the assumptions and
judgements required concerning capitalisation yields and market
rental income (ERV).
Valuations are undertaken by the Group’s independent valuer,
Cushman & Wakefield (the Valuer), and are thoroughly reviewed by
management and the Group’s External Auditor.
There is a higher degree of subjectivity in the valuation of the Group’s
premium outlets as these require judgement about future trading and
operating performance and discount rates.
How addressed by the Committee
The Committee ensured that there was a robust procedure in place to
satisfy itself that the Valuer’s valuations and assumptions were
appropriate. The Committee understands the established valuation
practices followed by the Valuer. The Committee is also familiar with
the process by which management provides information to the Valuer.
The Valuer presented the valuations for all the Group’s properties to
the Committee in July 2017 and January 2018. These were
scrutinised, challenged and debated. The Committee asked the Valuer
to highlight any significant judgements or disagreements encountered
during the valuation process. It was satisfied that the procedures and
methodologies used were appropriate. The Chairman of the
Committee held a private meeting with the Valuer at which he
discussed the valuation process and was able to satisfy himself that the
process was independent and objective. The Chairman of the
Committee also held a private meeting with PwC to discuss their
review of the valuation process and their conclusions.
The Committee concluded that the valuation of the Group’s property
portfolio has been carried out in an appropriate manner and was
therefore suitable for inclusion in the Group’s financial statements.
For further details see the Auditor’s report on
page 122 and note 1 to the financial statements
on pages 135 to 138.
Accounting for significant transactions
During the year the Group undertook a number of acquisitions and
disposals. The accounting treatment of these transactions is a recurring
risk for the Group because of the financial significance and complexity of
such transactions. Judgement is required to determine the transfer of
risks and rewards associated with each transaction and the appropriate
disclosure requirements. For property acquisitions involving corporate
entities, an assessment is also required to decide whether the purchase
should be accounted for as an asset acquisition or business combination.
The Committee reviewed management’s report explaining the
proposed accounting treatment for transactions completed during the
year. These included the sale of Place des Halles, Strasbourg and the
impact on the associated non-controlling interest and the final Irish
loan conversion to acquire the property ownership of Pavilions
shopping centre in Dublin.
The Committee reviewed and challenged the proposed accounting
treatments and was satisfied that the approach adopted was appropriate.
Presentation of information
The Group uses a number of Alternative Performance Measures (APMs),
being financial measures not specified under IFRS, to monitor the
performance of the business. Management principally reviews the
Group on a proportionally consolidated basis, except for the Group’s
premium outlets investments.
Judgement is required to ensure disclosures and associated
commentary clearly explain the performance of the business and to
provide reconciliations to the IFRS financial statements.
For further details of the accounting treatment applied to
such significant transactions see note 1 to the financial
statements on pages 135 to 138.
The Committee reviewed the disclosure and commentary within the
Annual Report including the relative prominence of APMs and IFRS
financial measures. The Committee was satisfied with the disclosures
and reconciliations provided.
For further details on management’s presentation of
financial information see page 53.
HAMMERSON.COM 87
GOVERNANCECORPORATE GOVERNANCE REPORT
DIRECTORS’ REMUNERATION REPORT
CHAIRMAN’S STATEMENT
Balancing reward and
performance
Remuneration Committee members
Gwyn Burr (Chairman)
Terry Duddy
Judy Gibbons
David Tyler
Dear Shareholders
As Chairman of the Remuneration
Committee (Committee) I am pleased to
present our Directors’ Remuneration
Report for the year ended
31 December 2017.
Our Remuneration Policy was approved during the year by
shareholders at our 2017 AGM with 98.7% of the shares voted in
favour. We consulted with a number of major shareholders on the
Policy and, after consideration of several options, the Policy remained
largely unchanged from the previous version apart from updating for
best practice and clarification.
Context
You will see set out in Table 53 below the major items and decisions
made by the Committee during the year. The deliberations of the
Committee are made against a backdrop of both the wider economy
and market within which the Company operates and specific
Company performance.
The past year has seen the continuation of themes which emerged
during 2016. Political and economic uncertainty, the UK’s exit from
the EU and the focus of shareholders and government on
remuneration have all been the setting against which the Committee
has performed its duties.
Hammerson has seen strong financial performance against a
demanding market background. We have let more space by value than
in any other year and met our disposals target. The year has seen
strong earnings growth and significant refinancing activity to keep us
in a sound financial position for the future.
In determining the overall annual bonus (AIP) outturn, the
Committee has also taken into account individual Executive Director
performance against their personal objectives set at the beginning of
the year. As you will see later in this report, the Executive Directors
have each performed well in the year in delivering against these
personal objectives, some of which relate to the long-term positioning
of the Company to balance the short-term financial and operational
performance measures, and this is reflected in the outturn for the
personal objective element.
Further information on outturn against performance
targets for the AIP and LTIP is on pages 93 and 95
respectively.
Remuneration alignment to strategy
The Committee considers in great depth the performance measures
and targets for the AIP and long-term incentive plan (LTIP) to ensure
that they are appropriate and support our strategy in order to create
long-term value for all our stakeholder groups. Specifically, total
property return, growth in adjusted earnings per share and growth
in like-for-like net rental income are key performance indicators
which support progress against the three pillars of our strategy.
Total shareholder return reflects the delivery of value to shareholders
in the longer-term.
As explained in last year’s report, in relation to this year’s incentives,
two decisions were made relating to performance measures. Firstly, it
was decided to drop the use of cost-ratio as one of the AIP’s financial
performance measures. This ratio had been appropriate when the
focus was heavily upon reducing costs. However, at this stage of the
Company’s development, when we are investing in resources in order
to support the next phase of growth, a cost-ratio measure was deemed
to be inappropriate particularly as it is also reflected in earnings per
share (EPS). Secondly, in relation to the total shareholder return
(TSR) measure used for the LTIP, the Committee considered the
composition of the comparator group and whether a common or local
currency approach should be adopted for the measurement
methodology. As a result, it was decided to reduce the comparator
group to five major REITs in order to achieve a more objective
measure of the success of Hammerson and adopt a local currency
approach as each of these companies manage their portfolios
primarily in the currency of their listing.
In addition to specific performance targets, the Committee always
considers Company performance as a whole when deciding on levels
of payout for the AIP and LTIP, and any salary increases, to ensure
that overall remuneration packages reflect Company performance.
88
HAMMERSON PLC ANNUAL REPORT 2017
Remuneration of the wider workforce
As well as being responsible for determining the remuneration
of the Executive Directors, the Committee is responsible for the
remuneration of members of the Group Executive Committee and
reviews and approves the remuneration for other senior executives.
Also within its remit is to oversee major changes in employee benefit
structures throughout the Group. The Committee receives regular
updates on pay and benefits for the wider workforce and takes these
developments into account when reviewing executive pay and
benefits. The Committee reviewed pension arrangements across the
Group during the year and approved a Group retirement policy.
The new requirements of gender pay reporting have also been
reviewed by the Committee during the year.
For further information on gender pay reporting see
page 48.
Shareholder engagement
We reported last year on the consultation process that took place with
major shareholders in relation to Remuneration Policy. As we are not
amending the Policy there has been no similar consultation process
this year. Meetings were held during the year between the General
Counsel and Company Secretary and major shareholders to discuss
shareholders’ governance priorities including remuneration matters.
The Committee is made aware of any areas of concern raised by such
meetings. I always welcome the views and input of any shareholders
on remuneration.
2018 and beyond
Corporate governance reforms
The Committee has kept abreast of developments in the political
arena concerning remuneration and notes the government’s
proposals including those to ensure the employee voice on
remuneration is heard, to require companies to take action where
significant shareholder opposition has been received to remuneration
proposals and to extend the remit of remuneration committees to
include oversight of Group-wide pay. The Committee believes that it
is well positioned to comply with these reforms. In respect of the
proposal to require companies to annually report the pay ratio
between the CEO and average of the UK workforce, the Committee
notes that, as yet, no methodology has been put forward to calculate
this ratio. Therefore, rather than publish a figure this year with a
methodology which is highly likely not to be in line with an agreed
method for future years, it has taken the decision not to adopt the
proposal before clarity on the calculation is established. We will of
course report on this ratio in future years as required.
UK exit from the EU
There is continuing uncertainty around the outcome of the
negotiations surrounding the UK’s exit from the EU and any final
trade settlement that will be agreed. The Committee will continue to
monitor the situation and any potential impact on Company
performance and implications for executive remuneration.
Proposed acquisition of intu
Shareholders will be aware that, in December 2017, the Company
announced the proposed acquisition of intu properties plc. As yet
there is no firm timescale for when the acquisition will complete. As
you would expect, currently our respective companies have different
remuneration policies and practices in place. The Committee will be
working to ensure that best practice arrangements for executive
remuneration and employees generally will continue in the enlarged
Group. This may include reviewing the performance measures in respect
of existing incentive awards to ensure they remain relevant or to
determine whether adjustments are appropriate. The Committee will
consult with major shareholders if any material changes are proposed.
2018 pay approach
The Committee has approved base salary increases for each of the
Executive Directors of approximately 2.5% with effect from 1 April
2018. Similar increases have been made for other senior executives,
with slightly higher increases for other colleagues generally.
The Committee spent some time reviewing the performance
measures, in particular the TSR comparator group, to apply to the
LTIP awards that will be made in 2018. We agreed that intu would
continue to form part of the comparator group for the 2018 award, but
that, subject to completion of the intu acquisition, the TSR
performance condition would be reviewed with the anticipation that
intu would be removed and replaced as explained in this report.
Details of any changes will be highlighted in next year’s Directors’
Remuneration Report.
As noted in our Remuneration Policy, 2018 LTIP awards will be made
under the new LTIP Rules approved at our 2017 AGM and will
therefore be subject to a four-year vesting period plus a one-year
post-vesting holding period.
Remuneration Policy
In light of the ongoing developments highlighted above the
Committee intends to review the Remuneration Policy approved at
the 2017 AGM in 2018 to ensure it remains appropriate for the
Company’s future direction.
Conclusion
Regardless of the changing landscape within which the Company
operates, the objectives and philosophy of the Committee remain the
same: that is to ensure we continue to attract and retain the highest
quality leaders who are incentivised to deliver the Group’s strategic
aims whilst balancing reward, performance and stakeholder interests.
The Directors’ Remuneration Report 2017 will be put to shareholders
for an advisory vote at the 2018 AGM and I look forward to receiving
your continued support at this meeting.
Gwyn Burr
Chairman of the Remuneration Committee
HAMMERSON.COM 89
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report — Chairman’s statement continued
Table 53
The Remuneration Committee’s Year 2017
January
– Review of 2016 AIP provisional outturn against performance targets
– Market practice update – review of proposed BEIS governance reforms
– Consideration of long-term incentive award structures and shareholder
feedback. Review of LTIP and restricted stock award proposals with final
decision to remain with existing LTIP structure
February
– Confirmation of 2016 AIP outturn, and estimates for reporting
– Confirmation of 2017 AIP targets and that cost ratio would be dropped for
the 2017 AIP
– Review and confirmation of 2017 AIP personal objectives
– Consideration and approval of performance measures and conditions for
2017 LTIP award
– Review and approval of Executive Directors’ pay awards
– Approval of new LTIP rules to be put to shareholders
– Finalisation and approval of Remuneration Policy
– Approval of share plan awards to Executive Directors and other senior
employees
July
– Review and approval of Group
retirement policy
September
– Update on share plan awards and
vestings during 2017
– Market practice update – review of
AGM season and shareholder views,
remuneration themes for 2018
– Review of initial gender pay gap data
for Hammerson
April
– Review of voting on the Remuneration Policy and Remuneration Report
December
– Review impact of corporate activity
at Hammerson’s AGM
– Market practice update – investor guidance developments
– Confirmation of final 2016 AIP outturn and approval of final element of
bonus payments to the Executive Directors
– Review of outturn of performance conditions and vesting of 2013 LTIP
– Review of 2017 share plan awards and vestings
– Review of pension scheme arrangements across the Group
– Review and approval of 2% increase for Chairman’s fee
on AIP performance measures
– Review of the first draft and content
of the Directors’ Remuneration
Report
2017 Directors’ remuneration report
Contents
91 Remuneration at a glance
Section 1
92 Executive Directors’ Single Figure Table
92 Commentary on the Single Figure Table
97 Non-Executive Directors’ Single Figure Table
Section 2
98 Directors’ shareholdings and share plan interests
102 Long-Term Incentive Plan Structure
104 Total Shareholder Return graph
105 Remuneration of the Chief Executive over last nine years
105 Comparison of Chief Executive’s and employees’ remuneration
106 Relative importance of spend on pay
106 Executive Directors’ pension benefits
106 Directors’ service contracts and letters of appointment
107 Advisors
107 Statement of voting at Annual General Meeting
Section 3
108 Implementation of Remuneration Policy in 2018
90
HAMMERSON PLC ANNUAL REPORT 2017
2017 Remuneration at a glance
Table 54
2017 Remuneration year in summary
Salary
Bonus total
vesting percentage
LTIP
Shareholding
Chairman and
NED fees
Salary increases for the Executive Directors, apart from the Chief Financial Officer, of 2.5%
were slightly less than for other Group employees. Exceptional salary increase of 9.3% for
the Chief Financial Officer for additional responsibilities.
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
200% of salary awarded with EPS, TPR and TSR performance targets measured over four years.
Shareholding guidelines increased to 250% from 150%.
Chairman’s fee increased by 2%. Non-Executive Director fees increased by 3.4% following
market review. Remuneration Committee Chairman fee brought in line with fee for Audit
Committee Chair man.
62.5%
59.5%
62.5%
62.5%
Table 55
AIP Performance
Table 56
LTIP Performance1
AIP Financial/Operational Measure
Target
Actual
Outcome
LTIP Measure
Target
Actual
Outcome
31.0p
31.1p
IPD+1.0% IPD+1.0%
1.7%
1.8%
53.3%
50.0%
45.0%
EPS
TPR2
TSR
RPI+3.00%
IPD+0.00%
RPI+5.37% 69.35%
100%
IPD+2.00%
0%
Median Below median
1. LTIP performance disclosed on the same basis as the Single
Figure Table, Table 58.
2. Estimate.
EPS
TPR1
NRI
1. Estimate.
Chart 57
Executive Directors’ Remuneration scenarios — 2017 actual remuneration v 2018 on-target potential
David Atkins
2017 Actual
Peter Cole
Timon
Drakesmith
2018 On target
2017 Actual
2018 On target
2017 Actual
2018 On target
Jean-Philippe
Mouton
2017 Actual
2018 On target
£824
£850
£784
£358
£1,966
£643
£321
£1,814
£604
£623
£566
£623
£544
£261
£1,409
£468
£234
£1,325
£571
£244
£1,381
£468
£234
£1,325
£484
£478
£469
£202 £1,155
£393
£192
£1,063
0
500
1000
1500
2000
Fixed (salary, benefits, pension) – For 2018 on-target salary is 2018 base salary (from 1 April 2018), benefits are as shown in Single Figure Table for 2017,
pension contributions are based on base salary from 1 April 2018
AIP – 2018 on-target consists of 50% of bonus maximum
LTIP – 2018 on-target consists of the threshold level of vesting (25% of the face value of the award)
HAMMERSON.COM 91
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
The Directors’ Remuneration Report sets out how the Directors’ Remuneration Policy was put into practice in 2017 and how it will be implemented
in 2018. It is divided into three sections:
Section 1: Single Figure Tables
Section 2: Further information on 2017 remuneration
Section 3: Implementation of Remuneration Policy in 2018
The auditors have reported on certain sections of this Report and stated whether, in their opinion, those sections have been properly prepared.
Those sections which have been subject to audit are clearly indicated with an asterisk (*).
The Remuneration Policy was approved by shareholders at the AGM held on 25 April 2017 and is available on the Company’s website at
www.hammerson.com. A summary of the key provisions for each element of the Remuneration Policy is set out on pages 108 to 113.
Section 1: Single Figure Tables
This section contains the single figure tables showing 2017 remuneration for the Executive Directors and Non-Executive Directors and information
that relates directly to the composition of these figures.
All figures highlighted in GREEN in the Remuneration Report relate directly to a figure that is found in the Single Figure Table, table 58.
Executive Directors’ remuneration: Single Figure Table*
Table 58 below shows the remuneration of the Executive Directors for the year ended 31 December 2017, and the comparative figures for the year
ended 31 December 2016.
Table 58
Executive Directors’ remuneration for the year ended 31 December 2017
Salary
Benefits
Annual bonus
(AIP)
Long-Term Incentive Plan
(LTIP)
Pension
Total
2017
£000
623
454
447
373
1,897
2016
£000
608
443
416
338
1,805
2017
£000
14
14
30
30
88
2017
£000
2016
£000
21
784
22
544
19
571
27
469
89 2,368
2016
£000
799
582
571
446
2,398
2017
£000
358
261
244
202
1,065
2016
£000
1,071
769
732
535
3,107
2017
£000
187
136
89
81
493
2016
£000
182
133
83
76
474
2017
£000
1,966
1,409
1,381
1,155
5,911
2016
£000
2,681
1,949
1,821
1,422
7,873
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
Total
For further information see
Page 93
Page 95
Page 96
Commentary on the Single Figure Table*
Salary
With effect from 1 April 2017 David Atkins, Peter Cole and Jean-Philippe Mouton received a salary increase of approximately 2.5% which was slightly
below that of Hammerson employees generally. Timon Drakesmith received an increase of approximately 9.3%. As reported last year, this
exceptional award was approved by the Committee in recognition of the additional responsibilities taken on by Timon Drakesmith including
responsibility for the Premium Outlets business and the investments in Value Retail and VIA Outlets.
Benefits
Taxable benefits include a car allowance, private health insurance and permanent health insurance. Jean-Philippe Mouton receives a seniority
allowance, welfare and subsistence contributions. UK Executive Directors participated in the Company’s all-employee share plan arrangements (SIP
and Sharesave). There was no award of SIP free shares to participants during 2017 which is reflected in the decreased benefits figure this year.
Jean-Philippe Mouton participated in a profit-sharing scheme in France and receives an employer’s contribution to a French employee saving
scheme. The Remuneration Committee used its discretion to approve a payment of £16,181 in relation to Timon Drakesmith’s 2012 Sharesave Plan,
the options for which lapsed on 1 November 2017, as he was unable to exercise them due to his being included on an insider list in relation to the intu
transaction at the end of the exercise window.
92
HAMMERSON PLC ANNUAL REPORT 2017
Annual bonus for 2017
The Annual Incentive Plan (AIP) is the Company’s annual bonus scheme. The bonus awards are based on the performance conditions that were set at
the start of the financial year. This is split 70% for performance against financial measures and 30% for performance against personal objectives. The
Committee also considers every year the overall vesting AIP outcome as determined by achievement against the financial and personal targets to
check that the bonus level is appropriate given the Company’s performance during the year.
The performance targets were not disclosed in advance of the year, as they were considered by the Board to be commercially sensitive information,
but full details of the conditions and performance against them are now set out below.
A summary of the Remuneration Policy for the AIP and DBSS is on page 109.
The following tables (Tables 59, 60 and 61) show the AIP outcomes and achievement against AIP performance targets for 2017.
Table 59
Total AIP outcomes for 2017
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
Table 60
Financial measures
(% of bonus
achieved, max
70%)
35.5
35.5
35.5
35.5
Personal
measures
(% of bonus
achieved, max
30%)
27.0
24.0
27.0
27.0
Total vesting
percentage
(%, max 100%)
62.5
59.5
62.5
62.5
Vesting amount
as % of salary
(max 200%)
125.0
119.0
125.0
125.0
AIP amount
(£000)
(Shown in
Single Figure
Table)
784
544
571
469
Achievement against financial measures (70% weighting)
AIP Outcome
Performance against targets1
Bonus achieved
Performance measure
Adjusted EPS2
Entry threshold
(% vesting at threshold)
29.5p (0%)
On-target
(50% vesting)
31.0p
Full vesting target
(100% vesting)
32.5p
Result achieved
Vesting
percentage
against target
Weighting (%
of max bonus
available)
% of max
bonus
achieved
31.1p
53.3%
30%
16.0%
TPR (estimated
outcome)3
IPD +0.5% (25%)
IPD+1.0%
IPD+2.0%
IPD+1.0%
50.0%
30%
15.0%
NRI4
0.8% (0%)
1.8%
2.8%
1.7%
45.0%
10%
4.5%
35.5% out
of 70%
AIP financial performance measures
1. Each of the AIP performance conditions is subject to a straight-line payment scale between entry, on-target and full vesting points.
2. Adjusted EPS is the Group’s underlying adjusted profit divided by the average number of shares in issue.
3. The TPR performance is measured against a composite index comprising the IPD Annual Retail Property Indices for the UK and a bespoke
Europe Index (weighted on a 60:40 basis). The annual data for these indices is not available at the date of this report. Accordingly, the
closing measurement for TPR for the year to 31 December 2017 is based on management’s best estimate using available data (see page 52
for property returns data). The AIP is not paid until the confirmed data for these indices is available. The actual outcome will be disclosed in
the 2018 Annual Report.
4. Net Rental Income (NRI) is the percentage growth in the Group net rental income, calculated on a like-for-like basis.
HAMMERSON.COM 93
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Achievement against personal objectives (30% weighting)
Personal objectives focus on the delivery of the Business Plan, strategic elements for 2017 (refer to ‘Our Strategy’ on page 16), an assessment of
behaviours based on the Company’s values and the Executive Director’s capability in managing colleagues to maximise their contribution. Personal
objectives also incorporate environmental, social and governance parameters where appropriate and the assessment in 2017 considered progress to
expand on diversity and inclusion plans and the commitment to progress sustainability measures.
Table 61 sets out the key 2017 personal objectives for the Executive Directors and how these support the Company’s three strategic priorities.
Table 61
2017 Key personal objectives
Personal objectives
David Atkins
– Develop inorganic merger or acquisition opportunities and maintain a
strong communication of investment proposition
– Deliver top level performance against Business Plan with particular focus
on monitoring portfolio performance, cost control and income growth
– Expand on diversity/inclusion plans; continue net positive sustainability
strategy
– Pursue opportunities to maximise performance of UK Retail, France,
Value Retail and VIA outlets, and integration of Ireland portfolio
Peter Cole
– Progress key developments at Croydon, Westquay, Brent Cross, Leeds
and The Goodsyard and embed Ireland business
– Promote acquisition and disposal strategy and dispose of assets that do
not meet performance criteria
– Implement Net Positive sustainability strategy with particular emphasis
on future developments
Timon Drakesmith
– Implement refinancing opportunities; action bond buyback plans
– Maintain focus on costs whilst delivering Business Plan
– Increase performance levels for premium outlets, refine French portfolio
through disposals programme
– Oversee audit transfer to PwC
Jean-Philippe Mouton
– Pursue acquisitions and disposals strategy in France
– Maximise French operational performance opportunities, progress
major refurbishments with sustainable development
– Execution of Group marketing plan; introduce latest retail and leisure
brands and new store concepts
Link to Strategic Priorities
Sustainability,
culture
and values
Performance
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
Outstanding leadership
skills to achieve intu
acquisition, JSE listing
shows growing register,
promotion of strong team
dynamics, achievement of
disposals target.
Good progress at Leeds,
Westquay and Brent Cross.
Completion of a number of
disposals. Delivery of
high-value retail park
extensions and
reconfigurations.
Successful bond redemption,
new refinancing
opportunities secured,
continued strong growth
from premium outlets with
extensions added.
Good operational
performance, standout
contribution on disposals.
Innovative marketing
channels and use of apps
introduced.
√
√
√
√
√
% of max
bonus
achieved
(max 30%)
27%
24%
27%
27%
Bonus deferral under the AIP
The AIP amounts earned for 2017 will be paid 60% in cash and 40% in the form of a deferred share award granted under the DBSS. The deferred share
award is granted in two tranches: the DBSS (A) award relates to the bonus achieved against the EPS, NRI and personal objectives measures; and the
DBSS (B) award relates to the TPR measure and so is only granted once the TPR result is known and at the same time as that cash element is paid.
Each award is granted with a face value equal to 40% of the bonus achieved against the relevant measures, over a number of shares calculated based
on the average mid-market closing share price of a share over the five dealing days prior to the date of grant. Details of the DBSS (A) and (B) awards
granted in 2018 will be included in next year’s Annual Report.
94
HAMMERSON PLC ANNUAL REPORT 2017
Long-Term Incentive Plan
The Long-Term Incentive Plan (LTIP) is an award programme for Executive Directors designed to incentivise the creation of long-term returns for
shareholders. Performance under the LTIP is assessed over differing performance periods. TSR is assessed over a period of four years from the date of
grant, and TPR and EPS are assessed over a period of four financial years commencing with the financial year in which the award is granted. The
Single Figure Table for 2017 is required to report the value of the LTIP element for which the performance period ends during 2017. Consequently,
the LTIP values shown in the Single Figure Table comprise the value of the TSR element of the 2013 award (where the performance period ended 1
April 2017) and the TPR and EPS elements of the 2014 award (where the performance period ended 31 December 2017).
Achievement against targets
The following table shows the level of performance achieved against the targets set for the three performance components that drive the 2017 LTIP
vesting value as shown in the Single Figure Table.
Table 62
LTIP Outcome
Performance against targets
Performance measure
and period
Entry threshold target
(25% vesting at threshold)
TSR (2/4/13
– 2/4/17)
Median
Full vesting target
Upper Quartile
IPD+0%
IPD+1.5%
TPR (estimated
outcome)
(1/1/14 – 31/12/17)
EPS (1/1/14
– 31/12/17)
Result
achieved
Below
median
rank
IPD +
2.0%
Vesting
percentage
against target
0%
TSR element of the LTIP award granted
in 2013 which vested in 2017.
100%
TPR element of the LTIP award granted in
2014. Award is scheduled to vest in April
2018.
RPI+3%
RPI+7%
RPI +
5.37%
69.35%
EPS element of the LTIP award granted
in 2014. Award is scheduled to vest in April
2018.
For further information on the 2013 and 2014 LTIP award performance measures see pages 102 and 103.
Vesting value achieved
Table 63 shows the level of vesting outcome for the three components that drive the 2017 LTIP vesting as shown in the Single Figure Table.
Table 63
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
TSR
Performance period: 2/4/13-2/4/17
(TSR component of the 2013 LTIP)
TPR1
Performance period: 1/1/14-31/12/17
(TPR component of the 2014 LTIP)
EPS
Performance period: 1/1/14-31/12/17
(EPS component of the 2014 LTIP)
Vesting %
against
target
Number
of shares
that
vested
0
0
0
0
0
0
0
0
Shares
available
92,629
66,502
63,336
46,239
Value
£000
Shares
available
0 40,048
0 29,180
0 27,369
0 22,619
Vesting %
against
target
Number
of shares
due to
vest2
100 40,048
100 29,180
100 27,369
100 22,619
Shares
available
Value
£000
211 40,048
154 29,180
144 27,369
119 22,619
Vesting %
against
target
Number
of shares
due to
vest2
69.35 27,773
69.35 20,236
69.35 18,980
15,686
69.35
Value
£000
147
107
100
83
Total
value
(shown
in Single
Figure
Table)3
358
261
244
202
Notes
1. The element dependent on TPR is estimated as the IPD data regarding TPR performance is not available at the date of the Annual Report.
2. The number of shares includes any notional dividend shares awarded to date. The actual number of shares that vest may increase by the
amount of any notional dividend shares awarded up to the date of vesting of the award.
3. The value shown is based on the average of the mid-market closing price of a share for each dealing day in the three-month period to
31 December 2017 (527.4p). The actual value that vests, based on the closing share price on the vesting date, will be disclosed in next year’s
Annual Report.
HAMMERSON.COM 95
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Pension*
Executive Directors receive a salary supplement in lieu of pension benefits. David Atkins and Peter Cole each receive a salary supplement of 30% of
base salary. Timon Drakesmith receives a salary supplement of 20% of base salary. Jean-Philippe Mouton receives a salary supplement of €80,000
(2016: €80,000) and a legacy collective supplementary defined benefit scheme contribution of €12,648 (2016: €12,449) which is included in his total
shown below.
All salary supplements paid to Executive Directors in lieu of pension benefits are subject to deductions required for income tax and social security
contributions in the UK and France. Salary supplements and the pension benefit received by Jean-Philippe Mouton do not qualify for AIP purposes
or entitlements under the LTIP.
Information on the accrued pension benefits for David Atkins and Peter Cole under the Company’s closed defined benefit
scheme is on page 106.
Table 64
Salary supplements in lieu of pension benefits
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
2017
£000
(shown in
Single
Figure
Table)
187
136
89
81
2016
£000
182
133
83
76
Truing up of 2016 Single Figure Table numbers*
Each year the outcome of AIP and LTIP elements dependent on Total Property Return (TPR) is estimated because the data regarding TPR
performance of the relevant index is not available at the date of the Annual Report. In the 2016 Annual Report, the TPR element of AIP was estimated
at IPD +2.3%, resulting in an estimated payout level at 100% for that measure. The final closing measurement for TPR during 2016 was IPD +1.7%,
resulting in a final payout level of 88.8%. The final payout levels disclosed for 2016 are therefore less than the estimated levels reported last year.
The estimated TPR outcome for the 2016 LTIP figure was IPD +2.0% resulting in an estimated payout level of 100% for that measure. The full vesting
target was IPD+1.5%. The actual TPR outcome was IPD +1.8% and therefore the final payout levels were the same as the estimated level reported last
year. In addition the 2016 LTIP figure contained a value for the TPR and EPS portions of the 2013 LTIP where the performance period ended on
31 December 2016 and was calculated based on the average share price over the three months to 31 December 2016. The 2016 LTIP figure in the
Single Figure Table on page 92 has therefore been adjusted to reflect the actual share price of 593.50p on the vesting date (9 May 2017).
Sterling:Euro exchange rates*
Jean-Philippe Mouton’s salary, benefits, annual bonus and pension contributions are paid in euro. When converted, the sterling equivalent will vary
with currency movements. The amounts paid are shown in the Single Figure Table converted into sterling using the average exchange rate for 2017
(£1:€1.141). The LTIP is calculated in sterling and converted to euro at the same conversion rate. Equivalent data for 2016 has been converted at the
average exchange rate for that year (£1:€1.224). The euro amounts are shown below in Table 65.
Table 65
Salary
Benefits
Annual bonus (AIP)
Long Term
Incentive Plan (LTIP)
Pension
Total
Jean-Philippe Mouton
2017
€000
426
2016
€000
414
2017
€000
34
2016
€000
33
2017
€000
535
2016
€000
546
2017
€000
231
2016
€000
654
2017
€000
93
2016
€000
92
2017
€000
1,319
2016
€000
1,739
96
HAMMERSON PLC ANNUAL REPORT 2017
Non-Executive Directors: Single Figure Table*
Table 66 below shows the remuneration of Non-Executive Directors for the year ended 31 December 2017 and the comparative figures for the year
ended 31 December 2016.
Table 66
Non-Executive Directors’ remuneration for the year ended 31 December 2017
Committee membership and other responsibilities
Fees
Benefits
Total
David Tyler
Pierre Bouchut1
Gwyn Burr
Terry Duddy
Audit
Committee
Nomination
Committee
Remuneration
Committee
Other
Chairman Member
Chairman
Chairman Member
Member
Member
Member
Chairman
Member
Senior
Independent
Director
Jacques Espinasse2
Andrew Formica
Judy Gibbons
Chairman Member
Member
Member
Member
Member
Member
2017
£000
334
74
77
74
–
64
69
2016
£000
325
68
72
72
22
62
67
2017
£000
2016
£000
-
21
1
-
–
-
-
–
11
–
–
6
–
2
2017
£000
334
95
78
74
–
64
69
2016
£000
325
79
72
72
28
62
69
Total
692
688
22
19
714
707
Notes
1. Replaced Jacques Espinasse as Audit Committee Chairman from 25 April 2016.
2. Jacques Espinasse retired from the Board on 25 April 2016 and received a departing gift which cost £895 within the limits of the
Remuneration Policy. The value included above is the gross value.
Fees payable to Non-Executive Directors
The Chairman’s fee was reviewed by the Committee and the Non-Executive Directors’ fees were reviewed by the Board in 2017. A benchmark
exercise against a property peer group, FTSE 31-100 group and FTSE 71-100 group and a general market review were carried out as part of this
exercise. The Chairman’s fee was increased by 2%, in line with the general increase for the Executive Directors. The Non-Executive Directors’ fees
were increased by 3.4% from £58,000 to £60,000 and the fee for the Remuneration Committee Chair was brought in line with that for the Audit
Committee Chair to £15,000. All changes took effect from 1 July 2017. The annual fees payable to Non-Executive Directors from that date are set
out in Table 67 below.
Table 67
Chairman and Non-Executive Directors’ 2017 annual fees
Chairman
Non-Executive Director
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
Audit/Remuneration Committee Member
£000
337
60
10
15
15
5
Benefits
The benefits disclosed in Table 66 relate to the reimbursement of travel and accommodation expenses incurred in attending Board meetings at
the Company’s Head Office. For those Non-Executive Directors based abroad this includes the cost of international travel and accommodation.
The grossed-up value has been disclosed. In accordance with the Remuneration Policy, any tax arising will be settled by the Company.
HAMMERSON.COM 97
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Section 2: Further information on 2017 remuneration
Directors’ shareholdings and share plan interests*
Table 68
Summary of all Directors’ shareholdings and share plan interests as at 31 December 2017*
Executive Directors
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
Non-Executive Directors
David Tyler
Pierre Bouchut
Gwyn Burr
Terry Duddy
Andrew Formica
Judy Gibbons
Outstanding scheme interests 31/12/17
Actual shares held
Unvested scheme
interests (subject
to performance
measures)1
Unvested scheme
interests (not
subject to
performance
measures)2
Vested but
unexercised
scheme interests3
Total shares
subject
to outstanding
As at
scheme interests
1 January 2017
As at 31
December 2017
Total of all
share scheme
interests and
shareholdings
at 31/12/174
706,646
514,941
493,158
389,528
129,260
96,370
88,162
69,969
0
220,365
0
0
835,906
831,676
581,320
459,497
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
450,085
324,185
302,125
265,702
60,000
20,000
5,182
50,000
22,000
4,115
613,599
324,778
415,861
308,758
1,449,505
1,156,454
997,181
768,255
62,370
20,279
5,182
50,000
22,000
4,115
62,370
20,279
5,182
50,000
22,000
4,115
Notes
1. LTIP awards still subject to performance measures.
2. DBSS and Sharesave awards that have not vested.
3. LTIP and DBSS awards that have vested but remain unexercised plus any notional dividend shares.
4. All share plan interests, vested, unvested and unexercised together with any holdings of ordinary shares.
Between 1 January 2018 and 23 February 2018, the Executive and Non-Executive Directors’ beneficial interests in Table 68 above remained
unchanged.
Directors’ share ownership guidelines*
Table 69 shows for the Executive Directors actual share ownership compared with the current share ownership guidelines. Non-Executive
Directors are encouraged to acquire a shareholding in the Company.
Table 69
Executive Directors’ shareholdings as a percentage of salary
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
Shares held as at
31 December
2017
Vested but
unexercised share
scheme interests1
Guideline on
share ownership
as % of salary
Actual beneficial
share ownership
as % of salary2
Guideline met
613,599
324,778
415,861
308,758
0
116,793
0
0
250%
250%
250%
250%
535%
529%
498%
450%
Yes
Yes
Yes
Yes
Notes
1. The number of shares shown is on a net of tax and NI basis in accordance with the share ownership guidelines.
2. As at and based on the share price of 547 pence on 31 December 2017.
98
HAMMERSON PLC ANNUAL REPORT 2017
Executive Directors’ share plan interests (including share options)*
Tables 70 to 73 set out the Executive Directors’ interests under the Deferred Bonus Share Scheme (DBSS), the Long Term Incentive Plan (LTIP)
and the Sharesave scheme.
Performance conditions and form of awards
Awards under the DBSS and Sharesave scheme are not subject to any performance conditions (other than continued employment on the vesting
date). The LTIP awards are subject to performance conditions, details of which are in Tables 74 and 75.
Awards to UK Executive Directors under the LTIP and DBSS are made in the form of nil-cost options. For French tax reasons, LTIP awards
granted to Jean-Philippe Mouton are in the form of conditional awards of free shares. Awards to Jean-Philippe Mouton under the DBSS are made
in the form of nil-cost options.
Accrual of dividend shares
Awards to UK Executive Directors under the DBSS and LTIP up to and including the 2013 awards accrue notional dividend shares to the date of
transfer. Awards made from 2014 onwards accrue notional dividend shares to the date of vesting (including any holding period). The Sharesave
scheme does not accrue notional dividend shares. For Jean-Philippe Mouton notional dividend shares accrue to the date of vesting in respect of
2014 LTIP awards and subsequent awards. For the DBSS, notional dividend shares accrue to the date of transfer in respect of 2013 awards and to
the date of vesting for subsequent awards.
Face values
Face values for the DBSS and LTIP awards are calculated by multiplying the number of shares granted during 2017 by the average share price for
the five business days preceding the awards. Notional dividend shares are not included in the face value calculations. Face value for the Sharesave
scheme is calculated by reference to the exercise price of options granted in 2017.
Executive Directors’ share plan interest movements during 2017*
Table 70
Exercised/
vested
Lapsed
Number of
awards held
as at 31
December
2017
Grant price
in pence
(exercise
price for
Sharesave)
Face value
of awards
granted
during 2017
£000
David
Atkins
DBSS (A)
DBSS (B)
DBSS (A)
DBSS (B)
DBSS (A)
DBSS (B)
LTIP
Date of
award
Vesting or
exercise date
Number of
awards held
as at
1 January
2017
03/03/2015
28/04/2015
01/03/2016
27/04/2016
01/03/2017
02/05/2017
Mar-17
Apr-17
Mar-18
Apr-18
Mar-19
May-19
Apr-16
02/04/2012
Apr-17
02/04/2013
Apr-18
01/04/2014
26/03/2015
Mar-19
24/03/2016 Mar-20
Apr-21
03/04/2017
39,740
8,828
47,162
20,908
–
–
76,254
271,821
115,756
136,975
211,346
–
Awarded
–
–
–
–
35,854
18,252
–
–
–
–
–
221,593
Notional
dividend
shares
accrued
886
197
1,788
792
1,359
278
1,702
6,065
4,389
5,193
8,013
3,381
40,626
9,025
–
–
–
–
77,956
180,440
–
–
–
–
–
–
–
–
–
–
–
97,446
–
–
–
–
Sharesave
24/03/2016
May-19
23/03/2017 May-20
2,102
–
–
765
–
–
–
–
–
–
–
–
48,950
21,700
37,213
18,530
126,393
–
–
120,145
142,168
219,359
224,974
706,646
2,102
765
2,867
–
–
–
–
588.20
595.50
–
–
–
–
565.90
–
470.00
–
–
–
–
211
109
320
–
–
–
–
1,254
1,254
–
3
3
HAMMERSON.COM 99
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Table 71
Peter Cole
DBSS
DBSS
DBSS (A)
DBSS (B)
DBSS (A)
DBSS (B)
DBSS (A)
DBSS (B)
LTIP
Date of
award
Vesting or
exercise date
Number of
awards held
as at
1 January
2017
12/03/2012
11/03/2013
03/03/2015
28/04/2015
01/03/2016
27/04/2016
01/03/2017
02/05/2017
Mar-14
Mar-15
Mar-17
Apr-17
Mar-18
Apr-18
Mar-19
May-19
Apr-16
02/04/2012
Apr-17
02/04/2013
Apr-18
01/04/2014
Mar-19
26/03/2015
24/03/2016 Mar-20
Apr-21
03/04/2017
51,280
67,575
26,497
6,433
34,364
15,234
–
–
54,746
195,152
84,344
99,806
153,995
–
Awarded
–
–
–
–
–
–
26,129
13,301
–
–
–
–
–
161,512
Sharesave
May-21
24/03/2016
23/03/2017 May-20
3,504
–
–
765
Table 72
Timon
Drakesmith
DBSS (A)
DBSS (B)
DBSS (A)
DBSS (B)
DBSS (A)
DBSS (B)
LTIP
Date of
award
Vesting or
exercise date
Number of
awards held
as at
1 January
2017
03/03/2015
28/04/2015
01/03/20161
27/04/2016
01/03/2017
02/05/2017
Mar-17
Apr-17
Mar-18
Apr-18
Mar-19
May-19
Apr-16
02/04/2012
02/04/20131
Apr-17
Apr-18
01/04/2014
26/03/2015
Mar-19
24/03/2016 Mar-20
Apr-21
03/04/2017
30,233
6,033
32,231
14,289
–
–
52,138
185,859
79,109
93,611
144,437
–
Awarded
–
–
–
–
26,194
12,466
–
–
–
–
–
161,512
Notional
dividend
shares
accrued
1,944
2,562
591
143
1,303
578
990
202
1,221
5,813
3,198
3,783
5,839
2,464
–
––
Notional
dividend
shares
accrued
675
135
1,211
542
993
190
1,164
4,148
2,999
3,549
5,477
2,464
Exercised/
vested
Lapsed
Number of
awards held
as at 31
December
2017
Grant price
in pence
(exercise
price for
Sharesave)
Face value
of awards
granted
during 2017
£000
–
–
27,088
6,576
–
–
–
–
55,967
34,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69,961
–
–
–
–
–
–
53,224
70,137
–
–
35,667
15,812
27,119
13,503
215,462
–
97,004
87,542
103,589
159,834
163,976
611,945
3,504
765
4,269
–
–
–
–
–
–
588.20
595.50
–
–
–
–
–
565.90
–
470.00
–
–
–
–
–
–
154
79
233
–
–
–
–
–
914
914
–
3
3
Exercised/
vested
Lapsed
Number of
awards held
as at 31
December
2017
Grant price
in pence
(exercise
price for
Sharesave)
Face value
of awards
granted
during 2017
£000
30,908
6,168
–
–
–
–
53,302
123,377
–
–
–
–
–
–
719
–
–
–
–
66,630
–
–
–
–
-
-
32,723
14,831
27,187
12,656
87,397
–
–
82,108
97,160
149,914
163,976
493,158
–
765
765
–
–
–
–
588.20
595.50
–
–
–
–
–
565.90
–
470.00
–
–
–
–
154
74
228
–
–
–
–
–
914
914
–
3
3
Sharesave
05/04/2012
May-17
23/03/2017 May-20
4,558
–
–
765
–
–
–
–
4,558
–
1. Due to an administrative error at the time of the 2013 LTIP vesting, Timon Drakesmith received an additional 719 shares on the exercise of his award. In order to rectify this
error, Timon has agreed to reduce his 2016 DBSS (A) award due to vest in March 2018 by 719 shares. The number of shares shown as exercised and lapsed for the 2013 LTIP is
the correct number as approved by the Remuneration Committee.
100
HAMMERSON PLC ANNUAL REPORT 2017
Table 73
Jean-
Philippe
Mouton1
DBSS (A)
DBSS (A)2
DBSS (B)
DBSS (A)
DBSS (B)
DBSS (A)
DBSS (B)
LTIP
Date of
award
Vesting or
exercise date
Number of
awards held
as at
1 January
2017
Notional
dividend
shares accrued
Awarded
Exercised/
vested
Lapsed
Number of
awards held
as at 31
December
2017
Grant price
in pence
(exercise
price for
Sharesave)
Face value
of awards
granted
during 2017
£000
03/03/2015
12/03/2015
28/04/2015
01/03/2016
27/04/2016
01/03/2017
02/05/2017
Mar-17
Mar-17
Apr-17
Mar-18
Apr-18
Mar-19
May-19
Apr-17
02/04/2013
Apr-18
01/04/2014
26/03/2015
Mar-19
24/03/2016 Mar-20
Apr-21
03/04/2017
13,069
6,745
4,316
25,129
11,078
–
–
138,717
65,380
68,963
114,396
–
–
–
–
–
–
20,910
10,527
–
–
–
–
129,384
291
151
96
953
420
792
160
–
2,478
2,615
4,338
1,974
13,360
6,896
4,412
–
–
–
–
90,073
–
–
–
–
–
–
–
–
–
–
–
48,644
–
–
–
–
–
–
–
26,082
11,498
21,702
10,687
69,969
–
67,858
71,578
118,734
131,358
389,528
–
–
–
–
–
588.20
595.50
–
–
–
–
565.90
–
–
–
–
–
123
63
186
–
–
–
–
732
732
Notes
1. Jean-Philippe Mouton’s entitlement to awards arising under the LTIP and DBSS is calculated in euro. The prevailing exchange rate at
grant is used to determine the number of shares to award.
2. On 12 March 2015, Jean-Philippe Mouton was granted an additional award under the 2015 DBSS (A) award to correct an
administrative error made in the original award.
HAMMERSON.COM 101
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Long-term incentive plan structure*
In addition to the annual bonus provided by the AIP, Executive Directors are incentivised over the longer-term through the LTIP.
A summary of the Remuneration Policy in relation to the LTIP is on page 110.
Tables 74 and 75 set out a summary of the LTIP structure and details of the LTIP performance measures and conditions.
Table 74
LTIP structure summary
Level of award
Performance measures
Performance period
Weighting of performance measures
TPR: Measured over four financial years
commencing with year of grant in comparison with
composite index
EPS: Measured over four financial years
commencing with year of grant. Calculated with
reference to EPRA Best Practice recommendations
TSR: Measured over four-year period from date
of grant
TSR Comparator Group
All years
2013
2014
2015
2016
2017
200% of salary
100% of salary
150% of salary
200% of salary
200% of salary
TSR, TPR,
EPS
Four years
33.33%
IPD UK
Annual
Retail
Property
Index and
France
Annual
Retail Index
Benchmark:
RPI
IPD UK
Annual
Retail
Property
Index and
France
Annual
Retail Index
Benchmark:
RPI
IPD UK
Annual
Retail
Property
Index and
France
Annual
Retail Index
Benchmark:
Blend of UK/
French CPI
IPD UK
Annual
Retail
Property
Index and
France
Annual
Retail Index
Benchmark:
Blend of UK/
French CPI
Altarea, British Land, Capital & Regional, intu
properties, Eurocommercial, Klépierre, Land Securities,
London Metric, SEGRO, Shaftesbury, Unibail-Rodamco,
FTSE 100 Index
Plus:
Corio1, IVG,
Wereldhave
Plus:
Corio1,
Wereldhave
Plus:
New River
Retail
Plus:
Wereldhave,
New River
Retail
IPD Annual
Retail Property
indices for UK
and a bespoke
Europe index
Benchmark:
Blend of UK/
French/Irish
CPI
British Land,
intu properties,
Klépierre,
Unibail-
Rodamco, Land
Securities only
Note
1. Corio merged with Klépierre on 31 March 2015 and delisted from Euronext Amsterdam. Corio is retained, with performance
measured to the date of delisting. The EPRA NAREIT Developed Europe Index is substituted for Corio from the date of its delisting to
the end of the performance period.
102
HAMMERSON PLC ANNUAL REPORT 2017
Table 75
LTIP performance conditions 2013 to 2017
TSR
TPR
EPS
Vesting threshold
All award years
0%
Less than TSR of
median-ranked entity in
comparator group
25%
Equal to TSR of median-
ranked entity in comparator
group
100%
Equal to TSR of upper
quartile-ranked entity in
comparator group
Vesting for intermediate performance between median and upper quartile-ranked entities is on a straight-line basis
between 25% and 100%. Vesting under the TSR performance condition is subject to the Committee’s satisfaction that
the Company’s underlying performance has been satisfactory in comparison with that of the FTSE Real Estate sector.
Vesting threshold
All award years
0%
Less than index
25%
Equal to index
55%
Index +0.5%
(average) p.a.
85%
Index +1.0%
(average) p.a.
100%
Index +1.5%
(average) p.a.
Vesting for intermediate performance between these levels will be pro-rated on a straight-line basis.
Vesting threshold
2015, 2016 and 2017 awards Less than a CPI blend
0%
25%
Equal to or more than a CPI
blend
+3.0% p.a. growth
Equal to or more than RPI
+3.0% p.a. growth
100%
Equal to or more than a CPI
blend
+7.0% p.a. growth
Equal to or more than RPI
+7.0% p.a. growth
2013 and 2014 awards
+ 3.0% p.a. growth
Less than RPI
+ 3.0% p.a. growth
Vesting for intermediate performance between these levels will be pro-rated on a straight-line basis between 25% and
100%.
Details of 2013 LTIP (which vested during 2017)
The following table shows the number of shares delivered on vesting of the 2013 LTIP (which vested on 9 May 2017):
Table 76
TSR
Performance period: 2/4/13-2/4/17
TPR
Performance period:1/1/13-31/12/16
EPS
Performance period: 1/1/13-31/12/16
Shares
available
Vesting %
against
target
Number of
shares
delivered
Value of
shares
delivered
Shares
available
Vesting %
against
target
Number of
shares
delivered
Value of
shares
delivered
£000
Shares
available
Vesting %
against
target
Number of
shares
delivered
Value of
shares
delivered
£000
Total
shares
delivered
Total
value of
shares
delivered
£000
David Atkins 92,629
66,502
Peter Cole
Timon
Drakesmith
Jean-
Philippe
Mouton
46,239
63,336
0%
0%
0%
0%
0
0
0
0
0 92,629
0 66,502
100% 92,629
100% 66,502
550 92,629 94.8% 87,811
395 66,502 94.8% 63,044
521 180,440
374 129,546
1,071
769
0 63,336
100% 63,336
376 63,336 94.8% 60,041
356 123,377
732
0 46,239
100% 46,239
274 46,239 94.8% 43,834
260 90,073
535
Notes:
1. The value shown is based on the share price on the date on which the awards vested of 593.50p.
2. Details of the TPR and EPS performance conditions were shown as estimates in the 2016 Annual Report. The value of those
components was reflected in the Single Figure Table for 2016 as the performance period for those components ended during 2016.
The table above shows the final outcome.
3. Details of the assessment of the TSR performance condition are shown on page 95, Table 62.
4. The number of shares vested includes any notional dividend shares awarded up to the date of transfer.
HAMMERSON.COM 103
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Executive Directors’ SIP interests*
The Executive Directors’ interests in ordinary shares of the Company under the Share Incentive Plan (SIP) at 31 December 2017 are shown in
Table 77 below. The shares are held in a SIP trust. Jean-Philippe Mouton is not eligible to participate in the SIP.
Table 77
Executive Directors’ SIP interests
David Atkins
Peter Cole
Timon Drakesmith
Total SIP shares
1 January 2017
Partnership shares
purchased
Matching shares
awarded
Free shares
awarded
Dividend shares
purchased
14,072
15,465
6,949
0
0
0
0
0
0
0
0
0
540
593
267
Total
SIP shares
31 December
2017
14,612
16,058
7,216
Total Shareholder Return
Table 78 below shows the total shareholder return in respect of the Company’s ordinary shares of 25 pence each for the nine years ended
31 December 2017 against the return of the FTSE EPRA/NAREIT UK Index, which comprises shares of the Company’s peers. The total
shareholder return is rebased to 100 at 31 December 2008. The other points plotted are the values at intervening financial year ends.
Table 78
Total Shareholder Return Index
(31 December 2008 = 100)
250
200
150
100
50
0
31 Dec 2008 31 Dec 2009 31 Dec 2010 31 Dec 2011 31 Dec 2012 31 Dec 2013 31 Dec 2014 31 Dec 2015 31 Dec 2016 31 Dec 2017
Hammerson
FTSE EPRA/NAREIT UK
104
HAMMERSON PLC ANNUAL REPORT 2017
Remuneration of the Chief Executive over the last nine years*
Table 79 shows the remuneration of the holder of the office of Chief Executive for the period from 1 January 2009 to 31 December 2017.
Table 79
Chief Executive’s remuneration history
Year
2017
2016
2015
2014
2013
2012
2011
2010
2009 (David Atkins)
2009 (John Richards)
Total
remuneration
£000
Annual bonus5
LTIP vesting5
1,966
2,681
2,147
1,568
2,216
2,451
1,515
1,594
242
895
62.5%
65.3%
77.3%
65.3%
56.2%
88.9%
51.7%
68.2%
55.0%
48.8%
56.4%
64.9%
–
–
51.6%
52.6%
–
–
–
49.4%
Notes
1
2
3
4
Notes
1. The total remuneration and annual bonus figures for 2017 include certain estimated values for the LTIP and AIP vesting. See the
Single Figure Table (Table 58) on page 92 for details.
2. The total remuneration reported in the 2016 Annual Report contained estimates; the numbers given here are the actual values. See the
Single Figure Table (Table 58) on page 92.
3. David Atkins became Chief Executive on 1 October 2009, having been an Executive Director since 2007. The figure for 2009 has been
pro-rated accordingly.
4. John Richards retired as Chief Executive on 30 September 2009.
5. All numbers are expressed as a percentage of the maximum that could have vested in that year.
Remuneration for the Chief Executive compared with all other employees of the
Hammerson Group
Table 80 shows the percentage change from 31 December 2016 to 31 December 2017 in base salary, taxable benefits and bonus for the Chief
Executive compared with all other employees of the Hammerson Group. The difference in change between the Chief Executive’s annual bonus
and that of Group employees is due to the outturn relating to his personal performance grading being higher this year than in 2016.
Table 80
Percentage change in the Chief Executive’s base salary, taxable benefits and bonus
David Atkins
Total Group employees
Notes
1,2
1,2
Salary
2.5%
1.5%
Benefits
Annual bonus
2.2%
13.7%
-1.9%
-6.6%
Change %
Total
0.3%
1.1%
Notes
1. The percentage movement in annual bonus is based on calculations that incorporate an estimated value for the TPR performance
measure within the AIP. The calculation of the percentage change in total remuneration excludes pensions and LTIP.
2. David Atkins has been excluded from the Group calculation. Data for the Group calculation includes all employee bonuses. Payments
in euro have been converted at a constant exchange rate of £1:€1.141.The Group calculation uses a weighted average headcount for the
year. Employees received an average salary increase of 3% during 2017.
HAMMERSON.COM 105
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Relative importance of spend on pay
Table 81 below shows the Company’s total employee costs compared with dividends paid. The Company did not buy back any of its own shares
during 2017.
Table 81
Total employee costs compared with dividends paid
2017
2016
Percentage change
Employee
costs1
£56.4m
£53.6m
5.0%
Dividends2
£193.6m
£180.1m
7.0%
Notes
1. These figures have been extracted from note 4 (Administration expenses) to the financial statements on page 142.
2. These figures have been extracted from note 9 (Dividends) to the financial statements on page 145.
Detail of Executive Directors’ accrued pension benefits*
Following the closure of the Company’s defined benefit pension scheme (Scheme) in 2014, David Atkins and Peter Cole remain eligible for a
deferred pension based on their pensionable salary and service at the point they ceased to accrue further benefits in the Scheme. The normal
retirement age under the Scheme is 60. Members may draw their pension from the age of 55, subject to actuarial reduction and the Trustees’
consent. Further information concerning the Scheme is in note 6 to the financial statements on page 143.
Table 82 below shows the total accrued benefit at 31 December 2017 representing the annual pension that is expected to be payable on retirement
and the transfer values of Executive Directors’ accrued entitlements. The transfer value figures do not represent sums paid or payable to
individual Executive Directors but represent a potential liability of the Scheme. Any increase or decrease in transfer value over the year
represents a change in the transfer value assumptions that the Scheme applies.
Table 82
Executive Directors’ accrued pension benefits and transfer values
David Atkins
Peter Cole
Total accrued benefit
at 31 December
Transfer value at 31 December
of total accrued benefit
2017
£000
84
250
2016
£000
83
248
2017
£000
1,857
6,395
2016
£000
1,734
6,088
Directors’ service contracts and letters of appointment
Executive Directors – Service Contracts
A summary of obligations in the Executive Directors’ service agreements which could give rise to or impact on payments for loss of office are set
out in the Remuneration Policy available on the Company’s website: www.hammerson.com.
Table 83
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
French employment
Date of service contract
11 January 2008
28 February 2002
18 January 2011
25 March 2013
UK directorship
25 March 2013
106
HAMMERSON PLC ANNUAL REPORT 2017
Notice period
Expiry date
Rolling service contract with no
fixed contract date
12 months’ notice to the Executive
Director and 6 months’ notice
from the Executive Director
12 months’ notice on either side
3 months’ notice in case of
dismissal or resignation on either
side. No notice where there is an
agreed termination
3 months’ notice period on
either side
Non-Executive Directors – Letters of Appointment
The dates of the appointments of the Non-Executive Directors in office as at 31 December 2017 are set out below.
Table 84
Pierre Bouchut
Gwyn Burr
Terry Duddy
Andrew Formica
Judy Gibbons
David Tyler
Date of original appointment
to Board
13 February 2015
21 May 2012
3 December 2009
26 November 2015
1 May 2011
12 January 2013
Commencement
date of current term
13 February 2018
21 May 2015
3 December 2015
26 November 2015
1 May 2017
12 January 2016
Unexpired
term as at April 2018
2 years, 10 months
1 month
8 months
7 months
2 years
9 months
External board appointments
Where Board approval is given for an Executive Director to accept an outside non-executive directorship, the individual is entitled to retain any
fees received. Timon Drakesmith is a non-executive director of The Merchants Trust PLC for which he receives an annual fee of £30,500. David
Atkins is a non-executive director of Whitbread PLC for which he receives an annual fee of £62,000.
Advisors
The Committee has appointed FIT Remuneration Consultants to assist with its responsibilities. Details of the fees and services provided are set
out below. The Committee remains satisfied that all advice was objective and independent. FIT is a member of the Remuneration Consultants
Group and subscribes to its Code of Conduct.
Table 85
Advisor
FIT Remuneration
Consultants LLP (FIT)
Appointed by
Services provided to the Committee
Remuneration Committee
(August 2011)
Reward structures and
levels and other aspects of
the Company’s
Remuneration Policy
Fees paid for services
to the committee in 2017
and basis of charge
£47,955 (excluding VAT)
(2016: £64,712, excluding
VAT).
Charged on normal FIT
time basis
Other services provided
to the Company
None. Terms of
engagement (available on
request to shareholders)
specify that FIT will only
provide advice expressly
authorised by or on behalf
of the Remuneration
Committee
Herbert Smith Freehills LLP provides legal advice and Lane Clark & Peacock LLP provides actuarial advice to the Company. The Committee may
seek advice from both firms where it relates to matters within its remit. In addition the Chief Executive, Chief Financial Officer and Human
Resources Director attend Committee meetings by invitation. The General Counsel and Company Secretary is the Secretary to the Committee.
The Chief Executive, senior human resources staff and the General Counsel and Company Secretary provided advice to the Committee on
matters relating to the Remuneration Policy and Company practices. No-one is present during discussions concerning their own remuneration.
Statement of voting at Annual General Meeting
Table 86 below shows votes cast by proxy at the AGM held on 25 April 2017 in respect of the Directors’ Remuneration Report and Directors’
Remuneration Policy. Shareholders raised no issues concerning remuneration during the AGM.
Table 86
Statement of voting on remuneration: 2017 AGM
To receive and approve the 2016 Directors’
Remuneration Report
To receive and approve the Remuneration Policy
Votes for
number of shares and
Votes against
number of shares and
percentage of shares voted
percentage of shares voted
564,636,283
99.41%
563,721,945
98.73%
3,379,250
0.59%
7,263,050
1.27%
Votes withheld
number of shares
4,343,976
1,374,514
HAMMERSON.COM 107
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Payments to past Directors*
There were no payments to past Directors in 2017.
Payments for loss of office*
There were no payments for loss of office to past Directors in 2017.
Section 3: Implementation of Remuneration Policy in 2018
This section sets out information on how the Remuneration Policy which was approved by shareholders at the 2017 Annual General Meeting will
be implemented in 2018. A copy of the full Remuneration Policy is available on the Company’s website www.hammerson.com.
In implementing the Remuneration Policy, the Committee will continue to take into account factors such as remuneration packages available
within comparable companies, the Company’s overall performance, internal relativities, achievement of corporate objectives, individual
performance and experience, published views of institutional investors, general market and wider economic trends.
Table 87
Summary of planned implementation of the Remuneration Policy during 2018
Salary
Policy
Purpose and link to strategy
To continue to retain and attract quality
leaders
To recognise accountabilities, skills,
experience and value
Performance measures
Not applicable
Operation
Reviewed but not necessarily increased
annually by the Committee
The base salary for any existing Executive
Director will not exceed £850,000 (or the
equivalent if denominated in a different
currency) with this limit increasing annually at
the rate of UK CPI
Implementation
In February 2018, the Committee determined that an increase in base salaries of approximately 2.5% was appropriate for all of the Executive
Directors. This is in line with other senior executives but less than increases in salaries awarded across the Group which were generally in the
region of 3%, reflecting the view that the Executive Directors and the senior management team should demonstrate personal leadership in a
cost conscious environment. Factors influencing the increases included the effect of inflation and evidence of salaries within the real estate
sector. The increases take effect from 1 April 2018.
2018 Executive Directors salaries
David Atkins
Peter Cole
Timon Drakesmith
Jean-Philippe Mouton
Benefits
Policy
Purpose and link to strategy
To provide a range of benefits in line with
market practice
To continue to retain and attract quality
leaders
Implementation
£000
£643
£468
£468
€439
Performance measures
Not applicable
Operation
The aggregate value received by each Executive
Director (based on value of P11D tax
calculations or equivalent basis for a non-UK
based Executive Director) will not exceed
£100,000 with this maximum increasing
annually at the rate of UK CPI
For 2018 these benefits will continue to include a car allowance, enhanced sick pay, private medical insurance, permanent health insurance
and life assurance.
108
HAMMERSON PLC ANNUAL REPORT 2017
Table 87 continued
Pension
Policy
Purpose and link to strategy
To provide market competitive retirement
benefits
To continue to retain and attract quality
leaders
Performance measures
Not applicable
Operation
Executive Directors may receive a non-
contributory allowance (Pension Choice) to be
paid as, or as a combination of: (i) an employer
contribution to the Company’s defined
contribution pension plan; (ii) a payment to a
personal pension plan; or (iii) a salary
supplement
Pension Choice is limited to an aggregate limit
of 30% of base salary
Implementation
All current Executive Directors will continue to receive a salary supplement by way of pension provision. No changes in the rates are
envisaged.
Annual Incentive Plan (AIP) and deferral under the Deferred Bonus Share Scheme (DBSS)
Policy
Purpose and link to strategy
To align Executive Director remuneration with
annual financial and Company strategic targets
as determined by the Company’s Business Plan
To differentiate appropriately, in the view of
the Committee, on the basis of performance
The partial award in shares aligns interests
with shareholders and supports retention
Implementation
Performance measures
Operation
The annual bonus operates by reference to
financial and personal performance measures
assessed over one year. The weighting of
financial measures will be at least 60% of the
total opportunity
Awards are paid in a mix of cash and deferred
shares, with the deferred shares element being
at least 40% of the total award. The deferral
period is at least two years and may not be
shorter
Awards are subject to clawback and malus
provisions
The AIP maximum for Executive Directors in 2018 will remain at 200% of base salary.
Performance measures for the AIP in 2018 remain weighted 70% towards Group financial targets and 30% towards personal objectives.
Group financial targets remain unchanged and comprise:
– 30% Adjusted earnings per share
– 30% Total Property Return relative to IPD
– 10% Growth in like-for-like Net Rental Income
As is demonstrated in this report in respect of previous years, the Committee designs the financial targets and personal objectives to align
closely to the Company’s strategy as well as to the Business Plan and the priorities for the coming year. It is therefore felt that the specific
financial targets and important personal objectives are commercially sensitive such that, having considered this carefully, the Board is of the
view that it is in the Company’s interests not to disclose this information in advance. Full details of the specific targets and key personal
objectives set will be disclosed in the 2018 Annual Report.
40% of the 2018 AIP vesting will be deferred by making an award of shares under the DBSS, with a deferral period of two years.
No change to current arrangements is proposed for 2018.
HAMMERSON.COM 109
GOVERNANCEDIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report continued
Table 87 continued
Long-Term Incentive Plan
Policy
Purpose and link to strategy
Performance measures
Operation
To incentivise the creation of long-term
returns for shareholders
To align interests of Executive Directors with
shareholders and support retention
Performance measures may consist of a
combination of financial measures to align
with strategic priorities
A discretionary annual award up to a value of
200% of base salary. The Committee reserves
the discretion to increase the maximum award
to 300% of base salary in exceptional
circumstances
Awards are typically structured as nil-cost
options or a conditional award of shares.
Awards are subject to clawback and malus
provisions
Implementation
Annual award of 200% of base salary. Vesting of the award is subject to the following performance measures weighted 33.33% and measured
over a four-year performance period with an additional one-year holding period:
Adjusted Earnings Per Share: calculated with reference to the European Public Real Estate Association Best Practice recommendations. CPI is
a 65:25:10 weighted blend of UK, France and Ireland.
Vesting under the EPS performance measure is as follows:
Performance
Percentage of award vesting
Less than CPI +3.0% p.a. growth
Equal to CPI +3.0% p.a. growth
Equal to or more than CPI +7.0% p.a. growth
0%
25%
100%
Total Property Return: measured against a composite index comprising the Investment Property Databank Annual Retail Property Indices for
the UK and a bespoke Europe Index (weighted on a 60:40 basis).
Performance compared to the Index
Less than index
Equal to index
Index + 0.5% (average) p.a.
Index + 1.0% (average) p.a.
Index +1.5% (average) p.a.
Percentage of Award vesting
0%
25%
55%
85%
100%
Vesting for EPS and TPR targets for intermediate performance between levels is pro-rated on a straight-line basis between the specified award
levels.
Total Shareholder Return: measured against a comparator group comprising British Land, intu properties, Klépierre, Unibail-Rodamco and
Land Securities.
Performance compared to the comparator group
Percentage of award vesting
Less than TSR of median-ranked entity
Equal to TSR of median-ranked entity
Equal to TSR of upper quartile-ranked entity
0%
25%
100%
Vesting for intermediate performance between median and upper quartile-ranked entities is on a straight-line basis between 25% and 100%.
Vesting is subject to the Committee’s satisfaction that underlying performance has been satisfactory in comparison with that of the FTSE Real
Estate sector.
2018 awards will be made under the new LTIP rules approved by shareholders at the 2017 AGM. If the acquisition of intu properties plc
completes, the Committee’s intention is that intu properties will be removed from the TSR comparator group and replaced by an additional
comparator company, likely to be a composite of New River Retail and Capital & Regional, with effect from the date of the grant.
110
HAMMERSON PLC ANNUAL REPORT 2017
Table 87 continued
Participation in all-employee arrangements
Policy
Purpose and link to strategy
In order to be able to offer participation in all
employee plans to employees generally, the
Company is either required by the relevant UK
and French legislation to allow Executive
Directors to participate on the same terms or
chooses to do so
Implementation
Performance measures
Operation
Not generally applicable. Any award of free
shares under the SIP may be subject to a
Company performance target
Executive Directors are eligible to participate
in all-employee incentive arrangements on the
same terms as other employees
All-employee arrangements currently offered in the UK are Sharesave and SIP share awards and in France a profit share plan. The opportunity
to participate in all-employee arrangements continues on the same basis as for all staff in the UK or France as appropriate.
No change to current arrangements is proposed for 2018.
Share ownership guidelines
Policy
The Company has in place share ownership guidelines for the Executive Directors. Executive Directors are normally required to achieve the
minimum shareholding requirement within seven years of the date of appointment. An annual calculation as a percentage of salary is made
against the guidelines as at 31 December each year based on the middle market value of a share price on the last business day in December.
Implementation
250% of base salary for the Chief Executive and all other Executive Directors.
The Share Ownership Guidelines were increased in 2017 from 150% of base salary for the Chief Executive and 100% of base salary for all other
Executive Directors to 250% of base salary.
HAMMERSON.COM 111
GOVERNANCEDIRECTORS’ REMUNERATION REPORT Directors’ remuneration report continued
Table 87 continued
Chairman’s and Non-Executive Directors’ Fees
Policy
Purpose and link to strategy
To ensure the Company continues to attract
and retain high-quality Chairman and
Non-Executive Directors by offering market
competitive fees
Performance measures
Not applicable
Operation
The Chairman’s fee is determined by the
Committee. Other Non-Executive Directors’
fees are determined by the Board on the
recommendation of the Executive Directors.
Aggregate total fees payable annually to all
Non-Executive Directors are subject to the
limit stated in the Company’s Articles of
Association (currently £1,000,000)
Implementation
The review of the Chairman’s and Non-Executive Directors’ fees now takes place in January/February each year, to bring the process in line
with other remuneration reviews in the Company. In February 2018, the Chairman’s fee and Non-Executive Director fees were increased by
2.5%, in line with the increase for Executive Directors’ base salaries, from 1 April 2018.
Chairman and Non-Executive Directors’ 2018 annual fees
Chairman
Non-Executive Director
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
Audit/Remuneration Committee Member
£
345,500
61,500
10,000
15,000
15,000
5,000
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HAMMERSON PLC ANNUAL REPORT 2017
Remuneration for employees below Board level in 2018
Remuneration packages for all Group employees may comprise both fixed and variable elements. Generally, the more senior the individual,
the greater the variable pay offer as a proportion of overall pay due to the ability of senior managers to impact more directly upon Company
performance. As well as assessing the remuneration packages of the Executive Directors, the Committee reviews the remuneration of the senior
management team and is kept informed of remuneration developments across the Group including the salary increases and employee benefits of
the wider employee population. In accordance with prevailing commercial practice, the Committee does not consult with employees in preparing
the remuneration policy.
Summary of 2018 remuneration structure for employees below Board level
Table 88
Element
Base salary
Annual bonus
Pension
Share schemes
Employee benefits
By order of the Board
Sarah Booth
Approach/Policy
An assessment is made each year on pay increases across the Group. The assessment may include bench marking
exercises for different roles. Other factors taken into consideration are Company performance, competition in
the market place and general economic climate, specifically rates of inflation and wage growth. Pay increases are
expected to be in line with market rate and any increase awarded to an individual will reflect competence and
experience. Exceptional pay increases are sometimes awarded to bring pay in line with market practice or
recognition of an individual’s development within a role. More usually exceptional personal performance is
recognised through variable pay.
For 2018, base salary budgets have been set on average at 3% for all employees below Board and senior
management team level.
An annual cash bonus scheme is operated throughout the Group. Although there are some minor differences in
application of the scheme according to jurisdiction of employment, the same principle applies to all employees in
that there is an opportunity to receive a bonus based on personal or company performance or a mixture of both.
Generally, the more senior the employee the more the weighting is towards Company performance. The
maximum cash bonus opportunity varies according to seniority. For more senior employees a certain proportion
of the award may be deferred into shares.
The pension offering forms an important part of the reward package across the Group. All employees may
participate in one of a number of defined contribution pension arrangements across the UK, France and Ireland.
Employee and employer contribution structures vary depending on the scheme.
A variety of all-employee and discretionary share schemes are in operation across the Group. Generally, where
local legislation allows, eligible employees may participate in an all-employee share scheme such as the Sharesave
scheme operated in the UK and Ireland. In addition a number of UK employees have the opportunity to join the
UK Share Incentive Plan with the potential for an annual SIP Free Share Award based on Company stretch
performance. No Free Share Award was made in 2017. Employees of Hammerson France are eligible to
participate in a profit share plan which rewards performance against certain performance measures.
Benefits offered by the Group include life assurance, private medical care, car allowances, permanent health
insurance and health checks. The offer of a particular benefit to an employee will depend on location within the
business, their role and seniority.
General Counsel and Company Secretary
23 February 2018
HAMMERSON.COM 113
GOVERNANCEDIRECTORS’ REMUNERATION REPORT COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
This section of the Corporate Governance Report details the
Company’s compliance with the Principles set out in the UK
Corporate Governance Code (the Code) published on 27 April 2016
which is available at www.frc.org.uk. This section should be read in
conjunction with the Corporate Governance Report as a whole, which
is set out on pages 70 to 113.
The Company has complied in full with the requirements of the Code
during 2017.
A. Leadership
A.1 The role of the Board
The Board is collectively responsible to the Company’s shareholders
for the Company’s long-term success and the delivery of its long-term
strategic and operational objectives.
The Board sets the strategic direction, governance and values of the
Group and has ultimate responsibility for its management, direction
and performance.
The Board operates through a sound risk
management and internal controls system, details of
which are on pages 61 to 68 and 116.
The Board has a formal schedule of matters specifically reserved for
its decision which can be accessed at www.hammerson.com.
The Board has regular meetings throughout the year. It held six
of these in 2017. Additional Board conference calls are held between
the formal Board meetings as required. During 2017 a number of
additional meetings were scheduled to consider the proposed
acquisition of intu properties plc. The table below includes details
of attendance at Board meetings and conference calls in 2017.
Non-Executive Directors are encouraged to communicate directly with
Executive Directors and senior management between Board meetings.
Table 89
Board and Committee meetings attendance
David Tyler
David Atkins
Peter Cole1
Timon Drakesmith2
Jean-Philippe Mouton
Pierre Bouchut
Gwyn Burr
Terry Duddy
Andrew Formica3
Judy Gibbons
Board
15/15
15/15
14/15
14/15
15/15
15/15
15/15
15/15
14/15
15/15
Audit4 Remuneration Nomination
–
–
–
–
–
3/3
3/3
–
3/3
3/3
6/6
–
–
–
–
–
6/6
6/6
–
6/6
2/2
–
–
–
–
2/2
2/2
2/2
2/2
2/2
1. Peter Cole was unable to attend one Board meeting due to illness.
2. Timon Drakesmith was unable to attend one Board meeting due to an extended
leave of absence in order to undergo medical treatment.
3. Andrew Formica was unable to attend one Board meeting due to a prior
commitment.
4. The Audit Committee normally holds four meetings per year. In 2017 three
meetings were held due to the December meeting being rescheduled to
January 2018.
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HAMMERSON PLC ANNUAL REPORT 2017
All Directors are expected to:
– Attend all meetings of the Board, and of those Committees on
which they serve
– Attend the Annual General Meeting (AGM)
– Devote sufficient time to the Company’s affairs to enable them to
fulfil their duties as Directors
A.2 Division of responsibilities
The Chairman and Chief Executive have separate roles and
responsibilities which are clearly defined, documented and approved
by the Board. The Chairman, David Tyler, is responsible for the
operation of the Board. The Chief Executive, David Atkins, is
responsible for leading and managing the business within the
authorities delegated by the Board.
A.3 The Chairman
The Chairman sets the Board’s agenda and ensures that important
matters, in particular strategic issues, receive adequate time and
attention at meetings. The Chairman encourages a collegiate
environment on the Board which facilitates open discussion.
When he became Chairman in 2013, David Tyler was considered
independent. In accordance with the Code, the continuing test of
independence for the Chairman is not necessary.
The Chairman ensures that he engages regularly with institutional
shareholders.
Further details of shareholder engagement are on
page 80.
A.4 Non-Executive Directors
The Non-Executive Directors challenge and help develop proposals
on strategy. The annual Board Strategy Day is dedicated to
considering the future direction of the Company at the start of the
business planning process.
Further details of the 2017 Board Strategy Day are on
page 78.
A.4.1 Senior Independent Director
The Senior Independent Director, Terry Duddy, is available to address
shareholders’ concerns on governance. When and if necessary, he can
also address concerns on other issues that have not been resolved
through the normal channels of communication with the Chairman,
Chief Executive or Chief Financial Officer, or in cases when such
communications would be inappropriate. He can also deputise for the
Chairman in his absence, act as a sounding board for the Chairman
and advise and counsel all Board colleagues.
The Senior Independent Director also chairs an annual meeting of
Executive and Non-Executive Directors without the Chairman to
appraise the Chairman’s performance and address any other matters
which the Directors might wish to raise. The Senior Independent
Director conveys the outcome of these discussions to the Chairman.
The Chairman meets with the Non-Executive Directors as necessary,
but at least twice a year without the Executive Directors present.
If any Director has concerns about the running of the Company or a
proposed action which cannot be resolved, these will be recorded in
the Board minutes. No such concerns arose in 2017.
B. Effectiveness
B.1 The composition of the Board
During the year the Board reviewed the overall balance of skills,
experience, independence and knowledge of the Board and
Committee members. It was satisfied that the Board was of an
appropriate size and that the requirements of the business can be met.
The Board is satisfied that the Non-Executive Directors, each of whom
is independent from management and has no material or other
connection with the Company, are able to exercise independent
judgement.
The Board reviews the independence of its Non-Executive Directors
each year in accordance with the criteria set out in the Code.
There are currently six Non-Executive Directors (including the
Chairman) and four Executive Directors on the Board.
B.2 Appointments to the Board
The Nomination Committee, which is chaired by the Chairman and
comprises all Non-Executive Directors, leads the process for Board
appointments, which are made on merit, against objective criteria,
and makes recommendations to the Board.
The Committee’s terms of reference can be found at
www.hammerson.com.
Non-Executive Directors are appointed for three-year terms and
stand for re-election at each AGM. Any term beyond six years is
subject to a rigorous review, taking into account the need for
progressive refreshment of the Board.
Further details of the work of the Nomination
Committee are on pages 82 to 83.
Disclosures on diversity are on pages 47 to 48 and 83.
No new appointments were made to the Board in 2017. When new
appointments are made, an external search consultancy would
normally be used and identified in the Annual Report in accordance
with the Code.
B.3 Commitment
The Board is satisfied that all the Non-Executive Directors are able to
devote sufficient time to the Company’s business. Non-Executive
Directors are advised when appointed of the time required to fulfil the
role and asked to confirm that they can make the required
commitment. Each individual’s commitment to their role is reviewed
annually as part of their annual appraisal. Letters of appointment for
the Non-Executive Directors are available for inspection at the AGM.
Positions held by Non-Executive Directors are set out
on pages 72 and 73.
All Executive Directors are encouraged to take a non-executive
position in another company or organisation. These appointments are
subject to the approval of the Board which considers particularly the
time commitment required.
Non-Executive Director positions held by Executive
Directors are set out on page 72.
B.4 Development
All Directors receive an induction programme when appointed to the
Board, which takes into account their qualifications and experience.
Where appropriate Non-Executive Directors are offered
opportunities to meet institutional shareholders. All Directors are
kept informed of changes in relevant legislation and regulations and of
changing financial and commercial risks. Where appropriate the
Company’s legal advisors and External Auditor assist in this regard.
Executive Directors are also subject to the Company’s annual
performance development review process in which their performance
is reviewed against pre-determined objectives and their personal and
professional development needs are considered.
During the annual appraisal of Non-Executive Directors’
performance, the Chairman reviews and agrees each Non-Executive
Director’s training and personal development requirements.
Non-Executive Directors are also encouraged to attend seminars and
undertake external training at the Company’s expense in areas
considered appropriate for their professional development. These
include issues relevant to the Board and the Committees to which
they belong.
B.5 Information and support
The Directors have access to independent professional advice at the
Company’s expense, as well as to the advice and services of the
General Counsel and Company Secretary who advises the Board on
corporate governance matters. The Board and its Committees receive
high-quality, up to date information for them to review in good time
before each meeting. The General Counsel and Company Secretary
ensures that Board procedures are followed and that the Company
and the Board operate within applicable legislation. The General
Counsel and Company Secretary is also responsible for facilitating
Directors’ induction, assisting with identifying and enabling
appropriate training and Board performance evaluation.
The appointment and removal of the General Counsel and Company
Secretary is a matter requiring Board approval.
B.6 Evaluation
In 2017 a formal performance evaluation of the Board was conducted
internally by the General Counsel and Company Secretary by means
of an online questionnaire. The evaluation of the Board is externally
facilitated every three years. An externally facilitated performance
evaluation of the Board was carried out in 2016 by Independent Audit
Limited, which has no connection with the Group.
The Chairman carries out a formal performance evaluation
individually with each Non-Executive Director every year. The
Non-Executive Directors, led by the Senior Independent Director, are
responsible for the annual evaluation of the Chairman’s performance.
Following the internal Board effectiveness review in 2017, the
Directors concluded that the Board and its Committees operate
effectively and that each Director continues to contribute effectively
and demonstrates commitment to the role.
More details of the Board effectiveness review are on
page 81.
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GOVERNANCECOMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE Compliance with the UK Corporate Governance Code continued
B.7 Election and re-election
All Directors are subject to election at the first AGM following their
appointment and annual re-election at each AGM thereafter. All Directors
are therefore submitting themselves for re-election at the 2018 AGM.
Directors’ biographies are on pages 72 to 73 and also
in the Notice of Meeting for the 2018 AGM.
Further discussion of the balance of skills, knowledge
and experience on the Board is on pages 82 to 83.
C. Accountability
C.1 Financial and business reporting
The Board considers that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company’s position and performance,
business model and strategy.
A statement of the Directors’ responsibilities regarding
the financial statements is on page 121.
An explanation of the Group’s business model and
strategy is on pages 6 to 7 and pages 16 to 17
respectively.
The Board has established processes to ensure that all reports and
information which it is required to present in accordance with
regulatory requirements are a fair, balanced and understandable
assessment of the Company’s position and prospects.
Further details about the fair, balanced and
understandable process for the Annual Report are
on page 86.
C.2 Risk management and internal control
The Board has established processes for monitoring sound risk
management and internal control which allow it to review the
effectiveness of the systems in place within the Group. A robust
assessment of the principal risks facing the Company has been carried
out during the year.
An assessment of the principal risks facing the
Company is on pages 63 to 68 and Key Performance
Indicators are on pages 18 to 19.
The Directors have assessed the prospects of the Company over a
five-year period and have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as they fall
due over the period of this assessment.
It must be recognised that the Group’s internal controls provide
reasonable but not absolute assurance against material misstatement
or loss.
Management has established a risk management framework and put
in place sufficient procedures necessary to enable the Directors to
report in compliance with the Code on internal controls. These
involve analysis, evaluation and management of the key risks to the
Group, including a review of all material controls. They also include
plans for the continuity of the Company’s business in the event of
unforeseen interruption. Having monitored the Group’s risk
management and internal controls, and having reviewed the
effectiveness of material controls, the Audit Committee has not
identified any significant failings or weaknesses in the Group’s
internal control structure during the year.
The Risk and Controls Committee supports the Audit Committee.
It is not a committee of the Board but of executives from across the
business and is chaired by the Chief Financial Officer. The Committee
reports its activities to the Group Executive Committee. The Committee’s
role is to:
– Promote the application of the Risk Management Framework
throughout the business
– Encourage proactive discussion of risk around the business
– Manage the annual internal audit programme
– Consider the results and recommendations of reviews
– Monitor the implementation of recommendations
– Oversee the Group’s Business Continuity plans
– Monitor data protection compliance
The Audit Committee regularly reports to the Board on key risks to the
Group. The Board allocates responsibility for the management of each key
risk to the Executive Directors and senior executives across the Group.
The Audit Committee assists the Board in fulfilling its responsibilities
relating to the adequacy and effectiveness of the control environment
and the Group’s compliance.
Throughout the year the Audit Committee monitored the
effectiveness of the Group’s risk management and internal control
systems, including material financial, operational and compliance
controls. In particular the Audit Committee reviewed:
– The External Auditor’s management letters
The Viability statement and Going Concern statement
are on page 69.
– Internal audit reports including monitoring the implementation
of recommendations arising from them
– Reports on the system of internal controls and the Risk
Management Framework
– The Company’s approach to compliance with legislation and the
prevention of fraud
– Business continuity and cyber risk
– Gifts and entertainment and expenses registers
Further explanation of the Company’s approach to
risk management is on pages 61 to 68.
The Group’s risk management and internal control systems are
designed to:
– Safeguard assets against unauthorised use or disposition
– Ensure the maintenance of proper accounting records
– Enable regular reporting of financial performance to the Board to
support management’s review process, including the production of
external financial results
– Provide reliable information
– Identify and, as far as possible, mitigate potential impediments to
the Group achieving its objectives
– Ensure compliance with relevant legislation, rules and regulations
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HAMMERSON PLC ANNUAL REPORT 2017
C.3 Audit Committee and Auditor
The Audit Committee comprises four independent Non-Executive
Directors. It normally holds four meetings per year, organised around
the Company’s reporting schedule. In 2017 three Audit Committee
meetings were held due to the December meeting being rescheduled
to January 2018.
The Audit Committee Chairman regularly reports details of the work
carried out by the Audit Committee to the Board in accordance with
its terms of reference.
The terms of reference for the Audit Committee are
available at www.hammerson.com.
Pierre Bouchut, the Chairman of the Audit Committee, has been
determined by the Board to have recent and relevant financial
experience as required by the Code. The Audit Committee as a whole
has competence relevant to the sector in which the Company operates.
Details of the composition of the Audit Committee are
on page 84. The biographies of members of the Audit
Committee are on page 73.
The Chairman of the Board, the Chief Executive, the Chief Financial
Officer and other members of the senior finance management team
together with senior representatives of the Company’s External
Auditor, PricewaterhouseCoopers LLP (PwC), are invited to attend all
or part of meetings as appropriate. In order to fulfil its duties as
defined in its terms of reference, the Audit Committee receives
presentations and reviews reports from the Group’s senior
management, consulting as necessary with PwC.
The Audit Committee meets at least once a year with PwC and with
the head of the internal audit function which undertakes the majority
of the Company’s internal audit reviews, with no Company
management present.
Cushman & Wakefield LLP (the Valuer) and PwC have full access to
one another and the Chairman of the Committee meets with the
Valuer and PwC to discuss the half-year and year end valuation
process to ensure each is satisfied that there has been a full and open
exchange of information and views.
The Audit Committee has regard to the recommendations of the
Financial Reporting Council on regular and open communications
between audit committees and external auditors and it has concluded
that the relationship with PwC meets these recommendations.
The Audit Committee assists the Board in fulfilling its responsibilities
in relation to:
– Ensuring that management has systems and procedures in place to
ensure the integrity of financial information
– Reviewing the Company’s internal audit arrangements
– Maintaining an appropriate relationship with the Group’s External
Auditor PwC
– Reviewing the effectiveness, objectivity and independence of PwC
including the scope of work and the fees paid to PwC
The Committee is responsible for developing, implementing and
monitoring the Group’s policy on the engagement of the External
Auditor to supply non-audit services. The principal requirements of
the policy are that:
– The External Auditor may not provide a service which places it in a
position where it may be required to audit its own work, such as
bookkeeping or valuation services
– Some services may be provided in specific or exceptional
circumstances and may include due diligence and property-related
consultancy. Each occasion is specifically assessed and authorised
by an Executive Director up to a limit of £50,000 and above that
level by the Chairman of the Audit Committee
Further details are in the terms of reference for the
Audit Committee and the full policy on non-audit
services is available at www.hammerson.com.
As reported in last year’s Annual Report, Deloitte LLP (Deloitte) resigned
as External Auditor at the 2017 AGM and was replaced by PwC following a
tender process which took place in 2016. The Audit Committee has
considered the re-appointment of PwC and recommended it to the Board.
The Board will therefore recommend the re-appointment of PwC to
shareholders at the 2018 AGM. There are no contractual obligations which
restrict the Audit Committee’s choice of external auditor or which put in
place a minimum period for their tenure. There are no current plans to
re-tender the services of the External Auditor.
PwC’s remuneration as External Auditor for the year ended
31 December 2017 was £0.6 million. Consideration is given to the
nature of and remuneration received for other services provided by
PwC to the Company. Confirmation is also sought that the fee payable
for the annual audit is sufficient to enable PwC to perform its
obligations in accordance with the scope of the audit.
During 2017 non-audit services provided by PwC to the Company included
work on the Qualified Financial Benefits Statement to assess the future
synergies in respect of the potential acquisition of intu properties plc, the
provision of training materials and other assurance and advisory services.
Fees for non-audit services provided to the Company by PwC for the year
ended 31 December 2017 were £0.3 million.
Further information on the remuneration of PwC and
Deloitte is in note 4 to the financial statements on
page 142.
The Audit Committee oversees and monitors the policies and
procedures which form the core components of the Group’s adequate
procedures under the Bribery Act including the Code of Conduct and
Whistleblowing Policy. The Code of Conduct explains how colleagues
are expected to fulfil their responsibilities by acting in the best interests
of the Group and in line with its corporate and financial objectives.
A summary of the Code of Conduct is available at
www.hammerson.com.
The Whistleblowing Policy sets out the procedures for colleagues
to report any suspicions of fraud, financial irregularity or other
malpractice on an entirely confidential basis. Reports are provided
to the General Counsel and Company Secretary, who ensures that
matters are investigated appropriately. The Audit Committee
receives a report on any matters raised. Two such reports were
received during the year. The Company subscribes to the independent
charity Public Concern at Work so that colleagues may have free
access to its helpline.
Details of how the Audit Committee has discharged its
responsibilities during the year are in the Audit
Committee Report on pages 84 to 87.
HAMMERSON.COM 117
GOVERNANCECOMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE E.2 Constructive use of general meetings
At general meetings, the proxy appointment form gives shareholders
options either to direct their proxy vote for or against each resolution
or to withhold their vote. The Company will ensure that the proxy
appointment form and any announcement of the results of a vote will
make it clear that a ‘vote withheld’ is not a vote in law; it will therefore
not be counted when calculating the proportions of votes that were for
and against the resolution. All valid proxy appointment forms are
properly recorded and counted. After the vote has been counted,
information is given on the number of proxy votes for and against each
resolution (and the number of shares representing withheld votes),
both at the general meeting and on the Company’s website. Notice of a
general meeting is despatched to shareholders at least 14 days in advance.
Separate resolutions are proposed on each substantially separate issue.
When the Board is of the opinion that a significant proportion of the
votes at any general meeting is cast against a resolution, the Company
will explain, when announcing the results of the vote, the actions it
intends to take to gain an understanding of the reasons behind the result.
Compliance with the UK Corporate Governance Code continued
D. Remuneration
D.1 The level and components of remuneration
The principal responsibility of the Remuneration Committee is to
determine and agree with the Board the overall remuneration
principles and the framework for remuneration of the Executive
Directors, the General Counsel and Company Secretary and the other
members of the Group Executive Committee. The terms of reference
for the Committee are reviewed annually.
The Chairman of the Committee reports regularly on the Committee’s
activities at Board meetings.
The Directors’ remuneration report is on pages 88
to 113.
D.2 Procedure
When determining policy on executive remuneration the
Remuneration Committee takes into account all factors which it
deems necessary. These include:
– Relevant legal and regulatory requirements
– The provisions of the Code
– Associated guidance
– Views of principal shareholders
Further details are in the terms of reference for the
Remuneration Committee which are available at
www.hammerson.com.
Details of the composition of the Remuneration
Committee are on page 88.
Details of advisors who provided services to the
Remuneration Committee during the year are on
page 107.
During 2017 no individual was present when his or her own
remuneration was being determined.
E. Relations with shareholders
E.1 Dialogue with shareholders
The Company actively engages with its shareholders.
Throughout 2017 the Company attended a wide variety of meetings,
presentations and road shows. The Chairman and the Executives
meet regularly with institutional shareholders. Views are
communicated to the Board as a whole. Institutional shareholders are
offered the opportunity to attend meetings with the Senior
Independent Director, or may request such meetings. The Board
receives reports of meetings with institutional shareholders together
with regular market reports and brokers’ reports which enable the
Directors to understand the views of shareholders. The Board takes
account of corporate governance guidelines of institutional
shareholders and their representative bodies such as the Investment
Association and the Pensions and Lifetime Savings Association.
Hammerson’s website contains information of interest to both
institutional and private shareholders.
Further details about engagement with shareholders
and other stakeholders are in the Corporate
Governance Report on page 80.
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HAMMERSON PLC ANNUAL REPORT 2017
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DIRECTORS’ REPORT
This report (Directors’ Report) forms part of the management report
as required under the Disclosure Guidance and Transparency Rules.
The Strategic Report on pages 1 to 69 includes an indication of likely
future developments in the Company, details of important events
since the year ended 31 December 2017 and the Company’s business
model and strategy. The Corporate Governance Report on pages 70 to
118 is incorporated in this Directors’ Report by reference.
Company’s Articles of Association (Articles)
The Articles may be amended by special resolution in accordance
with the Companies Act 2006 (Act) and are available at
www.hammerson.com.
Branches
Details of the Company’s French and Irish branches are provided on
page 172.
Directors
Details of the Directors who served during the year are set out on
pages 72 to 73. Directors are appointed and replaced in accordance
with the Articles, the Act and the UK Corporate Governance Code.
The powers of the Directors are set out in the Articles and the Act.
Directors’ interests
Details of the Directors’ share interests can be found on page 98.
Disclosure of information to auditors
Each of the persons who is a Director at the date of approval of the
Directors’ Report has confirmed that:
– So far as she or he is aware, there is no relevant information of
which the Company’s External Auditor is unaware
– She or he has taken all the steps that she or he ought to have taken
as a Director in order to make herself or himself aware of any
relevant audit information and to establish that the Company’s
External Auditor is aware of that information
Dividend
Details of the recommended final dividend can be found on pages 57
and 145.
Employees
Details of the Company’s policies regarding the employment of
disabled persons are provided on page 48. The Company places
considerable importance on good internal communications with its
employees and invests time in consulting on matters which affect
them including: reward practices, work/life balance initiatives,
corporate responsibility activities and approaches to internal
communications. Consultation predominantly takes the form of
facilitated discussion groups and employee involvement on relevant
committees. The Company provides regular updates on its
performance through presentations and announcements.
Financial instruments
Details of the Group’s financial risk management in relation to its
financial instruments are available on pages 160 to 165.
Going Concern and Viability statements
The Company’s Going Concern statement and Viability statement can
be found on page 69.
Greenhouse gas emissions reporting
Information regarding the Company’s greenhouse gas emissions can
be found on page 191.
Indemnification of and insurance for Directors
and officers
The Company maintains directors’ and officers’ liability insurance,
which is reviewed annually. The Company’s Directors and officers are
adequately insured in accordance with best practice. Directors are
indemnified under the Articles.
Listing Rule 9.8.4R disclosures
Table 90 sets out where disclosures required in compliance with
Listing Rule 9.8.4R are located.
Table 90
Interest capitalised and tax relief
Publication of unaudited financial information
Details of long-term incentive schemes
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non pre-emptive issues of equity for cash
Non pre-emptive issues of equity for cash by major
subsidiary undertakings
Parent company participation in a placing by a listed
subsidiary
Contracts of significance
Provision of services by a controlling shareholder
Shareholder waivers of dividends
Shareholder waivers of future dividends
Agreements with controlling shareholders
Page
144
n/a
88 – 113
n/a
n/a
n/a
n/a
n/a
n/a
n/a
120
120
n/a
Post balance sheet events
Details of post balance sheet events can be found in note 11 on page 148.
Provisions on change of control
Five of the six outstanding bonds issued by the Company contain
covenants specifying that the bondholders may request repayment at
par, if the Company’s credit rating is downgraded to below investment
grade due to a change of control, and the rating remains below
investment grade for a period of six months thereafter.
In addition, under the Company’s credit facilities and private
placement notes, the lending banks or holders may request repayment
of outstanding amounts within 30 and 52 days respectively of any
change of control.
HAMMERSON.COM 119
Directors’ Report continued
Purchase of own shares
At the 2017 Annual General Meeting (AGM), the Company was
granted authority by shareholders to purchase up to 79,318,845
ordinary shares (10% of the Company’s issued ordinary share capital
as at 24 February 2017). This authority will expire at the conclusion of
the 2018 AGM, at which a resolution will be proposed for its renewal,
or, if earlier, 25 July 2018.
Re-appointment of External Auditor
Details of the re-appointment of the External Auditor are provided on
page 117.
Responsibility statement
The Directors’ responsibility statement is set out on page 121.
Share capital and substantial shareholders
Details of the Company’s capital structure are set out on page 166.
The rights and obligations attached to the Company’s shares are set
out in the Articles. There are no restrictions on the transfer of shares
except the UK Real Estate Investment Trust restrictions.
Interests in voting rights over the issued share capital of the Company
disclosed in accordance with DTR 5 can be found on page 80.
Shares held in the Employee Share
Ownership Plan
The Trustees of the Hammerson Employee Share Ownership Plan
hold Hammerson plc shares in trust to satisfy awards under the
Company’s employee share plans. The Trustees have waived their
right to receive dividends on shares held in the Company. As at 31
December 2017, 1,004,746 shares were held in trust for employee
share plans purposes.
Statement of compliance with the Competition
and Markets Authority (CMA) order
The Company confirms that it has complied with The Statutory Audit
Services for Large Companies Market Investigation (Mandatory Use
of Competitive Processes and Audit Committee Responsibilities)
Order 2014 (Article 7.1), published by the CMA on 26 September 2014.
Sarah Booth
General Counsel and Company Secretary
23 February 2018
120
HAMMERSON PLC ANNUAL REPORT 2017
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Directors’ responsibilities in respect of the
preparation of the financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law the Directors have prepared the
Group financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and
Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and
applicable law). Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Company and of the
profit or loss of the Group and Company for that period. In preparing
the financial statements, the Directors are required to:
– Select suitable accounting policies and then apply them consistently;
– State whether applicable IFRSs as adopted by the European Union
have been followed for the Group financial statements and United
Kingdom Accounting Standards, comprising FRS 101, have been
followed for the Company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
– Make judgements and accounting estimates that are reasonable
and prudent; and
– Prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and Company will
continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group and Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and Company and enable them to
ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the
Group and Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors consider that the Annual Report and financial
statements, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Group and Company’s performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the
Corporate Governance Report confirm that, to the best of their
knowledge:
– The Company financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS
101 ‘Reduced Disclosure Framework’, and applicable law), give a true
and fair view of the assets, liabilities, financial position and profit of
the Company;
– The Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and profit of
the Group; and
– The Strategic Report includes a fair review of the development and
performance of the business and the position of the Group and
Company, together with a description of the principal risks and
uncertainties that they face.
In the case of each Director in office at the date of the Directors’ Report
is approved:
– So far as the Director is aware, there is no relevant audit information
of which the Group and Company’s auditors are unaware; and
– They have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Company’s auditors
are aware of that information.
By order of the Board
David Atkins
Chief Executive
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Timon Drakesmith
Chief Financial Officer
23 February 2018
HAMMERSON.COM 121
HAMMERSON.COM 121
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF HAMMERSON PLC
Report on the audit of the financial statements
Opinion
In our opinion:
– Hammerson plc’s Group financial statements and Company financial statements (the ‘financial statements’) give a true and fair view of the state of
the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s profit and cash flows for the year then ended;
– the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
– the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report, which comprise: the consolidated and company balance sheets as at
31 December 2017, the consolidated income statement and consolidated statement of comprehensive income, the consolidated cash flow statement,
and the consolidated and company statement of changes in equity for the year then ended; and the notes to the financial statements, which include a
description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group
or the Company.
Other than those disclosed in note 4 to the financial statements, we have provided no non-audit services to the Group or the Company in the period
from 1 January 2017 to 31 December 2017.
Our audit approach
Overview
Materiality
– Overall Group materiality: £74.0 million, based on 0.75% of the Group’s total assets.
– Specific Group materiality: £12.3 million, based on 5% of EPRA earnings.
– Overall Company materiality: £84.0 million, based on 0.75% of the Company’s total assets.
– The UK and French components were subject to a full scope audit. Together these components account
for 77% of the Group’s total assets.
– The Irish and VIA Outlets components were subject to an audit over certain account balances (including
investment property).
Audit scope
– The underlying financial information of Value Retail was subject to specified procedures over certain
account balances (including investment property).
Key audit
matters
– Valuation of investment property, either held directly or within joint ventures (Group).
– Accounting for the investment in Value Retail and valuation of investment property held by
Value Retail (Group).
– Valuation of investments in subsidiary companies (Company).
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122
122 HAMMERSON PLC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF HAMMERSON PLC
Report on the audit of the financial statements
Opinion
In our opinion:
– Hammerson plc’s Group financial statements and Company financial statements (the ‘financial statements’) give a true and fair view of the state of
the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s profit and cash flows for the year then ended;
– the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
– the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report, which comprise: the consolidated and company balance sheets as at
31 December 2017, the consolidated income statement and consolidated statement of comprehensive income, the consolidated cash flow statement,
and the consolidated and company statement of changes in equity for the year then ended; and the notes to the financial statements, which include a
description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group
Other than those disclosed in note 4 to the financial statements, we have provided no non-audit services to the Group or the Company in the period
Independence
or the Company.
in accordance with these requirements.
from 1 January 2017 to 31 December 2017.
Our audit approach
Overview
– Overall Group materiality: £74.0 million, based on 0.75% of the Group’s total assets.
– Specific Group materiality: £12.3 million, based on 5% of EPRA earnings.
– Overall Company materiality: £84.0 million, based on 0.75% of the Company’s total assets.
– The UK and French components were subject to a full scope audit. Together these components account
– The Irish and VIA Outlets components were subject to an audit over certain account balances (including
for 77% of the Group’s total assets.
investment property).
– The underlying financial information of Value Retail was subject to specified procedures over certain
account balances (including investment property).
– Valuation of investment property, either held directly or within joint ventures (Group).
– Accounting for the investment in Value Retail and valuation of investment property held by
Value Retail (Group).
– Valuation of investments in subsidiary companies (Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered the risk of
acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures to respond to the risk,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We designed audit
procedures that focused on the risk of non-compliance related to relevant laws and regulations including compliance with Real Estate Investment
Trust requirements. Our tests included testing of the Group’s compliance with Real Estate Investment Trust requirements, discussions with
internal legal counsel, inquiries with management, and the testing of particular classes of transactions and estimates including legal expenses
incurred in the year. We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the
risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the Directors that
represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a
complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Valuation of investment property, either held directly or within joint
ventures.
Group
Refer to page 87 (Audit Committee Report), pages 148 to 154
(Notes to the financial statements – notes 11 and 12), page 136
(Significant judgements and key estimates), and page 137
(Significant accounting policies).
The Group directly owns, or owns via joint ventures or associates, a
portfolio of property which includes shopping centres, retail parks and
premium outlets. The total value of this portfolio as at 31 December
2017 was £10,560 million (2016: £9,971 million). Of this portfolio
£4,686 million is held by subsidiaries (2016: £4,764 million) and
£4,211 million by joint ventures (2016: £3,792 million). These properties
are spread across the UK, French, Irish and VIA Outlets components.
The remainder of the portfolio is held within associates, primarily in
respect of Value Retail. The Group’s share of Value Retail’s investment
property is £1,634 million (2016: £1,387 million). The valuation of this
property is discussed within the subsequent key audit matter.
This was identified as a key audit matter given the valuation of
the investment property portfolio is inherently subjective and
complex due to, among other factors, the individual nature of each
property, its location, and the expected future rental streams for that
particular property.
The valuation is carried out by external valuers, Cushman & Wakefield
(as defined in note 11), in accordance with the RICS Valuation –
Professional Standards and the Group accounting policies which
incorporate the requirements of International Accounting Standard
40, ‘Investment Property’.
The properties are held primarily at investment value reflecting the
fact that the properties are largely existing operational properties
currently generating rental income. Shopping centres and retail
parks are primarily valued using the income capitalisation method,
and premium outlets are valued on a discounted cash flow
(‘DCF’) basis.
Given the inherent subjectivity involved in the valuation of investment
properties, the need for deep market knowledge when determining the
most appropriate assumptions, and the technicalities of valuation
methodology, we engaged our internal valuation experts (qualified
chartered surveyors) to assist us in our audit of this matter.
Assessing the valuers’ expertise and objectivity
We assessed the external valuers’ qualifications and expertise and read
their terms of engagement with the Group to determine whether there
were any matters that might have affected their objectivity or may have
imposed scope limitations upon their work. We also considered fee
arrangements between the external valuers and the Group, and other
engagements which might exist between the Group and the valuers.
We found no evidence to suggest that the objectivity of the external
valuers, in their performance of the valuations, was compromised.
Data provided to the valuers
We checked the accuracy of the underlying lease data and capital
expenditure used by the external valuers in their valuation of the
portfolio by tracing the data back to the relevant component
accounting records and signed leases on a sample basis. No exceptions
were identified from this work.
Assumptions and estimates used by the valuers
We read the external valuation reports for all the properties and
confirmed that the valuation approach for each was in accordance with
RICS standards and suitable for use in determining the final value for
the purpose of the financial statements.
We met with external valuers to discuss and challenge the valuation
process, the key assumptions, and the rationale behind the more
significant valuation movements during the year. It was evident from
our interaction with the external valuers, and from our review of the
valuation reports, that close attention had been paid to each property’s
individual characteristics at a granular, tenant by tenant level, as well
as considering the property specific factors such as the overall quality,
geographic location and desirability of the asset as a whole.
122 HAMMERSON PLC ANNUAL REPORT 2017
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HAMMERSON.COM 123
FINANCIAL STATEMENTS
Independent Auditors’ report to the members of Hammerson plc continued
Key audit matter
How our audit addressed the key audit matter
Valuation of investment property, either held directly or within joint
ventures (continued)
Shopping centres and retail parks
In determining the valuation of a shopping centre or retail park the
valuers take into account property specific information such as the
current tenancy agreements and rental income. They then apply
judgemental assumptions such as yield and estimated rental value
(‘ERV’), which are influenced by prevailing market yields and
comparable market transactions, to arrive at the final valuation. Due to
the unique nature of each property, the judgemental assumptions to be
applied are determined having regard to the individual property
characteristics at a granular, tenant by tenant level, as well as
considering the qualities of the property as a whole.
Premium outlets
In determining the valuation of a premium outlet the valuers take into
account property specific information such as the current tenancy
agreements, rental income generated by the asset, as well as property
operating costs. They then apply judgemental assumptions such as
yield, discount rate, sales density and expected rental income growth
rates, which are influenced by prevailing market yields and
comparable market transactions, to arrive at the final valuation. Due to
the unique nature of each property, the judgemental assumptions to be
applied are determined having regard to the individual property
characteristics at a granular, unit by unit level, as well as considering
the qualities of the property as a whole.
Accounting for the investment in Value Retail and valuation of
investment property held by Value Retail
Group
Refer to pages 155 to 157 (Notes to the financial statements – note 13)
and page 136 (Significant accounting policies).
The Group has an investment in Value Retail, a separate group owning
a number of premium outlet centres across the United Kingdom and
Europe. The Group equity accounts for its interest in Value Retail as an
associate. The Group’s investment as at 31 December 2017 was
£1,069 million (2016: £959 million).
Investment property valuation
The valuation of the Group’s investment in Value Retail is
predominantly driven by the valuation of the property assets within
the Value Retail portfolio. The value of this property was
£4,760 million as at 31 December 2017 (2016: £4,096 million). The
Group’s share of the Value Retail property, which is included within
the wider Group portfolio of £10,560 million (2016: £9,971 million),
was £1,634 million (2016: £1,387 million).
HAMMERSON PLC ANNUAL REPORT 2017
124
124 HAMMERSON PLC ANNUAL REPORT 2017
In addition we performed the following procedures for each type of
property. We were able to obtain sufficient evidence to support the
valuation and did not identify any material issues during our work.
– Shopping centres and retail parks
For shopping centres and retail parks we obtained details of each
property and set an expected range for yield and capital value
movement, determined by reference to published benchmarks and
using our experience and knowledge of the market. We compared
the yield and capital movement of each property with our expected
range. We also considered the reasonableness of other assumptions
that are not so readily comparable with published benchmarks, such
as ERV. Where assumptions were outside the expected range or
otherwise appeared unusual we undertook further investigations
and, when necessary, obtained corroborating evidence to support
explanations received. This enabled us to assess the property
specific factors that have had an impact on value, including recent
comparable transactions where appropriate, and to conclude on the
reasonableness of the assumptions utilised.
– Premium outlets
For premium outlets we obtained details of each property, including
those acquired in the year. We assessed the reasonableness of each
property’s key assumptions comparing its yield, discount rate,
sales density and rental income growth rates to comparable market
benchmarks. In doing so we had regard to property specific factors
and our knowledge of the market, including recent comparable
transactions where appropriate. We obtained corroborating
evidence to support explanations received from the valuers
where appropriate.
Overall findings
We found that the assumptions used by the valuers were
predominantly consistent with our expectations and comparable
benchmarking information for the asset type and that the assumptions
applied appropriately reflected those available comparable market
transactions. Where assumptions did not fall within our expected
range we were satisfied that variances were due to property specific
factors such as new lettings at higher rents, increased average rents or
capital improvements to the assets. We concluded that the
assumptions used in the valuations by the external valuers were
supportable in light of available and comparable market evidence.
Investment property valuation
As Group auditors we formally instructed the component auditors of
Value Retail to perform specified procedures over the underlying
financial information of Value Retail. These procedures included work
over the valuation of investment property within Value Retail.
The procedures performed were in line with those procedures
described within the previous key audit matter surrounding the
remainder of the Group’s premium outlet investment properties.
We have obtained reporting from the component auditors and have
reviewed the results and quality of their work over investment
property valuation.
In addition the Group audit team attended the meeting held between
Cushman & Wakefield and the component auditors and reviewed the
component auditors’ working papers.
We have no issues to report and have obtained sufficient audit comfort
over the investment property balances within the Value Retail
financial information.
Independent Auditors’ report to the members of Hammerson plc continued
Valuation of investment property, either held directly or within joint
In addition we performed the following procedures for each type of
ventures (continued)
Shopping centres and retail parks
property. We were able to obtain sufficient evidence to support the
valuation and did not identify any material issues during our work.
In determining the valuation of a shopping centre or retail park the
– Shopping centres and retail parks
valuers take into account property specific information such as the
For shopping centres and retail parks we obtained details of each
current tenancy agreements and rental income. They then apply
property and set an expected range for yield and capital value
judgemental assumptions such as yield and estimated rental value
movement, determined by reference to published benchmarks and
(‘ERV’), which are influenced by prevailing market yields and
using our experience and knowledge of the market. We compared
comparable market transactions, to arrive at the final valuation. Due to
the yield and capital movement of each property with our expected
the unique nature of each property, the judgemental assumptions to be
range. We also considered the reasonableness of other assumptions
applied are determined having regard to the individual property
that are not so readily comparable with published benchmarks, such
characteristics at a granular, tenant by tenant level, as well as
as ERV. Where assumptions were outside the expected range or
considering the qualities of the property as a whole.
Premium outlets
In determining the valuation of a premium outlet the valuers take into
account property specific information such as the current tenancy
agreements, rental income generated by the asset, as well as property
operating costs. They then apply judgemental assumptions such as
yield, discount rate, sales density and expected rental income growth
rates, which are influenced by prevailing market yields and
comparable market transactions, to arrive at the final valuation. Due to
the unique nature of each property, the judgemental assumptions to be
applied are determined having regard to the individual property
characteristics at a granular, unit by unit level, as well as considering
the qualities of the property as a whole.
otherwise appeared unusual we undertook further investigations
and, when necessary, obtained corroborating evidence to support
explanations received. This enabled us to assess the property
specific factors that have had an impact on value, including recent
comparable transactions where appropriate, and to conclude on the
reasonableness of the assumptions utilised.
– Premium outlets
For premium outlets we obtained details of each property, including
those acquired in the year. We assessed the reasonableness of each
property’s key assumptions comparing its yield, discount rate,
sales density and rental income growth rates to comparable market
benchmarks. In doing so we had regard to property specific factors
and our knowledge of the market, including recent comparable
transactions where appropriate. We obtained corroborating
evidence to support explanations received from the valuers
where appropriate.
Overall findings
We found that the assumptions used by the valuers were
predominantly consistent with our expectations and comparable
benchmarking information for the asset type and that the assumptions
applied appropriately reflected those available comparable market
transactions. Where assumptions did not fall within our expected
range we were satisfied that variances were due to property specific
factors such as new lettings at higher rents, increased average rents or
capital improvements to the assets. We concluded that the
assumptions used in the valuations by the external valuers were
supportable in light of available and comparable market evidence.
As Group auditors we formally instructed the component auditors of
Value Retail to perform specified procedures over the underlying
financial information of Value Retail. These procedures included work
over the valuation of investment property within Value Retail.
The procedures performed were in line with those procedures
described within the previous key audit matter surrounding the
remainder of the Group’s premium outlet investment properties.
We have obtained reporting from the component auditors and have
reviewed the results and quality of their work over investment
property valuation.
In addition the Group audit team attended the meeting held between
Cushman & Wakefield and the component auditors and reviewed the
We have no issues to report and have obtained sufficient audit comfort
over the investment property balances within the Value Retail
financial information.
Accounting for the investment in Value Retail and valuation of
Investment property valuation
investment property held by Value Retail
Group
Refer to pages 155 to 157 (Notes to the financial statements – note 13)
and page 136 (Significant accounting policies).
The Group has an investment in Value Retail, a separate group owning
a number of premium outlet centres across the United Kingdom and
Europe. The Group equity accounts for its interest in Value Retail as an
associate. The Group’s investment as at 31 December 2017 was
£1,069 million (2016: £959 million).
Investment property valuation
The valuation of the Group’s investment in Value Retail is
the Value Retail portfolio. The value of this property was
£4,760 million as at 31 December 2017 (2016: £4,096 million). The
Group’s share of the Value Retail property, which is included within
the wider Group portfolio of £10,560 million (2016: £9,971 million),
was £1,634 million (2016: £1,387 million).
124 HAMMERSON PLC ANNUAL REPORT 2017
predominantly driven by the valuation of the property assets within
component auditors’ working papers.
Key audit matter
How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Accounting for the investment in Value Retail and valuation of
investment property held by Value Retail (continued)
The judgements and risks associated with the valuation of this
portfolio are similar to those in the remainder of the Group’s premium
outlets portfolio discussed within the previous key audit matter, with
the properties also being valued by Cushman & Wakefield (as defined
in note 11) on a DCF basis.
Accounting for the investment in Value Retail
Value Retail has a complex ownership structure whereby each
investing party owns differing proportions of each of the entities, and
hence properties, within the Value Retail group. As such this creates
significant complexity in determining the overall investment in Value
Retail held within the Group consolidated financial statements.
Therefore, on the basis of the significant judgement within the
investment property valuation, and the complexity in determining
the overall investment in Value Retail, we identified this as a key
audit matter.
Valuation of investments in subsidiary companies
Company
Refer to page 171 (Notes to the Company financial statements – note C)
and page 171 (Accounting policies)
The Company has investments in subsidiary companies of
£4,897 million (2016: £4,824 million) as at 31 December 2017.
The Company’s accounting policy is to hold these investments at
fair value. Given the inherent judgement and complexity in assessing
their fair value, this was identified as a key audit matter for our audit
of the Company.
The primary determinant of the fair value of each subsidiary company
is the value of its net assets. The net assets of each subsidiary is
principally made up of the underlying investment property held by
each subsidiary and their group undertakings, the valuation of which
represents the key judgement within the fair value assessment. As such
it was over the valuation of investment property where we applied the
most focus and audit effort.
For further discussion around the valuation of investment property,
please refer to the valuation of investment property key audit matter
within this report.
Accounting for the investment in Value Retail
In respect of the complexity within the calculation of the Group’s
investment in Value Retail, we tested the adjustments made within the
Group consolidation in accordance with IAS 28 ‘Investments in
associates and joint ventures’ in arriving at the Group’s equity
accounted investment in Value Retail, ensuring that equity accounting
was based on the appropriate percentage of the Group’s interest in
each Value Retail entity.
We have no issues to report in respect of this work.
We obtained the Directors’ valuation for the value of investments
in subsidiary companies as at 31 December 2017.
We assessed the accounting policy for investments to ensure it was
compliant with FRS 101 ‘Reduced Disclosure Framework’.
We verified that the methodology used by the Directors in arriving at
the fair value of each subsidiary was compliant with FRS 101 ‘Reduced
Disclosure Framework’.
We identified the key judgement within the valuation of investments
in subsidiary companies to be the valuation of investment property
held by each subsidiary and their group undertakings. For details of
our procedures over investment property valuations please refer to the
investment property key audit matter within this report.
We have no matters to report in respect of this work.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.
The Group owns and invests in a number of shopping centres, retail parks and premium outlets across the United Kingdom and Europe. These are
held within a variety of subsidiaries, joint ventures and associates.
Based on our understanding of the Group we focused our audit work primarily on five components being: UK, France, Ireland, Value Retail and VIA Outlets.
The UK and French components were subject to a full scope audit given their financial significance to the Group. Ireland and VIA Outlets were
subject to an audit over certain account balances (including investment property), based on our assessment of risk and materiality of the Group’s
operations at each component. The underlying financial information of Value Retail was subject to specified procedures over certain account
balances (including investment property), based on our assessment of risk and materiality of the Group’s operations at this component.
The UK and French components account for 77% of the Group’s total assets.
The UK and Irish components were audited by the Group team. The French, VIA Outlets and Value Retail components were audited by component
teams.
Detailed instructions were sent to all component teams. These instructions covered the significant areas that should be addressed by the component
auditors (which included the relevant risks of material misstatement) and set out the information required to be reported back to the Group audit
team. In addition, regular meetings were held with the component audit teams, with the Group audit team attending the clearance meeting for all
component audits. Finally the Group audit team performed a detailed review of the working papers of all component teams to ensure the work
performed was appropriate.
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FINANCIAL STATEMENTS
Independent Auditors’ report to the members of Hammerson plc continued
These procedures, together with additional procedures performed at the Group level (including audit procedures over consolidation adjustments),
gave us the evidence we needed for our opinion on the Group financial statements as a whole.
In respect of the audit of the Company, the Group audit team performed a full scope statutory audit.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall materiality
£74.0 million.
£84.0 million.
How we determined it
0.75% of the Group’s total assets.
0.75% of the Company’s total assets.
Rationale for benchmark
applied
We determined materiality based on total assets
given the valuation of investment properties, whether
held directly or through joint ventures and associates,
is the key determinant of the Group’s value.
This materiality was utilised in the audit of investing
and financing activities.
Specific materiality
£12.3 million.
How we determined it
5% of EPRA earnings.
Rationale for benchmark
applied
In arriving at this judgement we had regard to the
fact that EPRA earnings is a secondary financial
indicator of the Group (Refer to note 10
of the financial statements where the term is defined
in full).
This materiality was utilised in the audit of operating
activities.
Given the Hammerson plc entity is primarily a
holding company we determined total assets to be the
appropriate benchmark.
Not applicable.
Not applicable.
Not applicable.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was between £15 million and £70 million.
We audited the Company to £84.0 million (being the statutory materiality) with the exception of external debt, external interest, cash and equity
related items which were audited to a lower component materiality for the purposes of the Group audit.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £3.7 million (Group audit) and
£4.2 million (Company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
In addition we agreed with the Audit Committee we would report to them misstatements identified during our Group audit above £0.6 million for
misstatements related to operating items within the financial statements, as well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in respect of the
Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting in preparing the financial statements and
the Directors’ identification of any material uncertainties to the Group’s and the Company’s ability to
continue as a going concern over a period of at least 12 months from the date of approval of the
financial statements.
Outcome
We have nothing material to add or to
draw attention to. However, because not
all future events or conditions can be
predicted, this statement is not a
guarantee as to the Group’s and
Company’s ability to continue as a
going concern.
We are required to report if the Directors’ statement relating to Going Concern in accordance with
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We have nothing to report.
HAMMERSON PLC ANNUAL REPORT 2017
126
126 HAMMERSON PLC ANNUAL REPORT 2017
Independent Auditors’ report to the members of Hammerson plc continued
These procedures, together with additional procedures performed at the Group level (including audit procedures over consolidation adjustments),
gave us the evidence we needed for our opinion on the Group financial statements as a whole.
In respect of the audit of the Company, the Group audit team performed a full scope statutory audit.
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
Materiality
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall materiality
£74.0 million.
£84.0 million.
How we determined it
0.75% of the Group’s total assets.
0.75% of the Company’s total assets.
Rationale for benchmark
We determined materiality based on total assets
Given the Hammerson plc entity is primarily a
applied
given the valuation of investment properties, whether
holding company we determined total assets to be the
held directly or through joint ventures and associates,
appropriate benchmark.
is the key determinant of the Group’s value.
This materiality was utilised in the audit of investing
and financing activities.
Specific materiality
£12.3 million.
How we determined it
5% of EPRA earnings.
Not applicable.
Not applicable.
Rationale for benchmark
In arriving at this judgement we had regard to the
Not applicable.
applied
fact that EPRA earnings is a secondary financial
indicator of the Group (Refer to note 10
of the financial statements where the term is defined
This materiality was utilised in the audit of operating
in full).
activities.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was between £15 million and £70 million.
We audited the Company to £84.0 million (being the statutory materiality) with the exception of external debt, external interest, cash and equity
related items which were audited to a lower component materiality for the purposes of the Group audit.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £3.7 million (Group audit) and
£4.2 million (Company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
In addition we agreed with the Audit Committee we would report to them misstatements identified during our Group audit above £0.6 million for
misstatements related to operating items within the financial statements, as well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to in respect of the
We have nothing material to add or to
Directors’ statement in the financial statements about whether the Directors considered it
draw attention to. However, because not
appropriate to adopt the going concern basis of accounting in preparing the financial statements and
all future events or conditions can be
the Directors’ identification of any material uncertainties to the Group’s and the Company’s ability to
predicted, this statement is not a
continue as a going concern over a period of at least 12 months from the date of approval of the
guarantee as to the Group’s and
financial statements.
Company’s ability to continue as a
going concern.
We are required to report if the Directors’ statement relating to Going Concern in accordance with
We have nothing to report.
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs (UK) and
the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by
ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for
the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of
the Group
We have nothing material to add or draw attention to regarding:
– The Directors’ confirmation on page 61 of the Annual Report that they have carried out a robust assessment of the principal risks facing the
Group, including those that would threaten its business model, future performance, solvency or liquidity.
– The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
– The Directors’ explanation on page 69 of the Annual Report as to how they have assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an
audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements
are in alignment with the relevant provisions of the UK Corporate Governance Code (the ‘Code’); and considering whether the statements
are consistent with the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit.
(Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
– The statement given by the Directors, on page 121, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and performance,
business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing
our audit.
– The section of the Annual Report on page 84 describing the work of the Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
– The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision
of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006. (CA06)
126 HAMMERSON PLC ANNUAL REPORT 2017
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FINANCIAL STATEMENTS
Independent Auditors’ report to the members of Hammerson plc continued
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements
in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such
internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend
to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not received all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not
visited by us; or
– certain disclosures of Directors’ remuneration specified by law are not made; or
– the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 25 April 2017 to audit the financial statements for
the year ended 31 December 2017 and subsequent financial periods. This is therefore our first year of uninterrupted engagement.
Paul Cragg (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 February 2018
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128
128 HAMMERSON PLC ANNUAL REPORT 2017
Independent Auditors’ report to the members of Hammerson plc continued
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Gross rental income
Operating profit before other net gains/(losses) and share of results of joint ventures
and associates
Notes
2
2
2017
£m
248.9
2016
£m
251.3
174.2
176.6
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
Loss on sale of properties
Net exchange gain previously recognised in equity, recycled on disposal of foreign operations
Gain on sale of other investments
Potential business acquisition costs
Revaluation gains/(losses) on properties
Other net gains/(losses)
Share of results of joint ventures
Share of results of associates
Operating profit
Finance costs
Debt and loan facility cancellation costs
Change in fair value of derivatives
Finance income
Net finance costs
Profit before tax
Tax charge
Profit for the year
Attributable to:
Equity shareholders
Non-controlling interests
Profit for the year
Basic earnings per share
Diluted earnings per share
(15.5)
27.8
–
(6.5)
1.9
7.7
180.5
223.0
585.4
(24.0)
–
1.3
–
(24.7)
(47.4)
169.2
137.1
435.5
(125.3)
(121.2)
(41.5)
(21.3)
16.1
(172.0)
413.4
(1.8)
411.6
388.4
23.2
411.6
49.0p
48.9p
(0.4)
(3.5)
12.4
(112.7)
322.8
(1.9)
320.9
317.3
3.6
320.9
40.2p
40.1p
2
12A
13A
2
7
8A
28C
10B
10B
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements
in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such
internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend
to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not received all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not
– certain disclosures of Directors’ remuneration specified by law are not made; or
– the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting
visited by us; or
records and returns.
Appointment
We have no exceptions to report arising from this responsibility.
Following the recommendation of the Audit Committee, we were appointed by the members on 25 April 2017 to audit the financial statements for
the year ended 31 December 2017 and subsequent financial periods. This is therefore our first year of uninterrupted engagement.
Paul Cragg (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 February 2018
128 HAMMERSON PLC ANNUAL REPORT 2017
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FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
Items recycled through the income statement on disposal of foreign operations
Exchange gain previously recognised in the translation reserve
Exchange loss previously recognised in the hedging reserve
Net exchange gain relating to equity shareholders
Exchange gain relating to non-controlling interests
Items that may subsequently be recycled through the income statement
Foreign exchange translation differences
Net loss on hedging activities
Items that may not subsequently be recycled through the income statement
Change in fair value of participative loans within investment in associates
Net actuarial losses on pension schemes
Total other comprehensive income
Profit for the year
Total comprehensive income for the year
Attributable to:
Equity shareholders
Non-controlling interests
Total comprehensive income for the year
2017
£m
2016
£m
(54.4)
46.2
(8.2)
(19.6)
(27.8)
161.1
(99.6)
61.5
(0.5)
(0.3)
(0.8)
32.9
411.6
444.5
437.7
6.8
444.5
–
–
–
–
–
535.6
(437.3)
98.3
(0.3)
(15.9)
(16.2)
82.1
320.9
403.0
388.3
14.7
403.0
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130
130 HAMMERSON PLC ANNUAL REPORT 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2017
Items recycled through the income statement on disposal of foreign operations
Exchange gain previously recognised in the translation reserve
Exchange loss previously recognised in the hedging reserve
Net exchange gain relating to equity shareholders
Exchange gain relating to non-controlling interests
Items that may subsequently be recycled through the income statement
Foreign exchange translation differences
Net loss on hedging activities
Items that may not subsequently be recycled through the income statement
Change in fair value of participative loans within investment in associates
Net actuarial losses on pension schemes
Total other comprehensive income
Profit for the year
Total comprehensive income for the year
Attributable to:
Equity shareholders
Non-controlling interests
Total comprehensive income for the year
2017
£m
2016
£m
(54.4)
46.2
(8.2)
(19.6)
(27.8)
161.1
(99.6)
61.5
(0.5)
(0.3)
(0.8)
32.9
411.6
444.5
437.7
6.8
444.5
–
–
–
–
–
535.6
(437.3)
98.3
(0.3)
(15.9)
(16.2)
82.1
320.9
403.0
388.3
14.7
403.0
Non-current assets
Investment and development properties
Interests in leasehold properties
Plant and equipment
Investment in joint ventures
Investment in associates
Receivables
Current assets
Receivables
Restricted monetary assets
Cash and deposits
Total assets
Current liabilities
Payables
Tax
Loans and other borrowings
Non-current liabilities
Loans and other borrowings
Deferred tax
Obligations under head leases
Payables
Total liabilities
Net assets
Equity
Share capital
Share premium
Translation reserve
Hedging reserve
Merger reserve
Other reserves
Retained earnings
Investment in own shares
Equity shareholders’ funds
Non-controlling interests
Total equity
Notes
11
12A
13C
14
15
16
17
18
19
19
21
22
23
28C
2017
£m
2016
£m
4,686.1
37.2
5.1
3,673.7
1,099.5
20.4
9,522.0
110.5
37.3
205.9
353.7
4,763.9
36.4
6.2
3,736.7
988.1
44.9
9,576.2
105.9
35.1
74.3
215.3
9,875.7
9,791.5
(261.1)
(0.5)
(1.7)
(263.3)
(303.8)
(0.4)
(211.1)
(515.3)
(3,451.3)
(3,285.2)
(0.5)
(38.9)
(84.2)
(3,574.9)
(3,838.2)
6,037.5
(0.5)
(37.5)
(96.0)
(3,419.2)
(3,934.5)
5,857.0
198.6
1,265.9
763.1
(616.3)
374.1
22.0
4,016.4
(0.3)
6,023.5
14.0
6,037.5
198.3
1,265.7
659.6
(562.9)
374.1
23.7
3,817.3
(0.2)
5,775.6
81.4
5,857.0
130 HAMMERSON PLC ANNUAL REPORT 2017
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HAMMERSON.COM 131
EPRA net asset value per share
10D
£7.76
£7.39
These financial statements were approved by the Board of Directors on 23 February 2018.
Signed on behalf of the Board
David Atkins
Director
Timon Drakesmith
Director
Registered in England No. 360632
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Hedging
reserve
£m
Merger
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Investment
in own
shares*
£m
Equity
shareholders’
funds
£m
Non-
controlling
interests
£m
Total
equity
£m
Balance at 1 January 2017
198.3 1,265.7
659.6 (562.9)
374.1
23.7 3,817.3
Issue of shares
Share-based employee
remuneration (note 4)
Cost of shares awarded
to employees
Transfer on award of own shares
to employees
Proceeds on award of own shares
to employees
Purchase of own shares
Dividends (note 9)
Exchange gain previously
recognised in equity recycled on
disposal of foreign operations
Exchange loss previously
recognised in the hedging reserve
recycled on disposal of foreign
operations
Foreign exchange translation
differences
Net loss on hedging activities
Change in fair value of
participative loans within
investment in associates
(note 13E)
Net actuarial losses on pension
schemes (note 6C)
Profit for the year
Total comprehensive
income/(loss) for the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(54.4)
–
–
–
–
–
–
–
–
46.2
157.9
–
–
(99.6)
–
–
–
–
–
–
103.5
(53.4)
–
5.4
(2.2)
–
–
–
(4.9)
4.9
0.2
–
(0.2)
(0.3)
–
2.2
–
–
(2.0)
5,775.6
81.4 5,857.0
0.2
5.4
–
–
0.2
(2.0)
–
–
–
–
–
–
0.2
5.4
–
–
0.2
(2.0)
(193.6)
–
(193.6)
(74.2) (267.8)
–
–
–
–
(0.5)
(0.3)
388.4
387.6
–
(54.4)
(19.6)
(74.0)
–
–
–
–
–
–
–
46.2
–
46.2
157.9
(99.6)
3.2
161.1
–
(99.6)
(0.5)
(0.3)
–
–
(0.5)
(0.3)
388.4
23.2
411.6
437.7
6.8
444.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2017
198.6 1,265.9
763.1
(616.3)
374.1
22.0 4,016.4
(0.3)
6,023.5
14.0 6,037.5
* Investment in own shares is stated at cost.
HAMMERSON PLC ANNUAL REPORT 2017
132
132 HAMMERSON PLC ANNUAL REPORT 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
FOR THE YEAR ENDED 31 DECEMBER 2016
Share
Share
Translation
Hedging
capital
premium
reserve
reserve
£m
£m
£m
£m
Merger
reserve
£m
reserves
earnings
£m
£m
funds
interests
£m
£m
Total
equity
£m
Other
Retained
in own
shareholders’
controlling
Investment
Equity
Non-
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Hedging
reserve
£m
Merger
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Investment
in own
shares*
£m
Equity
shareholders’
funds
£m
Non-
controlling
interests
£m
Total
equity
£m
Balance at 1 January 2017
198.3 1,265.7
659.6 (562.9)
374.1
23.7 3,817.3
5,775.6
81.4 5,857.0
Balance at 1 January 2016
196.1
1,223.3
135.1
(125.6)
374.1
21.7 3,696.5
Issue of shares
Share-based employee
remuneration (note 4)
Cost of shares awarded
to employees
Transfer on award of own shares
to employees
Proceeds on award of own shares
to employees
0.3
0.2
–
–
–
–
–
–
–
–
Dividends (note 9)
1.9
42.2
Foreign exchange translation
differences
Net loss on hedging activities
Change in fair value of
participative loans within
investment in associates
(note 13E)
Net actuarial losses on pension
schemes (note 6C)
Profit for the year
Total comprehensive
income/(loss) for the year
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2016
198.3
1,265.7
* Investment in own shares is stated at cost.
–
–
–
–
–
–
524.5
–
–
–
–
–
–
–
–
(437.3)
–
–
–
(437.3)
–
–
–
524.5
659.6
–
–
–
–
–
–
–
–
–
–
–
–
–
5.6
(4.0)
–
–
–
0.4
(0.4)
–
–
–
–
–
–
–
–
0.2
(180.1)
–
–
(0.3)
(15.9)
317.3
301.1
(3.9)
(0.3)
–
4.0
–
–
–
–
–
–
–
–
–
5,517.3
69.0 5,586.3
0.2
5.6
–
–
0.2
–
–
–
–
–
0.2
5.6
–
–
0.2
(136.0)
(2.3)
(138.3)
524.5
(437.3)
11.1
535.6
–
(437.3)
(0.3)
(15.9)
317.3
–
–
(0.3)
(15.9)
3.6
320.9
388.3
14.7
403.0
(562.9)
374.1
23.7
3,817.3
(0.2)
5,775.6
81.4 5,857.0
shares*
£m
(0.2)
(0.3)
2.2
–
5.4
(2.2)
(4.9)
4.9
0.2
5.4
–
–
0.2
(2.0)
–
–
–
–
–
–
0.2
5.4
–
–
0.2
(2.0)
0.2
–
(193.6)
(2.0)
(193.6)
(74.2) (267.8)
0.3
0.2
Issue of shares
Share-based employee
remuneration (note 4)
Cost of shares awarded
to employees
Transfer on award of own shares
to employees
Proceeds on award of own shares
to employees
Purchase of own shares
Dividends (note 9)
Exchange gain previously
recognised in equity recycled on
disposal of foreign operations
Exchange loss previously
recognised in the hedging reserve
recycled on disposal of foreign
operations
differences
Foreign exchange translation
Net loss on hedging activities
Change in fair value of
participative loans within
investment in associates
(note 13E)
Net actuarial losses on pension
schemes (note 6C)
Profit for the year
Total comprehensive
income/(loss) for the year
* Investment in own shares is stated at cost.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46.2
157.9
–
(99.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.5)
(0.3)
388.4
387.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46.2
–
46.2
157.9
(99.6)
3.2
161.1
–
(99.6)
(0.5)
(0.3)
–
–
(0.5)
(0.3)
388.4
23.2
411.6
Balance at 31 December 2017
198.6 1,265.9
763.1
(616.3)
374.1
22.0 4,016.4
(0.3)
6,023.5
14.0 6,037.5
103.5
(53.4)
437.7
6.8
444.5
–
(54.4)
–
(54.4)
(19.6)
(74.0)
132 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 133
HAMMERSON.COM 133
FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Operating activities
Operating profit before other net gains/(losses) and share of results of joint ventures and associates
Decrease in receivables
(Increase)/Decrease in restricted monetary assets
(Decrease)/Increase in payables
Adjustment for non-cash items
Cash generated from operations
Interest received
Interest paid
Debt and loan facility cancellation costs
Tax paid
Distributions and other receivables from joint ventures
Cash flows from operating activities
Investing activities
Property acquisitions
Developments and major refurbishments
Other capital expenditure
Sale of properties
Advances to joint ventures
Return of equity from joint ventures
Acquisition of additional interest in Irish loan portfolio
Advances to joint ventures on conversion of Irish loan portfolio to property assets
Acquisition of interest in associates
Distributions from associates
Acquisition of other investments
Sale of other investments
Repayment of loans receivable
Cash flows from investing activities
Financing activities
Issue of shares
Proceeds from award of own shares
Purchase of own shares
Proceeds from new borrowings
Repayment of borrowings
Net (decrease)/increase in borrowings
Dividends paid to non-controlling interests
Equity dividends paid
Cash flows from financing activities
Net increase in cash and deposits
Opening cash and deposits
Exchange translation movement
Closing cash and deposits
An analysis of the movement in net debt is provided in note 24.
Notes
2
25
7
12D
12D
12D
12D
24
9
17
2017
£m
174.2
6.6
(1.5)
(14.5)
9.1
173.9
12.9
(129.9)
(41.5)
(1.1)
125.0
139.3
(122.5)
(46.7)
(66.7)
490.8
(165.6)
275.0
(56.2)
–
(39.3)
130.9
–
–
19.9
419.6
0.2
0.2
(2.0)
526.9
(687.7)
(160.8)
(74.2)
(191.7)
(428.3)
130.6
74.3
1.0
205.9
2016
£m
176.6
2.0
2.2
11.9
11.6
204.3
20.0
(125.1)
(0.4)
(2.9)
84.0
179.9
(499.7)
(127.2)
(55.2)
639.0
(63.1)
–
–
(91.9)
(2.4)
18.0
(1.9)
8.0
65.8
(110.6)
0.2
0.2
–
949.8
(847.5)
102.3
(2.3)
(135.7)
(35.3)
34.0
37.0
3.3
74.3
HAMMERSON PLC ANNUAL REPORT 2017
134
134 HAMMERSON PLC ANNUAL REPORT 2017
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
Operating profit before other net gains/(losses) and share of results of joint ventures and associates
Return of equity from joint ventures
Acquisition of additional interest in Irish loan portfolio
Advances to joint ventures on conversion of Irish loan portfolio to property assets
Operating activities
Decrease in receivables
(Increase)/Decrease in restricted monetary assets
(Decrease)/Increase in payables
Adjustment for non-cash items
Cash generated from operations
Interest received
Interest paid
Tax paid
Debt and loan facility cancellation costs
Distributions and other receivables from joint ventures
Cash flows from operating activities
Developments and major refurbishments
Investing activities
Property acquisitions
Other capital expenditure
Sale of properties
Advances to joint ventures
Acquisition of interest in associates
Distributions from associates
Acquisition of other investments
Sale of other investments
Repayment of loans receivable
Cash flows from investing activities
Financing activities
Issue of shares
Proceeds from award of own shares
Purchase of own shares
Proceeds from new borrowings
Repayment of borrowings
Net (decrease)/increase in borrowings
Dividends paid to non-controlling interests
Equity dividends paid
Cash flows from financing activities
Net increase in cash and deposits
Opening cash and deposits
Exchange translation movement
Closing cash and deposits
An analysis of the movement in net debt is provided in note 24.
Notes
2
25
7
12D
12D
12D
12D
24
9
17
2017
£m
174.2
6.6
(1.5)
(14.5)
9.1
173.9
12.9
(129.9)
(41.5)
(1.1)
125.0
139.3
(122.5)
(46.7)
(66.7)
490.8
(165.6)
275.0
(56.2)
(39.3)
130.9
–
–
–
19.9
419.6
0.2
0.2
(2.0)
526.9
(687.7)
(160.8)
(74.2)
(191.7)
(428.3)
130.6
74.3
1.0
205.9
2016
£m
176.6
2.0
2.2
11.9
11.6
204.3
20.0
(125.1)
(0.4)
(2.9)
84.0
179.9
(499.7)
(127.2)
(55.2)
639.0
(63.1)
–
–
(91.9)
(2.4)
18.0
(1.9)
8.0
65.8
(110.6)
0.2
0.2
–
949.8
(847.5)
102.3
(2.3)
(135.7)
(35.3)
34.0
37.0
3.3
74.3
1: Significant accounting policies
IFRS 15 Revenue from Contracts with Customers
Statement of compliance
The consolidated financial statements of Hammerson plc have been
prepared in accordance with IFRS and interpretations adopted by the
European Union and with the Companies Act 2006 applicable to
companies reporting under IFRS. During 2017, the following new and
revised Standards and Interpretations have been adopted but these have
not had a material impact on the amounts reported in these financial
statements:
– Amendments to IAS 7 Statement of Cash Flows
– Amendments to IAS 12 Income Taxes
– IFRS 12 Disclosure of interests in other entities.
This standard is based on the principle that revenue is recognised
when control passes to a customer. The majority of the Group’s income
is from tenant leases and is outside the scope of the new standard.
However, certain non-rental income streams, such as car park and
service charge income and management fees are within the scope of
the standard.
Having undertaken a review of the implications of the new standard the
financial impact will be immaterial. The Group will amend the
presentation of the relevant income and costs within operating profit
such that these are aggregated into new ‘Revenue’ and ‘Costs’ lines in the
income statement, with further presentational amendments in the
notes to the financial statements.
Issued and endorsed by the European Union
– IFRS 9 Financial Instruments; effective for accounting periods
IFRS 16 Leases
The standard does not impact the Group’s financial position as a
lessor or the Group’s rental income from its investment properties.
The standard requires lessees to recognise a right-of-use asset and
related lease liability representing the obligation to make lease
payments. Interest expense on the lease liability and depreciation on
the right-of-use asset will be recognised in the income statement.
Having reviewed the Group’s current operating leases, the most
significant are leases for the Group’s offices in London, Reading, Paris
and Dublin. It is estimated that the Group would recognise a right-of-use
asset and corresponding lease liability of approximately £15 million and
the net impact on the income statement will not be material.
There are no other Standards or Interpretations yet to be effective that
would be expected to have a material impact on the financial statements
of the Group.
Basis of preparation
The financial statements are prepared on a going concern basis, as
explained in the Risks and Uncertainties section of the Strategic Report
on page 69.
The financial statements are presented in sterling. They are prepared on
the historical cost basis, except that investment and development
properties, other investments and derivative financial instruments are
stated at fair value.
The accounting policies have been applied consistently to the results,
other gains and losses, assets, liabilities and cash flows of entities
included in the consolidated financial statements. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period. If the
revision affects both current and future periods, the change is
recognised over those periods.
beginning on or after 1 January 2018
– IFRS 15 Revenue from Contracts with Customers; effective for
accounting periods beginning on or after 1 January 2018
– IFRS 16 Leases; effective for accounting periods beginning on or after
1 January 2019.
Issued, not yet effective and not yet endorsed for use in the
European Union
At the date of approval of these financial statements the following
Standards and Interpretations relevant to the Group were in issue but
not yet effective and in some cases had not been adopted for use in the
European Union:
– Amendments to IFRS 2 Share Based Payments – amendments to
clarify the classification and measurement of share-based payment
transactions; effective for accounting periods beginning on or after
1 January 2018
– Amendments to IAS 40 Investment Property – transfer of property;
effective for accounting periods beginning on or after 1 January 2018.
Impact assessment of adopting new accounting Standards and
Interpretations
IFRS 9 Financial Instruments
This standard deals with the classification, measurement and
recognition of financial assets and liabilities and replaces the guidance in
IAS 39 Financial Instruments: Recognition and Measurement. Having
carried out an assessment of the standard the impact is immaterial from
an earnings and net asset value perspective. However, it will require
some presentational changes to the financial statements and the
Group’s treasury and hedging documentation has been amended to
reflect the requirements of the new standard.
The standard will remove the need to treat separately the change in the
fair value of the Group’s underlying host participative loan included
within its investment in Value Retail (see note 13C). In 2017, the change
in fair value of £0.5 million in relation to the host participative loan was
included within other comprehensive income. Under the new standard,
the change in the fair value of both the embedded derivative and the
underlying host participative loan will be included in the income
statement within the Group’s share of profit from associates.
The introduction of the new expected credit losses model, that replaces
the incurred loss impairment model, will not have a material financial
impact for the provisioning for the Group’s trade receivables, although
some presentational changes will be required.
134 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 135
HAMMERSON.COM 135
FINANCIAL STATEMENTS
Notes to the financial statements continued
1: Significant accounting policies (continued)
Joint operations, joint ventures and associates
Significant judgements and key estimates
The preparation of the financial statements requires management to
make judgements, estimates and assumptions that may affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. These judgements and key estimates
are considered by the Audit Committee, as explained on page 87, and are
set out below:
Property valuations
The property portfolio, which is carried in the balance sheet at fair value,
is valued six-monthly by professionally qualified external valuers and
the Directors must ensure that they are satisfied that the valuation of the
Group’s properties is appropriate for the financial statements.
Investment properties, excluding properties held for development, are
valued by adopting the ‘investment method’ of valuation. This approach
involves applying capitalisation yields to future rental income streams
with appropriate adjustments for income voids arising from vacancies or
rent-free periods. These capitalisation yields and future income streams
are derived from comparable property and leasing transactions and are
considered to be the key inputs to the valuations. Other factors that are
taken into account include the tenure of the property, tenancy details
and ground and structural conditions.
In the case of on-site developments, the approach applied is the ‘residual
method’ of valuation, which is the investment method of valuation as
described above with a deduction for all costs necessary to complete the
development, together with a further allowance for remaining risk,
developers’ profit and purchasers’ costs. Properties held for future
development are generally valued by adopting the higher of the residual
method of valuation allowing for all associated risks, and the investment
method of valuation for the existing asset.
Accounting for acquisitions and disposals
Management must assess whether the acquisition of property through
the purchase of a corporate vehicle should be accounted for as an asset
purchase or a business combination. Where the acquired corporate
vehicle contains significant assets, liabilities or business processes in
addition to property, the transaction is accounted for as a business
combination. Where there are no such significant items, the transaction
is treated as an asset purchase.
Management must assess when the risks and rewards associated with an
acquisition or disposal have transferred. For properties identified for
potential disposal at the balance sheet date, management must assess
whether the property should be classified as ‘held for sale’ and excluded
from investment and development properties. This judgement is based
on the degree of certainty of the disposal completing.
Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity.
The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the
date that control ceases. All intragroup transactions, balances, income
and expenses are eliminated on consolidation.
The accounting treatment for joint operations, joint ventures and
associates requires an assessment to determine the degree of control or
influence that the Group may exercise over them and the form of any
control. The Group’s interests in its joint ventures are commonly driven
by the terms of partnership agreements, which ensure that control is
shared between the partners.
Associates are those entities over which the Group is in a position to
exercise significant influence, but not control or joint control.
The Group’s share of interests in joint operations is proportionally
consolidated into the Group financial statements.
The results, assets and liabilities of joint ventures and associates are
accounted for using the equity method. Investments in joint ventures
and associates are carried in the balance sheet at cost as adjusted for
post-acquisition changes in the Group’s share of the net assets of the
joint venture or associate, less any impairment. Losses of a joint venture
or associate in excess of the Group’s interest in that entity are recognised
only to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the entity.
Loans to joint ventures and associates are separately presented from
equity interests within the notes to the financial statements, although
aggregated in the Group’s balance sheet. The Group eliminates
upstream and downstream transactions with its joint ventures,
including interest and management fees.
Accounting for acquisitions
An acquisition is recognised when the risks and rewards of ownership
have transferred. This is usually on completion of the transaction.
Business combinations are accounted for using the acquisition method.
Any excess of the purchase consideration over the fair value of the net
assets acquired is recognised as goodwill, and reviewed annually for
impairment. Any discount received or acquisition related costs are
recognised in the income statement.
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated into sterling at
exchange rates approximating to the exchange rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into sterling at the
exchange rate ruling at that date and, unless they relate to the hedging of
the net investment in foreign operations, differences arising on
translation are recognised in the income statement.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill
and fair value adjustments arising on consolidation, are translated
into sterling at the exchange rates ruling at the balance sheet date.
The operating income and expenses of foreign operations are translated
into sterling at the average exchange rates for the year. Significant
transactions, such as property sales, are translated at the foreign
exchange rate ruling at the date of each transaction.
The principal exchange rate used to translate foreign currency-
denominated amounts in the balance sheet is the rate at the
end of the year, £1 = €1.127 (2016: £1 = €1.171). The principal exchange
rate used for the income statement is the average rate,
£1 = €1.141 (2016: £1 = €1.224).
HAMMERSON PLC ANNUAL REPORT 2017
136
136 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
1: Significant accounting policies (continued)
Joint operations, joint ventures and associates
Significant judgements and key estimates
The preparation of the financial statements requires management to
make judgements, estimates and assumptions that may affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. These judgements and key estimates
are considered by the Audit Committee, as explained on page 87, and are
The accounting treatment for joint operations, joint ventures and
associates requires an assessment to determine the degree of control or
influence that the Group may exercise over them and the form of any
control. The Group’s interests in its joint ventures are commonly driven
by the terms of partnership agreements, which ensure that control is
shared between the partners.
set out below:
Property valuations
The property portfolio, which is carried in the balance sheet at fair value,
is valued six-monthly by professionally qualified external valuers and
the Directors must ensure that they are satisfied that the valuation of the
Group’s properties is appropriate for the financial statements.
Investment properties, excluding properties held for development, are
valued by adopting the ‘investment method’ of valuation. This approach
involves applying capitalisation yields to future rental income streams
with appropriate adjustments for income voids arising from vacancies or
rent-free periods. These capitalisation yields and future income streams
are derived from comparable property and leasing transactions and are
considered to be the key inputs to the valuations. Other factors that are
taken into account include the tenure of the property, tenancy details
and ground and structural conditions.
In the case of on-site developments, the approach applied is the ‘residual
method’ of valuation, which is the investment method of valuation as
described above with a deduction for all costs necessary to complete the
development, together with a further allowance for remaining risk,
developers’ profit and purchasers’ costs. Properties held for future
development are generally valued by adopting the higher of the residual
method of valuation allowing for all associated risks, and the investment
method of valuation for the existing asset.
Accounting for acquisitions and disposals
Management must assess whether the acquisition of property through
the purchase of a corporate vehicle should be accounted for as an asset
purchase or a business combination. Where the acquired corporate
vehicle contains significant assets, liabilities or business processes in
addition to property, the transaction is accounted for as a business
combination. Where there are no such significant items, the transaction
is treated as an asset purchase.
Management must assess when the risks and rewards associated with an
acquisition or disposal have transferred. For properties identified for
potential disposal at the balance sheet date, management must assess
whether the property should be classified as ‘held for sale’ and excluded
from investment and development properties. This judgement is based
Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity.
The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the
date that control ceases. All intragroup transactions, balances, income
and expenses are eliminated on consolidation.
Associates are those entities over which the Group is in a position to
exercise significant influence, but not control or joint control.
The Group’s share of interests in joint operations is proportionally
consolidated into the Group financial statements.
The results, assets and liabilities of joint ventures and associates are
accounted for using the equity method. Investments in joint ventures
and associates are carried in the balance sheet at cost as adjusted for
post-acquisition changes in the Group’s share of the net assets of the
joint venture or associate, less any impairment. Losses of a joint venture
or associate in excess of the Group’s interest in that entity are recognised
only to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the entity.
Loans to joint ventures and associates are separately presented from
equity interests within the notes to the financial statements, although
aggregated in the Group’s balance sheet. The Group eliminates
upstream and downstream transactions with its joint ventures,
including interest and management fees.
Accounting for acquisitions
An acquisition is recognised when the risks and rewards of ownership
have transferred. This is usually on completion of the transaction.
Business combinations are accounted for using the acquisition method.
Any excess of the purchase consideration over the fair value of the net
assets acquired is recognised as goodwill, and reviewed annually for
impairment. Any discount received or acquisition related costs are
recognised in the income statement.
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated into sterling at
exchange rates approximating to the exchange rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into sterling at the
exchange rate ruling at that date and, unless they relate to the hedging of
the net investment in foreign operations, differences arising on
translation are recognised in the income statement.
The assets and liabilities of foreign operations, including goodwill
and fair value adjustments arising on consolidation, are translated
into sterling at the exchange rates ruling at the balance sheet date.
The operating income and expenses of foreign operations are translated
into sterling at the average exchange rates for the year. Significant
transactions, such as property sales, are translated at the foreign
exchange rate ruling at the date of each transaction.
The principal exchange rate used to translate foreign currency-
denominated amounts in the balance sheet is the rate at the
end of the year, £1 = €1.127 (2016: £1 = €1.171). The principal exchange
rate used for the income statement is the average rate,
£1 = €1.141 (2016: £1 = €1.224).
on the degree of certainty of the disposal completing.
Financial statements of foreign operations
Net investment in foreign operations
Exchange differences arising from the translation of the net investment
in foreign operations are taken to the translation reserve. They are
released to the income statement upon disposal of the foreign operation.
Cash, receivables, payables and borrowings
Cash and cash equivalents and restricted monetary assets
Cash and cash equivalents comprise cash and short-term bank deposits
with an original maturity of three months or less which are readily
accessible.
Restricted monetary assets relate to cash balances which legally belong
to the Group but which the Group cannot readily access. These do not
meet the definition of cash and cash equivalents and consequently are
presented separately from cash and deposits in the Group balance sheet.
Trade and other receivables and payables
Trade and other receivables and payables are initially measured
at fair value subsequently measured at amortised cost and, where the
effect is material, discounted to reflect the time value of money.
Loans receivable
Loans receivable are financial assets which are initially measured
at fair value, plus acquisition costs and are subsequently measured
at amortised cost, using the effective interest method, less any
impairment.
Borrowings
Borrowings are recognised initially at fair value, after taking account of
any discount on issue and attributable transaction costs. Subsequently,
borrowings are held at amortised cost, such that discounts and costs are
charged to the income statement over the term of the borrowing at a
constant return on the carrying amount of the liability.
Derivative financial instruments
The Group uses derivative financial instruments to economically hedge
its exposure to foreign currency movements and interest rate risks.
Hedge accounting is applied in respect of net investments in foreign
operations and of debt raised in non-functional currencies. Derivative
financial instruments are recognised initially at fair value, which equates
to cost and subsequently remeasured at fair value, with changes in fair
value being included in the income statement, except where hedge
accounting is applied.
Derivative financial instruments are classified within receivables or
loans and other borrowings depending on the fair value of each
derivative instrument.
The fair value gain or loss on remeasurement of derivative financial
instruments and the exchange differences on non-derivative financial
instruments that are designated in a net investment hedge are
recognised in the hedging reserve in total comprehensive income, to the
extent they are effective, and the ineffective portion is recognised in the
income statement within finance costs. Amounts are reclassified from
the hedging reserve to profit or loss when the associated hedged item is
disposed of.
The fair value gain or loss on re-measurement of derivative financial
instruments that are designated in a cash flow hedge are recognised in
the hedging reserve in total comprehensive income, to the extent they
are effective, and the ineffective portion is recognised in the income
statement within finance costs. Amounts are reclassified from the
hedging reserve to profit and loss when the associated hedged
transaction affects profit or loss.
Finance costs
Net finance costs
Net finance costs include interest payable on debt, derivative financial
instruments, debt and loan facility cancellation costs, net of interest
capitalised, interest receivable on funds invested and derivative financial
instruments, and changes in the fair value of derivative financial
instruments.
Capitalisation of interest
Interest is capitalised if it is directly attributable to the acquisition,
construction or production of development properties or the significant
redevelopment of investment properties. Capitalisation commences
when the activities to develop the property start and continues until the
property is substantially ready for its intended use, normally practical
completion. Capitalised interest is calculated with reference to the
actual rate payable on borrowings for development purposes or, for that
part of the development cost financed out of general funds, at the
Group’s weighted average interest rate.
Property portfolio
Investment and development properties
Investment properties are stated at fair value, being market value
determined by professionally qualified external valuers, and changes in
fair value are included in the income statement.
Properties acquired with the intention of redevelopment are classified
as development properties and stated at fair value, being market value
determined by professionally qualified external valuers. Changes in fair
value are included in the income statement. All costs directly associated
with the purchase and construction of a development property are
capitalised. When development properties are completed, they are
reclassified as investment properties. Further details are given in note 11.
Accounting for disposals
The Group accounts for the disposal of a property or corporate entity
when the risks and rewards of ownership transfer, usually on the date of
completion of a contract for sale. A property may be classed as ‘held for
sale’ and excluded from investment and development properties if it is
ready for sale at the balance sheet date.
Gains or losses on the sale of properties are calculated by reference
to the carrying value at the end of the previous year, adjusted for
subsequent capital expenditure. Where a corporate entity, whose
primary asset is a property, is disposed, the associated gains
or losses on the sale of the entity are included within the gain or
loss on sale of properties.
136 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 137
HAMMERSON.COM 137
FINANCIAL STATEMENTS
Notes to the financial statements continued
1: Significant accounting policies (continued)
Leasehold properties
The Group owns a number of properties on long leaseholds. These are
leased out to tenants under operating leases, are classified as investment
properties or development properties as appropriate, and included in
the balance sheet at fair value. The obligation to the freeholder or
superior leaseholder for the buildings element of the leasehold is
included in the balance sheet at the present value of the minimum lease
payments at inception. Payments to the freeholder or superior
leaseholder are apportioned between a finance charge and a reduction of
the outstanding liability. The finance charge is allocated to each period
during the lease term so as to produce a constant periodic rate of interest
on the remaining balance of the liability.
Contingent rents payable, such as rent reviews or those related to rental
income, are charged as an expense in the period in which they are
incurred. An asset equivalent to the leasehold obligation is recorded in
the balance sheet within ‘Interests in leasehold properties’, and is
amortised over the lease term.
Tenant leases
Management has exercised judgement in considering the potential
transfer of the risks and rewards of ownership, in accordance with IAS 17
Leases, for properties leased to tenants and has determined that such
leases are operating leases.
Depreciation
In accordance with IAS 40 Investment Property, no depreciation
is provided in respect of investment and development properties, which
are carried at fair value.
Net rental income
Rental income from investment property leased out under an operating
lease is recognised in the income statement on a straight-line basis over
the lease term. Non-rental income such as car park or commercialisation
income or contingent rents, such as turnover rents, rent reviews and
indexation, are recorded as income in the period in which they are
earned. Rent reviews are recognised when such reviews have been
agreed with tenants. Lease incentives and costs associated with entering
into tenant leases are amortised over the lease term or, if the probability
that the break option will be exercised is considered high, over the period
to the first break option.
Property operating expenses, including any operating expenditure not
recovered from tenants through service charges, are charged to the
income statement as incurred.
Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation.
Depreciation is charged to the income statement on a straight-line basis
over the estimated useful life, which is generally between three and five
years, or in the case of leasehold improvements, the lease term.
Management fees
Management fees are recognised in the period to which they relate.
Performance fee related elements are recognised at the end of the
performance period when the fee can be reliably estimated and is
due for payment.
HAMMERSON PLC ANNUAL REPORT 2017
138
138 HAMMERSON PLC ANNUAL REPORT 2017
Employee benefits
Defined contribution pension plans
Obligations for contributions to defined contribution pension plans are
charged to the income statement as incurred.
Defined benefit pension plans
The Group’s net obligation in respect of defined benefit pension plans
comprises the amount of future benefit that employees have earned,
discounted to determine a present value, less the fair value of the
pension plan assets. The calculation is performed by a qualified external
actuary using the projected unit credit method. Actuarial gains and
losses are recognised in equity. Where the assets of a plan are greater
than its obligation, the asset included in the balance sheet is limited to
the present value of any future refunds from the plan or reduction in
future contributions to the plan.
Share-based employee remuneration
Share-based employee remuneration is determined with reference
to the fair value of the equity instruments at the date at which they are
granted and charged to the income statement over the vesting period on
a straight-line basis. The fair value of share options is calculated using
the binomial option pricing model and is dependent on factors including
the exercise price, expected volatility, option life and risk-free interest
rate. The fair value of the market-based element of the Long-Term
Incentive Plans is calculated using the Monte Carlo Model and is
dependent on factors including the expected volatility, vesting period
and risk-free interest rate.
Tax
Tax exempt status
The Company has elected for UK REIT, French SIIC and Irish QIAIF
status. To continue to benefit from these tax regimes, the Group is
required to comply with certain conditions as outlined in note 8A to the
financial statements. Management intends that the Group should
continue as a UK REIT, a French SIIC and an Irish QIAIF for the
foreseeable future.
Current and deferred taxation
Tax is included in the income statement except to the extent that
it relates to items recognised directly in equity, in which case the related
tax is recognised in equity.
Current tax is the expected tax payable on the taxable income for the
period, using tax rates applicable at the balance sheet date, together with
any adjustment in respect of previous periods.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for tax purposes. The following temporary differences are not
provided for: goodwill not deductible for tax purposes; the initial
recognition of assets or liabilities that affect neither accounting nor
taxable profit; and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates that are expected to apply in the period when the liability
is settled or the asset is realised.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can
be utilised.
Notes to the financial statements continued
1: Significant accounting policies (continued)
Employee benefits
Leasehold properties
Defined contribution pension plans
The Group owns a number of properties on long leaseholds. These are
Obligations for contributions to defined contribution pension plans are
leased out to tenants under operating leases, are classified as investment
charged to the income statement as incurred.
properties or development properties as appropriate, and included in
the balance sheet at fair value. The obligation to the freeholder or
superior leaseholder for the buildings element of the leasehold is
included in the balance sheet at the present value of the minimum lease
payments at inception. Payments to the freeholder or superior
leaseholder are apportioned between a finance charge and a reduction of
the outstanding liability. The finance charge is allocated to each period
during the lease term so as to produce a constant periodic rate of interest
on the remaining balance of the liability.
Defined benefit pension plans
The Group’s net obligation in respect of defined benefit pension plans
comprises the amount of future benefit that employees have earned,
discounted to determine a present value, less the fair value of the
pension plan assets. The calculation is performed by a qualified external
actuary using the projected unit credit method. Actuarial gains and
losses are recognised in equity. Where the assets of a plan are greater
than its obligation, the asset included in the balance sheet is limited to
the present value of any future refunds from the plan or reduction in
Contingent rents payable, such as rent reviews or those related to rental
future contributions to the plan.
income, are charged as an expense in the period in which they are
incurred. An asset equivalent to the leasehold obligation is recorded in
the balance sheet within ‘Interests in leasehold properties’, and is
amortised over the lease term.
Tenant leases
Management has exercised judgement in considering the potential
transfer of the risks and rewards of ownership, in accordance with IAS 17
Leases, for properties leased to tenants and has determined that such
leases are operating leases.
Depreciation
are carried at fair value.
Net rental income
In accordance with IAS 40 Investment Property, no depreciation
is provided in respect of investment and development properties, which
Tax
Rental income from investment property leased out under an operating
lease is recognised in the income statement on a straight-line basis over
the lease term. Non-rental income such as car park or commercialisation
income or contingent rents, such as turnover rents, rent reviews and
indexation, are recorded as income in the period in which they are
earned. Rent reviews are recognised when such reviews have been
agreed with tenants. Lease incentives and costs associated with entering
into tenant leases are amortised over the lease term or, if the probability
that the break option will be exercised is considered high, over the period
to the first break option.
Property operating expenses, including any operating expenditure not
recovered from tenants through service charges, are charged to the
income statement as incurred.
Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation.
Depreciation is charged to the income statement on a straight-line basis
over the estimated useful life, which is generally between three and five
years, or in the case of leasehold improvements, the lease term.
Management fees
Management fees are recognised in the period to which they relate.
Performance fee related elements are recognised at the end of the
performance period when the fee can be reliably estimated and is
due for payment.
Share-based employee remuneration
Share-based employee remuneration is determined with reference
to the fair value of the equity instruments at the date at which they are
granted and charged to the income statement over the vesting period on
a straight-line basis. The fair value of share options is calculated using
the binomial option pricing model and is dependent on factors including
the exercise price, expected volatility, option life and risk-free interest
rate. The fair value of the market-based element of the Long-Term
Incentive Plans is calculated using the Monte Carlo Model and is
dependent on factors including the expected volatility, vesting period
and risk-free interest rate.
Tax exempt status
The Company has elected for UK REIT, French SIIC and Irish QIAIF
status. To continue to benefit from these tax regimes, the Group is
required to comply with certain conditions as outlined in note 8A to the
financial statements. Management intends that the Group should
continue as a UK REIT, a French SIIC and an Irish QIAIF for the
foreseeable future.
Current and deferred taxation
Tax is included in the income statement except to the extent that
it relates to items recognised directly in equity, in which case the related
tax is recognised in equity.
Current tax is the expected tax payable on the taxable income for the
period, using tax rates applicable at the balance sheet date, together with
any adjustment in respect of previous periods.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for tax purposes. The following temporary differences are not
provided for: goodwill not deductible for tax purposes; the initial
recognition of assets or liabilities that affect neither accounting nor
taxable profit; and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates that are expected to apply in the period when the liability
is settled or the asset is realised.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can
be utilised.
2: Profit for the year
As stated in the Financial Review on page 53 and in note 3, management reviews the performance of the Group’s property portfolio on a
proportionally consolidated basis. Management does not proportionally consolidate the Group’s premium outlet investments in Value Retail and
VIA Outlets, and reviews the performance of these investments separately from the rest of the proportionally consolidated portfolio.
The following tables have been prepared on a basis consistent with how management reviews the performance of the business and show the Group’s
profit for the year on a proportionally consolidated basis in column C, by aggregating the Reported Group results (shown in column A) with those
from its Share of Property interests (shown in column B), the latter being reallocated to the relevant financial statement lines.
The Group’s share of results arising from its interests in Premium outlets has not been proportionally consolidated and hence these have not been
reallocated to the relevant financial statement lines, but are shown within ‘Share of results of joint ventures’ and ‘Share of results of associates’ in
column C.
The Group’s proportionally consolidated profit for the year in column C is then allocated between ‘Adjusted’ and ‘Capital and other’ for the purposes
of calculating figures in accordance with EPRA best practice.
Reported
Group
£m
Share of Property
interests
£m
Proportionally
consolidated
£m
Adjusted
£m
Capital
and other
£m
Proportionally consolidated
2017
Notes
3A
Notes (see page 140)
Gross rental incomeE
Ground and equity rents payable
Gross rental income, after rents payable
Service charge income
Service charge expenses
Net service charge expenses
Other property outgoings
Property outgoings
A
248.9
(1.4)
247.5
45.9
(55.0)
(9.1)
(15.8)
(24.9)
B
173.0
(2.7)
170.3
31.9
(38.1)
(6.2)
(16.3)
(22.5)
C
421.9
(4.1)
417.8
77.8
(93.1)
(15.3)
(32.1)
(47.4)
D
421.9
(4.1)
417.8
77.8
(93.1)
(15.3)
(32.1)
(47.4)
Net rental income
3A
222.6
147.8
370.4
370.4
Employee and corporate costs
Management fees receivable
Administration expenses
Operating profit before other net gains/(losses) and share
of results of joint ventures and associates
Loss on sale of properties
Net exchange gain previously recognised in equity, recycled on
disposal of foreign operations
Potential business acquisition costsF
Revaluation gains on properties
Other net gains/(losses)
Share of results of joint ventures
Share of results of associates
Operating profit
Net finance (costs)/incomeG
Profit before tax
Current tax charge
Profit for the year
Non-controlling interests
12A, 12B
13A, 13B
7
8A
Profit for the year attributable to equity shareholders
10B
(60.5)
12.1
(48.4)
174.2
(15.5)
27.8
(6.5)
1.9
7.7
180.5
223.0
585.4
(172.0)
413.4
(1.8)
411.6
(23.2)
388.4
(0.5)
–
(0.5)
147.3
–
–
–
19.4
19.4
(166.9)
(1.4)
(1.6)
(61.0)
12.1
(48.9)
321.5
(15.5)
27.8
(6.5)
21.3
27.1
13.6
221.6
583.8
(61.0)
12.1
(48.9)
321.5
–
–
–
–
–
13.2
24.6
359.3
1.6
(170.4)
(107.6)
–
–
–
–
–
413.4
(1.8)
411.6
(23.2)
388.4
251.7
(1.8)
249.9
(3.6)
246.3
D
–
–
–
–
–
–
–
–
–
–
–
–
–
(15.5)
27.8
(6.5)
21.3
27.1
0.4
197.0
224.5
(62.8)
161.7
–
161.7
(19.6)
142.1
138 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 139
HAMMERSON.COM 139
FINANCIAL STATEMENTS
Notes to the financial statements continued
2: Profit for the year (continued)
Notes (see below)
Gross rental incomeE
Ground and equity rents payable
Gross rental income, after rents payable
Service charge income
Service charge expenses
Net service charge expenses
Other property outgoings
Property outgoings
2016
Proportionally consolidated
Notes
3A
Reported
Group
£m
Share of Property
interests
£m
Proportionally
consolidated
£m
A
251.3
(1.3)
250.0
43.8
(52.1)
(8.3)
(19.4)
(27.7)
B
147.4
(2.8)
144.6
24.8
(31.0)
(6.2)
(14.2)
(20.4)
C
398.7
(4.1)
394.6
68.6
(83.1)
(14.5)
(33.6)
(48.1)
Adjusted
£m
D
398.7
(4.1)
394.6
68.6
(83.1)
(14.5)
(33.6)
(48.1)
Net rental income
3A
222.3
124.2
346.5
346.5
Employee and corporate costs
Management fees receivable/(payable)
Administration expenses
Operating profit before other net (losses)/gains and share
of results of joint ventures and associates
Loss on sale of properties
Gain on sale of other investments
Revaluation (losses)/gains on properties
Other net (losses)/gains
Share of results of joint ventures
Share of results of associates
Operating profit
Net finance (costs)/incomeG
Profit before tax
Current tax charge
Profit for the year
Non-controlling interests
12A, 12B
13A
7
8A
Profit for the year attributable to equity shareholders
10B
(54.3)
8.6
(45.7)
176.6
(24.0)
1.3
(24.7)
(47.4)
169.2
137.1
435.5
(112.7)
322.8
(1.9)
320.9
(3.6)
317.3
(0.3)
(0.1)
(0.4)
123.8
–
–
11.3
11.3
(148.5)
(1.9)
(15.3)
16.1
0.8
(0.8)
–
–
–
(54.6)
8.5
(46.1)
300.4
(24.0)
1.3
(13.4)
(36.1)
20.7
135.2
420.2
(96.6)
323.6
(2.7)
320.9
(3.6)
317.3
(54.6)
8.5
(46.1)
300.4
–
–
–
–
6.2
23.6
330.2
(93.5)
236.7
(2.7)
234.0
(3.3)
230.7
Notes
A. Reported Group results as shown in the consolidated income statement on page 129.
B. Property interests reflect the Group’s share of results of Property joint ventures as shown in note 12A and Nicetoile included within note 13A.
C. Aggregated results on a proportionally consolidated basis showing Reported Group together with Share of Property interests.
D. Aggregated results on a proportionally consolidated basis allocated between ‘Adjusted’ and ‘Capital and other’ for the purposes of calculating adjusted earnings per share as shown
in note 10A.
E. Included in gross rental income on a proportionally consolidated basis in Column C is £7.9 million (2016: £7.2 million) of contingent rents calculated by reference to tenants’
turnover.
F. Costs of £6.5 million have been recognised in respect of the potential acquisition of intu properties plc, as announced on 6 December 2017.
G. Adjusted finance costs presented on a proportionally consolidated basis are shown in Table 106 on page 185.
HAMMERSON PLC ANNUAL REPORT 2017
140
140 HAMMERSON PLC ANNUAL REPORT 2017
Capital
and other
£m
D
–
–
–
–
–
–
–
–
–
–
–
–
–
(24.0)
1.3
(13.4)
(36.1)
14.5
111.6
90.0
(3.1)
86.9
–
86.9
(0.3)
86.6
Notes to the financial statements continued
Notes (see below)
Gross rental incomeE
Ground and equity rents payable
Gross rental income, after rents payable
Service charge income
Service charge expenses
Net service charge expenses
Other property outgoings
Property outgoings
Employee and corporate costs
Management fees receivable/(payable)
Administration expenses
Operating profit before other net (losses)/gains and share
of results of joint ventures and associates
Loss on sale of properties
Gain on sale of other investments
Revaluation (losses)/gains on properties
Other net (losses)/gains
Share of results of joint ventures
Share of results of associates
Operating profit
Net finance (costs)/incomeG
Profit before tax
Current tax charge
Profit for the year
Non-controlling interests
Reported
Share of Property
Proportionally
consolidated
Notes
3A
Proportionally consolidated
2016
Capital
and other
£m
D
Group
£m
A
251.3
(1.3)
250.0
43.8
(52.1)
(8.3)
(19.4)
(27.7)
(54.3)
8.6
(45.7)
176.6
(24.0)
1.3
(24.7)
(47.4)
169.2
137.1
435.5
(112.7)
322.8
(1.9)
320.9
(3.6)
317.3
interests
£m
B
147.4
(2.8)
144.6
24.8
(31.0)
(6.2)
(14.2)
(20.4)
(0.3)
(0.1)
(0.4)
123.8
–
–
11.3
11.3
(148.5)
(1.9)
(15.3)
16.1
0.8
(0.8)
–
–
–
£m
C
398.7
(4.1)
394.6
68.6
(83.1)
(14.5)
(33.6)
(48.1)
(54.6)
8.5
(46.1)
300.4
(24.0)
1.3
(13.4)
(36.1)
20.7
135.2
420.2
(96.6)
323.6
(2.7)
320.9
(3.6)
317.3
Adjusted
£m
D
398.7
(4.1)
394.6
68.6
(83.1)
(14.5)
(33.6)
(48.1)
(54.6)
8.5
(46.1)
300.4
–
–
–
–
6.2
23.6
330.2
(93.5)
236.7
(2.7)
234.0
(3.3)
230.7
–
–
–
–
–
–
–
–
–
–
–
–
–
(24.0)
1.3
(13.4)
(36.1)
14.5
111.6
90.0
(3.1)
86.9
–
86.9
(0.3)
86.6
12A, 12B
13A
7
8A
Profit for the year attributable to equity shareholders
10B
Notes
in note 10A.
turnover.
A. Reported Group results as shown in the consolidated income statement on page 129.
B. Property interests reflect the Group’s share of results of Property joint ventures as shown in note 12A and Nicetoile included within note 13A.
C. Aggregated results on a proportionally consolidated basis showing Reported Group together with Share of Property interests.
D. Aggregated results on a proportionally consolidated basis allocated between ‘Adjusted’ and ‘Capital and other’ for the purposes of calculating adjusted earnings per share as shown
E. Included in gross rental income on a proportionally consolidated basis in Column C is £7.9 million (2016: £7.2 million) of contingent rents calculated by reference to tenants’
F. Costs of £6.5 million have been recognised in respect of the potential acquisition of intu properties plc, as announced on 6 December 2017.
G. Adjusted finance costs presented on a proportionally consolidated basis are shown in Table 106 on page 185.
140 HAMMERSON PLC ANNUAL REPORT 2017
2: Profit for the year (continued)
3: Segmental analysis
The factors used to determine the Group’s reportable segments are the geographic locations (UK, France and Ireland) and sectors in which it
operates, which are generally managed by separate teams and are the basis on which performance is assessed and resources allocated. As stated in
the Financial Review on page 53, the Group has property interests in a number of sectors and management reviews the performance of the Group’s
property interests in Shopping centres, Retail parks, Other UK properties and Developments on a proportionally consolidated basis to reflect the
Group’s different ownership shares. Management does not proportionally consolidate the Group’s premium outlet investments in Value Retail and
VIA Outlets, which are externally managed by experienced outlet operators, independently financed and have operating metrics which differ from
the Group’s other sectors. Except for property valuation and returns, we review the performance of our premium outlet investments separately from
the proportionally consolidated portfolio.
The segmental analysis has been prepared on the same basis that management uses to review the business, rather than on a statutory basis. Property
interests represent the Group’s non wholly-owned properties which management proportionally consolidate when reviewing the performance of
the business. For reconciliation purposes the Reported Group figures, being properties either wholly-owned or held within joint operations, are
shown in the following tables.
Gross rental income represents the Group’s revenue from its tenants and customers. As stated in the Key Performance Indicators section on page 18,
net rental income is the Group’s primary revenue measure and is used to determine the performance of each sector, except Premium outlets. Total
assets are not monitored by segment and resource allocation is based on the distribution of property assets between segments.
Net rental income
3A
222.3
124.2
346.5
346.5
A: Revenue and profit by segment
United Kingdom
Shopping centres
Retail parks
Other
France
Ireland
Investment portfolio
Developments
Property portfolio
Less share of Property interests
Reported Group
2017
Gross rental
income
£m
Net rental
income
£m
Gross rental
income
£m
2016
Net rental
income
£m
180.2
72.4
12.3
264.9
104.6
37.9
407.4
14.5
421.9
152.9
69.3
8.8
231.0
95.3
34.8
361.1
9.3
370.4
174.2
84.0
13.8
272.0
101.1
13.7
386.8
11.9
398.7
148.4
79.6
9.3
237.3
89.3
12.5
339.1
7.4
346.5
(173.0)
(147.8)
248.9
222.6
(147.4)
251.3
(124.2)
222.3
B: Investment and development property assets by segment
United Kingdom
Shopping centres
Retail parks
Other
France
Ireland
Investment portfolio
Developments
Property portfolio – excluding premium outlets
Premium outlets
Total Group
Less premium outlets
Less share of Property interests
Reported Group
Property
valuation
£m
Property
additions
£m
Revaluation
gains/(losses)
£m
Property
valuation
£m
Property
additions
£m
2017
2016
Revaluation
gains/(losses)
£m
3,488.9
1,234.1
180.1
4,903.1
1,887.0
959.6
7,749.7
576.6
8,326.3
2,234.1
10,560.4
(2,234.1)
(3,640.2)
4,686.1
28.4
46.7
3.4
78.5
55.4
124.5
258.4
150.8
409.2
278.9
688.1
(278.9)
(65.7)
343.5
23.9
(27.2)
13.4
10.1
(11.4)
(1.5)
(2.8)
24.1
21.3
225.2
246.5
(225.2)
(19.4)
1.9
3,436.5
1,320.0
163.5
4,920.0
2,159.6
805.1
7,884.7
397.0
8,281.7
1,689.4
9,971.1
(1,689.4)
(3,517.8)
4,763.9
369.8
19.8
0.8
390.4
65.6
801.9
1,257.9
274.9
1,532.8
200.5
1,733.3
(200.5)
(778.9)
753.9
(5.8)
(118.3)
2.2
(121.9)
73.3
3.2
(45.4)
32.0
(13.4)
138.4
125.0
(138.4)
(11.3)
(24.7)
HAMMERSON.COM 141
HAMMERSON.COM 141
FINANCIAL STATEMENTS
Notes to the financial statements continued
3: Segmental analysis (continued)
C: Analysis of non-current assets employed
United Kingdom
Continental Europe
Ireland
Non-current assets employed
2017
£m
5,255.5
3,433.6
832.9
9,522.0
2016
£m
5,210.7
3,357.8
1,007.7
9,576.2
Included in the above table are investments in joint ventures of £3,673.7 million (2016: £3,736.7 million), which are further analysed in note 12 on
pages 149 to 154. The Group’s share of the property valuations held within Property interests of £3,640.2 million (2016: £3,517.8 million) has been
included in note 3B above, of which £2,650.2 million (2016: £2,562.6 million) relates to the United Kingdom, £211.5 million (2016: £205.1 million)
relates to Continental Europe and £778.5 million (2016: £750.1 million) relates to Ireland.
4: Administration expenses
Administration expenses include the following items:
Staff costs
Salaries and wages
Performance-related bonuses
– payable in cash
– payable in shares
Other share-based employee remuneration
Social security
Net pension expense
– defined contribution scheme
Total
Note
6A
2017
£m
32.8
7.2
1.1
8.3
4.3
8.1
2.9
2016
£m
30.8
7.0
1.2
8.2
4.4
7.5
2.7
56.4
53.6
Of the above amount, £0.1 million (2016: £1.6 million) was capitalised in respect of development projects.
Staff throughout the Company, including Executive Directors, participate in a performance-related bonus scheme which, for certain senior
employees, is part payable in cash and part payable in shares. The Company also operates a number of share plans under which employees, including
Executive Directors, are eligible to participate. Further details of share-based payment arrangements, some of which have performance conditions,
are provided in the Directors’ Remuneration Report on pages 88 to 113.
Staff numbers
Average number of staff
Staff recharged to tenants, included above
2017
Number
558
231
2016
Number
565
219
The Reported Group’s employee and corporate costs of £60.5 million (2016: £54.3 million), as shown in note 2, includes £23.4 million (2016:
£22.6 million) recharged to tenants and co-owners.
Other information
Auditor’s remuneration1:
Audit of the Company’s annual financial statements
Audit of subsidiaries, pursuant to legislation
Audit-related assurance services
Audit and audit-related assurance services
Other fees2
Total auditor’s remuneration
Depreciation of plant and equipment
Operating lease expenses
2017
£m
0.2
0.3
0.1
0.6
0.3
0.9
2.1
3.5
2016
£m
0.3
0.3
0.1
0.7
0.1
0.8
2.0
3.4
Note
1. As explained in the Audit Committee Report on page 85, the Company changed its auditor during the year. The figures for 2017 and 2016 relate to PwC and Deloitte respectively.
2. In 2017, other fees were payable to PwC for work on the Qualified Financial Benefits Statement to assess the future synergies in respect of the potential acquisition of
intu properties plc, for the provision of training materials, and for other assurance and advisory services. In 2016, other fees payable to Deloitte were principally for tax related work
and a review of the Group’s sustainability reporting.
HAMMERSON PLC ANNUAL REPORT 2017
142
142 HAMMERSON PLC ANNUAL REPORT 2017
Included in the above table are investments in joint ventures of £3,673.7 million (2016: £3,736.7 million), which are further analysed in note 12 on
pages 149 to 154. The Group’s share of the property valuations held within Property interests of £3,640.2 million (2016: £3,517.8 million) has been
included in note 3B above, of which £2,650.2 million (2016: £2,562.6 million) relates to the United Kingdom, £211.5 million (2016: £205.1 million)
relates to Continental Europe and £778.5 million (2016: £750.1 million) relates to Ireland.
Notes to the financial statements continued
3: Segmental analysis (continued)
C: Analysis of non-current assets employed
United Kingdom
Continental Europe
Ireland
4: Administration expenses
Administration expenses include the following items:
Staff costs
Salaries and wages
Performance-related bonuses
– payable in cash
– payable in shares
Other share-based employee remuneration
Net pension expense
– defined contribution scheme
Social security
Total
Non-current assets employed
2017
£m
5,255.5
3,433.6
832.9
9,522.0
2016
£m
5,210.7
3,357.8
1,007.7
9,576.2
Note
6A
2017
£m
32.8
7.2
1.1
8.3
4.3
8.1
2.9
2017
£m
0.2
0.3
0.1
0.6
0.3
0.9
2.1
3.5
2016
£m
30.8
7.0
1.2
8.2
4.4
7.5
2.7
2016
£m
0.3
0.3
0.1
0.7
0.1
0.8
2.0
3.4
2017
Number
558
231
2016
Number
565
219
5: Directors’ emoluments
Full details of the Directors’ emoluments, as required by the Companies Act 2006, are disclosed in the audited sections of the Directors’
Remuneration Report on pages 88 to 113. The Company did not grant any credits, advances or guarantees of any kind to its Directors during the
current and preceding years.
6: Pensions
A: Defined contribution pension scheme
The Company operates a UK funded approved Group Personal Pension Plan which is a defined contribution pension scheme. The Group’s cost for
the year was £2.9 million (2016: £2.7 million).
B: Defined benefit pension schemes
Hammerson Group Management Limited Pension & Life Assurance Scheme (the ‘Scheme’).
The Scheme is funded and the funds, which are administered by trustees, are independent of the Group’s finances. The Scheme was closed to new
entrants on 31 December 2002 and was closed to future accrual for all participating employees on 30 June 2014.
Unfunded Unapproved Retirement Schemes
The Company also operates three Unfunded Unapproved Retirement Schemes. Two schemes provide pension benefits to two former Executive
Directors, the other meets pension commitment obligations to former US employees.
C: Changes in present value of defined benefit pension schemes
At 1 January
Amounts recognised in the income statement
– interest (cost)/income1
Amounts recognised in equity
– actuarial experience (losses)/gains
56.4
53.6
– actuarial losses from changes in financial assumptions
– actuarial gains from changes in demographic assumptions
Of the above amount, £0.1 million (2016: £1.6 million) was capitalised in respect of development projects.
Staff throughout the Company, including Executive Directors, participate in a performance-related bonus scheme which, for certain senior
employees, is part payable in cash and part payable in shares. The Company also operates a number of share plans under which employees, including
Executive Directors, are eligible to participate. Further details of share-based payment arrangements, some of which have performance conditions,
are provided in the Directors’ Remuneration Report on pages 88 to 113.
The Reported Group’s employee and corporate costs of £60.5 million (2016: £54.3 million), as shown in note 2, includes £23.4 million (2016:
Staff numbers
Average number of staff
Staff recharged to tenants, included above
£22.6 million) recharged to tenants and co-owners.
Other information
Auditor’s remuneration1:
Audit of the Company’s annual financial statements
Audit of subsidiaries, pursuant to legislation
Audit-related assurance services
Audit and audit-related assurance services
Other fees2
Total auditor’s remuneration
Depreciation of plant and equipment
Operating lease expenses
Note
1. As explained in the Audit Committee Report on page 85, the Company changed its auditor during the year. The figures for 2017 and 2016 relate to PwC and Deloitte respectively.
2. In 2017, other fees were payable to PwC for work on the Qualified Financial Benefits Statement to assess the future synergies in respect of the potential acquisition of
intu properties plc, for the provision of training materials, and for other assurance and advisory services. In 2016, other fees payable to Deloitte were principally for tax related work
and a review of the Group’s sustainability reporting.
Contributions by employer2
Benefits
Exchange gains/(losses)
At 31 December
Analysed as:
Present value of the Scheme
Present value of Unfunded Retirement Schemes
Analysed as:
Current liabilities (note 18)
Non-current liabilities (note 22)
Notes
1. Included in Other interest payable (note 7).
2. The Group expects to make contributions totalling £3.5 million to the Scheme in 2018.
D: Summary of Scheme assets
Diversified Growth Funds
Equities
Global Absolute Return Strategies Fund
Total invested assets
Cash
Total Scheme assets
Obligations
£m
(120.0)
Assets
£m
65.3
(3.4)
(1.0)
(4.8)
2.3
(3.5)
–
3.3
0.5
(123.1)
(110.0)
(13.1)
(123.1)
1.9
3.2
–
–
3.2
3.5
(2.2)
–
71.7
71.7
–
71.7
2017
Net
£m
Obligations
£m
(54.7)
(100.7)
(1.5)
(3.7)
2.2
(4.8)
2.3
(0.3)
3.5
1.1
0.5
2.6
(19.9)
0.5
(16.8)
–
3.2
(2.0)
(51.4)
(120.0)
(106.2)
(13.8)
(120.0)
(38.3)
(13.1)
(51.4)
(0.8)
(50.6)
(51.4)
Assets
£m
62.7
2.4
0.9
–
–
0.9
1.5
(2.2)
–
65.3
65.3
–
65.3
2017
£m
49.4
21.4
–
70.8
0.9
71.7
2016
Net
£m
(38.0)
(1.3)
3.5
(19.9)
0.5
(15.9)
1.5
1.0
(2.0)
(54.7)
(40.9)
(13.8)
(54.7)
(0.9)
(53.8)
(54.7)
2016
£m
21.4
22.0
21.8
65.2
0.1
65.3
142 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 143
HAMMERSON.COM 143
FINANCIAL STATEMENTS
Notes to the financial statements continued
6: Pensions (continued)
E: Principal actuarial assumptions used for defined benefit pension schemes
Discount rate for Scheme liabilities
Increase in retail price index
Increase in pensions in payment
Life expectancy from age 60 for Scheme members:
Male aged 60 at 31 December
Male aged 40 at 31 December
Weighted average maturity
The Scheme
UK Unfunded Retirement Scheme
French Unfunded Retirement Scheme
US Unfunded Retirement Scheme
2017
%
2.6
3.2
3.2
Age
27.8
29.4
Years
18.2
13.2
13.0
6.6
2016
%
2.9
3.3
3.3
Age
28.1
29.9
Years
18.7
13.3
13.4
7.1
The present value of defined benefit obligations has been calculated by an external actuary. This was taken as the present value of accrued benefits
and pensions in payment calculated using the projected unit credit method.
F: Sensitivities to changes in assumptions and conditions
(Decrease)/Increase in net present value of the Scheme at 31 December
Discount rate + 0.1%
Price inflation + 0.1%
Long-term improvements in longevity + 0.25% per annum
Asset value falls 5%
7: Net finance costs
Interest on bank loans and overdrafts
Interest on other borrowings
Interest on obligations under head leases
Other interest payable
Gross interest costs
Less: Interest capitalised
Finance costs
Debt and loan facility cancellation costs1
Change in fair value of derivatives
Finance income
2017
£m
(2.0)
2.0
1.0
3.6
2017
£m
12.3
109.8
2.2
1.8
126.1
(0.8)
125.3
41.5
21.3
(16.1)
172.0
2016
£m
(2.1)
2.0
1.5
3.3
2016
£m
19.7
102.0
2.1
2.5
126.3
(5.1)
121.2
0.4
3.5
(12.4)
112.7
1. Includes costs of £41.1 million (2016: £nil) to cancel the £250 million 6.875% sterling bonds due 2020 and other loan facility cancellation costs of £0.4 million (2016: £0.4 million).
8: Tax
A: Tax charge
UK current tax
Foreign current tax
Tax charge
2017
£m
0.2
1.6
1.8
2016
£m
0.2
1.7
1.9
The Group’s tax charge remains low because it has tax exempt status in its principal operating countries. In the UK, the Group has been a REIT since
2007 and a SIIC in France since 2004. These tax regimes exempt the Group’s property income and gains from corporate taxes provided a number of
conditions in relation to the Group’s activities are met including, but not limited to, distributing at least 90% of the Group’s UK tax exempt profit as
property income distributions (PID). The residual business in both the UK and France are subject to corporation tax as normal. The Irish properties
are held in a QIAIF which provides similar tax benefits to those of a UK REIT but which subject distributions from Ireland to the UK to a 20%
withholding tax.
HAMMERSON PLC ANNUAL REPORT 2017
144
144 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
6: Pensions (continued)
E: Principal actuarial assumptions used for defined benefit pension schemes
Life expectancy from age 60 for Scheme members:
Male aged 60 at 31 December
Male aged 40 at 31 December
Discount rate for Scheme liabilities
Increase in retail price index
Increase in pensions in payment
Weighted average maturity
The Scheme
UK Unfunded Retirement Scheme
French Unfunded Retirement Scheme
US Unfunded Retirement Scheme
and pensions in payment calculated using the projected unit credit method.
F: Sensitivities to changes in assumptions and conditions
(Decrease)/Increase in net present value of the Scheme at 31 December
Long-term improvements in longevity + 0.25% per annum
Discount rate + 0.1%
Price inflation + 0.1%
Asset value falls 5%
7: Net finance costs
The present value of defined benefit obligations has been calculated by an external actuary. This was taken as the present value of accrued benefits
Interest on bank loans and overdrafts
Interest on other borrowings
Interest on obligations under head leases
Other interest payable
Gross interest costs
Less: Interest capitalised
Finance costs
Debt and loan facility cancellation costs1
Change in fair value of derivatives
Finance income
8: Tax
A: Tax charge
UK current tax
Foreign current tax
Tax charge
withholding tax.
1. Includes costs of £41.1 million (2016: £nil) to cancel the £250 million 6.875% sterling bonds due 2020 and other loan facility cancellation costs of £0.4 million (2016: £0.4 million).
The Group’s tax charge remains low because it has tax exempt status in its principal operating countries. In the UK, the Group has been a REIT since
2007 and a SIIC in France since 2004. These tax regimes exempt the Group’s property income and gains from corporate taxes provided a number of
conditions in relation to the Group’s activities are met including, but not limited to, distributing at least 90% of the Group’s UK tax exempt profit as
property income distributions (PID). The residual business in both the UK and France are subject to corporation tax as normal. The Irish properties
are held in a QIAIF which provides similar tax benefits to those of a UK REIT but which subject distributions from Ireland to the UK to a 20%
2017
%
2.6
3.2
3.2
Age
27.8
29.4
Years
18.2
13.2
13.0
6.6
2017
£m
(2.0)
2.0
1.0
3.6
2017
£m
12.3
109.8
2.2
1.8
126.1
(0.8)
125.3
41.5
21.3
(16.1)
172.0
2017
£m
0.2
1.6
1.8
2016
%
2.9
3.3
3.3
Age
28.1
29.9
Years
18.7
13.3
13.4
7.1
2016
£m
(2.1)
2.0
1.5
3.3
2016
£m
19.7
102.0
2.1
2.5
126.3
(5.1)
121.2
0.4
3.5
(12.4)
112.7
2016
£m
0.2
1.7
1.9
B: Tax charge reconciliation
Profit before tax
Less: Profit after tax of joint ventures
Less: Profit after tax of associates
Profit on ordinary activities before tax
Profit multiplied by the UK corporation tax rate of 19.25% (2016: 20%)
UK REIT tax exemption
French SIIC tax exemption
Irish QIAIF tax exemption
Losses for the year not utilised
Non-deductible and other items
Tax charge
Notes
2
12A
13A
2017
£m
413.4
(180.5)
(223.0)
9.9
1.9
(4.5)
(14.3)
6.6
9.5
2.6
1.8
2016
£m
322.8
(169.2)
(137.1)
16.5
3.3
17.6
(23.6)
2.0
1.8
0.8
1.9
C: Unrecognised deferred tax
A deferred tax asset is not recognised for UK revenue losses and UK capital losses where their future utilisation is uncertain. At 31 December 2017,
the total of such losses was £440 million (2016: £330 million) and £460 million (2016: £465 million) respectively, and the potential tax effect of these
was £75 million (2016: £53 million) and £78 million (2016: £79 million) respectively.
Deferred tax is not provided on potential gains on investments in subsidiaries when the Group can control whether gains crystallise and it is probable
that gains will not arise in the foreseeable future. At 31 December 2017, the total of such gains was £690 million (2016: £640 million) and the potential
tax effect before the offset of losses was £117 million (2016: £109 million).
If a UK REIT sells a property within three years of completion of development, the REIT exemption will not apply. At 31 December 2017 the value of
such completed properties was £269 million (2016: £258 million). If these properties were to be sold without the benefit of the tax exemption the tax
arising would be £nil (2016: £nil) due to the availability of capital losses.
9: Dividends
The proposed final dividend of 14.8 pence per share was recommended by the Board on 23 February 2018 and, subject to approval by shareholders, is
payable on 26 April 2018 to shareholders on the register at the close of business on 16 March 2018. 7.4 pence per share will be paid as a PID, net of
withholding tax at the basic rate (currently 20%) if applicable, and 7.4 pence per share will be paid as a normal dividend. There will be no scrip
alternative although the dividend reinvestment plan (DRIP) remains available to shareholders. The aggregate amount of the 2017 final dividend is
£117.5 million. This has been calculated using the total number of eligible shares outstanding at 31 December 2017.
The interim dividend of 10.7 pence per share was paid on 9 October 2017 as a PID, net of withholding tax where appropriate. The total dividend for
the year ended 31 December 2017 would be 25.5 pence per share (2016: 24.0 pence per share).
PID
pence
per share
Non-PID
pence
per share
Total
pence
per share
Equity
dividends
2017
£m
Equity
dividends
2016
£m
Current year
2017 final dividend
2017 interim dividend
Prior years
2016 final dividend
2016 interim dividend
2015 final dividend
Dividends as reported in the consolidated statement of changes in equity
2015 interim dividend withholding tax (paid 2016)
2015 final dividend non-PID scrip alternative
2016 interim dividend withholding tax (paid 2017)
2016 interim dividend PID scrip alternative
2017 interim dividend withholding tax (paid 2018)
Dividends paid as reported in the consolidated cash flow statement
1. A PID scrip alternative was offered to shareholders.
7.4
10.7
18.1
4.9
10.11
15.0
7.4
–
7.4
9.0
–
9.0
14.8
10.7
25.5
13.9
10.1
24.0
–
84.2
–
–
109.4
–
–
193.6
–
–
11.5
–
(13.4)
191.7
–
79.8
100.3
180.1
11.2
(36.7)
(11.5)
(7.4)
–
135.7
144 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 145
HAMMERSON.COM 145
FINANCIAL STATEMENTS
Notes to the financial statements continued
10: Earnings and headline earnings per share and net asset value per share
The European Public Real Estate Association (EPRA) has issued recommended bases for the calculation of certain per share information and
these are included in the following tables B and D. Commentary on earnings and net asset value per share is provided in the Financial Review
on pages 53 to 60. Headline earnings per share has been calculated and presented in note 10C as required by the Johannesburg Stock Exchange
listing requirements.
A: Number of shares for earnings and headline earnings per share calculations
Basic, EPRA and Adjusted
Diluted
2017
Shares
million
792.9
794.0
2016
Shares
million
789.0
790.7
The calculations for earnings per share use the weighted average number of shares, which excludes those shares held in the Hammerson Employee
Share Ownership Plan, which are treated as cancelled.
B: Earnings per share
Basic
Dilutive share schemes
Diluted
Basic
Adjustments:
Revaluation (gains)/losses on
properties:
Reported Group
Share of Property interests
Loss on sale of properties:
Reported Group
Net exchange gain previously
recognised in equity, recycled on
disposal of foreign operations:
Reported Group
Debt and loan facility cancellation
costs:
Reported Group
Change in fair value
of derivatives:
Reported Group
Share of Property interests
Other adjustments:
Reported Group
Gain on sale of other investments
Potential business acquisition costs
Non-controlling interests
Premium outlets:
Revaluation gains on properties
Deferred tax (including on acquisition)
Other adjustments
2
2
2
2
7
7
12B
2
2
2
12B, 13B
12B, 13B
12B, 13B
Total adjustments
EPRA
Other adjustments:
Adjusted
Translation movement on intragroup
funding loan: Premium outlets
12B
HAMMERSON PLC ANNUAL REPORT 2017
146
146 HAMMERSON PLC ANNUAL REPORT 2017
Notes
2
Earnings
£m
388.4
–
388.4
2017
Pence
per share
49.0
(0.1)
48.9
Earnings
£m
317.3
–
317.3
2016
Pence
per share
40.2
(0.1)
40.1
388.4
49.0
317.3
40.2
(1.9)
(19.4)
(21.3)
15.5
(0.2)
(2.5)
(2.7)
2.0
24.7
(11.3)
13.4
24.0
3.1
(1.4)
1.7
3.0
(27.8)
(3.5)
–
–
0.4
0.1
41.5
21.3
–
21.3
–
6.5
19.6
26.1
5.2
2.7
–
2.7
–
0.8
2.5
3.3
3.5
(0.8)
2.7
(1.3)
–
0.3
(1.0)
(225.2)
(28.4)
(138.4)
35.0
(6.2)
(196.4)
(141.1)
247.3
(1.0)
246.3
4.4
(0.8)
(24.8)
(17.8)
31.2
(0.1)
31.1
14.3
(1.8)
(125.9)
(86.4)
230.9
(0.2)
230.7
0.4
(0.1)
0.3
(0.1)
–
–
(0.1)
(17.5)
1.8
(0.3)
(16.0)
(11.0)
29.2
–
29.2
Notes to the financial statements continued
10: Earnings and headline earnings per share and net asset value per share
The European Public Real Estate Association (EPRA) has issued recommended bases for the calculation of certain per share information and
these are included in the following tables B and D. Commentary on earnings and net asset value per share is provided in the Financial Review
on pages 53 to 60. Headline earnings per share has been calculated and presented in note 10C as required by the Johannesburg Stock Exchange
A: Number of shares for earnings and headline earnings per share calculations
listing requirements.
Basic, EPRA and Adjusted
Diluted
Dilutive share schemes
Basic
Diluted
Basic
Adjustments:
properties:
The calculations for earnings per share use the weighted average number of shares, which excludes those shares held in the Hammerson Employee
Share Ownership Plan, which are treated as cancelled.
B: Earnings per share
Earnings
£m
per share
Notes
2
388.4
49.0
317.3
40.2
2017
Shares
million
792.9
794.0
2016
Shares
million
789.0
790.7
2017
Pence
49.0
(0.1)
48.9
(0.2)
(2.5)
(2.7)
2.0
5.2
2.7
–
2.7
–
0.8
2.5
3.3
4.4
(0.8)
(24.8)
(17.8)
31.2
(0.1)
31.1
Earnings
£m
317.3
–
317.3
24.7
(11.3)
13.4
24.0
3.5
(0.8)
2.7
(1.3)
–
0.3
(1.0)
14.3
(1.8)
(125.9)
(86.4)
230.9
(0.2)
230.7
2016
Pence
per share
40.2
(0.1)
40.1
3.1
(1.4)
1.7
3.0
0.4
(0.1)
0.3
(0.1)
–
–
(0.1)
(17.5)
1.8
(0.3)
(16.0)
(11.0)
29.2
–
29.2
2
2
2
2
7
7
2
2
2
388.4
–
388.4
(1.9)
(19.4)
(21.3)
15.5
41.5
21.3
21.3
–
–
6.5
19.6
26.1
35.0
(6.2)
(196.4)
(141.1)
247.3
(1.0)
246.3
Revaluation (gains)/losses on
Reported Group
Share of Property interests
Loss on sale of properties:
Reported Group
Net exchange gain previously
recognised in equity, recycled on
disposal of foreign operations:
Reported Group
(27.8)
(3.5)
–
–
Debt and loan facility cancellation
costs:
Reported Group
0.4
0.1
Change in fair value
of derivatives:
Reported Group
Share of Property interests
12B
Other adjustments:
Reported Group
Gain on sale of other investments
Potential business acquisition costs
Non-controlling interests
Premium outlets:
Revaluation gains on properties
(225.2)
(28.4)
(138.4)
Deferred tax (including on acquisition)
Other adjustments
12B, 13B
12B, 13B
12B, 13B
Total adjustments
EPRA
Other adjustments:
Adjusted
Translation movement on intragroup
funding loan: Premium outlets
12B
C: Headline earnings per share
Profit for the year attributable to equity shareholders
Revaluation (gains)/losses on properties: Reported Group and Share of Property interests
Loss on sale of properties: Reported Group
Net exchange gain previously recognised in equity, recycled on disposal of foreign operations:
Reported Group
Gain on sale of other investments: Reported Group
Non-controlling interests
Revaluation gains on properties: Premium outlets
Deferred tax (including on acquisition): Premium outlets
Loss on sale of properties: Premium outlets
Translation movements on intragroup funding loan: Premium outlets
Headline earnings
Basic headline earnings per share (pence)
Diluted headline earnings per share (pence)
Reconciliation of headline earnings to adjusted earnings
Headline earnings as above
Debt and loan facility cancellation costs: Reported Group
Change in fair value of derivatives: Reported Group and Share of Property interests
Potential business acquisition costs: Reported Group
Change in fair value of derivatives: Premium outlets
Change in fair value of participative loans – revaluation movement: Premium outlets
Loan facility costs written off: Premium outlets
Adjusted earnings
D: Net asset value per share
Basic
Company’s own shares held in Employee Share
Ownership Plan
Dilutive share schemes
Diluted
Fair value adjustment to borrowings
– Reported Group
– Share of Property interests
EPRA NNNAV
Fair value adjustment to borrowings
Deferred tax: Reported Group
Equity
shareholders’
funds
£m
6,023.5
Notes
–
1.4
Shares
million
794.2
(1.0)
1.2
6,024.9
794.4
20H
(262.0)
(2.3)
(264.3)
5,760.6
264.3
0.5
(6.3)
(9.7)
212.0
(57.1)
145.2
Fair value of interest rate swaps – Reported Group
20H
Premium outlets
– Fair value of derivatives
– Deferred tax
– Goodwill as a result of deferred tax
12C, 13D
12C, 13D
12C, 13D
EPRA NAV
6,164.3
794.4
2017
Earnings
£m
388.4
(21.3)
15.5
(27.8)
–
19.6
2016
Earnings
£m
317.3
13.4
24.0
–
(1.3)
0.3
(225.2)
(138.4)
Notes
2
10B
10B
10B
10B
10B
10B
10B
12B
12B
10B
10B
10B
12B, 13B
13B
13B
2017
Net asset
value
per share
£
Equity
shareholders’
funds
£m
7.58
5,775.6
35.0
–
(1.0)
183.2
23.1p
23.1p
2017
Earnings
£m
183.2
41.5
21.3
6.5
3.6
(11.8)
2.0
246.3
Shares
million
793.2
(0.9)
1.7
n/a
n/a
7.58
(0.33)
–
(0.33)
7.25
0.33
–
(0.01)
(0.01)
0.27
(0.07)
0.19
7.76
–
1.1
5,776.7
794.0
(316.1)
–
(316.1)
5,460.6
316.1
0.5
(19.3)
3.2
160.4
(57.0)
106.6
5,864.5
794.0
14.3
0.1
(0.2)
229.5
29.1p
29.0p
2016
Earnings
£m
229.5
0.4
2.7
–
14.5
(16.6)
0.2
230.7
2016
Net asset
value
per share
£
7.28
n/a
n/a
7.28
(0.40)
–
(0.40)
6.88
0.40
–
(0.02)
–
0.20
(0.07)
0.13
7.39
146 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 147
HAMMERSON.COM 147
FINANCIAL STATEMENTS
Notes to the financial statements continued
11: Investment and development properties
Balance at 1 January
Exchange adjustment
Additions – Asset acquisitions
– Capital expenditure
Transfer to investment in joint ventures
Disposals
Reclassification on completion of developments
Capitalised interest
Revaluation (losses)/gains
Balance at 31 December
Analysis of properties by tenure
Balance at 31 December 2017
Balance at 31 December 2016
Investment
properties
Valuation
£m
Development
properties
Valuation
£m
2017
Total
Valuation
£m
4,561.8
202.1
4,763.9
79.3
162.9
73.1
236.0
–
(506.6)
–
0.3
(21.9)
4.5
72.0
35.5
107.5
–
(1.2)
–
0.5
23.8
83.8
234.9
108.6
343.5
–
(507.8)
–
0.8
1.9
4,348.9
337.2
4,686.1
Investment
properties
Valuation
£m
4,418.9
268.0
465.2
57.9
523.1
(221.7)
(669.1)
303.9
–
(61.3)
4,561.8
Development
properties
Valuation
£m
233.2
0.3
108.8
122.0
230.8
–
–
(303.9)
5.1
36.6
202.1
2016
Total
Valuation
£m
4,652.1
268.3
574.0
179.9
753.9
(221.7)
(669.1)
–
5.1
(24.7)
4,763.9
Freehold
£m
Long leasehold
£m
3,345.7
3,499.2
1,340.4
1,264.7
Total
£m
4,686.1
4,763.9
Properties are stated at fair value as at 31 December 2017, valued by professionally qualified external valuers. Cushman & Wakefield Debenham Tie
Leung Limited, Chartered Surveyors have valued the Group’s properties, excluding those held by the Group’s premium outlet investments which have
been valued by Cushman & Wakefield LLP, Chartered Surveyors. Valuations have been prepared in accordance with the RICS Valuation – Professional
Standards 2014 based on certain assumptions as set out in note 1. Valuation fees are based on a fixed amount agreed between the Group and the valuers
and are independent of the portfolio value. Summaries of the valuers’ reports are available on the Company’s website: www.hammerson.com.
In the case of leasehold properties, valuations are net of any obligation to freeholders or superior leaseholders. To comply with IAS 40 and IAS 17
these obligations and the related leasehold assets are included in the balance sheet within ‘Obligations under head leases’ (note 21) and ‘Interests in
leasehold properties’ respectively. Further information is provided in ‘Significant accounting policies’ on page 138.
As noted in ‘Significant judgements and key estimates’ on page 136, real estate valuations are complex, derived from data which is not widely publicly
available and involve a degree of judgement. For these reasons, and consistent with EPRA’s guidance, we have classified the valuations of our property
portfolio as Level 3 as defined by IFRS 13. Inputs to the valuations, some of which are ‘unobservable’ as defined by IFRS 13, include capitalisation yields
(nominal equivalent yield) and market rental income (ERV). These inputs to the valuations are analysed by segment in the rental and valuation data
tables on pages 178 and 181 and the valuation change analysis in the Property Portfolio Review on page 51. All other factors remaining constant, an
increase in rental income would increase valuations, whilst increases in capitalisation yields and discount rates would result in a fall in values and vice
versa. However, there are interrelationships between unobservable inputs as they are determined by market conditions. The existence of an increase of
more than one unobservable input would augment the impact on valuation. The impact on the valuation would be mitigated by the interrelationship
between unobservable inputs moving in opposite directions. For example, an increase in rents may be offset by an increase in yield, resulting in no net
impact on the valuation. A sensitivity analysis showing the impact on valuations of changes in yields and rental income is shown below.
Key unobservable inputs sensitivity analysis
Reported Group
Impact on valuation of 25bp
change in nominal equivalent yield
Impact on valuation of 5% change
in estimated rental value (ERV)
Investment
properties
valuation
£m
4,348.9
Decrease
£m
224.7
Increase
£m
(203.7)
Increase
£m
217.4
Decrease
£m
(217.4)
The total amount of interest included in development properties at 31 December 2017 was £0.5 million (2016: £nil). Capitalised interest is calculated
using the cost of secured debt or the Group’s weighted average cost of borrowings, as appropriate, and the effective rate applied in 2017 was 2.9%
(2016: 3.1%). At 31 December 2017 the historic cost of investment and development properties was £3,912.8 million (2016: £3,852.6 million).
At 31 December 2017, investment properties included two properties with a total value of £92.5 million. A sale contract was exchanged in January 2018
and completed on 9 February 2018 for one property, and exchanged in February 2018 for the other property, with completion expected in March 2018.
Joint operations
At 31 December 2017, investment properties included properties with a value of £202.4 million (2016: £75.6 million) held within joint operations
which are jointly controlled and proportionally consolidated. The Hammerson ICAV acquired a 50% interest in the Ilac Centre, Dublin in December
2016 and a Co-Ownership agreement is in place with Irish Life Assurance plc, the holders of the remaining 50% interest. The Hammerson ICAV also
holds a 50% interest in Pavilions Swords, Dublin, acquired in September 2017 and a Co-Ownership agreement is in place with Irish Life Assurance
plc and IPUT plc, both of which hold a 25% interest in the property. See note 12D on page 154 for further details.
HAMMERSON PLC ANNUAL REPORT 2017
148
148 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
11: Investment and development properties
Balance at 1 January
Exchange adjustment
Additions – Asset acquisitions
– Capital expenditure
Transfer to investment in joint ventures
Disposals
Reclassification on completion of developments
Capitalised interest
Revaluation (losses)/gains
Balance at 31 December
Analysis of properties by tenure
Balance at 31 December 2017
Balance at 31 December 2016
2017
Investment
Development
properties
Valuation
£m
4,561.8
properties
Valuation
£m
Total
Valuation
£m
202.1
4,763.9
79.3
162.9
73.1
236.0
–
–
0.3
(21.9)
4,348.9
4.5
72.0
35.5
107.5
–
–
0.5
23.8
337.2
83.8
234.9
108.6
343.5
–
–
0.8
1.9
4,686.1
(506.6)
(1.2)
(507.8)
Investment
properties
Valuation
£m
4,418.9
268.0
465.2
57.9
523.1
(221.7)
(669.1)
303.9
–
(61.3)
4,561.8
Development
properties
Valuation
£m
233.2
0.3
108.8
122.0
230.8
–
–
(303.9)
5.1
36.6
202.1
2016
Total
Valuation
£m
4,652.1
268.3
574.0
179.9
753.9
(221.7)
(669.1)
–
5.1
(24.7)
4,763.9
Freehold
Long leasehold
£m
£m
3,345.7
3,499.2
1,340.4
1,264.7
Total
£m
4,686.1
4,763.9
Properties are stated at fair value as at 31 December 2017, valued by professionally qualified external valuers. Cushman & Wakefield Debenham Tie
Leung Limited, Chartered Surveyors have valued the Group’s properties, excluding those held by the Group’s premium outlet investments which have
been valued by Cushman & Wakefield LLP, Chartered Surveyors. Valuations have been prepared in accordance with the RICS Valuation – Professional
Standards 2014 based on certain assumptions as set out in note 1. Valuation fees are based on a fixed amount agreed between the Group and the valuers
and are independent of the portfolio value. Summaries of the valuers’ reports are available on the Company’s website: www.hammerson.com.
In the case of leasehold properties, valuations are net of any obligation to freeholders or superior leaseholders. To comply with IAS 40 and IAS 17
these obligations and the related leasehold assets are included in the balance sheet within ‘Obligations under head leases’ (note 21) and ‘Interests in
leasehold properties’ respectively. Further information is provided in ‘Significant accounting policies’ on page 138.
As noted in ‘Significant judgements and key estimates’ on page 136, real estate valuations are complex, derived from data which is not widely publicly
available and involve a degree of judgement. For these reasons, and consistent with EPRA’s guidance, we have classified the valuations of our property
portfolio as Level 3 as defined by IFRS 13. Inputs to the valuations, some of which are ‘unobservable’ as defined by IFRS 13, include capitalisation yields
(nominal equivalent yield) and market rental income (ERV). These inputs to the valuations are analysed by segment in the rental and valuation data
tables on pages 178 and 181 and the valuation change analysis in the Property Portfolio Review on page 51. All other factors remaining constant, an
increase in rental income would increase valuations, whilst increases in capitalisation yields and discount rates would result in a fall in values and vice
versa. However, there are interrelationships between unobservable inputs as they are determined by market conditions. The existence of an increase of
more than one unobservable input would augment the impact on valuation. The impact on the valuation would be mitigated by the interrelationship
between unobservable inputs moving in opposite directions. For example, an increase in rents may be offset by an increase in yield, resulting in no net
impact on the valuation. A sensitivity analysis showing the impact on valuations of changes in yields and rental income is shown below.
Key unobservable inputs sensitivity analysis
Reported Group
Impact on valuation of 25bp
Impact on valuation of 5% change
change in nominal equivalent yield
in estimated rental value (ERV)
Investment
properties
valuation
£m
4,348.9
Decrease
£m
224.7
Increase
£m
(203.7)
Increase
£m
217.4
Decrease
£m
(217.4)
The total amount of interest included in development properties at 31 December 2017 was £0.5 million (2016: £nil). Capitalised interest is calculated
using the cost of secured debt or the Group’s weighted average cost of borrowings, as appropriate, and the effective rate applied in 2017 was 2.9%
(2016: 3.1%). At 31 December 2017 the historic cost of investment and development properties was £3,912.8 million (2016: £3,852.6 million).
At 31 December 2017, investment properties included two properties with a total value of £92.5 million. A sale contract was exchanged in January 2018
and completed on 9 February 2018 for one property, and exchanged in February 2018 for the other property, with completion expected in March 2018.
Joint operations
At 31 December 2017, investment properties included properties with a value of £202.4 million (2016: £75.6 million) held within joint operations
which are jointly controlled and proportionally consolidated. The Hammerson ICAV acquired a 50% interest in the Ilac Centre, Dublin in December
2016 and a Co-Ownership agreement is in place with Irish Life Assurance plc, the holders of the remaining 50% interest. The Hammerson ICAV also
holds a 50% interest in Pavilions Swords, Dublin, acquired in September 2017 and a Co-Ownership agreement is in place with Irish Life Assurance
plc and IPUT plc, both of which hold a 25% interest in the property. See note 12D on page 154 for further details.
12: Investment in joint ventures
The Group has investments in a number of jointly controlled property and corporate interests, which have been equity accounted.
As explained the Financial Review on page 53, management reviews the business principally on a proportionally consolidated basis, except for its
premium outlet investments. The Group’s share of assets and liabilities of joint ventures is split between Property joint ventures, being joint
ventures which are proportionally consolidated, and VIA Outlets, a premium outlets investment, which is not proportionally consolidated.
The Group’s significant joint venture interests are set out in the table below. Further details of the Group’s interests in joint ventures are shown in
note H on pages 175 and 176.
Partner
Principal property1
Group share
%
United Kingdom
Bishopsgate Goodsyard Regeneration Limited
Brent Cross Shopping Centre
Brent South Shopping Park
Bristol Alliance Limited Partnership
Ballymore Properties
The Goodsyard
Aberdeen Standard Investments
Aberdeen Standard Investments
AXA Real Estate
Brent Cross
Brent South
Cabot Circus
Croydon Limited Partnership/Whitgift Limited Partnership
Westfield
Centrale/Whitgift
Grand Central Limited Partnership
Silverburn Unit Trust2
The Bull Ring Limited Partnership
The Oracle Limited Partnership
The West Quay Limited Partnership
VIA Limited Partnership2
Ireland
Dundrum Retail Limited Partnership /Dundrum Car Park Limited
Partnership
Triskelion Property Holding Designated Activity Company
(‘Triskelion’)
France
SCI ESQ
SCI RC Aulnay 1 and SCI RC Aulnay 2
CPPIB
CPPIB
TH Real Estate, CPPIB
ADIA
GIC
APG, Meyer Bergman, Value Retail
Allianz
Allianz
Grand Central
Silverburn
Bullring
The Oracle
Westquay
VIA Outlets
Dundrum
n/a
Allianz
Espace Saint-Quentin
Client of Rockspring Property
Investment Managers
O’Parinor
50
41.2
40.6
50
50
50
50
50
50
50
47
50
50
25
25
1. The names of the principal properties operated by each partnership have been used in the summary income statements and balance sheets in note 12A. Brent Cross and Brent
South are presented together as Brent Cross. The two Dundrum partnerships and Triskelion are presented together as the ‘Irish portfolio’. The Goodsyard, Espace Saint-Quentin
and O’Parinor are presented together as ‘Other’.
2. Registered in Jersey (see note H on page 176).
The Reported Group’s investment in joint ventures at 31 December 2017 was £3,673.7 million (2016: £3,736.7 million). An analysis of the movements
in the year is provided in note 12D on page 154.
The summarised income statements and balance sheets in note 12A show 100% of the results, assets and liabilities of joint ventures, and where
appropriate have been restated to the Group’s accounting policies and exclude all balances which are eliminated on consolidation.
148 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 149
HAMMERSON.COM 149
FINANCIAL STATEMENTS
Notes to the financial statements continued
12: Investment in joint ventures (continued)
A. Summary financial statements of joint ventures
Share of results of joint ventures for the year ended 31 December 2017
See pages 152 and 153 for footnotes.
Ownership (%)
Gross rental income
Net rental income
Administration expenses
Operating profit before other net gains/(losses)
Revaluation (losses)/gains on properties1
Operating profit/(loss)
Change in fair value of derivatives
Translation movement on intragroup funding loan
Other finance (costs)/income
Net finance (costs)/income
Profit/(Loss) before tax
Current tax charge
Deferred tax credit/(charge)
Profit/(Loss) for the year
Hammerson share of profit/(loss) for the year
Hammerson share of distributions payable2
Brent Cross
£m
Cabot Circus
£m
Bullring
£m
Grand
Central
£m
The Oracle
£m
Westquay
£m
41.2/40.6
47.7
43.1
–
43.1
(3.3)
39.8
–
–
–
–
39.8
–
–
39.8
16.4
–
50
37.5
31.5
–
31.5
9.2
40.7
–
–
(0.8)
(0.8)
39.9
–
–
39.9
19.9
8.3
50
57.4
50.8
–
50.8
33.5
84.3
–
–
–
–
84.3
–
–
84.3
42.2
22.3
50
10.3
7.8
–
7.8
(3.0)
4.8
–
–
(0.2)
(0.2)
4.6
–
–
4.6
2.3
1.2
50
34.9
29.5
–
29.5
1.6
31.1
–
–
–
–
31.1
–
0.1
31.2
15.6
7.8
50
35.4
28.0
–
28.0
38.2
66.2
–
–
(0.4)
(0.4)
65.8
–
–
65.8
32.9
–
Share of assets and liabilities of joint ventures as at 31 December 2017
Non-current assets
Investment and development properties
Goodwill
Other non-current assets
Current assets
Other current assets3
Cash and deposits
Current liabilities
Other payables
Tax
Loans and other borrowings – secured
Non-current liabilities
Loans and other borrowings – secured
Obligations under head leases
Other payables
Deferred tax
Net assets
Hammerson share of net assets
Balance due to Hammerson4
Total investment in joint ventures4
HAMMERSON PLC ANNUAL REPORT 2017
150
150 HAMMERSON PLC ANNUAL REPORT 2017
Brent Cross
£m
Cabot Circus
£m
Bullring
£m
Grand
Central
£m
The Oracle
£m
Westquay
£m
1,040.6
646.3
1,267.9
344.7
678.0
702.5
–
–
–
13.9
–
–
–
2.8
–
0.1
–
4.2
1,040.6
660.2
1,267.9
347.5
678.1
706.7
11.8
0.7
12.5
7.1
10.9
18.0
10.6
20.4
31.0
8.6
4.0
12.6
7.0
10.4
17.4
8.8
9.9
18.7
(18.3)
(14.8)
(20.8)
(10.2)
(11.4)
(13.9)
–
–
–
–
–
–
–
–
–
–
–
–
(18.3)
(14.8)
(20.8)
(10.2)
(11.4)
(13.9)
–
–
(1.2)
–
(1.2)
–
(13.9)
(0.6)
–
(14.5)
–
–
(1.4)
–
(1.4)
1,033.6
648.9
1,276.7
421.1
324.5
638.4
–
–
–
–
(2.8)
(0.3)
–
(3.1)
346.8
173.4
–
–
–
(1.0)
(0.2)
(1.2)
682.9
341.4
–
421.1
324.5
638.4
173.4
341.4
–
(4.2)
(697.9)
–
(702.1)
9.4
4.7
348.2
352.9
Notes to the financial statements continued
12: Investment in joint ventures (continued)
A. Summary financial statements of joint ventures
Share of results of joint ventures for the year ended 31 December 2017
Hammerson share of profit/(loss) for the year
Hammerson share of distributions payable2
Share of assets and liabilities of joint ventures as at 31 December 2017
See pages 152 and 153 for footnotes.
Ownership (%)
Gross rental income
Net rental income
Administration expenses
Operating profit before other net gains/(losses)
Revaluation (losses)/gains on properties1
Operating profit/(loss)
Change in fair value of derivatives
Translation movement on intragroup funding loan
Other finance (costs)/income
Net finance (costs)/income
Profit/(Loss) before tax
Current tax charge
Deferred tax credit/(charge)
Profit/(Loss) for the year
Non-current assets
Goodwill
Other non-current assets
Current assets
Other current assets3
Cash and deposits
Current liabilities
Other payables
Tax
Loans and other borrowings – secured
Non-current liabilities
Loans and other borrowings – secured
Obligations under head leases
Other payables
Deferred tax
Net assets
Hammerson share of net assets
Balance due to Hammerson4
Total investment in joint ventures4
150 HAMMERSON PLC ANNUAL REPORT 2017
£m
41.2/40.6
47.7
43.1
–
43.1
(3.3)
39.8
39.8
39.8
16.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£m
50
37.5
31.5
–
31.5
9.2
40.7
(0.8)
(0.8)
39.9
–
–
–
–
39.9
19.9
8.3
–
13.9
7.1
10.9
18.0
–
–
–
–
–
£m
50
57.4
50.8
50.8
33.5
84.3
–
–
–
–
–
–
–
84.3
84.3
42.2
22.3
–
–
–
–
–
–
–
–
Grand
Central
£m
50
10.3
7.8
–
7.8
(3.0)
4.8
–
–
(0.2)
(0.2)
4.6
–
–
4.6
2.3
1.2
Grand
Central
£m
–
2.8
8.6
4.0
12.6
–
–
–
–
£m
50
34.9
29.5
–
29.5
1.6
31.1
–
–
–
–
–
31.1
0.1
31.2
15.6
7.8
–
0.1
7.0
10.4
17.4
–
–
–
–
£m
50
35.4
28.0
–
28.0
38.2
66.2
–
–
–
–
–
(0.4)
(0.4)
65.8
65.8
32.9
–
4.2
8.8
9.9
18.7
–
–
–
–
(4.2)
(697.9)
(702.1)
9.4
4.7
348.2
352.9
11.8
0.7
12.5
10.6
20.4
31.0
(18.3)
(14.8)
(20.8)
(10.2)
(11.4)
(13.9)
(18.3)
(14.8)
(20.8)
(10.2)
(11.4)
(13.9)
(1.2)
(1.4)
(13.9)
(0.6)
(2.8)
(0.3)
(1.2)
(14.5)
(1.4)
(3.1)
1,033.6
648.9
1,276.7
421.1
324.5
638.4
346.8
173.4
–
421.1
324.5
638.4
173.4
341.4
(1.0)
(0.2)
(1.2)
682.9
341.4
–
Brent Cross
Cabot Circus
Bullring
The Oracle
Westquay
Silverburn
£m
Centrale/Whitgift
£m
Irish
portfolio
£m
VIA Outlets
£m
50
22.1
20.1
(0.1)
20.0
(24.0)
(4.0)
–
–
–
–
(4.0)
–
–
(4.0)
(2.0)
7.1
50
24.4
15.2
(0.1)
15.1
(1.4)
13.7
–
–
–
–
13.7
–
–
13.7
6.9
–
50
64.5
59.2
(0.6)
58.6
(3.3)
55.3
–
–
5.9
5.9
61.2
–
–
61.2
30.6
22.8
47
77.1
54.7
(9.5)
45.2
29.5
74.7
3.5
2.1
(13.5)
(7.9)
66.8
(3.4)
(34.5)
28.9
13.6
14.5
Other
£m
various
33.6
29.8
(0.2)
29.6
(19.1)
10.5
–
–
(2.9)
(2.9)
7.6
–
–
7.6
2.1
0.6
Brent Cross
Cabot Circus
£m
£m
Bullring
£m
The Oracle
Westquay
£m
£m
Silverburn
£m
Centrale/Whitgift
£m
Irish
portfolio
£m
VIA Outlets
£m
Other
£m
100%
Total
2017
£m
444.9
369.7
(10.5)
359.2
57.9
417.1
3.5
2.1
(11.9)
(6.3)
410.8
(3.4)
(34.4)
373.0
180.5
84.6
100%
Total
2017
£m
Property joint
ventures
£m
VIA Outlets
£m
171.4
146.4
(0.5)
145.9
19.4
165.3
–
–
1.6
1.6
166.9
–
–
36.2
25.6
(4.4)
21.2
14.0
35.2
1.6
1.0
(6.4)
(3.8)
31.4
(1.6)
(16.2)
Hammerson share
Total
2017
£m
207.6
172.0
(4.9)
167.1
33.4
200.5
1.6
1.0
(4.8)
(2.2)
198.3
(1.6)
(16.2)
166.9
13.6
180.5
Hammerson share
Property joint
ventures
£m
VIA Outlets
£m
Investment and development properties
1,040.6
646.3
1,267.9
344.7
678.0
702.5
334.5
363.9
1,557.0
1,278.8
835.9
9,050.1
–
–
–
–
–
–
–
0.5
–
–
–
21.5
3,611.1
–
10.5
1,040.6
660.2
1,267.9
347.5
678.1
706.7
334.5
363.9
1,557.0
1,279.3
835.9
9,071.6
3,621.6
Total
2017
£m
4,211.4
3.6
10.7
4,225.7
67.2
79.4
146.6
(99.8)
(0.7)
(76.3)
(176.8)
(441.8)
(10.4)
(9.9)
(59.7)
(521.8)
600.3
3.6
0.2
604.1
14.5
20.9
35.4
(20.2)
–
(27.7)
(47.9)
(166.8)
–
(3.8)
(59.7)
(230.3)
2.8
15.4
18.2
(6.3)
(1.4)
–
(7.7)
–
–
–
–
–
345.0
172.5
–
172.5
5.7
22.6
28.3
24.0
17.9
41.9
30.4
44.6
75.0
(24.6)
(17.9)
(43.0)
–
–
–
–
(24.6)
(17.9)
–
(58.8)
(101.8)
(550.0)
(355.8)
–
–
(104.9)
–
–
(0.8)
–
(104.9)
(550.8)
262.7
1,030.2
131.3
52.4
183.7
515.1
–
515.1
–
(8.2)
(127.2)
(491.2)
761.3
361.3
–
361.3
14.3
7.9
22.2
(4.7)
–
(194.3)
(199.0)
–
–
131.1
164.7
295.8
(185.9)
(1.4)
(253.1)
(440.4)
(905.8)
(20.9)
(196.3)
(1,012.6)
–
(127.4)
52.7
58.5
111.2
(79.6)
(0.7)
(48.6)
(128.9)
(275.0)
(10.4)
(6.1)
–
(196.3)
(2,066.7)
(291.5)
462.8
6,860.3
125.1
64.3
189.4
3,208.8
464.9
3,673.7
3,312.4
361.3
3,673.7
HAMMERSON.COM 151
HAMMERSON.COM 151
FINANCIAL STATEMENTS
Notes to the financial statements continued
12: Investment in joint ventures (continued)
A. Summary financial statements of joint ventures (continued)
Share of results of joint ventures for the year ended 31 December 2016
Ownership (%)
Gross rental income
Net rental income
Administration expenses
Operating profit before other net gains/(losses)
Loss on sale of properties
Revaluation (losses)/gains on properties1
Operating profit/(loss)
Change in fair value of derivatives
Translation movement on intragroup funding loan
Other finance (costs)/income
Net finance (costs)/income
Profit before tax
Current tax charge
Deferred tax charge
Profit for the year
Hammerson share of profit for the year
Hammerson share of distributions payable2
Brent Cross
£m
Cabot Circus
£m
Bullring
£m
Grand Central
£m
The Oracle
£m
Westquay
£m
41.2/40.6
46.5
42.2
–
42.2
–
(4.2)
38.0
–
–
–
–
38.0
–
–
38.0
15.6
–
50
38.7
32.7
–
32.7
–
7.9
40.6
–
–
(0.8)
(0.8)
39.8
–
–
39.8
19.9
11.8
50
59.4
52.7
(0.1)
52.6
–
24.6
77.2
–
–
–
–
77.2
–
–
77.2
38.6
23.2
50
0.6
0.2
–
0.2
–
(3.1)
(2.9)
–
–
–
–
(2.9)
–
–
(2.9)
(1.4)
–
50
32.8
27.5
–
27.5
–
2.3
29.8
–
–
–
–
29.8
–
–
29.8
14.9
3.5
50
29.7
23.3
–
23.3
–
(0.3)
23.0
–
–
(0.3)
(0.3)
22.7
–
–
22.7
11.4
0.5
Share of assets and liabilities of joint ventures as at 31 December 2016
Non-current assets
Investment and development properties
Goodwill
Other non-current assets
Current assets
Other current assets3
Cash and deposits
Current liabilities
Other payables
Loans and other borrowings – secured
Non-current liabilities
Loans and other borrowings – secured
Obligations under head leases
Other payables
Deferred tax
Net assets/(liabilities)
Hammerson share of net assets/(liabilities)
Balance due to Hammerson4
Total investment in joint ventures4
Brent Cross
£m
Cabot Circus
£m
Bullring
£m
Grand Central
£m
The Oracle
£m
Westquay
£m
1,002.4
629.7
1,229.8
346.2
667.4
660.6
–
–
–
14.5
–
–
–
2.8
–
–
–
4.2
1,002.4
644.2
1,229.8
349.0
667.4
664.8
16.4
0.7
17.1
(19.3)
–
(19.3)
–
–
(1.2)
–
(1.2)
999.0
409.1
–
409.1
5.4
5.9
11.3
7.9
20.9
28.8
(13.8)
(20.4)
–
–
(13.8)
(20.4)
–
(14.5)
(0.6)
–
(15.1)
626.6
313.3
–
313.3
–
–
(1.4)
–
(1.4)
1,236.8
618.4
–
618.4
8.4
3.2
11.6
(9.8)
–
(9.8)
–
(2.8)
–
–
(2.8)
348.0
174.0
–
174.0
5.6
13.0
18.6
(242.1)
––
(242.1)
–
–
(1.0)
(0.1)
(1.1)
442.8
221.4
115.6
337.0
6.2
9.9
16.1
(14.1)
(14.1)
–
(4.2)
(680.2)
–
(684.4)
(17.6)
(8.8)
339.7
330.9
1. The Hammerson share of revaluation gains within VIA Outlets of £14.0 million (2016: £18.4 million) includes revaluation gains on properties of £26.9 million (2016: £18.4 million)
and deferred tax acquired of £12.9 million (2016: £nil).
2. In addition to the distributions payable, the Group received interest from its joint ventures of £17.4 million (2016: £38.6 million). See note 28A.
HAMMERSON PLC ANNUAL REPORT 2017
152
152 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
12: Investment in joint ventures (continued)
A. Summary financial statements of joint ventures (continued)
Share of results of joint ventures for the year ended 31 December 2016
Brent Cross
Cabot Circus
Bullring
Grand Central
The Oracle
Westquay
Silverburn
£m
Centrale/Whitgift
£m
50
21.3
18.8
(0.1)
18.7
–
(17.1)
1.6
–
–
–
–
1.6
(1.4)
–
0.2
0.1
–
50
26.0
15.6
(0.1)
15.5
–
(0.2)
15.3
–
–
–
–
15.3
–
–
15.3
7.6
–
Irish
portfolio
£m
50
27.9
25.4
(0.3)
25.1
–
5.1
30.2
–
–
34.6
34.6
64.8
–
–
64.8
32.4
8.2
VIA Outlets
£m
47
34.4
23.7
(4.5)
19.2
–
39.4
58.6
1.5
0.4
(5.3)
(3.4)
55.2
(0.9)
(10.0)
44.3
20.7
–
Other
£m
various
34.1
29.4
(0.4)
29.0
–
11.0
40.0
3.1
–
(6.0)
(2.9)
37.1
(0.3)
–
36.8
9.4
0.6
Share of assets and liabilities of joint ventures as at 31 December 2016
Brent Cross
Cabot Circus
Bullring
Grand Central
The Oracle
Westquay
£m
£m
£m
£m
£m
£m
Silverburn
£m
Centrale/Whitgift
£m
Irish
portfolio
£m
VIA Outlets
£m
Other
£m
100%
Total
2016
£m
351.4
291.5
(5.5)
286.0
–
65.4
351.4
4.6
0.4
22.2
27.2
378.6
(2.6)
(10.0)
366.0
169.2
47.8
100%
Total
2016
£m
Ownership (%)
Gross rental income
Net rental income
Administration expenses
Operating profit before other net gains/(losses)
Loss on sale of properties
Revaluation (losses)/gains on properties1
Operating profit/(loss)
Change in fair value of derivatives
Translation movement on intragroup funding loan
Other finance (costs)/income
Net finance (costs)/income
Profit before tax
Current tax charge
Deferred tax charge
Profit for the year
Hammerson share of profit for the year
Hammerson share of distributions payable2
Non-current assets
Goodwill
Other non-current assets
Current assets
Other current assets3
Cash and deposits
Current liabilities
Other payables
Loans and other borrowings – secured
Non-current liabilities
Loans and other borrowings – secured
Obligations under head leases
Other payables
Deferred tax
Net assets/(liabilities)
Hammerson share of net assets/(liabilities)
Balance due to Hammerson4
Total investment in joint ventures4
and deferred tax acquired of £12.9 million (2016: £nil).
152 HAMMERSON PLC ANNUAL REPORT 2017
41.2/40.6
£m
46.5
42.2
42.2
(4.2)
38.0
38.0
38.0
15.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16.4
0.7
17.1
(1.2)
(1.2)
999.0
409.1
–
409.1
77.2
(2.9)
29.8
77.2
38.6
23.2
(2.9)
(1.4)
–
29.8
14.9
3.5
£m
50
38.7
32.7
32.7
7.9
40.6
–
–
–
–
–
–
(0.8)
(0.8)
39.8
39.8
19.9
11.8
–
14.5
5.4
5.9
11.3
–
–
–
(14.5)
(0.6)
(15.1)
626.6
313.3
–
313.3
£m
50
59.4
52.7
(0.1)
52.6
24.6
77.2
–
–
–
–
–
–
–
–
–
–
–
–
–
7.9
20.9
28.8
(1.4)
(1.4)
1,236.8
618.4
–
618.4
£m
50
0.6
0.2
–
0.2
–
(3.1)
(2.9)
–
–
–
–
–
–
–
2.8
8.4
3.2
11.6
–
–
–
–
(2.8)
(2.8)
348.0
174.0
–
174.0
£m
50
32.8
27.5
27.5
2.3
29.8
–
–
–
–
–
–
–
–
–
–
5.6
13.0
18.6
––
–
–
(1.0)
(0.1)
(1.1)
442.8
221.4
115.6
337.0
£m
50
29.7
23.3
23.3
(0.3)
23.0
(0.3)
(0.3)
22.7
–
–
–
–
–
–
22.7
11.4
0.5
–
4.2
6.2
9.9
16.1
(4.2)
(680.2)
–
–
(684.4)
(17.6)
(8.8)
339.7
330.9
(19.3)
(13.8)
(20.4)
(9.8)
(242.1)
(14.1)
(19.3)
(13.8)
(20.4)
(9.8)
(242.1)
(14.1)
5.1
9.9
15.0
(9.4)
–
(9.4)
–
–
–
–
–
361.8
180.9
–
180.9
4.2
13.0
17.2
119.6
25.0
144.6
(22.2)
(120.9)
–
–
(22.2)
(120.9)
–
–
(229.0)
–
(229.0)
70.2
35.1
114.5
149.6
–
–
(0.5)
–
(0.5)
1,523.4
761.7
54.1
815.8
18.1
39.9
58.0
(27.4)
(4.5)
(31.9)
(151.2)
–
(11.5)
(41.7)
(204.4)
466.2
222.0
–
222.0
14.3
11.0
25.3
(9.7)
(187.0)
(196.7)
–
–
211.2
152.4
363.6
(509.1)
(191.5)
(700.6)
(151.2)
(21.5)
(197.5)
(1,122.9)
–
(197.5)
446.7
121.3
64.4
185.7
(41.8)
(1,337.4)
6,503.9
3,048.4
688.3
3,736.7
100.2
54.8
155.0
(78.4)
(46.7)
(125.1)
–
(10.8)
(5.3)
–
(16.1)
Investment and development properties
1,002.4
629.7
1,229.8
346.2
667.4
660.6
356.2
304.2
1,500.2
644.5
815.6
8,156.8
3,490.1
1,002.4
644.2
1,229.8
349.0
667.4
664.8
356.2
304.2
1,500.2
644.5
815.6
8,178.3
3,500.9
–
–
–
–
–
–
–
–
–
–
–
21.5
–
10.8
Property joint
ventures
£m
VIA Outlets
£m
145.9
122.9
(0.4)
122.5
–
10.7
133.2
0.8
–
15.3
16.1
149.3
(0.8)
–
16.1
11.2
(2.3)
8.9
(0.1)
18.4
27.2
0.7
0.2
(2.2)
(1.3)
25.9
(0.5)
(4.7)
Hammerson share
Total
2016
£m
162.0
134.1
(2.7)
131.4
(0.1)
29.1
160.4
1.5
0.2
13.1
14.8
175.2
(1.3)
(4.7)
148.5
20.7
169.2
Hammerson share
Property joint
ventures
£m
VIA Outlets
£m
Total
2016
£m
3,792.2
3.5
10.8
3,806.5
108.7
73.5
182.2
(91.3)
(48.8)
(140.1)
(70.9)
(10.8)
(10.7)
(19.5)
(111.9)
302.1
3.5
–
305.6
8.5
18.7
27.2
(12.9)
(2.1)
(15.0)
(70.9)
–
(5.4)
(19.5)
(95.8)
1. The Hammerson share of revaluation gains within VIA Outlets of £14.0 million (2016: £18.4 million) includes revaluation gains on properties of £26.9 million (2016: £18.4 million)
3. At 31 December 2016, the Hammerson share of other current assets of the Property joint ventures included loans of £54.1 million which were secured on retail properties located in
2. In addition to the distributions payable, the Group received interest from its joint ventures of £17.4 million (2016: £38.6 million). See note 28A.
Dublin. These loans were converted into property assets in 2017.
4. The Group and its partners invest in joint ventures principally by way of equity investment. To provide further clarity of this investment, those balances which are not equity have
been included within other payables as a liability of the joint venture, and Hammerson’s interest has been shown separately.
HAMMERSON.COM 153
HAMMERSON.COM 153
3,514.7
222.0
3,736.7
FINANCIAL STATEMENTS
Notes to the financial statements continued
12: Investment in joint ventures (continued)
B. Reconciliation to adjusted earnings
Profit for the year
Revaluation gains on properties
Deferred tax acquired
Revaluation gains
Loss on sale of properties
Change in fair value of derivatives
Translation movements on intragroup funding loan1
Deferred tax charge
Total adjustments
Adjusted earnings of joint ventures
Property joint
ventures
£m
VIA Outlets
£m
166.9
(19.4)
–
(19.4)
–
–
–
–
(19.4)
147.5
13.6
(26.9)
12.9
(14.0)
–
(1.6)
(1.0)
16.2
(0.4)
13.2
Total
2017
£m
180.5
(46.3)
12.9
(33.4)
–
(1.6)
(1.0)
16.2
(19.8)
160.7
Property joint
ventures
£m
VIA Outlets
£m
148.5
(10.7)
–
(10.7)
–
(0.8)
–
–
(11.5)
137.0
20.7
(18.4)
–
(18.4)
0.1
(0.7)
(0.2)
4.7
(14.5)
6.2
Total
2016
£m
169.2
(29.1)
–
(29.1)
0.1
(1.5)
(0.2)
4.7
(26.0)
143.2
1. Foreign exchange differences on intragroup loan balances which are either commercially hedged or arise upon retranslation of euro-denominated loans between entities with
different functional currencies from the euro-denominated VIA Outlets group. These exchange differences do not give rise to any cash flow exposures in the VIA Outlets group.
C. Reconciliation to adjusted investment in joint ventures
Investment in joint ventures
Fair value of derivatives
Deferred tax
Goodwill as a result of deferred tax
Total adjustments
Property joint
ventures
£m
VIA Outlets
£m
Total
2017
£m
3,312.4
361.3
3,673.7
Property joint
ventures
£m
3,514.7
VIA Outlets
£m
222.0
–
–
–
–
1.2
59.7
(3.6)
57.3
1.2
59.7
(3.6)
57.3
–
–
–
–
3.5
19.5
(3.5)
19.5
Total
2016
£m
3,736.7
3.5
19.5
(3.5)
19.5
Adjusted investment in joint ventures
3,312.4
418.6
3,731.0
3,514.7
241.5
3,756.2
D. Reconciliation of movements in investment in joint ventures
Property joint
ventures
£m
VIA Outlets
£m
Total
2017
£m
Property joint
ventures
£m
Balance at 1 January
Share of results of joint ventures
Advances/(Repayments)
Distributions and other receivables
Return of equity1
Acquisition of additional interest in Irish loan portfolio2
Irish loan portfolio transferred to Reported Group3
Advances on conversion of Irish loan portfolio to property
assets4
Transfer of investment property from Reported Group5
Other movements
Foreign exchange translation differences
Balance at 31 December
3,514.7
166.9
35.7
(111.9)
(275.0)
56.2
(112.5)
–
–
1.0
37.3
3,312.4
222.0
13.6
129.9
(14.5)
–
–
–
–
–
–
10.3
361.3
3,736.7
3,102.8
180.5
165.6
(126.4)
(275.0)
56.2
(112.5)
–
–
1.0
47.6
148.5
(7.5)
(89.6)
–
–
(82.8)
91.9
221.7
4.6
125.1
3,673.7
3,514.7
VIA Outlets
£m
110.8
20.7
70.6
–
–
–
–
–
–
–
19.9
222.0
Total
2016
£m
3,213.6
169.2
63.1
(89.6)
–
–
(82.8)
91.9
221.7
4.6
145.0
3,736.7
1. Finance raised in 2017, and secured on Dundrum Town Centre, was used to return £275 million of equity to each of the 50% joint venture partners. This finance is classified as
‘loans and other borrowings - secured’ and included in non-current liabilities within the 100% results for the Irish portfolio in note 12A on page 151.
2. In 2017, the Reported Group acquired a further interest in the interest-bearing loan secured on the Pavilions Swords property held within the Irish portfolio. This loan was
converted into property assets in September 2017. (See footnote 3 below).
3. In 2017, the element of the loan portfolio relating to Pavilions Swords was transferred to the Reported Group prior to conversion to property assets. Similarly in 2016, the element of
the loan portfolio relating to the Ilac Centre, Dublin Central and the Irish development sites were transferred to the Reported Group prior to conversion to property assets. These
properties are included within asset acquisitions for 2017 and 2016 in note 11 on page 148. The Reported Group has a 50% interest in Pavilions Swords and the Ilac Centre which are
held within joint operations and proportionally consolidated. Dublin Central and the Irish development sites are wholly owned by the Reported Group.
4. In 2016, further advances were made by the Reported Group to the Irish joint venture to fund the conversion of the loan portfolio relating to Dundrum Town Centre, which is now
owned by Dundrum Retail Limited Partnership and Dundrum Car Park Limited Partnership.
5. In 2016, the Group sold 50% stakes in Grand Central, Birmingham and Westquay South, Southampton for £175 million and £47 million respectively. The total is shown separately in
the comparative figures in note 11 on page 148 as a transfer to investment in joint ventures.
HAMMERSON PLC ANNUAL REPORT 2017
154
154 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
12: Investment in joint ventures (continued)
B. Reconciliation to adjusted earnings
Profit for the year
Revaluation gains on properties
Deferred tax acquired
Revaluation gains
Loss on sale of properties
Change in fair value of derivatives
Translation movements on intragroup funding loan1
Deferred tax charge
Total adjustments
Adjusted earnings of joint ventures
1. Foreign exchange differences on intragroup loan balances which are either commercially hedged or arise upon retranslation of euro-denominated loans between entities with
different functional currencies from the euro-denominated VIA Outlets group. These exchange differences do not give rise to any cash flow exposures in the VIA Outlets group.
C. Reconciliation to adjusted investment in joint ventures
Property joint
ventures
VIA Outlets
£m
3,312.4
Total
2017
£m
3,673.7
Property joint
ventures
£m
3,514.7
Investment in joint ventures
Fair value of derivatives
Deferred tax
Goodwill as a result of deferred tax
Total adjustments
Adjusted investment in joint ventures
3,312.4
418.6
3,731.0
3,514.7
241.5
3,756.2
D. Reconciliation of movements in investment in joint ventures
Property joint
ventures
VIA Outlets
Property joint
ventures
VIA Outlets
Property joint
VIA Outlets
£m
166.9
(19.4)
(19.4)
(19.4)
147.5
–
–
–
–
–
–
–
–
–
£m
3,514.7
166.9
35.7
(111.9)
(275.0)
56.2
(112.5)
–
–
1.0
37.3
3,312.4
£m
13.6
(26.9)
12.9
(14.0)
–
(1.6)
(1.0)
16.2
(0.4)
13.2
£m
361.3
1.2
59.7
(3.6)
57.3
£m
222.0
13.6
129.9
(14.5)
–
–
–
–
–
–
10.3
361.3
Total
2017
£m
180.5
(46.3)
12.9
(33.4)
–
(1.6)
(1.0)
16.2
(19.8)
160.7
1.2
59.7
(3.6)
57.3
Total
2017
£m
3,736.7
180.5
165.6
(126.4)
(275.0)
56.2
(112.5)
–
–
1.0
47.6
ventures
£m
148.5
(10.7)
(10.7)
(0.8)
–
–
–
–
(11.5)
137.0
£m
20.7
(18.4)
–
(18.4)
0.1
(0.7)
(0.2)
4.7
(14.5)
6.2
VIA Outlets
£m
222.0
3.5
19.5
(3.5)
19.5
–
–
–
–
Property joint
ventures
£m
3,102.8
148.5
(7.5)
(89.6)
–
–
(82.8)
91.9
221.7
4.6
125.1
VIA Outlets
£m
110.8
20.7
70.6
–
–
–
–
–
–
–
19.9
222.0
Total
2016
£m
169.2
(29.1)
–
(29.1)
0.1
(1.5)
(0.2)
4.7
(26.0)
143.2
Total
2016
£m
3,736.7
3.5
19.5
(3.5)
19.5
Total
2016
£m
3,213.6
169.2
63.1
(89.6)
–
–
(82.8)
91.9
221.7
4.6
145.0
3,736.7
Balance at 1 January
Share of results of joint ventures
Advances/(Repayments)
Distributions and other receivables
Return of equity1
Acquisition of additional interest in Irish loan portfolio2
Irish loan portfolio transferred to Reported Group3
Advances on conversion of Irish loan portfolio to property
assets4
Transfer of investment property from Reported Group5
Other movements
Foreign exchange translation differences
Balance at 31 December
3,673.7
3,514.7
1. Finance raised in 2017, and secured on Dundrum Town Centre, was used to return £275 million of equity to each of the 50% joint venture partners. This finance is classified as
‘loans and other borrowings - secured’ and included in non-current liabilities within the 100% results for the Irish portfolio in note 12A on page 151.
2. In 2017, the Reported Group acquired a further interest in the interest-bearing loan secured on the Pavilions Swords property held within the Irish portfolio. This loan was
converted into property assets in September 2017. (See footnote 3 below).
3. In 2017, the element of the loan portfolio relating to Pavilions Swords was transferred to the Reported Group prior to conversion to property assets. Similarly in 2016, the element of
the loan portfolio relating to the Ilac Centre, Dublin Central and the Irish development sites were transferred to the Reported Group prior to conversion to property assets. These
properties are included within asset acquisitions for 2017 and 2016 in note 11 on page 148. The Reported Group has a 50% interest in Pavilions Swords and the Ilac Centre which are
held within joint operations and proportionally consolidated. Dublin Central and the Irish development sites are wholly owned by the Reported Group.
4. In 2016, further advances were made by the Reported Group to the Irish joint venture to fund the conversion of the loan portfolio relating to Dundrum Town Centre, which is now
owned by Dundrum Retail Limited Partnership and Dundrum Car Park Limited Partnership.
5. In 2016, the Group sold 50% stakes in Grand Central, Birmingham and Westquay South, Southampton for £175 million and £47 million respectively. The total is shown separately in
the comparative figures in note 11 on page 148 as a transfer to investment in joint ventures.
13: Investment in associates
At 31 December 2017, the Group had two associates: Value Retail PLC and its group entities (‘VR’) and a 10% interest in Nicetoile where Hammerson
is the asset manager. Both investments are equity accounted under IFRS, although the share of results in Nicetoile is included with the Group’s Share
of Property interests when presenting figures on a proportionally consolidated basis. Further details are provided in the Financial Review on page 53.
Summaries of aggregated income and investment for the interest in Premium outlets, which includes VR and the Group’s investment in VIA Outlets,
which is accounted for as a joint venture (see note 12), are provided in Tables 103 and 104 of the Additional Disclosures on page 183.
A: Share of results of associates
Gross rental income
Net rental income
Administration expenses
Operating profit before other net gains
Revaluation gains on properties
Operating profit
Net finance costs
Change in fair value of derivatives
Change in fair value of participative loans – revaluation movement
Change in fair value of participative loans – other movement
Profit before tax
Current tax charge
Deferred tax charge
Profit for the year
Gross rental income
Net rental income
Administration expenses
Operating profit before other net gains
Revaluation gains on properties
Operating profit
Net finance costs
Change in fair value of derivatives
Change in fair value of participative loans – revaluation movement
Change in fair value of participative loans – other movement
Profit before tax
Current tax charge
Deferred tax charge
Profit for the year
VR
Hammerson
share
£m
103.1
72.0
(33.8)
38.2
198.3
236.5
(15.8)
(5.2)
11.8
2.9
Nicetoile
Hammerson
share
£m
1.6
1.4
–
1.4
–
1.4
–
–
–
–
100%
£m
15.9
14.1
–
14.1
0.6
14.7
–
–
–
–
100%
£m
357.4
250.1
(115.8)
134.3
490.8
625.1
(56.0)
(25.5)
–
–
230.2
14.7
1.4
543.6
(2.7)
(5.9)
–
–
221.6
14.7
–
–
1.4
(15.0)
(26.9)
501.7
VR
Hammerson
share
£m
84.6
56.5
(22.4)
34.1
120.0
154.1
(12.3)
(15.2)
16.6
4.7
147.9
(3.1)
(9.6)
135.2
Nicetoile
Hammerson
share
£m
1.5
1.3
–
1.3
0.6
1.9
–
–
–
–
1.9
–
–
1.9
100%
£m
14.8
13.2
–
13.2
6.4
19.6
–
–
–
–
19.6
–
–
19.6
100%
£m
310.5
214.6
(90.1)
124.5
356.0
480.5
(49.5)
(61.5)
–
–
369.5
(13.7)
(36.7)
319.1
100%
£m
341.5
236.0
(115.8)
120.2
490.2
610.4
(56.0)
(25.5)
–
–
528.9
(15.0)
(26.9)
487.0
100%
£m
295.7
201.4
(90.1)
111.3
349.6
460.9
(49.5)
(61.5)
–
–
349.9
(13.7)
(36.7)
299.5
2017
Total
Hammerson
share
£m
104.7
73.4
(33.8)
39.6
198.3
237.9
(15.8)
(5.2)
11.8
2.9
231.6
(2.7)
(5.9)
223.0
2016
Total
Hammerson
share
£m
86.1
57.8
(22.4)
35.4
120.6
156.0
(12.3)
(15.2)
16.6
4.7
149.8
(3.1)
(9.6)
137.1
154 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 155
HAMMERSON.COM 155
FINANCIAL STATEMENTS
Notes to the financial statements continued
13: Investment in associates (continued)
B: Reconciliation to adjusted earnings
Profit for the year
Revaluation gains on properties
Change in fair value of derivatives
Change in fair value of participative loans – revaluation
movement
Loan facility costs written off
Deferred tax charge
Total adjustments
Adjusted earnings of associates
VR
£m
221.6
(198.3)
5.2
(11.8)
2.0
5.9
(197.0)
24.6
Nicetoile
£m
1.4
–
–
–
–
–
–
1.4
VR
£m
Nicetoile
£m
Total
2017
£m
223.0
(198.3)
5.2
135.2
(120.0)
15.2
(11.8)
(16.6)
2.0
5.9
(197.0)
26.0
0.2
9.6
(111.6)
23.6
Total
2016
£m
137.1
(120.6)
15.2
(16.6)
0.2
9.6
(112.2)
24.9
1.9
(0.6)
–
–
–
–
(0.6)
1.3
When aggregated, the Group’s share of VR’s adjusted earnings for the year ended 31 December 2017 amounted to 45.7% (2016: 47.1%).
C: Share of assets and liabilities of associates
VR
Hammerson
share
£m
80.4
100%
£m
–
Nicetoile
Hammerson
share
£m
–
100%
£m
–
2017
Total
Hammerson
share
£m
80.4
100%
£m
–
4,760.4
1,633.8
291.0
29.1
5,051.4
1,662.9
213.9
52.0
–
–
213.9
52.0
4,974.3
1,766.2
291.0
29.1
5,265.3
1,795.3
8.0
14.1
22.1
313.1
(2.1)
–
(2.1)
–
(2.5)
–
(2.5)
(4.6)
71.8
294.2
366.0
22.5
113.4
135.9
5,340.3
1,902.1
(188.1)
(4.4)
(192.5)
(1,765.4)
(336.0)
(594.1)
(2,695.5)
(2,888.0)
2,452.3
(94.3)
(1.1)
(95.4)
(624.2)
(90.4)
(152.3)
(866.9)
(962.3)
939.8
128.8
1,068.6
0.8
1.4
2.2
79.8
308.3
388.1
23.3
114.8
138.1
31.3
5,653.4
1,933.4
(0.2)
(190.2)
–
(4.4)
(0.2)
(194.6)
–
(1,765.4)
(0.2)
(338.5)
–
(594.1)
(0.2) (2,698.0)
(0.4) (2,892.6)
(94.5)
(1.1)
(95.6)
(624.2)
(90.6)
(152.3)
(867.1)
(962.7)
970.7
128.8
1,099.5
308.5
30.9
2,760.8
–
30.9
Goodwill on acquisition
Investment properties
Other non-current assets
Non-current assets
Other current assets
Cash and deposits
Current assets
Total assets
Other payables
Loans and other borrowings
Current liabilities
Loans and other borrowings
Other payables
Deferred tax
Non-current liabilities
Total liabilities
Net assets
Participative loans1
Investment in associates
HAMMERSON PLC ANNUAL REPORT 2017
156
156 HAMMERSON PLC ANNUAL REPORT 2017
When aggregated, the Group’s share of VR’s adjusted earnings for the year ended 31 December 2017 amounted to 45.7% (2016: 47.1%).
C: Share of assets and liabilities of associates
Notes to the financial statements continued
13: Investment in associates (continued)
B: Reconciliation to adjusted earnings
Change in fair value of participative loans – revaluation
Profit for the year
Revaluation gains on properties
Change in fair value of derivatives
movement
Loan facility costs written off
Deferred tax charge
Total adjustments
Adjusted earnings of associates
Goodwill on acquisition
Investment properties
Other non-current assets
Non-current assets
Other current assets
Cash and deposits
Current assets
Total assets
Other payables
Loans and other borrowings
Current liabilities
Loans and other borrowings
Other payables
Deferred tax
Non-current liabilities
Total liabilities
Net assets
Participative loans1
Investment in associates
VR
£m
221.6
(198.3)
5.2
(11.8)
2.0
5.9
(197.0)
24.6
Nicetoile
£m
1.4
–
–
–
–
–
–
1.4
Total
2017
£m
223.0
(198.3)
5.2
2.0
5.9
(197.0)
26.0
VR
£m
135.2
(120.0)
15.2
0.2
9.6
(111.6)
23.6
(11.8)
(16.6)
Nicetoile
£m
1.9
(0.6)
–
–
–
–
(0.6)
1.3
100%
£m
–
79.8
308.3
388.1
Total
2016
£m
137.1
(120.6)
15.2
(16.6)
0.2
9.6
(112.2)
24.9
Hammerson
2017
Total
share
£m
80.4
23.3
114.8
138.1
(94.5)
(1.1)
(95.6)
(624.2)
(90.6)
(152.3)
(867.1)
(962.7)
970.7
128.8
1,099.5
5,340.3
1,902.1
31.3
5,653.4
1,933.4
Hammerson
VR
share
£m
80.4
100%
£m
–
Nicetoile
Hammerson
share
£m
100%
£m
4,760.4
1,633.8
291.0
29.1
5,051.4
1,662.9
213.9
52.0
213.9
52.0
4,974.3
1,766.2
291.0
29.1
5,265.3
1,795.3
–
–
0.8
1.4
2.2
8.0
14.1
22.1
313.1
(2.1)
–
–
–
–
–
(0.2)
(190.2)
–
(4.4)
(2.1)
(0.2)
(194.6)
–
(1,765.4)
(2.5)
(0.2)
(338.5)
(2.5)
(4.6)
–
(594.1)
(0.2) (2,698.0)
(0.4) (2,892.6)
308.5
30.9
2,760.8
–
30.9
71.8
294.2
366.0
(188.1)
(4.4)
(192.5)
(1,765.4)
(336.0)
(594.1)
(2,695.5)
(2,888.0)
2,452.3
22.5
113.4
135.9
(94.3)
(1.1)
(95.4)
(624.2)
(90.4)
(152.3)
(866.9)
(962.3)
939.8
128.8
1,068.6
156 HAMMERSON PLC ANNUAL REPORT 2017
C: Share of assets and liabilities of associates (continued)
Goodwill on acquisition
Investment properties
Other non-current assets
Non-current assets
Other current assets
Cash and deposits
Current assets
Total assets
Other payables
Loans and other borrowings
Current liabilities
Loans and other borrowings
Other payables
Deferred tax
Non-current liabilities
Total liabilities
Net assets
Participative loans1
Investment in associates
VR
Hammerson
share
£m
77.0
1,387.3
44.2
1,508.5
16.7
53.0
69.7
100%
£m
–
4,095.9
182.0
4,277.9
52.6
169.4
222.0
100%
£m
–
277.3
–
277.3
3.8
13.6
17.4
4,499.9
1,578.2
294.7
(2.1)
–
(2.1)
–
(2.4)
–
(2.4)
(4.5)
(70.0)
(4.3)
(74.3)
(1,382.6)
(305.5)
(545.6)
(2,233.7)
(2,308.0)
2,191.9
(43.3)
(1.0)
(44.3)
(465.3)
(82.3)
(140.9)
(688.5)
(732.8)
845.4
113.7
959.1
Nicetoile
Hammerson
share
£m
–
100%
£m
–
27.7
4,373.2
–
182.0
27.7
4,555.2
0.4
1.4
1.8
29.5
(0.2)
–
(0.2)
56.4
183.0
239.4
(72.1)
(4.3)
(76.4)
–
(1,382.6)
(0.3)
–
(0.3)
(0.5)
(307.9)
(545.6)
(2,236.1)
(2,312.5)
290.2
29.0
2,482.1
–
29.0
2016
Total
Hammerson
share
£m
77.0
1,415.0
44.2
1,536.2
17.1
54.4
71.5
(43.5)
(1.0)
(44.5)
(465.3)
(82.6)
(140.9)
(688.8)
(733.3)
874.4
113.7
988.1
4,794.6
1,607.7
1. The Group’s total investment in associates includes long-term debt which in substance forms part of the Group’s investment. These ‘participative loans’ are not repayable
in the foreseeable future and represent the Group’s investor share of La Roca Village and Las Rozas Village. Included within the participative loan of £128.8 million
(2016: £113.7 million) is an embedded derivative of £121.9 million (2016: £106.6 million) which is classified as a ‘fair value through profit and loss’ financial asset. The fair value
movement on this embedded derivative of £14.7 million (2016: £21.3 million) is included within the Group’s share of the profit from associates within the income statement.
The value of the underlying host participative loan is £6.9 million (2016: £7.1 million) which is treated as an ‘available for sale’ financial asset, with the fair value movement of
£0.5 million (2016: £0.3 million) being recognised within other comprehensive income.
2. The analysis in the tables above excludes liabilities in respect of distributions received in advance from VR amounting to £16.6 million (2016: £18.9 million) which are included
within non-current liabilities in note 22.
At 31 December 2017, Hammerson’s investment in VR, excluding goodwill, as a proportion of VR’s net assets was 40.3% (2016: 40.2%). Adjusting for
the Participative Loans, which at 100% are included within other payables in non-current liabilities, Hammerson’s economic share is calculated as
35.5 % (2016: 35.5%).
D: Reconciliation to adjusted investment in associates
Investment in associates
Fair value of derivatives
Deferred tax
Goodwill as a result of deferred tax
Total adjustments
VR
£m
Nicetoile
£m
Total
2017
£m
1,068.6
30.9
1,099.5
(10.9)
152.3
(53.5)
87.9
–
–
–
–
(10.9)
152.3
(53.5)
87.9
VR
£m
959.1
(0.3)
140.9
(53.5)
87.1
Nicetoile
£m
29.0
–
–
–
–
Total
2016
£m
988.1
(0.3)
140.9
(53.5)
87.1
Adjusted investment in associates
1,156.5
30.9
1,187.4
1,046.2
29.0
1,075.2
E: Reconciliation of movements in investment in associates
Balance at 1 January
Acquisitions
Share of results of associates
Distributions
Change in fair value of participative loans (note 13C)
Exchange and other movements
Balance at 31 December
VR
£m
959.1
0.9
221.6
(129.8)
(0.5)
17.3
Nicetoile
£m
29.0
–
1.4
(1.1)
–
1.6
Total
2017
£m
988.1
0.9
223.0
(130.9)
(0.5)
18.9
1,068.6
30.9
1,099.5
VR
£m
743.8
40.8
135.2
(17.0)
(0.3)
56.6
959.1
Nicetoile
£m
24.2
–
1.9
–
–
2.9
29.0
Total
2016
£m
768.0
40.8
137.1
(17.0)
(0.3)
59.5
988.1
HAMMERSON.COM 157
HAMMERSON.COM 157
FINANCIAL STATEMENTS
Notes to the financial statements continued
14: Receivables: non-current assets
Loans receivable
Other receivables
Fair value of interest rate swaps
Fair value of currency swaps
All loans receivable are classified as available for sale and held at fair value and are analysed below:
Value Retail European Holdings BV: €2.0 million (2016: €2.0 million) maturing 30 November 2043
VR Milan S.R.L.: €nil (2016: €23.3 million) maturing 13 December 2018
15: Receivables: current assets
Trade receivables
Other receivables
Corporation tax
Prepayments
2017
£m
1.8
2.0
6.3
10.3
20.4
2017
£m
1.8
–
1.8
2017
£m
52.3
54.2
–
4.0
110.5
2016
£m
21.6
4.0
19.3
–
44.9
2016
£m
1.7
19.9
21.6
2016
£m
52.4
50.0
0.6
2.9
105.9
Trade receivables are shown after deducting a provision for bad and doubtful debts of £14.2 million (2016: £17.0 million), as set out in the table below.
The level of provision required is determined after taking account of rent deposits and personal or corporate guarantees held. Credit risk is discussed
further in note 20E.
Not yet due
1-30 days overdue
31-60 days overdue
61-90 days overdue
91-120 days overdue
More than 120 days overdue
16: Restricted monetary assets
Cash held on behalf of third parties
Gross
receivable
£m
Provision
£m
2017
Net
receivable
£m
30.0
4.1
0.4
–
2.5
29.5
66.5
–
–
–
–
(1.4)
(12.8)
(14.2)
30.0
4.1
0.4
–
1.1
16.7
52.3
Gross
receivable
£m
28.5
5.8
2.7
–
3.7
28.7
69.4
Provision
£m
–
(0.4)
(0.1)
–
(0.4)
(16.1)
(17.0)
2017
£m
37.3
2016
Net
receivable
£m
28.5
5.4
2.6
–
3.3
12.6
52.4
2016
£m
35.1
The Group and its managing agents hold cash on behalf of its tenants and co-owners to meet future service charge costs and related expenditure. The
cash has restricted use and, as such, does not meet the definition of cash and cash equivalents as defined in IAS 7 ‘Statement of Cash Flows’.
17: Cash and deposits
Cash at bank
Short-term deposits
Currency profile
Sterling
Euro
HAMMERSON PLC ANNUAL REPORT 2017
158
158 HAMMERSON PLC ANNUAL REPORT 2017
2017
£m
205.9
–
205.9
133.5
72.4
205.9
2016
£m
74.1
0.2
74.3
48.0
26.3
74.3
Notes to the financial statements continued
14: Receivables: non-current assets
Loans receivable
Other receivables
Fair value of interest rate swaps
Fair value of currency swaps
All loans receivable are classified as available for sale and held at fair value and are analysed below:
Value Retail European Holdings BV: €2.0 million (2016: €2.0 million) maturing 30 November 2043
VR Milan S.R.L.: €nil (2016: €23.3 million) maturing 13 December 2018
15: Receivables: current assets
Trade receivables are shown after deducting a provision for bad and doubtful debts of £14.2 million (2016: £17.0 million), as set out in the table below.
The level of provision required is determined after taking account of rent deposits and personal or corporate guarantees held. Credit risk is discussed
Provision
receivable
Provision
receivable
Gross
receivable
£m
30.0
4.1
0.4
–
2.5
29.5
66.5
£m
–
–
–
–
(1.4)
(12.8)
(14.2)
2017
Net
£m
30.0
4.1
0.4
–
1.1
16.7
52.3
Gross
receivable
£m
28.5
5.8
2.7
–
3.7
28.7
69.4
The Group and its managing agents hold cash on behalf of its tenants and co-owners to meet future service charge costs and related expenditure. The
cash has restricted use and, as such, does not meet the definition of cash and cash equivalents as defined in IAS 7 ‘Statement of Cash Flows’.
Trade receivables
Other receivables
Corporation tax
Prepayments
further in note 20E.
Not yet due
1-30 days overdue
31-60 days overdue
61-90 days overdue
91-120 days overdue
More than 120 days overdue
16: Restricted monetary assets
Cash held on behalf of third parties
17: Cash and deposits
Cash at bank
Short-term deposits
Currency profile
Sterling
Euro
158 HAMMERSON PLC ANNUAL REPORT 2017
2017
£m
1.8
2.0
6.3
10.3
20.4
2017
£m
1.8
–
1.8
2017
£m
52.3
54.2
–
4.0
110.5
£m
–
(0.4)
(0.1)
–
(0.4)
(16.1)
(17.0)
2017
£m
37.3
2017
£m
205.9
–
205.9
133.5
72.4
205.9
2016
£m
21.6
4.0
19.3
–
44.9
2016
£m
1.7
19.9
21.6
2016
£m
52.4
50.0
0.6
2.9
105.9
2016
Net
£m
28.5
5.4
2.6
–
3.3
12.6
52.4
2016
£m
35.1
2016
£m
74.1
0.2
74.3
48.0
26.3
74.3
18: Payables: current liabilities
Trade payables
Net pension liability (note 6C)
Withholding tax on interim dividends (note 9)
Capital expenditure payables
Other payables
Accruals
Deferred income
19: Loans and other borrowings
Unsecured
£200 million 7.25% sterling bonds due 2028
£300 million 6% sterling bonds due 2026
£350 million 3.5% sterling bonds due 2025
€500 million 1.75% euro bonds due 2023
€500 million 2% euro bonds due 2022
£250 million 6.875% sterling bonds due 2020
€500 million 2.75% euro bonds due 2019
Bank loans and overdrafts
Senior notes due 20311
Senior notes due 20281
Senior notes due 20261
Senior notes due 20241
Senior notes due 20211
Fair value of currency swaps2
Analysed as:
Current liabilities
Non-current liabilities
At 31 December 2017 and 2016 no loans and other borrowings were repayable by instalments.
1. The currency denomination of senior notes is analysed in note 20F.
2. In addition, currency swap assets of £10.3 million (2016: £nil) are included in non-current receivables in note 14.
2017
£m
26.5
0.8
13.4
34.2
75.4
85.5
25.3
261.1
2017
£m
198.3
297.9
345.8
441.3
440.4
–
442.4
496.6
21.3
89.9
87.3
350.0
141.2
3,352.4
100.6
3,453.0
1.7
3,451.3
3,453.0
2016
£m
33.9
0.9
11.5
38.4
72.4
121.9
24.8
303.8
2016
£m
198.2
297.8
345.3
424.3
423.2
248.9
425.1
800.0
–
–
25.6
153.4
151.8
3,493.6
2.7
3,496.3
211.1
3,285.2
3,496.3
HAMMERSON.COM 159
HAMMERSON.COM 159
FINANCIAL STATEMENTS
Notes to the financial statements continued
20: Financial instruments and risk management
A: Financing strategy
The Group generally borrows on an unsecured basis on the strength of its covenant in order to maintain operational flexibility. Borrowings are
arranged to ensure an appropriate maturity profile and to maintain short-term liquidity. Acquisitions may be financed initially using short-term
funds before being refinanced for the longer term when market conditions are appropriate. Long-term debt mainly comprises the Group’s fixed rate
unsecured bonds. Short-term funding is raised principally through syndicated revolving credit facilities from a range of banks and financial
institutions with which the Group maintains strong working relationships. An analysis of the maturity of the undrawn element of these revolving
credit facilities is shown in note 20D.
The Group’s borrowing position at 31 December 2017 is summarised below:
Notes
Borrowings
Bonds
Bank loans and overdrafts
Senior notes
Fair value of currency swaps
Receivables:
Non-current assets
£m
Loans and other
borrowings <1year
£m
Loans and other
borrowings >1year
£m
2017
Total
£m
2016
Total
£m
14
–
–
–
(10.3)
(10.3)
19
–
–
–
1.7
1.7
19
2,166.1
2,166.1
496.6
689.7
98.9
496.6
689.7
90.3
3,451.3
3,442.7
2,362.8
800.0
330.8
2.7
3,496.3
B: Interest rate and foreign currency management
Derivative financial instruments are used to manage exposure to fluctuations in foreign currency exchange rates and interest rates, but are not
employed for speculative purposes. Interest rate swaps are used to manage the interest rate basis of the Group’s debt, allowing changes from fixed to
floating rates or vice versa. Clear guidelines exist for the Group’s ratio of fixed to floating rate debt and management regularly reviews the interest
rate profile against these guidelines.
At 31 December 2017, the Group had interest rate swaps of £250.0 million (2016: £250.0 million), maturing in 2020 under which the Group
pays interest at a rate linked to LIBOR and receives interest at 6.875%. At 31 December 2017, the fair value of interest rate swaps was an asset of
£6.3 million (2016: £19.3 million). The fair value of interest rate swaps is excluded from the Group’s borrowings as the fair value will crystallise over
the life of the instruments rather than at maturity. The Group does not hedge account for its interest rate swaps and states them at fair value with
changes in fair value included in the income statement.
Interest rate and currency profile
Sterling
Euro
US dollar
Sterling
Euro
US dollar
%
5.4
2.3
–
2.7
%
6.3
2.4
–
3.3
Fixed rate borrowings
Years
£m
Floating rate
borrowings
£m
336.5
417.9
(6.1)
2017
Total
£m
695.7
2,753.1
(6.1)
359.2
2,335.2
–
2,694.4
748.3
3,442.7
Fixed rate borrowings
Floating rate
borrowings
£m
565.7
1,916.9
–
£m
109.0
913.4
(8.7)
2016
Total
£m
674.7
2,830.3
(8.7)
2,482.6
1,013.7
3,496.3
13
5
–
6
Years
10
6
–
7
To manage the foreign currency exposure on its net investments in euro-denominated entities, the Group has designated all euro borrowings or
synthetic euro borrowings, including euro-denominated bonds, senior notes, bank loans and currency swaps, as net investment hedges. This
designation allows exchange differences on hedging instruments to be recognised directly in equity and offset against the exchange differences on
net investments in euro-denominated entities also recognised in equity.
To manage the impact of foreign exchange movements on US dollar borrowings, the Group has used derivatives to swap the cash flows to either euro
or sterling, the sterling element of which is designated as a cash flow hedge. This designation allows exchange differences on hedging instruments to
be recognised in the hedging reserve and then recycled to net finance costs in the income statement, to offset against the exchange differences on US
dollar borrowings also recognised in net finance costs.
HAMMERSON PLC ANNUAL REPORT 2017
160
160 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
20: Financial instruments and risk management
A: Financing strategy
The Group generally borrows on an unsecured basis on the strength of its covenant in order to maintain operational flexibility. Borrowings are
arranged to ensure an appropriate maturity profile and to maintain short-term liquidity. Acquisitions may be financed initially using short-term
funds before being refinanced for the longer term when market conditions are appropriate. Long-term debt mainly comprises the Group’s fixed rate
unsecured bonds. Short-term funding is raised principally through syndicated revolving credit facilities from a range of banks and financial
institutions with which the Group maintains strong working relationships. An analysis of the maturity of the undrawn element of these revolving
credit facilities is shown in note 20D.
The Group’s borrowing position at 31 December 2017 is summarised below:
C: Profit and loss account and balance sheet management
The Group maintains internal guidelines for interest cover, gearing and other ratios. Management monitors the Group’s current and projected
financial position against these guidelines. Further details of these ratios are provided in the Financial Review on page 59.
D: Cash management and liquidity
Cash levels are monitored to ensure sufficient resources are available to meet the Group’s operational requirements. Short-term money market
deposits are used to manage cash resources to maximise the rate of return, giving due consideration to risk. Liquidity requirements are met with an
appropriate mix of short and longer-term debt as explained in note 20A.
The maturity analysis of the undrawn element of the revolving credit facilities at 31 December 2017 is summarised below:
Receivables:
Loans and other
Loans and other
Non-current assets
borrowings <1year
borrowings >1year
2017
Total
£m
2016
Total
£m
£m
19
£m
14
–
–
–
(10.3)
(10.3)
£m
19
–
–
–
1.7
1.7
2,166.1
2,166.1
496.6
689.7
98.9
496.6
689.7
90.3
3,451.3
3,442.7
2,362.8
800.0
330.8
2.7
3,496.3
B: Interest rate and foreign currency management
Derivative financial instruments are used to manage exposure to fluctuations in foreign currency exchange rates and interest rates, but are not
employed for speculative purposes. Interest rate swaps are used to manage the interest rate basis of the Group’s debt, allowing changes from fixed to
floating rates or vice versa. Clear guidelines exist for the Group’s ratio of fixed to floating rate debt and management regularly reviews the interest
rate profile against these guidelines.
At 31 December 2017, the Group had interest rate swaps of £250.0 million (2016: £250.0 million), maturing in 2020 under which the Group
pays interest at a rate linked to LIBOR and receives interest at 6.875%. At 31 December 2017, the fair value of interest rate swaps was an asset of
£6.3 million (2016: £19.3 million). The fair value of interest rate swaps is excluded from the Group’s borrowings as the fair value will crystallise over
the life of the instruments rather than at maturity. The Group does not hedge account for its interest rate swaps and states them at fair value with
changes in fair value included in the income statement.
Notes
Borrowings
Bonds
Bank loans and overdrafts
Senior notes
Fair value of currency swaps
Interest rate and currency profile
Sterling
Euro
US dollar
Sterling
Euro
US dollar
Fixed rate borrowings
Years
£m
Floating rate
borrowings
£m
336.5
417.9
(6.1)
359.2
2,335.2
–
2,694.4
748.3
3,442.7
Fixed rate borrowings
Floating rate
borrowings
£m
565.7
1,916.9
–
£m
109.0
913.4
(8.7)
2,482.6
1,013.7
3,496.3
2017
Total
£m
695.7
2,753.1
(6.1)
2016
Total
£m
674.7
2,830.3
(8.7)
13
5
–
6
Years
10
6
–
7
%
5.4
2.3
–
2.7
%
6.3
2.4
–
3.3
To manage the foreign currency exposure on its net investments in euro-denominated entities, the Group has designated all euro borrowings or
synthetic euro borrowings, including euro-denominated bonds, senior notes, bank loans and currency swaps, as net investment hedges. This
designation allows exchange differences on hedging instruments to be recognised directly in equity and offset against the exchange differences on
net investments in euro-denominated entities also recognised in equity.
To manage the impact of foreign exchange movements on US dollar borrowings, the Group has used derivatives to swap the cash flows to either euro
or sterling, the sterling element of which is designated as a cash flow hedge. This designation allows exchange differences on hedging instruments to
be recognised in the hedging reserve and then recycled to net finance costs in the income statement, to offset against the exchange differences on US
dollar borrowings also recognised in net finance costs.
Expiry
Within two to five years
Within one to two years
Within one year
2017
£m
692.6
–
–
692.6
2016
£m
327.0
125.0
9.2
461.2
E: Credit risk
The Group’s principal financial assets are trade receivables, restricted monetary assets, cash and deposits, balances due from joint ventures, other
investments, loans receivable, participative loans to associates and derivative financial instruments. The Group’s credit risk is attributable to its
trade receivables, restricted monetary assets, cash and deposits and derivative financial instruments. The credit risk on balances due from joint
ventures, other investments, loans receivable and participative loans is limited as they are supported by investment properties held within the joint
ventures and associates.
Trade receivables consist principally of rents due from tenants. The balance is low relative to the scale of the balance sheet and the Group’s tenant
base is diversified, with tenants generally of good financial standing. The majority of tenant leases are long-term contracts with rents payable
quarterly in advance. Rent deposits and personal or corporate guarantees are held in respect of some leases. Taking these factors into account, the
risk to the Group of individual tenant default and the credit risk of trade receivables are considered low. Trade receivables are presented net of
allowances for doubtful receivables and allowances for impairment are made where appropriate, as set out in note 15. The Group’s most significant
tenants are set out in Table 97 of the Additional Disclosures on page 180.
The credit risk on cash and deposits and derivative financial instruments is limited because the counterparties are banks, who are committed lenders
to the Group, with high credit ratings assigned by international credit-rating agencies. At 31 December 2017 the fair value of interest rate and
currency swap assets was £16.6 million, as shown in note 14, and the fair value of currency swap liabilities was £100.6 million, as shown in note 19.
These financial instruments have interest accruals of £11.0 million which are recognised within other receivables in note 15. After taking into account
the netting impact included within our International Swap and Derivatives Association (ISDA) agreements with each counterparty (which are
enforceable on the occurrence of future credit events such as a default), the net positions, including accrued interest would be derivative financial
assets of £4.0 million and derivative financial liabilities of £77.0 million. The combined value of derivative financial instruments at 31 December 2017
was therefore a liability of £73.0 million.
The credit risk on restricted monetary assets, being cash held by the Group and its managing agents on behalf of third parties, is similarly considered
low. At 31 December 2017, the Group’s maximum exposure to credit risk was £488.6 million (2016: £370.4 million) which excludes those balances
supported by investment properties.
160 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 161
HAMMERSON.COM 161
FINANCIAL STATEMENTS
Notes to the financial statements continued
20: Financial instruments and risk management (continued)
F: Financial maturity analysis
The following table is a maturity analysis for the Group’s borrowings, cash and deposits and loans receivable. Borrowings are stated net of
unamortised fees of £22.8 million (2016: £24.0 million), the maturity of which is analysed in note 20J.
Unsecured sterling fixed rate bonds
Unsecured euro fixed rate bonds
Senior notes
– £95 million Sterling
– €237 million Euro
– $523 million US dollar
Unsecured bank loans and overdrafts
Fair value of currency swaps1
Borrowings
Cash and deposits (note 17)
Loans receivable (note 14)
Unsecured sterling fixed rate bonds
Unsecured euro fixed rate bonds
Senior notes
– £45 million Sterling
– €60 million Euro
– $291 million US dollar
Unsecured bank loans and overdrafts
Fair value of currency swaps1
Borrowings
Cash and deposits (note 17)
Loans receivable (note 14)
Less than
one year
£m
One to two
years
£m
Two to five
years
£m
More than five
years
£m
–
–
442.4
440.4
–
–
–
–
–
–
19.2
122.0
496.6
(7.0)
842.0
441.3
95.0
188.9
264.6
–
95.6
–
–
–
–
–
–
1.7
1.7
(205.9)
–
442.4
1,071.2
1,927.4
3,442.7
–
–
–
–
–
(1.8)
(205.9)
(1.8)
(204.2)
442.4
1,071.2
1,925.6
3,235.0
Less than
one year
£m
One to two
years
£m
Two to five
years
£m
More than five
years
£m
–
–
–
–
–
246.6
(35.5)
211.1
(74.3)
–
136.8
–
–
–
–
–
49.5
–
49.5
–
(19.9)
29.6
248.9
425.1
–
19.2
132.6
503.9
(22.1)
841.3
847.5
45.0
32.0
102.0
–
60.3
1,307.6
1,928.1
3,496.3
–
–
–
(1.7)
(74.3)
(21.6)
1,307.6
1,926.4
3,400.4
2017 Maturity
Total
£m
842.0
1,324.1
95.0
208.1
386.6
496.6
90.3
2016 Maturity
Total
£m
1,090.2
1,272.6
45.0
51.2
234.6
800.0
2.7
1. The fair value of currency swaps of £90.3 million (2016: £2.7 million) consist of currency swap assets of £10.3 million (2016: £nil), which have been included in non-current
receivables in note 14, and currency swap liabilities of £100.6 million (2016: £2.7 million) included in loans and other borrowings in note 19.
HAMMERSON PLC ANNUAL REPORT 2017
162
162 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
20: Financial instruments and risk management (continued)
F: Financial maturity analysis
The following table is a maturity analysis for the Group’s borrowings, cash and deposits and loans receivable. Borrowings are stated net of
unamortised fees of £22.8 million (2016: £24.0 million), the maturity of which is analysed in note 20J.
Unsecured sterling fixed rate bonds
Unsecured euro fixed rate bonds
Senior notes
– £95 million Sterling
– €237 million Euro
– $523 million US dollar
Unsecured bank loans and overdrafts
Fair value of currency swaps1
Borrowings
Cash and deposits (note 17)
Loans receivable (note 14)
Unsecured sterling fixed rate bonds
Unsecured euro fixed rate bonds
Senior notes
– £45 million Sterling
– €60 million Euro
– $291 million US dollar
Unsecured bank loans and overdrafts
Fair value of currency swaps1
Borrowings
Cash and deposits (note 17)
Loans receivable (note 14)
–
–
–
–
–
–
–
–
–
–
–
–
Less than
one year
£m
One to two
Two to five
More than five
years
£m
years
£m
2017 Maturity
442.4
440.4
1.7
1.7
(205.9)
(7.0)
95.6
442.4
1,071.2
1,927.4
3,442.7
(204.2)
442.4
1,071.2
1,925.6
3,235.0
Less than
one year
£m
years
£m
One to two
Two to five
More than five
2016 Maturity
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
years
£m
842.0
441.3
95.0
188.9
264.6
–
–
(1.8)
years
£m
841.3
847.5
45.0
32.0
102.0
60.3
1,928.1
–
–
(1.7)
Total
£m
842.0
1,324.1
95.0
208.1
386.6
496.6
90.3
(205.9)
(1.8)
Total
£m
1,090.2
1,272.6
45.0
51.2
234.6
800.0
2.7
3,496.3
(74.3)
(21.6)
19.2
122.0
496.6
–
–
–
–
years
£m
248.9
425.1
–
19.2
132.6
503.9
(22.1)
–
–
246.6
(35.5)
211.1
(74.3)
–
136.8
49.5
(19.9)
29.6
49.5
1,307.6
1,307.6
1,926.4
3,400.4
1. The fair value of currency swaps of £90.3 million (2016: £2.7 million) consist of currency swap assets of £10.3 million (2016: £nil), which have been included in non-current
receivables in note 14, and currency swap liabilities of £100.6 million (2016: £2.7 million) included in loans and other borrowings in note 19.
162 HAMMERSON PLC ANNUAL REPORT 2017
G: Sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Changes in foreign
exchange and interest rates may have an impact on consolidated earnings over the longer term. The tables below provide indicative sensitivity data.
Effect on profit before tax:
(Decrease)/Increase
2017
Increase in
interest rates
by 1%
£m
Decrease in
interest rates
by 1%
£m
Increase in
interest rates
by 1%
£m
2016
Decrease in
interest rates
by 1%
£m
(12.7)
12.8
(17.6)
17.4
There would have been no effect on amounts recognised directly in equity. The sensitivity has been calculated by applying the interest rate change to
the floating rate borrowings, net of interest rate swaps, at the year end.
Effect on financial instruments:
Increase/(Decrease) in net gain taken to equity
Strengthening
of sterling
against euro
by 10%
£m
2017
Weakening
of sterling
against euro
by 10%
£m
Strengthening
of sterling
against euro
by 10%
£m
2016
Weakening
of sterling
against euro
by 10%
£m
262.3
(321.2)
273.8
(334.6)
These effects would be more than offset by the effect of exchange rate changes on the euro-denominated assets included in the Group’s
financial statements. In relation to financial instruments alone, there would have been no impact on the Group’s profit before tax. This has been
calculated by retranslating the year end euro-denominated financial instruments at the year end foreign exchange rate changed by 10%. Forward
foreign exchange contracts have been included in this estimate.
H: Fair values of financial instruments
The fair values of borrowings, currency and interest rate swaps, together with their book value included in the balance sheet, are as follows:
Unsecured bonds
Senior notes
Unsecured bank loans and overdrafts
Fair value of currency swaps
Borrowings
Fair value
hierarchy
Book value
£m
Level 1
Level 2
Level 2
Level 2
2,166.1
689.7
496.6
90.3
Fair value
£m
2,420.4
691.6
502.4
90.3
2017
Variance
£m
254.3
1.9
5.8
–
Book value
£m
2,362.8
330.8
800.0
2.7
Fair value
£m
2,657.7
347.0
805.0
2.7
3,442.7
3,704.7
262.0
3,496.3
3,812.4
Fair value of interest rate swaps
Level 2
(6.3)
(6.3)
–
(19.3)
(19.3)
2016
Variance
£m
294.9
16.2
5.0
–
316.1
–
The following valuation techniques have been applied to determine the fair values of borrowings and interest rate swaps:
Valuation technique
Quoted market prices
Financial instrument
Unsecured bonds
Calculating present value of cash flows using appropriate market discount rates Senior notes, unsecured bank loans and overdrafts, fair value of
currency swaps and fair value of interest rate swaps
Level 3 financial instruments - Participative loans, loans receivable and other investments
Balance at 1 January
Total gains
– in income
Other movements
– acquisition of other investments
– in other comprehensive income
– settlement of interest
– loan repayment
– sale of other investments
Net movements in participative loans to associates
Balance at 31 December
2017
£m
135.3
15.1
4.1
–
(0.3)
(19.9)
–
(3.7)
130.6
2016
£m
161.5
37.2
13.4
1.9
(4.2)
(65.2)
(8.0)
(1.3)
135.3
The key input affecting the carrying amount of the Level 3 financial instruments is the underlying net asset values of La Roca Village and La Rozas
Village in which the Reported Group holds interests through participative loans, as described in footnote 1 of note 13C. The assets of these Villages
mainly comprise of properties held at valuation. The valuation methodology and areas of judgement are consistent with those applied to value the
properties of the Reported Group, as described in note 11. All other factors remaining constant, an increase of 5% in the net asset values of the Villages
would increase the carrying amount of the Level 3 financial instruments by £7.5 million. Similarly, a decrease of 5% would decrease the carrying
amount by £7.5 million. The fair values of all other financial assets and liabilities equate to their book values.
HAMMERSON.COM 163
HAMMERSON.COM 163
FINANCIAL STATEMENTS
Notes to the financial statements continued
20: Financial instruments and risk management (continued)
I: Carrying amounts, gains and losses on financial instruments
Trade and other receivables
Restricted monetary assets
Cash and deposits
Cash and receivables
Other investments
Loans receivable
Participative loans to associates – host contract
Available for sale investments and loans
Notes
15
16
17
14
13C
Participative loans to associates – embedded derivative
13C
Interest rate swaps
Assets at fair value through profit and loss
Currency swaps
Derivatives in effective hedging relationships
Balances due from joint ventures
Other loans and receivables
Payables
Borrowings, excluding currency swaps
Obligations under head leases
Liabilities at amortised cost
Total for financial instruments
20F
12A
20J
19
21
Carrying
amount
£m
108.5
37.3
205.9
351.7
–
1.8
6.9
8.7
121.9
6.3
128.2
Gain/
(Loss) to
income
£m
(0.5)
–
–
(0.5)
–
0.4
–
0.4
14.7
(0.1)
14.6
(90.3)
(90.3)
(87.2)
(87.2)
464.9
464.9
(255.2)
–
–
–
2017
Gain/
(Loss) to
equity
£m
–
–
–
–
–
–
(0.3)
(0.3)
4.4
–
4.4
2.0
2.0
–
–
–
Carrying
amount
£m
106.4
35.1
74.3
215.8
–
21.6
7.1
28.7
106.6
19.3
125.9
(2.7)
(2.7)
688.3
688.3
(308.8)
Gain/
(Loss) to
income
£m
(5.2)
–
0.1
(5.1)
1.3
14.6
–
15.9
21.3
8.5
29.8
7.8
7.8
–
–
–
2016
Gain/
(Loss) to
equity
£m
–
–
–
–
–
–
0.6
0.6
12.8
–
12.8
(132.0)
(132.0)
–
–
–
(3,352.4)
(131.2)
(55.4)
(3,493.6)
(146.6)
(305.3)
(38.9)
(3,646.5)
(2,783.3)
(2.2)
(133.4)
(206.1)
–
(55.4)
(49.3)
(37.5)
(3,839.9)
(2,783.9)
(2.2)
(148.8)
(100.4)
–
(305.3)
(423.9)
The total equity losses of £53.4 million shown as a movement in the hedging reserve in the Consolidated Statement of Changes in Equity on page 132
comprise of gains in relation to currency swaps of £2.0 million offset by losses in relation to borrowings of £55.4 million as shown in the table above.
This includes cumulative losses of £46.2 million recycled from the hedging reserve to the income statement on disposal of foreign operations. In
2016, the total equity losses of £437.3 million shown as a movement in the hedging reserve on page 133 comprise of £132.0 million in relation to
currency swaps and £305.3 million for borrowings.
The movements in the hedging reserve are offset by foreign exchange translation gains during the year of £157.9 million (2016: £524.5 million) which
arise from the retranslation of the net investment in foreign operations, and in 2017, £54.4 million of cumulative gains recycled on disposal of foreign
operations. These are shown in the Consolidated Statement of Changes in Equity as movements in the translation reserve on pages 132 and 133.
The Group designated as a cash flow hedge the cross currency swaps used to manage its foreign currency risk on US dollar borrowings. In 2017
a £36.9 million loss was recognised in the hedging reserve in respect of these derivatives of which £36.6 million was recycled to net finance costs. At
31 December 2017 the hedging reserve includes a loss of £12.3 million (2016: £12.0 million) in relation to these cash flow hedges. These cash flows are
expected to occur between 2018 and 2024.
HAMMERSON PLC ANNUAL REPORT 2017
164
164 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
Trade and other receivables
Restricted monetary assets
Cash and deposits
Cash and receivables
Other investments
Loans receivable
Participative loans to associates – host contract
Available for sale investments and loans
Participative loans to associates – embedded derivative
13C
Interest rate swaps
Assets at fair value through profit and loss
Currency swaps
Derivatives in effective hedging relationships
Balances due from joint ventures
Other loans and receivables
Payables
Obligations under head leases
Liabilities at amortised cost
Total for financial instruments
Carrying
amount
£m
108.5
37.3
205.9
351.7
–
1.8
6.9
8.7
121.9
6.3
128.2
Gain/
(Loss) to
income
£m
(0.5)
(0.5)
–
–
–
–
0.4
0.4
14.7
(0.1)
14.6
(90.3)
(90.3)
(87.2)
(87.2)
464.9
464.9
(255.2)
–
–
–
Notes
15
16
17
14
13C
20F
12A
20J
19
21
2017
Gain/
(Loss) to
equity
£m
(0.3)
(0.3)
4.4
–
4.4
2.0
2.0
–
–
–
–
–
–
–
–
–
–
Carrying
amount
£m
106.4
35.1
74.3
215.8
–
21.6
7.1
28.7
106.6
19.3
125.9
(2.7)
(2.7)
688.3
688.3
(308.8)
(37.5)
(3,839.9)
(2,783.9)
Gain/
(Loss) to
income
£m
(5.2)
–
0.1
(5.1)
1.3
14.6
–
15.9
21.3
8.5
29.8
7.8
7.8
–
–
–
2016
Gain/
(Loss) to
equity
£m
0.6
0.6
12.8
–
12.8
(132.0)
(132.0)
–
–
–
–
–
–
–
–
–
–
(38.9)
(3,646.5)
(2,783.3)
(2.2)
(133.4)
(206.1)
(55.4)
(49.3)
(2.2)
(148.8)
(100.4)
(305.3)
(423.9)
Borrowings, excluding currency swaps
(3,352.4)
(131.2)
(55.4)
(3,493.6)
(146.6)
(305.3)
The total equity losses of £53.4 million shown as a movement in the hedging reserve in the Consolidated Statement of Changes in Equity on page 132
comprise of gains in relation to currency swaps of £2.0 million offset by losses in relation to borrowings of £55.4 million as shown in the table above.
This includes cumulative losses of £46.2 million recycled from the hedging reserve to the income statement on disposal of foreign operations. In
2016, the total equity losses of £437.3 million shown as a movement in the hedging reserve on page 133 comprise of £132.0 million in relation to
currency swaps and £305.3 million for borrowings.
The movements in the hedging reserve are offset by foreign exchange translation gains during the year of £157.9 million (2016: £524.5 million) which
arise from the retranslation of the net investment in foreign operations, and in 2017, £54.4 million of cumulative gains recycled on disposal of foreign
operations. These are shown in the Consolidated Statement of Changes in Equity as movements in the translation reserve on pages 132 and 133.
The Group designated as a cash flow hedge the cross currency swaps used to manage its foreign currency risk on US dollar borrowings. In 2017
a £36.9 million loss was recognised in the hedging reserve in respect of these derivatives of which £36.6 million was recycled to net finance costs. At
31 December 2017 the hedging reserve includes a loss of £12.3 million (2016: £12.0 million) in relation to these cash flow hedges. These cash flows are
expected to occur between 2018 and 2024.
20: Financial instruments and risk management (continued)
I: Carrying amounts, gains and losses on financial instruments
J: Maturity analysis of financial liabilities
The remaining contractual non-discounted cash flows for financial liabilities are as follows:
Payables1
Derivative financial liability cash flows
Non-derivative borrowings
Non-derivative unamortised borrowing costs
Non-derivative interest
Head leases
Payables1
Derivative financial liability cash flows
Non-derivative borrowings
Non-derivative unamortised borrowing costs
Non-derivative interest
Head leases
Less than
one year
£m
One to two
years
£m
Two to five
years
£m
Five to 25
years
£m
More than 25
years
£m
Note
221.6
(2.6)
–
–
103.1
2.2
324.3
3.1
(4.4)
2.0
(13.1)
28.5
81.5
442.5
1,078.2
1,831.7
1.1
104.4
2.2
548.9
9.8
269.1
6.6
11.9
253.3
43.8
1,352.6
2,250.7
21
–
–
–
–
–
75.9
75.9
Less than
one year
£m
One to two
years
£m
Note
266.6
(5.9)
246.6
0.4
114.6
2.2
624.5
5.2
(5.9)
49.5
0.4
112.3
2.2
163.7
21
Two to five
years
£m
5.6
(45.1)
Five to
25 years
£m
More than 25
years
£m
31.4
(25.8)
1,329.7
1,867.8
8.0
294.0
6.5
15.2
289.9
43.0
1,598.7
2,221.5
–
–
–
–
–
85.1
85.1
2017 Maturity
Total
£m
255.2
61.4
3,352.4
22.8
729.9
130.7
4,552.4
2016 Maturity
Total
£m
308.8
(82.7)
3,493.6
24.0
810.8
139.0
4,693.5
1. Comprises current and non-current payables excluding withholding tax on interim dividends of £13.4 million (2016: £11.5 million), deferred income of £25.3 million
(2016: £24.8 million) and net pension liabilities of £51.4 million (£54.7 million) as these do not meet the definition of financial liabilities.
K: Capital structure
The Group’s financing policy is to optimise the weighted average cost of capital by using an appropriate mix of debt and equity, the latter in the form
of share capital. Further information on debt is provided in the Financial Review on pages 59 and 60 and information on share capital and changes
therein is set out in note 23 below and in the Consolidated Statement of Changes in Equity on pages 132 and 133.
21: Obligations under head leases
Head lease obligations in respect of rents payable on leasehold properties are payable as follows:
After 25 years
From five to 25 years
From two to five years
From one to two years
Within one year
22: Payables: non-current liabilities
Net pension liability (note 6C)
Other payables
Minimum
lease
payments
£m
75.9
43.8
6.6
2.2
2.2
130.7
2017
Present value
of minimum
lease
payments
£m
34.4
4.0
0.3
0.1
0.1
38.9
Interest
£m
(41.5)
(39.8)
(6.3)
(2.1)
(2.1)
(91.8)
Minimum
lease
payments
£m
85.1
43.0
6.5
2.2
2.2
Interest
£m
(51.7)
(39.4)
(6.2)
(2.1)
(2.1)
139.0
(101.5)
2017
£m
50.6
33.6
84.2
2016
Present value
of minimum
lease
payments
£m
33.4
3.6
0.3
0.1
0.1
37.5
2016
£m
53.8
42.2
96.0
164 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 165
HAMMERSON.COM 165
FINANCIAL STATEMENTS
Notes to the financial statements continued
23: Share capital
Called-up, allotted and fully paid
Ordinary shares of 25p each
The authorised share capital was removed from the Company’s Articles of Association in 2010.
Movements in number of shares in issue
Number of shares in issue at 1 January 2017
New share issue – transferred to investment in own shares
Share options exercised – Savings-Related Share Option Scheme
Number of shares in issue at 31 December 2017
2017
£m
198.6
2016
£m
198.3
Number
793,188,451
1,000,000
37,967
794,226,418
Share schemes
At 31 December 2017, the Company had three share schemes in operation. The number and weighted average exercise price of share options which
remain outstanding in respect of the Savings-Related Share Option Scheme are shown in the tables below, together with details of expiry periods and
range of exercise price. The number of ordinary shares which remain outstanding in respect of the Restricted Share Plan and Long-Term Incentive
Plan are shown, together with their year of grant.
Number
Year of expiry
Weighted
average
exercise price
Exercise price
(pence)
Number
Year of grant
Share options
Ordinary shares of 25p each
2017
Savings-Related Share Option Scheme
302,744
2018-2023
£4.28
329.04-540.4
–
–
Restricted Share Plan
Long-Term Incentive Plan
–
–
–
–
–
–
–
–
796,556
2015-2017
2,243,298
2013-2017
Savings-Related Share Option Scheme
260,450
2017-2021
£4.39
312.2-540.4
–
–
Number
Year of expiry
Weighted
average
exercise price
Exercise price
(pence)
Number
Year of grant
Share options
Ordinary shares of 25p each
2016
Restricted Share Plan
Long-Term Incentive Plan
–
–
–
–
24: Analysis of movement in net debt
–
–
2017
Notes
At 1 January
Cash flow
Change in fair value of currency swaps
Exchange
At 31 December
Cash and
deposits
£m
17
74.3
130.6
–
1.0
Borrowings
£m
Net debt
£m
20A
(3,496.3)
(3,422.0)
160.8
9.0
(116.2)
291.4
9.0
(115.2)
205.9
(3,442.7)
(3,236.8)
Cash and
deposits
£m
17
37.0
34.0
–
3.3
74.3
25: Adjustment for non-cash items in the cash flow statement
Amortisation of lease incentives and other costs
Increase in provision for bad and doubtful debts
Increase in accrued rents receivable
Depreciation (note 4)
Share-based employee remuneration (note 4)
Other items
HAMMERSON PLC ANNUAL REPORT 2017
166
166 HAMMERSON PLC ANNUAL REPORT 2017
–
–
667,371
2014-2016
2,456,928
2012-2016
2016
Net debt
£m
Borrowings
£m
20A
(2,998.1)
(2,961.1)
(102.3)
(6.7)
(389.2)
(68.3)
(6.7)
(385.9)
(3,496.3)
(3,422.0)
2017
£m
7.7
0.5
(4.9)
2.1
5.4
(1.7)
9.1
2016
£m
6.8
5.2
(6.4)
2.0
5.6
(1.6)
11.6
Notes to the financial statements continued
23: Share capital
Called-up, allotted and fully paid
Ordinary shares of 25p each
The authorised share capital was removed from the Company’s Articles of Association in 2010.
Movements in number of shares in issue
Number of shares in issue at 1 January 2017
New share issue – transferred to investment in own shares
Share options exercised – Savings-Related Share Option Scheme
Number of shares in issue at 31 December 2017
2017
£m
198.6
2016
£m
198.3
Number
793,188,451
1,000,000
37,967
794,226,418
Share schemes
At 31 December 2017, the Company had three share schemes in operation. The number and weighted average exercise price of share options which
remain outstanding in respect of the Savings-Related Share Option Scheme are shown in the tables below, together with details of expiry periods and
range of exercise price. The number of ordinary shares which remain outstanding in respect of the Restricted Share Plan and Long-Term Incentive
Plan are shown, together with their year of grant.
Savings-Related Share Option Scheme
302,744
2018-2023
£4.28
329.04-540.4
–
–
Restricted Share Plan
Long-Term Incentive Plan
Number
Year of expiry
exercise price
(pence)
Number
Year of grant
Weighted
average
Exercise price
Share options
Ordinary shares of 25p each
2017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
796,556
2015-2017
2,243,298
2013-2017
Share options
Ordinary shares of 25p each
2016
–
–
667,371
2014-2016
2,456,928
2012-2016
Number
Year of expiry
exercise price
Number
Year of grant
Weighted
average
Exercise price
(pence)
Cash and
deposits
Borrowings
£m
17
74.3
130.6
–
1.0
£m
20A
160.8
9.0
(116.2)
2017
Net debt
£m
291.4
9.0
(115.2)
Cash and
deposits
£m
17
37.0
34.0
–
3.3
74.3
205.9
(3,442.7)
(3,236.8)
(3,496.3)
(3,422.0)
(3,496.3)
(3,422.0)
(2,998.1)
(2,961.1)
Borrowings
£m
20A
(102.3)
(6.7)
(389.2)
2017
£m
7.7
0.5
(4.9)
2.1
5.4
(1.7)
9.1
2016
Net debt
£m
(68.3)
(6.7)
(385.9)
2016
£m
6.8
5.2
(6.4)
2.0
5.6
(1.6)
11.6
Restricted Share Plan
Long-Term Incentive Plan
24: Analysis of movement in net debt
Notes
At 1 January
Cash flow
Exchange
At 31 December
Change in fair value of currency swaps
Amortisation of lease incentives and other costs
Increase in provision for bad and doubtful debts
Increase in accrued rents receivable
Depreciation (note 4)
Share-based employee remuneration (note 4)
Other items
166 HAMMERSON PLC ANNUAL REPORT 2017
25: Adjustment for non-cash items in the cash flow statement
26: Operating leases
A: The Reported Group as lessor
At the balance sheet date, the Reported Group had contracted with tenants for the future minimum lease receipts as shown in the table below. The
data is for the period to the first tenant break option. An overview of the Group’s leasing arrangements is included in the Additional Disclosures
section on pages 178 and 179 and credit risk relating to the trade receivables is discussed in note 20E.
After five years
From two to five years
From one to two years
Within one year
2017
£m
629.6
316.9
117.2
132.3
2016
£m
743.6
304.2
116.0
127.3
1,196.0
1,291.1
B: The Reported Group as lessee
At the balance sheet date, the Reported Group had contracted future minimum lease payments under non-cancellable operating leases as shown in
the table below.
After five years
From two to five years
From one to two years
Within one year
2017
£m
1.6
8.8
3.5
3.5
17.4
2016
£m
3.5
9.7
3.4
3.4
20.0
27: Contingent liabilities and capital commitments
There are contingent liabilities of £65.6 million (2016: £68.6 million) relating to guarantees given by the Reported Group and a further
£14.2 million (2016: £15.0 million) relating to claims against the Reported Group arising in the normal course of business, which are considered to
be unlikely to crystallise. In addition, Hammerson’s share of contingent liabilities arising within joint ventures is £18.3 million (2016: £18.7 million).
The Reported Group also had capital commitments of £62.4 million (2016: £20.7 million) in relation to future capital expenditure on investment and
development properties. Hammerson’s share of the capital commitments arising within joint ventures is £26.6 million (2016: £174.9 million).
Savings-Related Share Option Scheme
260,450
2017-2021
£4.39
312.2-540.4
–
–
The risks and uncertainties facing the Group are detailed on pages 61 to 69.
28: Related party transactions and non-controlling interests
A. Joint ventures and associates
Related party transactions with the Group’s joint ventures and associates primarily comprise management fees, interest receivable and loan
balances. The amounts shown below represent the Group’s transactions and balances with its related parties and are shown before any consolidation
adjustments.
Management fees from joint ventures
Management fees from associates
Interest receivable from joint ventures
Interest receivable from associates
Balances due from joint ventures (note 12A)
Participative loans to associates (note 13C)
Loans to associates (note 14)
2017
£m
21.0
1.1
17.4
0.3
464.9
128.8
1.8
2016
£m
12.1
1.0
38.6
4.2
688.3
113.7
21.6
HAMMERSON.COM 167
HAMMERSON.COM 167
FINANCIAL STATEMENTS
Notes to the financial statements continued
28: Related party transactions and non-controlling interests (continued)
B. Key management
The remuneration of the Directors and other members of the Group Executive Committee (GEC), who are the key management of the Group, is set
out below in aggregate. The members of the GEC, including their biographies, are set out on page 74. Further information about the remuneration of
the individual Directors is disclosed in the audited sections of the Directors’ Remuneration Report on pages 88 to 113.
Salaries and short-term benefits
Post-employment benefits
Share-based payments
Total remuneration
2017
£m
5.0
0.6
4.0
9.6
2016
£m
4.9
0.6
4.2
9.7
C. Non-controlling interests
The Group’s non-controlling interest represents a 35.5% interest held by Assurbail in Société Civile de Développement du Centre Commercial
de la Place des Halles SDPH SC, which owned Place des Halles, Strasbourg. The entity disposed of its interest in this property in December 2017, with
the exception of a residual unit which will be sold later this year.
During 2017, the property generated gross rental income of £11.8 million (2016: £12.0 million) and the property valuation at 31 December 2017 was
£0.1 million (2016: £239.2 million). The non-controlling interest’s share of the gross rental income was £4.2 million (2016: £4.3 million) and of the
property valuation was £nil (2016: £84.9 million). As a result of the property disposal, exchange gains previously recognised in equity have been
recycled to the income statement in 2017. The non-controlling interest’s share of these exchange gains was £19.6 million (2016: £nil) and is included
in its share of the profit for the year of £23.2 million (2016: £3.6 million).
A distribution of £74.2 million (2016: £2.3 million) was paid to Assurbail during the year. At 31 December 2017, the non-controlling interests of
£14.0 million (2016: £81.4 million) principally represents remaining cash from the sale of the property held within the entity at the balance sheet
date, which will be distributed in 2018.
The balances and movements during the year associated with the non-controlling interests are shown on the Consolidated Statement of Changes in
Equity on pages 132 and 133.
HAMMERSON PLC ANNUAL REPORT 2017
168
168 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the financial statements continued
28: Related party transactions and non-controlling interests (continued)
B. Key management
The remuneration of the Directors and other members of the Group Executive Committee (GEC), who are the key management of the Group, is set
out below in aggregate. The members of the GEC, including their biographies, are set out on page 74. Further information about the remuneration of
the individual Directors is disclosed in the audited sections of the Directors’ Remuneration Report on pages 88 to 113.
2017
£m
5.0
0.6
4.0
9.6
2016
£m
4.9
0.6
4.2
9.7
Salaries and short-term benefits
Post-employment benefits
Share-based payments
Total remuneration
C. Non-controlling interests
The Group’s non-controlling interest represents a 35.5% interest held by Assurbail in Société Civile de Développement du Centre Commercial
de la Place des Halles SDPH SC, which owned Place des Halles, Strasbourg. The entity disposed of its interest in this property in December 2017, with
the exception of a residual unit which will be sold later this year.
During 2017, the property generated gross rental income of £11.8 million (2016: £12.0 million) and the property valuation at 31 December 2017 was
£0.1 million (2016: £239.2 million). The non-controlling interest’s share of the gross rental income was £4.2 million (2016: £4.3 million) and of the
property valuation was £nil (2016: £84.9 million). As a result of the property disposal, exchange gains previously recognised in equity have been
recycled to the income statement in 2017. The non-controlling interest’s share of these exchange gains was £19.6 million (2016: £nil) and is included
in its share of the profit for the year of £23.2 million (2016: £3.6 million).
A distribution of £74.2 million (2016: £2.3 million) was paid to Assurbail during the year. At 31 December 2017, the non-controlling interests of
£14.0 million (2016: £81.4 million) principally represents remaining cash from the sale of the property held within the entity at the balance sheet
date, which will be distributed in 2018.
Equity on pages 132 and 133.
The balances and movements during the year associated with the non-controlling interests are shown on the Consolidated Statement of Changes in
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2017
Non-current assets
Investments in subsidiary companies
Receivables
Current assets
Receivables
Cash and short-term deposits
Total assets
Current liabilities
Payables
Loans and other borrowings
Non-current liabilities
Loans and other borrowings
Total liabilities
Net assets
Equity
Called up share capital
Share premium
Merger reserve
Other reserves
Revaluation reserve
Retained earnings
Investment in own shares
Equity shareholders’ funds
These financial statements were approved by the Board of Directors on 23 February 2018.
Signed on behalf of the Board
David Atkins
Director
Timon Drakesmith
Director
Registered in England No. 360632
Notes
2017
£m
2016
£m
C
D
E
F
G
G
23
4,897.0
6,076.2
10,973.2
4,824.3
6,041.1
10,865.4
24.4
137.6
162.0
10.6
42.1
52.7
11,135.2
10,918.1
(1,644.7)
(1,564.8)
(1.7)
(211.1)
(1,646.4)
(1,775.9)
(3,451.3)
(5,097.7)
6,037.5
(3,285.2)
(5,061.1)
5,857.0
198.6
1,265.9
374.1
7.3
3,301.4
890.5
(0.3)
198.3
1,265.7
374.1
7.3
3,228.7
783.1
(0.2)
6,037.5
5,857.0
168 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 169
HAMMERSON.COM 169
FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
Balance at 1 January 2017
Issue of shares
Cost of shares awarded to employees
Purchase of own shares
Dividends (note 9)
Revaluation gains on investments in subsidiary
companies
Profit for the year attributable to equity shareholders
Total comprehensive income for the year
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Other
reserves
£m
Revaluation
reserve
£m
Retained
earnings
£m
198.3 1,265.7
374.1
7.3
3,228.7
783.1
0.3
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(193.6)
72.7
–
72.7
–
301.0
301.0
Investment
in own
shares*
£m
Equity
shareholders’
funds
£m
(0.2)
(0.3)
2.2
(2.0)
–
–
–
–
5,857.0
0.2
2.2
(2.0)
(193.6)
72.7
301.0
373.7
Balance at 31 December 2017
198.6 1,265.9
374.1
7.3
3,301.4
890.5
(0.3)
6,037.5
* Investment in own shares is stated at cost.
FOR THE YEAR ENDED 31 DECEMBER 2016
Balance at 1 January 2016
Issue of shares
Cost of shares awarded to employees
Dividends (note 9)
Revaluation gains on investments in subsidiary
companies
Loss for the year attributable to equity shareholders
Total comprehensive income/(loss) for the year
Share
capital
£m
Share
premium
£m
196.1
1,223.3
Merger
reserve
£m
374.1
Other
reserves
£m
Revaluation
reserve
£m
Retained
earnings
£m
7.3
2,545.7
1,243.7
0.3
–
1.9
–
–
–
0.2
–
42.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Investment
in own
shares*
£m
(3.9)
(0.3)
4.0
–
Equity
shareholders’
funds
£m
5,586.3
0.2
4.0
(136.0)
–
–
–
–
–
(180.1)
683.0
–
–
(280.5)
683.0
(280.5)
–
–
–
683.0
(280.5)
402.5
Balance at 31 December 2016
198.3
1,265.7
374.1
7.3
3,228.7
783.1
(0.2)
5,857.0
* Investment in own shares is stated at cost.
The capacity of the Company to make dividend payments is primarily determined by the availability of retained distributable reserves and
cash resources. As at 31 December 2017 the Company had distributable reserves of £890.5 million (2016: £783.1 million) and the total external
dividends declared in 2017 amounted to £193.6 million. The Company’s distributable reserves support over four times this annual dividend.
When required the Company can receive dividends from its subsidiaries to further increase distributable reserves.
The merger reserve comprises the premium on the share placing in September 2014. With regard to this transaction, no share premium
is recorded in the Company’s financial statements, through the operation of the merger relief provisions of the Companies Act 2006.
HAMMERSON PLC ANNUAL REPORT 2017
170
170 HAMMERSON PLC ANNUAL REPORT 2017
COMPANY STATEMENT OF CHANGES IN EQUITY
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Balance at 31 December 2017
198.6 1,265.9
374.1
7.3
3,301.4
890.5
(0.3)
6,037.5
FOR THE YEAR ENDED 31 DECEMBER 2017
Balance at 1 January 2017
Issue of shares
Cost of shares awarded to employees
Purchase of own shares
Dividends (note 9)
Revaluation gains on investments in subsidiary
companies
Profit for the year attributable to equity shareholders
Total comprehensive income for the year
* Investment in own shares is stated at cost.
FOR THE YEAR ENDED 31 DECEMBER 2016
Balance at 1 January 2016
Issue of shares
Cost of shares awarded to employees
Dividends (note 9)
Revaluation gains on investments in subsidiary
companies
Loss for the year attributable to equity shareholders
Total comprehensive income/(loss) for the year
* Investment in own shares is stated at cost.
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Other
Revaluation
reserve
£m
Retained
earnings
£m
in own
shares*
£m
198.3 1,265.7
374.1
3,228.7
783.1
reserves
£m
7.3
Investment
Equity
shareholders’
0.3
0.2
–
–
–
–
–
–
0.3
–
1.9
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
42.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.2)
(0.3)
2.2
(2.0)
–
–
–
(193.6)
72.7
–
72.7
–
301.0
301.0
funds
£m
5,857.0
0.2
2.2
(2.0)
(193.6)
72.7
301.0
373.7
Investment
in own
shares*
£m
(3.9)
(0.3)
4.0
–
Equity
shareholders’
funds
£m
5,586.3
0.2
4.0
(136.0)
683.0
(280.5)
402.5
(180.1)
–
–
–
683.0
–
(280.5)
683.0
(280.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share
capital
£m
Share
premium
£m
196.1
1,223.3
Merger
reserve
£m
374.1
Other
reserves
£m
7.3
Revaluation
reserve
£m
Retained
earnings
£m
2,545.7
1,243.7
Balance at 31 December 2016
198.3
1,265.7
374.1
7.3
3,228.7
783.1
(0.2)
5,857.0
The capacity of the Company to make dividend payments is primarily determined by the availability of retained distributable reserves and
cash resources. As at 31 December 2017 the Company had distributable reserves of £890.5 million (2016: £783.1 million) and the total external
dividends declared in 2017 amounted to £193.6 million. The Company’s distributable reserves support over four times this annual dividend.
When required the Company can receive dividends from its subsidiaries to further increase distributable reserves.
The merger reserve comprises the premium on the share placing in September 2014. With regard to this transaction, no share premium
is recorded in the Company’s financial statements, through the operation of the merger relief provisions of the Companies Act 2006.
170 HAMMERSON PLC ANNUAL REPORT 2017
FOR THE YEAR ENDED 31 DECEMBER 2017
A: Accounting policies
Basis of accounting
Although the consolidated Group financial statements are prepared under IFRS, the Hammerson plc company financial statements presented in
this section are prepared in accordance with Financial Reporting Standard 101 (FRS 101) ‘Reduced Disclosure Framework’ as issued by the Financial
Reporting Council.
The financial statements are presented in sterling. They are prepared on the historical cost basis, except that the investments in subsidiary
companies are included at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for the goods
and services.
Disclosure exemptions adopted
In preparing these financial statements Hammerson plc has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore these
financial statements do not include:
– certain comparative information as otherwise required by EU endorsed IFRS;
– certain disclosures regarding the Company’s capital;
– a statement of cash flows;
– certain disclosures in respect of financial instruments;
– the effect of future accounting standards not yet adopted; and
– disclosure of related party transactions with wholly-owned members of the Group.
The above disclosure exemptions have been adopted because equivalent disclosures are included in the consolidated Group financial statements
into which Hammerson plc is consolidated.
Accounting policies
The significant judgements and key estimates and accounting policies relevant to the Company are the same as those set out in the accounting
policies for the Group in note 1, except for investments in subsidiary companies which are classified as available for sale assets and included at fair
value. Revaluation movements are included within equity in the revaluation reserve. The Directors determine the valuations with reference to the
net assets of the entities, which are principally based on the valuation of investment and development properties either held by the subsidiary or its
fellow group undertakings. The Group’s investment and development properties are valued independently by professional external valuers and
further details are set out in note 11 to the financial statements. Consistent with the Group’s deferred tax recognition treatment, as explained in note
6 to the financial statements, in calculating the net asset values of the subsidiaries, no deduction is made for deferred tax.
B: Result for the year and dividend
As permitted by section 408 of the Companies Act 2006, the income statement of the Company is not presented as part of these financial
statements. The profit for the year attributable to equity shareholders dealt with in the financial statements of the Company was £301.0 million
(2016: £280.5 million loss) and includes a net gain of £88.2 million (2016: £280.9 million loss) in respect of foreign exchange translation movements
on the Company’s euro and US dollar denominated receivables and borrowings.
Dividend information is provided in note 9 to the financial statements.
C: Investments in subsidiary companies
Balance at 1 January
Revaluation adjustment
Balance at 31 December
2017
2016
Cost less
provision for
permanent
diminution in
value
£m
Cost less
provision for
permanent
diminution in
value
£m
Valuation
£m
1,561.7
4,824.3
1,561.7
–
72.7
–
1,561.7
4,897.0
1,561.7
Valuation
£m
4,141.3
683.0
4,824.3
Investments are stated at Directors’ valuation. A list of the subsidiary companies and other related undertakings at 31 December 2017 is included in
note H.
D: Receivables: non-current assets
Amounts owed by subsidiaries and other related undertakings
Loans receivable from associate
Fair value of interest rate swaps
Fair value of currency swaps
2017
£m
2016
£m
6,057.8
6,000.2
1.8
6.3
10.3
21.6
19.3
–
6,076.2
6,041.1
HAMMERSON.COM 171
HAMMERSON.COM 171
FINANCIAL STATEMENTS
Notes to the company financial statements continued
D: Receivables: non-current assets (continued)
Amounts owed by subsidiaries and other related undertakings are unsecured and interest-bearing at floating rates based on LIBOR. This includes
amounts which are repayable on demand; however, it is the Company’s current intention not to seek repayment of these amounts before
31 December 2018.
E: Receivables: current assets
Interest receivable
Other receivables
F: Payables
Amounts owed to subsidiaries and other related undertakings
Withholding tax on interim dividends (note 9)
Other payables
Accruals
2017
£m
17.8
6.6
24.4
2017
£m
2016
£m
10.6
–
10.6
2016
£m
1,577.6
1,498.0
13.4
1.3
52.4
11.5
–
55.3
1,644.7
1,564.8
The amounts owed to subsidiaries and other related undertakings are unsecured, repayable on demand and interest bearing at floating rates based
on LIBOR.
G: Loans and other borrowings
After five years
From two to five years
From one to two years
Due after more than one year
Due within a year
Bank loans
and overdrafts
£m
Other
borrowings
£m
–
1,930.7
496.6
–
581.6
442.4
496.6
2,954.7
–
1.7
2017
Total
£m
1,930.7
1,078.2
442.4
3,451.3
1.7
496.6
2,956.4
3,453.0
2016
Total
£m
1,928.1
1,307.6
49.5
3,285.2
211.1
3,496.3
Details of the Group’s loans and other borrowings and financial instruments are given in notes 19 and 20 to the financial statements. The fair value of
the Company’s loans and other borrowings is equal to that of the Reported Group as shown in note 20H.
H: Subsidiaries and other related undertakings
The Company’s subsidiaries and other related undertakings at 31 December 2017 are listed below. No Group entities have been excluded from the
consolidated financial results.
Direct subsidiaries
The Company has a 100% interest in the ordinary share capital of the following entities, which are registered/operate in the countries as shown:
England and Wales
Registered office: Kings Place, 90 York Way, London N1 9GE
Grantchester Holdings Limited
Hammerson Company Secretarial Limited
Hammerson Employee Share Plan Trustees Limited
Hammerson Group Limited
Hammerson International Holdings Limited
(1) Registered office: Pavilion House, 31 Fitzwilliam Square, Dublin 2, Ireland.
France
Registered office: 40/48 rue Cambon – 23 rue des Capucines 75001 Paris
Hammerson Pension Scheme Trustees Limited
Hammerson Share Option Scheme Trustees Limited
Hammerson Group Management Limited
Hammerson Group Management Limited – Irish branch1
Hammerson Holding France SAS
Hammerson plc – French branch
HAMMERSON PLC ANNUAL REPORT 2017
172
172 HAMMERSON PLC ANNUAL REPORT 2017
Notes to the company financial statements continued
31 December 2018.
E: Receivables: current assets
Amounts owed to subsidiaries and other related undertakings
Withholding tax on interim dividends (note 9)
Interest receivable
Other receivables
F: Payables
Other payables
Accruals
on LIBOR.
G: Loans and other borrowings
After five years
From two to five years
From one to two years
Due after more than one year
Due within a year
2017
£m
17.8
6.6
24.4
2017
£m
13.4
1.3
52.4
2016
£m
10.6
–
10.6
2016
£m
11.5
–
55.3
1,577.6
1,498.0
Bank loans
Other
and overdrafts
borrowings
£m
£m
496.6
–
–
–
1,930.7
581.6
442.4
1.7
496.6
2,954.7
2017
Total
£m
1,930.7
1,078.2
442.4
3,451.3
1.7
496.6
2,956.4
3,453.0
2016
Total
£m
1,928.1
1,307.6
49.5
3,285.2
211.1
3,496.3
Details of the Group’s loans and other borrowings and financial instruments are given in notes 19 and 20 to the financial statements. The fair value of
the Company’s loans and other borrowings is equal to that of the Reported Group as shown in note 20H.
H: Subsidiaries and other related undertakings
The Company’s subsidiaries and other related undertakings at 31 December 2017 are listed below. No Group entities have been excluded from the
The Company has a 100% interest in the ordinary share capital of the following entities, which are registered/operate in the countries as shown:
consolidated financial results.
Direct subsidiaries
England and Wales
Registered office: Kings Place, 90 York Way, London N1 9GE
Grantchester Holdings Limited
Hammerson Company Secretarial Limited
Hammerson Group Limited
Hammerson International Holdings Limited
Hammerson Employee Share Plan Trustees Limited
Hammerson Group Management Limited
Hammerson Pension Scheme Trustees Limited
Hammerson Share Option Scheme Trustees Limited
Hammerson Group Management Limited – Irish branch1
(1) Registered office: Pavilion House, 31 Fitzwilliam Square, Dublin 2, Ireland.
France
Registered office: 40/48 rue Cambon – 23 rue des Capucines 75001 Paris
Hammerson Holding France SAS
Hammerson plc – French branch
D: Receivables: non-current assets (continued)
Amounts owed by subsidiaries and other related undertakings are unsecured and interest-bearing at floating rates based on LIBOR. This includes
amounts which are repayable on demand; however, it is the Company’s current intention not to seek repayment of these amounts before
Indirect subsidiaries and other wholly-owned entities
Unless otherwise stated, the Company has an indirect 100% interest in the ordinary share capital of the following entities, which are
registered/operate in the countries as shown:
England and Wales
Registered office: Kings Place, 90 York Way, London N1 9GE (See page 174 for footnotes)
280 Bishopsgate Investments Limited
Abbey Retail Park Limited (Northern Ireland) 1
Hammerson (Milton Keynes) Limited
Hammerson (Moor House) Properties Limited
Christchurch UK Limited
Cricklewood Regeneration Limited
Crocusford Limited
Governeffect Limited
Grantchester Developments (Birmingham) Limited
Grantchester Developments (Falkirk) Limited
Grantchester Group Limited
Grantchester Investments Limited
Grantchester Limited
Hammerson (Newcastle) Limited
Hammerson (Newtownabbey) Limited
Hammerson (Oldbury) Limited
Hammerson (Paddington) Limited
Hammerson (Parc Tawe I) Limited
Hammerson (Renfrew) Limited
Hammerson (Rugby) Limited
Hammerson (Silverburn) Limited (Isle of Man) 2
Hammerson (Staines) Limited
The amounts owed to subsidiaries and other related undertakings are unsecured, repayable on demand and interest bearing at floating rates based
1,644.7
1,564.8
Grantchester Properties (Luton) Limited
Hammerson (Value Retail Investments) Limited
Grantchester Properties (Gloucester) Limited
Hammerson (Telford) Limited
Grantchester Properties (Middlesbrough) Limited
Hammerson (Victoria Gate) Limited
Grantchester Properties (Nottingham) Limited
Hammerson (Victoria Investments) Limited
Grantchester Properties (Port Talbot) Limited
Grantchester Properties (Sunderland) Limited
Grantchester Property Management Limited
Hammerson (60 Threadneedle Street) Limited
Hammerson (9-13 Grosvenor Street) Limited
Hammerson (Abbey) Limited
Hammerson (Bicester No. 2) Limited
Hammerson (Brent Cross) Limited
Hammerson (Brent South) Limited
Hammerson (Bristol Investments) Limited
Hammerson (Bristol) Limited
Hammerson (Cardiff) Limited
Hammerson (Centurion) Limited
Hammerson (Coventry) Limited
Hammerson (Cramlington I) Limited
Hammerson (Cricklewood) Limited
Hammerson (Croydon) Limited
Hammerson (Didcot) Limited
Hammerson (Didcot II) Limited
Hammerson (Euston Square) Limited
Hammerson (Folkestone) Limited
Hammerson (Glasgow) Limited
Hammerson (Grosvenor Street) Limited
Hammerson (Kingston) Limited
Hammerson (Kirkcaldy) Limited
Hammerson (Leeds Developments) Limited
Hammerson (Leeds GP) Limited
Hammerson (Leeds Investments) Limited
Hammerson (Leeds) Limited
Hammerson (Leicester) Limited
Hammerson (Leicester GP) Limited
Hammerson (Lichfield) Limited
Hammerson (Merthyr) Limited
Hammerson (Victoria Quarter) Limited
Hammerson (Watermark) Limited
Hammerson (Whitgift) Limited
Hammerson Birmingham Properties Limited
Hammerson Bull Ring Limited
Hammerson Croydon (GP1) Limited
Hammerson Croydon (GP2) Limited
Hammerson Investments (No. 12) Limited
Hammerson Investments (No. 13) Limited
Hammerson Investments (No. 16) Limited
Hammerson Investments (No. 23) Limited
Hammerson Investments (No. 26) Limited
Hammerson Investments (No. 35) Limited
Hammerson Investments (No. 36) Limited
Hammerson Investments (No. 37) Limited
Hammerson Investments Limited
Hammerson Junction (No 3) Limited
Hammerson Junction (No 4) Limited
Hammerson LLC (United States) 3
Hammerson Martineau Galleries Limited
Hammerson MGLP Limited
Hammerson MGLP 2 Limited
Hammerson MLP Limited
Hammerson Moor House (LP) Limited
Hammerson Operations Limited
Hammerson Oracle Investments Limited
Hammerson Oracle Properties Limited
Hammerson Peterborough (GP) Limited
Hammerson Peterborough (No 1) Limited
Hammerson Peterborough (No 2) Limited
Hammerson Project Management Limited
Hammerson Ravenhead Limited
Hammerson Retail Parks Holdings Limited
172 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 173
HAMMERSON.COM 173
FINANCIAL STATEMENTS
Notes to the company financial statements continued
H: Subsidiaries and other related undertakings (continued)
Indirect subsidiaries and other wholly-owned entities (continued)
England and Wales (continued)
Registered office: Kings Place, 90 York Way, London N1 9GE
Hammerson Sheffield (NRQ) Limited
Hammerson Shelf Co 6 Limited
Hammerson Shelf Co 7 Limited
Hammerson Shelf Co 8 Limited
Hammerson Shelf Co 9 Limited
Hammerson Shelf Co 10 Limited
Hammerson UK Properties plc
Hammerson Wrekin LLP 6
Highcross (GP) Limited
Highcross Residential (Nominees 1) Limited
Highcross Residential (Nominees 2) Limited
Highcross Residential Properties Limited
Junction Nominee 1 Limited
Junction Nominee 2 Limited
Leeds (GP1) Limited
Leeds (GP2) Limited
London & Metropolitan Northern
LWP Limited Partnership 6
Martineau Galleries (GP) Limited
Martineau Galleries No. 1 Limited
Martineau Galleries No. 2 Limited
Mentboost Limited
Monesan Limited (Northern Ireland) 1
New Southgate Limited
Precis (1474) Limited (Ordinary and Deferred)
RT Group Developments Limited
RT Group Property Investments Limited
SEVCO 5025 Limited 4
Spitalfields Developments Limited
Spitalfields Holdings Limited (Ordinary and Preference)
The Highcross Limited Partnership 6
The Junction (General Partner) Limited
The Junction (Thurrock Shareholder GP) Limited
The Junction Limited Partnership 6
The Junction Thurrock (General Partner) Limited
The Junction Thurrock Limited Partnership 6
The Martineau Galleries Limited Partnership 6
Thurrock Shares 1 Limited
Thurrock Shares 2 Limited
Union Square Developments Limited (Scotland) 5
West Quay (No.1) Limited
West Quay (No.2) Limited
West Quay Shopping Centre Limited
Westchester Holdings Limited
Westchester Property Holdings Limited
Registered offices: (1) 50 Bedford Street, Belfast, BT2 7FW (2) First Names House, Victoria Road, Douglas, Isle of Man IM2 4DF (3) 2711 Centerville Road, Suite 400, Wilmington
19808, United States; country of operation is the United Kingdom (4) SG House, 6 St. Cross Road, Winchester, Hampshire, SO23 9HX (5) 1 George Square, Glasgow, G2 1AL
(6) No shares in issue for Limited Partnerships.
France
Registered office: 40/48 rue Cambon – 23 rue des Capucines, 75001 Paris (See page 175 for footnotes)
BFN10 GmbH (Germany) 1
Cergy Expansion 1 SAS
Espace Plus SCI
Hammerson SAS
Hammerson Asset Management SAS
Hammerson Beauvais SNC
Hammerson Bethune SCI
Hammerson Centre Commercial Italie SAS
Hammerson Cergy 1 SCI
Hammerson Cergy 2 SCI
Hammerson Cergy 4 SCI
Hammerson Cergy 5 SCI
Hammerson Développement SCI
Hammerson Europe BV (Netherlands) 2
Hammerson Fontaine SCI
Hammerson France SAS
Hammerson Mantes SCI
Hammerson Marignan SAS
Hammerson Marketing et Communication SAS
Hammerson Marseille SC
Hammerson Property Management SAS
HAMMERSON PLC ANNUAL REPORT 2017
174
174 HAMMERSON PLC ANNUAL REPORT 2017
Hammerson Saint Sébastien SAS
Hammerson Troyes SCI
Les Pressing Réunis SARL
Retail Park Nice Lingostière SAS
RC Aulnay 3 SCI
SCI Cergy Cambon SCI
SCI Cergy Capucine SCI
SCI Cergy Expansion 2 SCI
SCI Cergy Honoré SCI
SCI Cergy Lynx SCI
SCI Cergy Madeleine SCI
SCI Cergy Office 1 SCI
SCI Cergy Office 2 SCI
SCI Cergy Office 3 SCI
SCI Cergy Office 4 SCI
SCI Cergy Office 5 SCI
SCI Cergy Office 6 SCI
SCI Cergy Opéra SCI
SCI Cergy Paix SCI
SCI Cergy Royale SCI
SCI Cergy Trois SCI
Notes to the company financial statements continued
H: Subsidiaries and other related undertakings (continued)
Indirect subsidiaries and other wholly-owned entities (continued)
England and Wales (continued)
Registered office: Kings Place, 90 York Way, London N1 9GE
Hammerson Sheffield (NRQ) Limited
Hammerson Shelf Co 6 Limited
Hammerson Shelf Co 7 Limited
Hammerson Shelf Co 8 Limited
Hammerson Shelf Co 9 Limited
Hammerson Shelf Co 10 Limited
Hammerson UK Properties plc
Hammerson Wrekin LLP 6
Highcross (GP) Limited
Highcross Residential (Nominees 1) Limited
Highcross Residential (Nominees 2) Limited
Highcross Residential Properties Limited
Junction Nominee 1 Limited
Junction Nominee 2 Limited
Leeds (GP1) Limited
Leeds (GP2) Limited
London & Metropolitan Northern
LWP Limited Partnership 6
Martineau Galleries (GP) Limited
Martineau Galleries No. 1 Limited
Martineau Galleries No. 2 Limited
Mentboost Limited
Monesan Limited (Northern Ireland) 1
France
BFN10 GmbH (Germany) 1
Cergy Expansion 1 SAS
Espace Plus SCI
Hammerson SAS
Hammerson Asset Management SAS
Hammerson Beauvais SNC
Hammerson Bethune SCI
Hammerson Centre Commercial Italie SAS
Hammerson Cergy 1 SCI
Hammerson Cergy 2 SCI
Hammerson Cergy 4 SCI
Hammerson Cergy 5 SCI
Hammerson Développement SCI
Hammerson Europe BV (Netherlands) 2
Hammerson Fontaine SCI
Hammerson France SAS
Hammerson Mantes SCI
Hammerson Marignan SAS
Hammerson Marketing et Communication SAS
Hammerson Marseille SC
Hammerson Property Management SAS
174 HAMMERSON PLC ANNUAL REPORT 2017
New Southgate Limited
Precis (1474) Limited (Ordinary and Deferred)
RT Group Developments Limited
RT Group Property Investments Limited
SEVCO 5025 Limited 4
Spitalfields Developments Limited
Spitalfields Holdings Limited (Ordinary and Preference)
The Highcross Limited Partnership 6
The Junction (General Partner) Limited
The Junction (Thurrock Shareholder GP) Limited
The Junction Limited Partnership 6
The Junction Thurrock (General Partner) Limited
The Junction Thurrock Limited Partnership 6
The Martineau Galleries Limited Partnership 6
Thurrock Shares 1 Limited
Thurrock Shares 2 Limited
Union Square Developments Limited (Scotland) 5
West Quay (No.1) Limited
West Quay (No.2) Limited
West Quay Shopping Centre Limited
Westchester Holdings Limited
Westchester Property Holdings Limited
Hammerson Saint Sébastien SAS
Hammerson Troyes SCI
Les Pressing Réunis SARL
Retail Park Nice Lingostière SAS
RC Aulnay 3 SCI
SCI Cergy Cambon SCI
SCI Cergy Capucine SCI
SCI Cergy Expansion 2 SCI
SCI Cergy Honoré SCI
SCI Cergy Lynx SCI
SCI Cergy Madeleine SCI
SCI Cergy Office 1 SCI
SCI Cergy Office 2 SCI
SCI Cergy Office 3 SCI
SCI Cergy Office 4 SCI
SCI Cergy Office 5 SCI
SCI Cergy Office 6 SCI
SCI Cergy Opéra SCI
SCI Cergy Paix SCI
SCI Cergy Royale SCI
SCI Cergy Trois SCI
Registered offices: (1) 50 Bedford Street, Belfast, BT2 7FW (2) First Names House, Victoria Road, Douglas, Isle of Man IM2 4DF (3) 2711 Centerville Road, Suite 400, Wilmington
19808, United States; country of operation is the United Kingdom (4) SG House, 6 St. Cross Road, Winchester, Hampshire, SO23 9HX (5) 1 George Square, Glasgow, G2 1AL
(6) No shares in issue for Limited Partnerships.
Registered office: 40/48 rue Cambon – 23 rue des Capucines, 75001 Paris (See page 175 for footnotes)
Indirect subsidiaries and other wholly-owned entities (continued)
France (continued)
Registered office: 40/48 rue Cambon – 23 rue des Capucines, 75001 Paris
SCI Cergy Tuileries SCI
SCI Cergy Vendôme SCI
SCI Nevis SCI
SCI Paris Italik SCI
SNC Sebastien Expansion SNC
Société de gestion des parkings Hammerson (SOGEPH) SARL
Teycpac-H-Italie SAS
Registered offices: (1) Schlossstraße 1, 12163 Berlin, Germany (2) Spoorsinge, 2871 TT, Schoonhoven, Netherlands.
Ireland
Registered office: 6th floor, 2 Grand Canal Square, Dublin 2
Dublin Central GP Limited
Dublin Central Limited Partnership 1
Dundrum R&O Park Management Limited
Dundrum Town Centre Management Limited
(1) No shares in issue for Limited Partnerships.
Jersey
Registered office: 47 Esplanade, St Helier, Jersey JE1 0BD
Hammerson 60 TNS Unit Trust 1
Hammerson Birmingham Investments Limited 2
Hammerson Bull Ring (Jersey) Limited 2
Hammerson Croydon Investments Limited
Hammerson Highcross Investments Limited
Hammerson Junction (No 1) Limited
Hammerson Junction (No 2) Limited
Hammerson Leeds Unit Trust 1
Hammerson Victoria Gate Unit Trust 1
Hammerson Victoria Quarter Unit Trust 1
Dundrum Village Management Company Limited
Hammerson Ireland Investments Limited
Hammerson Operations (Ireland) Limited
The Hammerson ICAV
Hammerson VIA (Jersey) Limited
Hammerson VRC (Jersey) Limited
Hammerson Whitgift Investments Limited
Highcross (No.1) Limited
Highcross (No.2) Limited
Highcross Leicester Limited
The Junction Thurrock Unit Trust 1
The Junction Unit Trust 1
The Telford Forge Retail Park Unit Trust 1
(1) No shares in issue for Unit Trusts. The registered office address is that of the appropriate trustee (2) Registered office: 44 Esplanade, St. Helier, Jersey JE4 9WG.
Indirectly held joint venture entities
See page 176 for footnotes
Bishopsgate Goodsyard Regeneration Limited
Bristol Alliance (GP) Limited
Bristol Alliance Limited Partnership
Bristol Alliance Nominee No. 1 Limited
Bristol Alliance Nominee No. 2 Limited
BRLP Rotunda Limited
Bull Ring (GP) Limited
Bull Ring (GP2) Limited
Bull Ring Joint Venture Trust
Bull Ring No. 1 Limited
Bull Ring No. 2 Limited
Croydon (GP1) Limited
Croydon (GP2) Limited
Croydon Car Park Limited
Croydon Jersey Unit Trust
Croydon Limited Partnership
Croydon Management Services Limited
Croydon Property Investments Limited
Dundrum Car Park GP Limited
Dundrum Car Park Limited Partnership
Country of registration
or operation
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
Jersey 2
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
Jersey 3
England and Wales 1
England and Wales 1
England and Wales 1
Ireland 4
Ireland 4
Class of share held
Ownership %
Ordinary
Ordinary
N/A
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
N/A
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
N/A
N/A
Ordinary
Ordinary
Ordinary
N/A
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
HAMMERSON.COM 175
HAMMERSON.COM 175
FINANCIAL STATEMENTS
Notes to the company financial statements continued
H: Subsidiaries and other related undertakings (continued)
Indirectly held joint venture entities (continued)
Dundrum Retail GP Designated Activity Company
Dundrum Retail Limited Partnership
Grand Central (GP) Limited
Grand Central Limited Partnership
Grand Central No 1 Limited
Grand Central No 2 Limited
Grand Central Unit Trust
Moor House General Partner Limited
Oracle Nominees (No. 1) Limited
Oracle Nominees (No. 2) Limited
Oracle Nominees Limited
Oracle Shopping Centre Limited
RC Aulnay 1 SCI
RC Aulnay 2 SCI
Reading Residential Properties Limited
Retail Property Holdings Limited
Retail Property Holdings (SE) Limited
SAS Angel Shopping Centre SAS
SCI ESQ SCI
Société Civile de Développement du Centre Commercial
de la Place des Halles SDPH SC
Silverburn Investment Advisor Limited
Silverburn Unit Trust
The Bull Ring Limited Partnership
The Moor House Limited Partnership
The Oracle Limited Partnership
The West Quay Limited Partnership
Triskelion Property Holding Designated Activity Company
VIA Limited Partnership
Whitgift Limited Partnership
Country of registration
or operation
Ireland 4
Ireland 4
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
Jersey 2
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
France 5
France 5
England and Wales 1
Isle of Man 6
Guernsey 7
France 8
France 8
France 9
England and Wales 1
Jersey 3
England and Wales 1
England and Wales 1
England and Wales 1
England and Wales 1
Ireland 4
Jersey 10
England and Wales 1
Class of share held
Ownership %
Ordinary
N/A
Ordinary
N/A
Ordinary
Ordinary
N/A
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
N/A
N/A
N/A
N/A
N/A
Ordinary
N/A
N/A
50
50
50
50
50
50
50
67
50
50
50
50
25
25
50
50
50
10
25
65
50
50
50
67
50
50
50
47
50
Registered offices: (1) Kings Place, 90 York Way, London N1 9GE (2) 44 Esplanade, St Helier, Jersey JE4 9WG (3) 47 Esplanade, St Helier, Jersey JE1 0BD
(4) 6th Floor, 2 Grand Canal Square, Dublin 2, Ireland (5) 129 rue Turenne, 75003 Paris (6) First Names House, Victoria Road, Douglas, Isle of Man IM2 4DF (7) Firman House,
St. George’s Place, St. Peter Port, Guernsey GY1 2BH (8) 1 cours Michelet – CS 30051, 92076 Paris La Defense (9) 40/48 rue Cambon – 23 rue des Capucines, 75001 Paris
(10) 11 – 15 Seaton Place, St Helier, Jersey JE4 0QH.
Indirectly held associate entities
Bicester Investors Limited Partnership
Bicester Investors II Limited Partnership
Master Holding BV
US Paris LLC
Value Retail Investors Limited Partnership
Value Retail Investors II Limited Partnership
Value Retail PLC
VR Franconia GmbH
VR Ireland BV
VR Maasmechelen Tourist Outlets Comm. VA
Country of registration
or operation
Class of share held
Ownership %1
Bermuda 2
Bermuda 2
Netherlands 3
USA 4
Bermuda 2
Bermuda 2
UK 5
Germany 6
Netherlands 3
Belgium 7
N/A
N/A
Ordinary
Ordinary
N/A
N/A
Ordinary
Ordinary
Ordinary
B-shares
25
25
41
42
71
80
24
63
54
26
(1) Ownership % represents Hammerson’s effective ownership which is held directly and indirectly in the entities listed above. Registered offices: (2) Victoria Place, 31 Victoria Street,
Hamilton, HM10, Bermuda (3) TMF, Luna Arena, Herikerbergweg 238, 1101 CM Amsterdam, Netherlands (4) 35 Mason Street, Greenwich CT 06830 USA (5) 19 Berkeley Street,
London W1J 8ED (6) Almosenberg, 97877, Wertheim, Germany (7) Zetellaan 100, 3630 Maasmechelen, Belgium.
HAMMERSON PLC ANNUAL REPORT 2017
176
176 HAMMERSON PLC ANNUAL REPORT 2017
ADDITIONAL DISCLOSURES
UNAUDITED
Table 91
EPRA measures
EPRA performance measures
Portfolio analysis
Rental information
Rent reviews
Lease expiries and breaks
Net rental income
Top ten tenants
Cost ratio
Valuation analysis
Yield analysis
Table
Page
Table
Page
92
93
94
95
96
97
98
99
100
Share of Property interests
177
Income statement
178
178
179
179
180
180
181
181
Balance sheet
Premium outlets
Income statement
Balance sheet
Proportionally consolidated
information
Balance sheet
Adjusted finance costs
Net debt
Loan to value and gearing
Net debt:EBITDA
101
102
103
104
105
106
107
108
109
182
182
183
183
184
185
185
185
186
EPRA measures
Hammerson is a member of European Public Real Estate Association (EPRA) and has representatives who actively participate in a number of EPRA
committees and initiatives. This includes working with peer group companies, real estate investors and analysts and the large audit firms, to improve
the transparency, comparability and relevance of the published results of listed real estate companies in Europe.
As with other real estate companies, we have adopted the EPRA Best Practice Recommendations (BPR) and were again awarded an EPRA Gold
Award for compliance with the EPRA BPR for our 2016 Annual Report. Further information on EPRA and the EPRA BPR can be found on their
website www.epra.com. Our key EPRA metrics are described and shown in Table 92.
Table 92
EPRA performance measures
Performance measure
Earnings
2017
performance
2016
performance
Definition
£247.3m
£230.9m Recurring earnings from core operational activities. In 2017, EPRA earnings
Page
146
differed by £1.0 million (2016: £0.2 million) from the Group’s adjusted
earnings due to the inclusion of a ‘Company specific adjustment’ in relation
to foreign exchange translation movements on an intragroup funding loan in
VIA Outlets which has no cash flow impact (see note 10B of the financial
statements) and which management believe distorts the underlying
earnings of the Group.
Earnings per share (EPS)
31.2p
29.2p EPRA earnings divided by the weighted average number of shares in issue
146
during the period. As stated in ‘Earnings’ above, the EPRA EPS is 0.1p higher
than the Group’s adjusted EPS of 31.1p due to the VIA Outlets intragroup
funding loan adjustment.
£7.76
£7.39 Equity shareholders’ funds excluding the fair values of certain financial
derivatives, deferred tax balances and any associated goodwill divided by the
diluted number of shares in issue.
£7.25
£6.88 Equity shareholders’ funds adjusted to include the fair values of borrowings.
Net asset value (NAV) per
share
Triple net asset value
(NNNAV) per share
Net Initial Yield (NIY)
4.4%
4.4% Annual cash rents receivable, less head and equity rents and any non-
Topped-up NIY
Vacancy rate
4.6%
1.7%
recoverable property operating expenses, as a percentage of the gross market
value of the property, including estimated purchasers’ costs as provided by
the Group’s external valuers.
4.6% EPRA NIY adjusted for the expiry of rent-free periods.
2.5% The estimated market rental value (ERV) of vacant space divided by the ERV
of the whole portfolio. Occupancy is the inverse of vacancy.
Cost ratio
21.6%
22.6% Total operating costs as a percentage of gross rental income, after rents
payable. Both operating costs and gross rental income are adjusted for costs
associated with inclusive leases.
147
147
181
181
178
180
HAMMERSON.COM 177
HAMMERSON PLC ANNUAL REPORT 2017 177
OTHER INFORMATIONADDITIONAL DISCLOSURES
Additional disclosures continued
Unaudited
Portfolio analysis
Rental information
Table 93
Rental data for the year ended 31 December 2017
Proportionally consolidated excluding premium outlets
United Kingdom
Shopping centres
Retail parks
Other
France
Ireland
Investment portfolio
Developments3
Property portfolio (note 2)
Selected data for the year ended 31 December 2016
Group
UK
France
Ireland
Investment portfolio
Developments
Property portfolio (note 2)
Gross rental
income
£m
Net rental
income
£m
Vacancy rate
%
Average
rents
passing1
£/m²
Rents
passing
£m
Estimated
rental value2
£m
Reversion/
(over-rented)
%
180.2
72.4
12.3
264.9
104.6
37.9
407.4
14.5
421.9
272.0
101.1
13.7
386.8
11.9
398.7
152.9
69.3
8.8
231.0
95.3
34.8
361.1
9.3
370.4
237.3
89.3
12.5
339.1
7.4
346.5
1.9
0.6
8.1
1.8
2.1
0.3
1.7
2.4
3.5
0.5
2.5
540
215
155
365
470
455
395
365
455
495
390
175.7
77.5
12.9
186.7
75.4
14.1
266.1
276.2
83.1
41.6
390.8
91.7
43.3
411.2
263.6
97.0
31.9
277.3
107.9
34.8
392.5
420.0
4.5
(3.4)
0.2
2.1
7.8
3.9
3.5
2.9
7.1
8.3
4.4
Notes
1. Average rents passing at the year end before deducting head and equity rents and excluding rents passing from anchor units and car parks.
2. The estimated market rental value at the year end calculated by the Group’s valuers. ERVs in the above table are included within the unobservable inputs to the portfolio valuations
as defined by IFRS 13. This information has been subject to audit. The total ERV for the Reported Group at 31 December 2017 was £239.8 million (2016: £251.2 million).
3. Rental income for Developments is principally in relation to the Whitgift Centre, Croydon; Dublin Central and ancillary properties associated with our development pipeline in
Dublin and Leeds.
Rent reviews
Table 94
Rent reviews as at 31 December 2017
Proportionally consolidated excluding premium
outlets
Outstanding
£m
2018
£m
2019
£m
2020
£m
Total
£m
Outstanding
£m
2018
£m
2019
£m
2020
£m
Total
£m
Rents passing subject to review in1
Current ERV of leases subject to review in2
United Kingdom
Shopping centres
Retail parks
Other
17.7
14.7
3.0
18.5
4.9
0.5
23.3
10.0
1.2
16.9
20.1
0.6
76.4
49.7
5.3
35.4
23.9
34.5
37.6
131.4
18.4
15.0
3.1
36.5
20.0
5.0
0.5
24.8
10.6
1.5
17.9
20.8
0.7
81.1
51.4
5.8
25.5
36.9
39.4
138.3
Ireland
Total3
Notes
1. The amount of rental income, based on rents passing at 31 December 2017, for leases which are subject to review in each year.
2. Projected rental income for leases that are subject to review in each year, based on the higher of the current rental income and the ERV at 31 December 2017. For outstanding
166.3
40.5
46.5
27.3
29.1
48.3
34.9
54.6
37.9
17.0
58.1
18.7
11.1
11.8
3.4
3.6
3.6
3.4
37.7
176.0
reviews the ERV is as at the review date.
3. Leases in France are not subject to rent reviews but instead are adjusted annually based on French indexation indices.
HAMMERSON PLC ANNUAL REPORT 2017
178
178 HAMMERSON PLC ANNUAL REPORT 2017
Additional disclosures continued
Unaudited
Portfolio analysis
Rental information
Table 93
Rental data for the year ended 31 December 2017
Proportionally consolidated excluding premium outlets
United Kingdom
Shopping centres
Retail parks
Other
Investment portfolio
Developments3
Property portfolio (note 2)
Selected data for the year ended 31 December 2016
France
Ireland
Group
UK
France
Ireland
Investment portfolio
Developments
Property portfolio (note 2)
Notes
Dublin and Leeds.
Rent reviews
Table 94
outlets
United Kingdom
Shopping centres
Retail parks
Other
Ireland
Total3
Notes
178 HAMMERSON PLC ANNUAL REPORT 2017
income
£m
180.2
72.4
12.3
264.9
104.6
37.9
407.4
14.5
421.9
272.0
101.1
13.7
386.8
11.9
398.7
152.9
69.3
8.8
231.0
95.3
34.8
361.1
9.3
370.4
237.3
89.3
12.5
339.1
7.4
346.5
%
1.9
0.6
8.1
1.8
2.1
0.3
1.7
2.4
3.5
0.5
2.5
540
215
155
365
470
455
395
365
455
495
390
266.1
276.2
175.7
77.5
12.9
83.1
41.6
390.8
186.7
75.4
14.1
91.7
43.3
411.2
263.6
97.0
31.9
277.3
107.9
34.8
392.5
420.0
4.5
(3.4)
0.2
2.1
7.8
3.9
3.5
2.9
7.1
8.3
4.4
1. Average rents passing at the year end before deducting head and equity rents and excluding rents passing from anchor units and car parks.
2. The estimated market rental value at the year end calculated by the Group’s valuers. ERVs in the above table are included within the unobservable inputs to the portfolio valuations
as defined by IFRS 13. This information has been subject to audit. The total ERV for the Reported Group at 31 December 2017 was £239.8 million (2016: £251.2 million).
3. Rental income for Developments is principally in relation to the Whitgift Centre, Croydon; Dublin Central and ancillary properties associated with our development pipeline in
Rent reviews as at 31 December 2017
Proportionally consolidated excluding premium
Outstanding
£m
2018
£m
2019
£m
2020
£m
Total
£m
Outstanding
£m
2018
£m
2019
£m
2020
£m
Total
£m
Rents passing subject to review in1
Current ERV of leases subject to review in2
17.7
14.7
3.0
35.4
11.1
46.5
18.5
4.9
0.5
23.9
3.4
27.3
23.3
10.0
1.2
34.5
3.4
37.9
16.9
20.1
0.6
37.6
17.0
54.6
76.4
49.7
5.3
131.4
34.9
166.3
18.4
15.0
3.1
36.5
11.8
48.3
20.0
5.0
0.5
25.5
3.6
29.1
24.8
10.6
1.5
36.9
3.6
40.5
17.9
20.8
0.7
39.4
18.7
58.1
81.1
51.4
5.8
138.3
37.7
176.0
1. The amount of rental income, based on rents passing at 31 December 2017, for leases which are subject to review in each year.
2. Projected rental income for leases that are subject to review in each year, based on the higher of the current rental income and the ERV at 31 December 2017. For outstanding
reviews the ERV is as at the review date.
3. Leases in France are not subject to rent reviews but instead are adjusted annually based on French indexation indices.
Gross rental
Net rental
income
Vacancy rate
£m
Rents
Estimated
Reversion/
passing
rental value2
(over-rented)
£m
£m
%
Average
rents
passing1
£/m²
Proportionally consolidated excluding premium outlets
2018
£m
2019
£m
2020
£m
Total
£m
2018
£m
2019
£m
2020
£m
Total
£m
to break
years
to expiry
years
Rents passing that expire/break in1
ERV of leases that expire/break in2
Weighted average
unexpired lease
term
Lease expiries and breaks
Table 95
Lease expiries and breaks as at 31 December 2017
United Kingdom
Shopping centres
Retail parks
Other
30.5
14.3
10.3
2.9
3.4
3.7
0.8
6.8
1.5
55.1
13.4
5.7
36.2
15.2
10.8
2.8
3.6
3.9
1.1
6.8
1.7
36.8
18.8
18.6
74.2
42.6
20.2
19.3
62.2
13.5
6.4
82.1
France
Ireland
Investment portfolio
11.0
2.5
50.3
2.2
2.4
4.3
3.1
23.4
26.0
17.5
8.0
99.7
13.3
3.1
59.0
2.5
2.7
4.7
3.4
25.4
27.4
20.5
9.2
111.8
6.0
7.7
7.5
6.6
2.8
8.7
5.9
10.5
8.6
8.4
9.8
5.6
11.6
9.0
Notes
1. The amount of rental income, based on rents passing at 31 December 2017, for leases which expire or, for the UK and Ireland only, are subject to tenant break options, which fall due
in each year.
2. The ERV at 31 December 2017 for leases that expire or, for the UK and Ireland only, are subject to tenant break options which fall due in each year and ignoring the impact of rental
growth and any rent-free periods.
Net rental income
Table 96
Net rental income for the year ended 31 December 2017
Proportionally consolidated excluding premium outlets
Properties
owned throughout
2016/17
£m
Increase
for properties
owned
throughout
2016/17
%
Acquisitions
£m
Disposals
£m
Developments
and other
£m
United Kingdom
Shopping centres
Retail parks
Other
France
Ireland
Property portfolio
140.4
66.0
–
206.4
74.8
–
281.2
1.8
(2.5)
–
0.4
2.6
n/a
1.0
3.8
–
–
3.8
0.7
37.9
42.4
0.1
3.1
–
3.2
18.8
–
22.0
8.6
0.2
14.5
23.3
1.5
–
24.8
Net rental income for the year ended 31 December 2016
Proportionally consolidated excluding premium outlets
Properties
owned throughout
2016/17
£m
Exchange
£m
Acquisitions
£m
Disposals
£m
Developments
and other
£m
United Kingdom
Shopping centres
Retail parks
Other
France
Ireland
Property portfolio
137.9
67.6
–
205.5
73.0
–
278.5
–
–
–
–
(6.5)
(1.0)
(7.5)
4.3
–
–
4.3
0.5
15.0
19.8
4.3
12.0
–
16.3
21.0
–
37.3
1.7
–
15.4
17.1
1.3
–
18.4
Total
£m
152.9
69.3
14.5
236.7
95.8
37.9
370.4
Total
£m
148.2
79.6
15.4
243.2
89.3
14.0
346.5
Following the acquisition of the Irish loan portfolio in October 2015, the underlying net rental income derived from the property assets secured
against the debt was in the form of finance income. Had this been treated as net rental income, the like-for-like net rental income growth for the Irish
properties in 2017 would have been 7.4%, which would have increased the Group’s like-for-like net rental income growth to 1.7%.
HAMMERSON.COM 179
HAMMERSON PLC ANNUAL REPORT 2017 179
OTHER INFORMATIONADDITIONAL DISCLOSURES
Additional disclosures continued
Unaudited
Top ten tenants
Table 97
Ranked by passing rent at 31 December 2017
Proportionally consolidated excluding premium outlets
B&Q
Inditex
Next
H&M
Boots
Dixons Carphone
Arcadia
Marks & Spencer
Debenhams
River Island
Total
Cost ratio
Table 98
EPRA cost ratio
Proportionally consolidated excluding premium outlets
Net service charge expenses – non-vacancy
Net service charge expenses – vacancy
Net service charge expenses – total
Other property outgoings
Less inclusive lease costs recovered through rent
Total property costs (for cost ratio)
Employee and corporate costs
Management fees receivable
Total operating costs (for cost ratio)
Gross rental income
Ground and equity rents payable
Less inclusive lease costs recovered through rent
Gross rental income (for cost ratio)
EPRA cost ratio including net service charge expenses – vacancy (%)
EPRA cost ratio excluding net service charge expenses – vacancy (%)
Passing rent
£m
% of total
passing rent
12.6
9.3
9.0
8.8
5.6
5.2
5.2
5.1
5.1
5.1
3.2
2.4
2.3
2.3
1.4
1.3
1.3
1.3
1.3
1.3
71.0
18.1
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
7.8
7.5
15.3
32.1
(7.7)
39.7
61.0
(12.1)
88.6
421.9
(4.1)
(7.7)
410.1
21.6
19.8
6.5
8.0
14.5
33.6
(6.6)
41.5
54.6
(8.5)
87.6
398.7
(4.1)
(6.6)
388.0
22.6
20.5
Our business model for developments is to use a combination of in-house staff and external advisers. The cost of external advisers is capitalised to the
cost of developments. The cost of staff working on developments is generally expensed, but is capitalised subject to meeting certain criteria related to
the degree of time spent on and the stage of progress of specific projects. During the year ended 31 December 2017, staff costs amounting to
£0.1 million (2016: £1.6 million) were capitalised as development costs and are not included within ‘Employee and corporate costs’.
HAMMERSON PLC ANNUAL REPORT 2017
180
180 HAMMERSON PLC ANNUAL REPORT 2017
Ranked by passing rent at 31 December 2017
Proportionally consolidated excluding premium outlets
Passing rent
% of total
passing rent
Additional disclosures continued
Unaudited
Top ten tenants
Table 97
B&Q
Inditex
Next
H&M
Boots
Dixons Carphone
Arcadia
Marks & Spencer
Debenhams
River Island
Total
Cost ratio
Table 98
EPRA cost ratio
Proportionally consolidated excluding premium outlets
Net service charge expenses – non-vacancy
Net service charge expenses – vacancy
Net service charge expenses – total
Other property outgoings
Less inclusive lease costs recovered through rent
Total property costs (for cost ratio)
Employee and corporate costs
Management fees receivable
Total operating costs (for cost ratio)
Gross rental income
Ground and equity rents payable
Less inclusive lease costs recovered through rent
Gross rental income (for cost ratio)
71.0
18.1
Year ended
31 December
Year ended
31 December
£m
12.6
9.3
9.0
8.8
5.6
5.2
5.2
5.1
5.1
5.1
2017
£m
7.8
7.5
15.3
32.1
(7.7)
39.7
61.0
(12.1)
88.6
421.9
(4.1)
(7.7)
410.1
21.6
19.8
3.2
2.4
2.3
2.3
1.4
1.3
1.3
1.3
1.3
1.3
2016
£m
6.5
8.0
14.5
33.6
(6.6)
41.5
54.6
(8.5)
87.6
398.7
(4.1)
(6.6)
388.0
22.6
20.5
EPRA cost ratio including net service charge expenses – vacancy (%)
EPRA cost ratio excluding net service charge expenses – vacancy (%)
Our business model for developments is to use a combination of in-house staff and external advisers. The cost of external advisers is capitalised to the
cost of developments. The cost of staff working on developments is generally expensed, but is capitalised subject to meeting certain criteria related to
the degree of time spent on and the stage of progress of specific projects. During the year ended 31 December 2017, staff costs amounting to
£0.1 million (2016: £1.6 million) were capitalised as development costs and are not included within ‘Employee and corporate costs’.
Valuation analysis
Table 99
Valuation analysis at 31 December 2017
Proportionally consolidated including premium outlets
United Kingdom
Shopping centres
Retail parks
Other
France
Ireland
Investment portfolio
Developments
Property portfolio – excluding premium outlets
Premium outlets2
Total Group
Selected data for the year ended 31 December 2016
Group
UK
France
Ireland
Properties
at valuation
£m
Revaluation
in the year
£m
Capital
return
%
Total
return
%
Initial
yield
%
True
equivalent
yield
%
Nominal
equivalent
yield1
%
3,488.9
1,234.1
180.1
4,903.1
1,887.0
959.6
7,749.7
576.6
8,326.3
2,234.1
10,560.4
23.9
(27.2)
13.4
10.1
(11.4)
(1.5)
(2.8)
24.1
21.3
225.2
246.5
4,920.0
2,159.6
805.1
(121.9)
73.3
3.2
0.7
(2.5)
8.8
0.1
(1.3)
0.2
(0.3)
4.7
0.0
11.5
2.2
(2.8)
3.6
0.4
5.2
2.8
14.5
4.9
3.1
4.2
4.3
6.9
4.5
16.8
6.8
1.9
8.3
2.3
4.4
5.5
5.2
4.7
3.9
4.0
4.4
5.1
6.2
7.2
5.5
4.4
4.4
5.0
4.7
3.9
3.9
5.5
4.4
4.3
4.9
6.0
6.9
5.3
4.3
4.3
4.9
5.3
4.3
4.2
Investment portfolio
Developments
Property portfolio – excluding premium outlets
Premium outlets2
Total Group
Notes
1. Nominal equivalent yields are included within the unobservable inputs to the portfolio valuations as defined by IFRS 13. This information has been subject to audit. The nominal
7,884.7
397.0
8,281.7
1,689.4
9,971.1
(45.4)
32.0
(13.4)
138.4
125.0
(1.0)
7.2
(0.4)
9.6
1.1
3.7
8.6
4.1
15.1
5.7
4.4
5.1
4.9
equivalent yields for the Reported Group at 31 December 2017 was 5.1% (2016: 5.1%).
2. Represents the Group’s share of premium outlets through its investments in Value Retail and VIA Outlets, and the revaluation in the year excludes acquired deferred tax.
Yield analysis
Table 100
Investment portfolio as at 31 December 2017
Proportionally consolidated excluding premium outlets
Portfolio value (net of cost to complete)
Purchasers’ costs1
Net investment portfolio valuation on a proportionally consolidated basis
Income and yields
Rent for valuers’ initial yield (equivalent to EPRA Net Initial Yield)
Rent-free periods (including pre-lets)2
Rent for ‘topped-up’ initial yield3
Non-recoverable costs (net of outstanding rent reviews)
Passing rents
ERV of vacant space
Reversions
Total ERV/Reversionary yield
True equivalent yield
Nominal equivalent yield
Notes
1. Purchasers’ costs equate to 6.1% of the net portfolio value.
2. The weighted average remaining rent-free period is 0.5 years.
3. The yield of 4.6% based on passing rents and gross portfolio value is equivalent to EPRA’s ‘topped-up’ Net Initial Yield.
Net book
value
£m
8,226
(476)
7,750
4.7%
0.2%
4.9%
0.2%
5.1%
0.1%
0.2%
5.4%
Income
£m
Gross value
£m
8,226
364.3
12.6
376.9
13.9
390.8
6.7
13.7
411.2
4.4%
0.2%
4.6%
0.2%
4.8%
0.1%
0.2%
5.1%
5.0%
4.9%
180 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 181
HAMMERSON PLC ANNUAL REPORT 2017 181
OTHER INFORMATIONADDITIONAL DISCLOSURES
Additional disclosures continued
Unaudited
Share of Property interests
The Group’s Share of Property interests reflects the Group’s Property joint ventures as shown in note 12 to the financial statements on pages 149 to
154 and the Group’s interest in Nicetoile, which is accounted for as an associate, as shown in note 13 to the financial statements on pages 155 to 157.
Income statement
Table 101
Gross rental income
Net rental income
Administration expenses
Operating profit before other net gains
Revaluation gains on properties
Operating profit
Change in fair value of derivatives
Other finance income
Net finance income
Profit before tax
Current tax charge
Profit for the year
Balance sheet
Table 102
Non-current assets
Investment and development properties
Interests in leasehold properties
Other non-current assets
Current assets
Other current assets
Cash and deposits
Total assets
Current liabilities
Other payables
Tax
Loans and other borrowings
Non-current liabilities
Loans and other borrowings
Obligations under finance leases
Other payables
Total liabilities
Net assets
HAMMERSON PLC ANNUAL REPORT 2017
182
182 HAMMERSON PLC ANNUAL REPORT 2017
Property
joint
ventures
£m
171.4
146.4
(0.5)
145.9
19.4
165.3
–
1.6
1.6
166.9
–
166.9
Nicetoile
£m
1.6
1.4
–
1.4
–
1.4
–
–
–
1.4
–
1.4
Property
joint
ventures
£m
Nicetoile
£m
2017
Share of
Property
interests
£m
173.0
147.8
(0.5)
147.3
19.4
166.7
–
1.6
1.6
168.3
–
168.3
2017
Share of
Property
interests
£m
Property
joint
ventures
£m
145.9
122.9
(0.4)
122.5
10.7
133.2
0.8
15.3
16.1
149.3
(0.8)
148.5
Nicetoile
£m
1.5
1.3
–
1.3
0.6
1.9
–
–
–
1.9
–
1.9
Property
joint
ventures
£m
Nicetoile
£m
2016
Share of
Property
interests
£m
147.4
124.2
(0.4)
123.8
11.3
135.1
0.8
15.3
16.1
151.2
(0.8)
150.4
2016
Share of
Property
interests
£m
3,611.1
29.1
3,640.2
3,490.1
27.7
3,517.8
10.4
0.1
–
–
10.4
0.1
10.8
–
–
–
10.8
–
3,621.6
29.1
3,650.7
3,500.9
27.7
3,528.6
52.7
58.5
111.2
0.8
1.4
2.2
53.5
59.9
113.4
100.2
54.8
155.0
0.4
1.4
1.8
100.6
56.2
156.8
3,732.8
31.3
3,764.1
3,655.9
29.5
3,685.4
(79.6)
(0.7)
(48.6)
(128.9)
(275.0)
(10.4)
(6.1)
(291.5)
(420.4)
(0.2)
–
–
(79.8)
(0.7)
(48.6)
(0.2)
(129.1)
–
–
(0.2)
(0.2)
(0.4)
(275.0)
(10.4)
(6.3)
(291.7)
(420.8)
(78.4)
–
(46.7)
(125.1)
–
(10.8)
(5.3)
(16.1)
(141.2)
(0.2)
–
–
(0.2)
–
–
(0.3)
(0.3)
(0.5)
(78.6)
–
(46.7)
(125.3)
–
(10.8)
(5.6)
(16.4)
(141.7)
3,312.4
30.9
3,343.3
3,514.7
29.0
3,543.7
The Group’s Share of Property interests reflects the Group’s Property joint ventures as shown in note 12 to the financial statements on pages 149 to
154 and the Group’s interest in Nicetoile, which is accounted for as an associate, as shown in note 13 to the financial statements on pages 155 to 157.
Nicetoile
Nicetoile
Aggregated premium outlets income summary
Premium outlets
The Group’s investment in premium outlets is through interests in Value Retail and VIA Outlets. Due to the nature of the Group’s control over these
externally managed investments, Value Retail is accounted for as an associate and VIA Outlets is accounted for as a joint venture. Tables 103 and 104
provide analysis of the impact of the two premium outlet investments on the Group’s financial statements. Further information on Value Retail is
provided in note 13 to the financial statements on pages 155 to 157 and for VIA Outlets in note 12 to the financial statements on pages 149 to 154.
Income statement
Table 103
Share of results (IFRS)
Less adjustments:
Revaluation gains on properties
Deferred tax acquired
Revaluation gains
Change in fair value of derivatives
Deferred tax charge
Other adjustments
Adjusted earnings of premium outlets
Balance sheet
Table 104
Aggregated premium outlets investment summary
Investment properties
Net debt
Other net liabilities
Share of net assets (IFRS)
Less adjustments:
Fair value of derivatives
Deferred tax
Goodwill as a result of deferred tax
Value Retail
£m
VIA Outlets
£m
2017
Total
£m
221.6
13.6
235.2
Value Retail
£m
135.2
VIA Outlets
£m
20.7
2016
Total
£m
155.9
(198.3)
–
(198.3)
5.2
5.9
(9.8)
(197.0)
24.6
(26.9)
12.9
(14.0)
(1.6)
16.2
(1.0)
(0.4)
13.2
(225.2)
(120.0)
(18.4)
(138.4)
12.9
–
(212.3)
(120.0)
3.6
22.1
(10.8)
(197.4)
37.8
15.2
9.6
(16.4)
(111.6)
23.6
–
(18.4)
(0.7)
4.7
(0.1)
(14.5)
6.2
–
(138.4)
14.5
14.3
(16.5)
(126.1)
29.8
Value Retail
£m
VIA Outlets
£m
1,633.8
(511.9)
(53.3)
1,068.6
(10.9)
152.3
(53.5)
87.9
600.3
(173.6)
(65.4)
361.3
1.2
59.7
(3.6)
57.3
2017
Total
£m
2,234.1
(685.5)
(118.7)
1,429.9
(9.7)
212.0
(57.1)
145.2
Value Retail
£m
VIA Outlets
£m
1,387.3
(413.3)
(14.9)
959.1
(0.3)
140.9
(53.5)
87.1
302.1
(54.3)
(25.8)
222.0
3.5
19.5
(3.5)
19.5
2016
Total
£m
1,689.4
(467.6)
(40.7)
1,181.1
3.2
160.4
(57.0)
106.6
3,732.8
31.3
3,764.1
3,655.9
29.5
3,685.4
Adjusted investment
1,156.5
418.6
1,575.1
1,046.2
241.5
1,287.7
(0.2)
(78.6)
In addition to the above figures, at 31 December 2017 the Group had provided loans of £1.8 million (2016: £21.6 million) to Value Retail for which the
Group received interest of £0.3 million in 2017 (2016: £4.2 million) which is included within finance income in note 7 to the financial statements on
page 144.
Additional disclosures continued
Unaudited
Share of Property interests
Income statement
Table 101
Gross rental income
Net rental income
Administration expenses
Operating profit before other net gains
Revaluation gains on properties
Operating profit
Change in fair value of derivatives
Other finance income
Net finance income
Profit before tax
Current tax charge
Profit for the year
Balance sheet
Table 102
Non-current assets
Interests in leasehold properties
Other non-current assets
Current assets
Other current assets
Cash and deposits
Total assets
Current liabilities
Other payables
Tax
Loans and other borrowings
Non-current liabilities
Loans and other borrowings
Obligations under finance leases
Other payables
Total liabilities
Net assets
Property
joint
ventures
£m
171.4
146.4
(0.5)
145.9
19.4
165.3
–
1.6
1.6
166.9
–
166.9
10.4
0.1
52.7
58.5
111.2
(79.6)
(0.7)
(48.6)
(128.9)
(275.0)
(10.4)
(6.1)
(291.5)
(420.4)
2017
Share of
Property
interests
£m
173.0
147.8
(0.5)
147.3
19.4
166.7
–
1.6
1.6
168.3
–
168.3
2017
Share of
Property
interests
£m
10.4
0.1
53.5
59.9
113.4
(79.8)
(0.7)
(48.6)
(275.0)
(10.4)
(6.3)
(291.7)
(420.8)
£m
1.6
1.4
1.4
–
–
1.4
–
–
–
–
1.4
1.4
–
–
0.8
1.4
2.2
(0.2)
–
–
–
–
(0.2)
(0.2)
(0.4)
Property
joint
ventures
£m
145.9
122.9
(0.4)
122.5
10.7
133.2
0.8
15.3
16.1
149.3
(0.8)
148.5
10.8
–
100.2
54.8
155.0
(78.4)
–
(46.7)
(125.1)
–
(10.8)
(5.3)
(16.1)
(141.2)
2016
Share of
Property
interests
£m
147.4
124.2
(0.4)
123.8
11.3
135.1
0.8
15.3
16.1
151.2
(0.8)
150.4
2016
Share of
Property
interests
£m
10.8
–
100.6
56.2
156.8
(46.7)
(125.3)
–
–
(10.8)
(5.6)
(16.4)
(141.7)
£m
1.5
1.3
–
1.3
0.6
1.9
–
–
–
–
1.9
1.9
–
–
0.4
1.4
1.8
–
–
–
–
(0.3)
(0.3)
(0.5)
Property
joint
ventures
£m
Nicetoile
£m
Property
joint
ventures
£m
Nicetoile
£m
3,621.6
29.1
3,650.7
3,500.9
27.7
3,528.6
(0.2)
(129.1)
(0.2)
3,312.4
30.9
3,343.3
3,514.7
29.0
3,543.7
Investment and development properties
3,611.1
29.1
3,640.2
3,490.1
27.7
3,517.8
182 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 183
HAMMERSON PLC ANNUAL REPORT 2017 183
OTHER INFORMATIONADDITIONAL DISCLOSURES
Additional disclosures continued
Unaudited
Proportionally consolidated information
Note 2 to the financial statements on pages 139 and 140 shows the proportionally consolidated income statement. The proportionally consolidated
balance sheet, adjusted finance costs and net debt are shown in Tables 105, 106 and 107 respectively.
In each of the tables, column A represents the Reported Group figures as shown in the financial statements; column B shows the Group’s Share of
Property interests being the Group’s Property joint ventures as shown in note 12 to the financial statements on pages 149 to 154 and Nicetoile as
shown in note 13 to the financial statements on pages 155 to 157. Column C shows the Group’s proportionally consolidated figures by aggregating the
Reported Group and Share of Property interests figures. As explained on page 53 of the Financial Review, the Group’s interests in premium outlets
are not proportionally consolidated as management does not review these interests on this basis.
Balance sheet
Table 105
Balance sheet as at 31 December 2017
Non-current assets
Investment and development properties
Interests in leasehold properties
Plant and equipment
Investment in joint ventures
Investment in associate
Receivables
Current assets
Receivables
Restricted monetary assets
Cash and deposits
Total assets
Current liabilities
Payables
Tax
Loans and other borrowings
Non-current liabilities
Loan and other borrowings
Deferred tax
Obligations under finance leases
Payables
Reported
Group
£m
A
2017
Share of
Property
interests
£m
B
Proportionally
consolidated
£m
C
Reported
Group
£m
A
Share of
Property
interests
£m
B
2016
Proportionally
consolidated
£m
C
4,686.1
3,640.2
8,326.3
4,763.9
3,517.8
8,281.7
10.4
–
(3,312.4)
47.6
5.1
361.3
36.4
6.2
10.8
–
3,736.7
(3,514.7)
37.2
5.1
3,673.7
1,099.5
20.4
9,522.0
110.5
37.3
205.9
353.7
9,875.7
(261.1)
(0.5)
(1.7)
(30.9)
1,068.6
0.1
20.5
988.1
44.9
307.4
9,829.4
9,576.2
32.2
21.3
59.9
113.4
420.8
(79.8)
(0.7)
(48.6)
142.7
58.6
265.8
467.1
105.9
35.1
74.3
215.3
10,296.5
9,791.5
(340.9)
(1.2)
(50.3)
(303.8)
(0.4)
(211.1)
(515.3)
(263.3)
(129.1)
(392.4)
(3,451.3)
(275.0)
(3,726.3)
(3,285.2)
(0.5)
(38.9)
(84.2)
–
(10.4)
(6.3)
(0.5)
(49.3)
(90.5)
(0.5)
(37.5)
(96.0)
(3,574.9)
(291.7)
(3,866.6)
(3,419.2)
47.2
6.2
222.0
959.1
44.9
9,561.1
190.7
50.9
130.5
372.1
9,933.2
(382.4)
(0.4)
(257.8)
(640.6)
(3,285.2)
(0.5)
(48.3)
(101.6)
(3,435.6)
(29.0)
–
(15.1)
84.8
15.8
56.2
156.8
141.7
(78.6)
–
(46.7)
(125.3)
–
–
(10.8)
(5.6)
(16.4)
Total liabilities
Net assets
(3,838.2)
(420.8)
(4,259.0)
6,037.5
–
6,037.5
(3,934.5)
5,857.0
(141.7)
(4,076.2)
–
5,857.0
HAMMERSON PLC ANNUAL REPORT 2017
184
184 HAMMERSON PLC ANNUAL REPORT 2017
Additional disclosures continued
Unaudited
Proportionally consolidated information
Note 2 to the financial statements on pages 139 and 140 shows the proportionally consolidated income statement. The proportionally consolidated
balance sheet, adjusted finance costs and net debt are shown in Tables 105, 106 and 107 respectively.
In each of the tables, column A represents the Reported Group figures as shown in the financial statements; column B shows the Group’s Share of
Property interests being the Group’s Property joint ventures as shown in note 12 to the financial statements on pages 149 to 154 and Nicetoile as
shown in note 13 to the financial statements on pages 155 to 157. Column C shows the Group’s proportionally consolidated figures by aggregating the
Reported Group and Share of Property interests figures. As explained on page 53 of the Financial Review, the Group’s interests in premium outlets
are not proportionally consolidated as management does not review these interests on this basis.
Balance sheet
Table 105
Balance sheet as at 31 December 2017
Investment and development properties
4,686.1
3,640.2
8,326.3
4,763.9
10.4
–
(3,312.4)
(30.9)
1,068.6
0.1
20.5
3,736.7
(3,514.7)
(29.0)
307.4
9,829.4
9,576.2
(15.1)
9,561.1
Share of
Property
Proportionally
interests
consolidated
£m
B
Reported
Group
£m
A
2017
£m
C
47.6
5.1
361.3
142.7
58.6
265.8
467.1
(340.9)
(1.2)
(50.3)
Reported
Group
£m
A
37.2
5.1
3,673.7
1,099.5
20.4
9,522.0
110.5
37.3
205.9
353.7
9,875.7
(261.1)
(0.5)
(1.7)
36.4
6.2
988.1
44.9
105.9
35.1
74.3
215.3
(303.8)
(0.4)
(211.1)
(515.3)
(0.5)
(37.5)
(96.0)
32.2
21.3
59.9
113.4
420.8
(79.8)
(0.7)
(48.6)
10,296.5
9,791.5
(263.3)
(129.1)
(392.4)
(3,451.3)
(275.0)
(3,726.3)
(3,285.2)
(0.5)
(38.9)
(84.2)
–
(10.4)
(6.3)
(0.5)
(49.3)
(90.5)
(3,574.9)
(291.7)
(3,866.6)
(3,419.2)
Share of
Property
interests
£m
B
3,517.8
10.8
–
–
–
–
–
84.8
15.8
56.2
156.8
141.7
(78.6)
(46.7)
(125.3)
(10.8)
(5.6)
(16.4)
Proportionally
consolidated
2016
£m
C
8,281.7
47.2
6.2
222.0
959.1
44.9
190.7
50.9
130.5
372.1
9,933.2
(382.4)
(0.4)
(257.8)
(640.6)
(3,285.2)
(0.5)
(48.3)
(101.6)
(3,435.6)
Non-current assets
Interests in leasehold properties
Plant and equipment
Investment in joint ventures
Investment in associate
Receivables
Current assets
Receivables
Restricted monetary assets
Cash and deposits
Total assets
Current liabilities
Payables
Tax
Loans and other borrowings
Non-current liabilities
Loan and other borrowings
Deferred tax
Obligations under finance leases
Payables
Total liabilities
Net assets
(3,838.2)
(420.8)
(4,259.0)
6,037.5
–
6,037.5
(3,934.5)
5,857.0
(141.7)
(4,076.2)
–
5,857.0
Adjusted finance costs
Table 106
Adjusted finance costs for the year ended 31 December 2017
Notes (see page 184)
Gross finance costs
Less: Interest capitalised
Finance costs
Finance income
Adjusted finance costs/(income) (note 2)
Net debt
Table 107
Net debt as at 31 December 2017
Notes (see page 184)
Cash and deposits
Fair value of currency swaps*
Other loans and other borrowings
Net debt
Reported
Group
£m
A
126.1
(0.8)
125.3
(16.1)
109.2
Share of
Property
interests
£m
B
3.1
–
3.1
(4.7)
(1.6)
2017
Total
£m
C
129.2
(0.8)
128.4
(20.8)
107.6
2017
Total
£m
C
265.8
(90.3)
Reported
Group
£m
A
126.3
(5.1)
121.2
(12.4)
108.8
Reported
Group
£m
A
74.3
(2.7)
Share of
Property
interests
£m
B
2.1
–
2.1
(17.4)
(15.3)
Share of
Property
interests
£m
B
56.2
–
(46.7)
9.5
2016
Total
£m
C
128.4
(5.1)
123.3
(29.8)
93.5
2016
Total
£m
C
130.5
(2.7)
(3,540.3)
(3,412.5)
Share of
Property
interests
£m
B
59.9
–
Reported
Group
£m
A
205.9
(90.3)
(3,352.4)
(3,236.8)
(323.6)
(263.7)
(3,676.0)
(3,500.5)
(3,493.6)
(3,422.0)
* At 31 December 2017 the fair value of currency swaps in the Reported Group included currency swaps of £10.3 million (2016: £nil) within non-current receivables.
Loan to value and gearing
Table 108
Loan to value and gearing as at 31 December 2017
Net debt – ‘Loan’ (A)
Total property portfolio (Table 99)
Irish loan assets (note 12A)
Investment in VIA Outlets (note 12A)
Investment in Value Retail (note 13C)
Less non-controlling interest (note 28C)
‘Value’ (B)
Equity shareholders’ funds (C)
Loan to value (%) – (A/B)
Gearing (%) – (A/C)
2017
£m
2016
£m
3,500.5
3,412.5
8,326.3
8,281.7
–
361.3
1,068.6
(14.0)
54.1
222.0
959.1
(81.4)
9,742.2
9,435.5
6,023.5
5,775.6
35.9
58.1
36.2
59.1
184 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 185
HAMMERSON PLC ANNUAL REPORT 2017 185
OTHER INFORMATIONADDITIONAL DISCLOSURES
Additional disclosures continued
Unaudited
Net debt:EBITDA
Table 109
Net debt:EBITDA for the year ended 31 December 2017
Adjusted operating profit (note 2)
Interest income from Irish loans
Tenant incentive amortisation
Share-based remuneration
Depreciation (note 4)
EBITDA
Net debt (Table 107)
Net debt:EBITDA – times
2017
£m
359.3
4.7
4.8
5.4
2.1
2016
£m
330.2
17.4
2.6
5.6
2.0
376.3
357.8
3,500.5
3,412.5
9.3
9.5
HAMMERSON PLC ANNUAL REPORT 2017
186
186 HAMMERSON PLC ANNUAL REPORT 2017
Net debt:EBITDA for the year ended 31 December 2017
Additional disclosures continued
Unaudited
Net debt:EBITDA
Table 109
Adjusted operating profit (note 2)
Interest income from Irish loans
Tenant incentive amortisation
Share-based remuneration
Depreciation (note 4)
EBITDA
Net debt (Table 107)
Net debt:EBITDA – times
2017
£m
359.3
4.7
4.8
5.4
2.1
2016
£m
330.2
17.4
2.6
5.6
2.0
376.3
357.8
3,500.5
3,412.5
9.3
9.5
DEVELOPMENT PIPELINE
UNAUDITED
Scheme
UK shopping centres
Scheme
Area m2
Key facts
Brent Cross extension
90,000
– Extension and refurbishment of Brent Cross, forming part of wider Brent Cross Cricklewood
regeneration plans, totalling 175,000m2 of retail, catering and leisure.
– Reserved matters planning application approved October 2017. The compulsory purchase
order was confirmed in December 2017.
– Laing O’Rourke has been selected as the preferred contractor for the retail extension and
leasing is progressing.
Bristol Investment Properties*
74,000
– Resolution to grant planning permission subject to conclusion of a S106 agreement, confirmed
Croydon Town Centre
200,000
in January 2018 for a 3.5ha area of joint venture-owned properties forming part of the
Broadmead estate adjoining Cabot Circus.
– Masterplan includes up to 74,000m2 retail and leisure, 380 car parking spaces, and the
potential for 150 residential units and a 150 room hotel.
– Redevelopment of Whitgift Centre and refurbishment of Centrale shopping centre.
– Resolution to grant outline planning permission confirmed in November 2017 for the
redevelopment of the Whitgift Centre subject to conclusion of a S106 agreement.
Silverburn (Phase 4), Glasgow*
50,000
– Variation to planning condition consented in 2017 to permit phased delivery of a masterplan
Union Square, Aberdeen*
27,800
Victoria, Leeds (Phase 2)*
95,000
for a future extension of existing centre.
– Masterplan includes 31,250m2 retail, 8,500m2 leisure, plus a hotel.
– Extension of existing shopping centre for up to 11,000m2 of retail, 12,000m2 of leisure and
catering, plus up to 294 car parking spaces and a hotel.
– Planning consent subject to conclusion of a section 75 agreement anticipated H1 2018.
– Phase 1 Victoria Gate completed October 2016. Operator being sought for up to 200 bed hotel
adjacent to new multi-storey car park.
– Phase 2 master planning underway to deliver a phased retail/leisure mixed-use scheme to
complement Victoria Gate.
– Freehold control of 4.1ha Phase 2 site obtained.
UK retail parks
Imperial Retail Park, Bristol*
7,350
– Planning consent granted in November 2017 for retail and leisure extension to Imperial Retail
Oldbury, Dudley*
10,900
UK Other
The Goodsyard, London E1
270,000
Park.
– Leasing progressing ahead of potential start on site in autumn 2018.
– Planning consent granted in May 2016 for new development of up to 11 retail and catering
units. Leasing underway.
– 4.2ha site on edge of the City of London.
– A planning application for a major mixed-use development of up to 270,000m2 was deferred by
the GLA in April 2016 to allow further consultation. This work is progressing and we are now
targeting a submission of the necessary amendments to the GLA by the end of 2018 to allow the
Mayor to determine the scheme.
France
–
SQY Ouest,
Saint Quentin-en-Yvelines*
32,000
– Opportunity to reposition existing shopping centre, creating a leisure-led destination.
– Trading consent obtained.
– Construction works and pre-letting on-going, Phase 1 launched to handover first units in first
half of 2018.
Ireland
Dundrum Phase II, Dublin*
100,000
Dublin Central, Dublin*
130,000
– 2.4ha site located adjacent to Dundrum Town Centre.
– Masterplan in preparation for a residential-led mixed-use scheme including retail.
– Extension of duration of planning consent granted until May 2022 to create a retail-led city
centre scheme including 60,000m2 of retail.
– The Court of Appeal in Dublin overturned the earlier ruling relating to buildings on Moore
Street and their national monument status. Previously constrained by the court case,
Hammerson will now engage with stakeholders on the future of the site.
Swords Pavilions Phase III,
Dublin*
272,000
– Extension of planning consent granted to August 2021 to create a mixed-use development
including 124,000m2 of retail and commercial uses.
– Loan-to-own process complete. Masterplan for extension to be reviewed in 2018.
Total
1,359,050
* Schemes are on Group owned land. No additional land acquisitions are required. This excludes occupational and long leaseholds.
186 HAMMERSON PLC ANNUAL REPORT 2017
HAMMERSON.COM 187
HAMMERSON PLC ANNUAL REPORT 2017 187
OTHER INFORMATIONADDITIONAL DISCLOSURES
PROPERTY LISTING
UNAUDITED
UK shopping centres
Brent Cross, London
Bullring, Birmingham
Cabot Circus, Bristol
Centrale, Croydon1
Grand Central, Birmingham
Highcross, Leicester
Silverburn, Glasgow
The Oracle, Reading
Union Square, Aberdeen
Victoria, Leeds
Westquay, Southampton
Whitgift, Croydon2
UK retail parks
Abbey Retail Park, Belfast
Abbotsinch Retail Park, Glasgow
Battery Retail Park, Birmingham3
Brent South Retail Park, London
Central Retail Park, Falkirk
Cleveland Retail Park, Middlesbrough
Cyfarthfa Retail Park, Methyr Tydfil
Dallow Road, Luton
Elliott’s Field Shopping Park, Rugby
Fife Central Retail Park, Kirkcaldy
Imperial Retail Park, Bristol
Parc Tawe Retail Park, Swansea
Ravenhead Retail Park, St. Helens
St. Oswald’s Retail Park, Gloucester
Telford Forge Retail Park, Telford
The Orchard Centre, Didcot
Wrekin Retail Park, Telford3
France
Espace Saint-Quentin, Saint Quentin-En-Yvelines4
Italie Deux, Paris
Jeu de Paume, Beauvais
Les 3 Fontaines, Cergy4,5
Les Terrasses du Port, Marseille
Nicetoile, Nice4
O’Parinor, Aulnay-Sous-Bois4
SQY Ouest, Saint Quentin-En-Yvelines
Ireland
Dublin Central, Dublin2
Dundrum Town Centre, Dublin
Ilac Centre, Dublin
Pavilions Swords, Dublin
1. Included within the UK Other properties portfolio.
2. Included within the Development portfolio.
3. Sold in 2018.
4. Held under co-ownership. Figures reflect Hammerson’s ownership interests.
5. Includes Cergy 3 which was acquired in 2017 and is classified within the Development portfolio.
HAMMERSON PLC ANNUAL REPORT 2017
188
188 HAMMERSON PLC ANNUAL REPORT 2017
Ownership
Area, m2
No. of tenants
Passing rent, £m
41%
50%
50%
50%
50%
100%
50%
50%
100%
100%
50%
50%
100%
100%
100%
41%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
25%
100%
100%
100%
100%
10%
25%
100%
100%
50%
50%
50%
85,300
126,900
109,700
64,800
38,400
106,300
100,500
70,900
51,800
56,900
94,300
54,600
20,200
24,600
12,500
8,700
37,300
27,800
29,800
10,100
24,900
29,800
32,300
24,200
27,600
20,900
29,100
21,200
13,700
33,700
61,800
24,100
44,800
62,700
17,300
68,600
19,100
23,800
126,200
27,200
45,400
113
153
125
48
66
136
103
104
80
92
121
97
4
14
13
10
30
20
23
2
24
23
19
10
18
14
19
51
14
117
133
66
159
176
109
171
21
21
161
71
96
17.7
27.2
15.7
4.6
6.1
28.7
10.1
16.4
20.0
16.2
17.5
14.4
3.4
5.2
3.8
1.9
6.6
4.6
7.0
2.0
6.8
7.1
5.5
2.2
4.3
4.8
5.2
3.9
2.8
3.4
22.9
3.1
18.5
27.9
1.5
6.1
2.0
2.2
29.6
4.7
7.1
PROPERTY LISTING
UNAUDITED
UK shopping centres
Brent Cross, London
Bullring, Birmingham
Cabot Circus, Bristol
Centrale, Croydon1
Grand Central, Birmingham
Highcross, Leicester
Silverburn, Glasgow
The Oracle, Reading
Union Square, Aberdeen
Victoria, Leeds
Westquay, Southampton
Whitgift, Croydon2
UK retail parks
Abbey Retail Park, Belfast
Abbotsinch Retail Park, Glasgow
Battery Retail Park, Birmingham3
Brent South Retail Park, London
Central Retail Park, Falkirk
Cleveland Retail Park, Middlesbrough
Cyfarthfa Retail Park, Methyr Tydfil
Dallow Road, Luton
Elliott’s Field Shopping Park, Rugby
Fife Central Retail Park, Kirkcaldy
Imperial Retail Park, Bristol
Parc Tawe Retail Park, Swansea
Ravenhead Retail Park, St. Helens
St. Oswald’s Retail Park, Gloucester
Telford Forge Retail Park, Telford
The Orchard Centre, Didcot
Wrekin Retail Park, Telford3
France
Espace Saint-Quentin, Saint Quentin-En-Yvelines4
Italie Deux, Paris
Jeu de Paume, Beauvais
Les 3 Fontaines, Cergy4,5
Les Terrasses du Port, Marseille
Nicetoile, Nice4
O’Parinor, Aulnay-Sous-Bois4
SQY Ouest, Saint Quentin-En-Yvelines
Ireland
Dublin Central, Dublin2
Dundrum Town Centre, Dublin
Ilac Centre, Dublin
Pavilions Swords, Dublin
1. Included within the UK Other properties portfolio.
2. Included within the Development portfolio.
3. Sold in 2018.
4. Held under co-ownership. Figures reflect Hammerson’s ownership interests.
5. Includes Cergy 3 which was acquired in 2017 and is classified within the Development portfolio.
188 HAMMERSON PLC ANNUAL REPORT 2017
41%
50%
50%
50%
50%
100%
50%
50%
100%
100%
50%
50%
100%
100%
100%
41%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
25%
100%
100%
100%
100%
10%
25%
100%
100%
50%
50%
50%
85,300
126,900
109,700
64,800
38,400
106,300
100,500
70,900
51,800
56,900
94,300
54,600
20,200
24,600
12,500
8,700
37,300
27,800
29,800
10,100
24,900
29,800
32,300
24,200
27,600
20,900
29,100
21,200
13,700
33,700
61,800
24,100
44,800
62,700
17,300
68,600
19,100
23,800
126,200
27,200
45,400
113
153
125
48
66
136
103
104
80
92
121
97
4
14
13
10
30
20
23
2
24
23
19
10
18
14
19
51
14
117
133
66
159
176
109
171
21
21
161
71
96
17.7
27.2
15.7
4.6
6.1
28.7
10.1
16.4
20.0
16.2
17.5
14.4
3.4
5.2
3.8
1.9
6.6
4.6
7.0
2.0
6.8
7.1
5.5
2.2
4.3
4.8
5.2
3.9
2.8
3.4
22.9
3.1
18.5
27.9
1.5
6.1
2.0
2.2
29.6
4.7
7.1
Ownership
Area, m2
No. of tenants
Passing rent, £m
Ownership
Area, m2
No. of tenants
Income1, £m
Premium outlets
i. Value Retail
Bicester Village, Oxford
La Roca Village, Barcelona
Las Rozas Village, Madrid
La Vallée Village, Paris
Maasmechelen Village, Brussels
Fidenza Village, Milan
Wertheim Village, Frankfurt
Ingolstadt Village, Munich
Kildare Village, Dublin
ii. VIA Outlets
Batavia Stad Amsterdam Fashion Outlet
Fashion Arena Prague Outlet
Landquart Fashion Outlet, Zürich
Freeport Lisbon Fashion Outlet
Hede Fashion Outlet, Gothenburg
Mallorca Fashion Outlet
Wroclaw Fashion Outlet
Seville Fashion Outlet
Zweibrücken Fashion Outlet
Vila do Conde Porto Fashion Outlet
Norwegian Outlet, Oslo
46%
36%
32%
23%
26%
33%
44%
12%
40%
47%
47%
47%
47%
47%
47%
47%
47%
47%
47%
47%
28,000
23,500
16,500
21,900
19,800
20,900
21,200
21,100
16,700
31,900
24,000
20,900
35,700
16,300
33,200
13,700
16,400
29,300
27,800
13,300
157
136
102
107
104
117
117
112
91
119
99
75
142
53
75
89
62
112
123
77
49.5
13.9
8.5
15.4
4.8
5.2
9.0
2.6
7.0
5.9
3.4
3.2
3.6
1.6
3.7
1.7
1.7
6.9
4.2
2.3
1. Figures represent annualised base and turnover rent at 31 December 2017 for each premium outlet, at Hammerson’s ownership share.
HAMMERSON.COM 189
HAMMERSON PLC ANNUAL REPORT 2017 189
OTHER INFORMATIONADDITIONAL DISCLOSURES
TEN-YEAR FINANCIAL SUMMARY
UNAUDITED
Income statement
Net rental income
Operating profit before other net
gains/(losses)
Other net gains/(losses)
Share of results of joint ventures
Share of results of associates
Cost of finance (net)
Profit/(Loss) before tax
Current tax
Deferred tax
2017
£m
2016
£m
2015
£m
2014
£m
2013*
£m
2012*
£m
2011
£m
2010
£m
2009
£m
2008
£m
370.4
346.5
318.6
305.6
290.2
282.9
296.0
284.7
293.6
299.8
321.5
300.4
27.1
13.6
221.6
(170.4)
413.4
(1.8)
–
(36.1)
20.7
135.2
(96.6)
323.6
(2.7)
–
276.3
381.0
13.1
159.3
(98.1)
731.6
(1.6)
–
259.1
430.3
(1.1)
247.9
102.0
–
109.9
101.5
239.6
(7.3)
–
47.5
249.1
209.8
–
–
248.8
252.6
257.5
469.9
(590.4) (1,698.3)
–
1.5
–
(0.8)
–
–
(95.1)
(110.2)
(137.6)
(112.6)
(100.0)
(114.5)
(170.7)
703.1
341.2
142.2
346.3
620.2
(453.1)
(1,611.5)
(0.9)
(0.1)
(3.0)
(0.8)
0.1
(3.1)
(0.4)
(0.7)
–
–
(3.4)
(9.9)
(0.6)
(0.1)
(4.1)
(0.9)
103.6
5.9
(0.6)
38.3
1.2
Non-controlling interests
(23.2)
(3.6)
(3.2)
Profit/(Loss) for the year attributable
to equity shareholders
Balance sheet
Investment and development properties
Investment in joint ventures
Investment in associates
Cash and short-term deposits
Loans and other borrowings
Other assets
Other liabilities
Net deferred tax provision
Non-controlling interests
388.4
317.3
726.8
699.1
337.4
138.4
335.7
615.4
(344.5) (1,572.6)
8,326.3
361.3
1,068.6
265.8
8,281.7
7,130.5
6,706.5
5,931.2
5,458.4
5,719.6
5,331.1
5,141.5
6,456.8
222.0
959.1
130.5
110.8
743.8
70.5
104.2
628.8
59.4
–
545.4
56.7
–
428.4
57.1
–
–
–
–
100.7
126.2
–
10.4
182.9
–
–
119.9
(3,776.6) (3,543.0) (3,068.3) (2,329.3) (2,309.0) (2,038.1) (2,079.9) (1,920.6) (2,319.0) (3,452.6)
319.5
1,025.0
435.6
323.1
462.3
268.6
339.9
331.6
271.2
274.5
(481.9)
(532.7)
(425.5)
(392.6)
(358.5)
(441.9)
(327.1)
(307.6)
(323.9)
(425.3)
(0.5)
(14.0)
(0.5)
(81.4)
(0.5)
(69.0)
(0.5)
(71.4)
(0.4)
(76.7)
(0.5)
(0.5)
(74.5)
(76.5)
(0.5)
(71.7)
(0.4)
(108.4)
(73.4)
(89.3)
Equity shareholders’ funds
6,023.5
5,775.6
5,517.3
4,973.7
4,059.9
3,851.2
3,771.9 3,480.0 2,949.7
2,820.6
Cash flow
Operating cash flow after tax
Dividends
139.3
(191.7)
179.9
171.2
128.1
129.4
139.9
147.8
132.7
(135.7)
(163.8)
(139.1)
(129.4)
(118.4)
(86.1)
(95.4)
Property and corporate acquisitions
(122.5)
(499.7)
(43.7)
(302.7)
(191.1)
(397.3)
(374.1)
(218.6)
105.3
(64.5)
(39.5)
29.8
(86.7)
(123.5)
Developments and major refurbishments
Other capital expenditure
Disposals
Investments in joint ventures
Other cash flows
Net cash flow before financing
Per share data**
Basic earnings/(loss) per share
Adjusted earnings per share
Dividend per share
Diluted net asset value per share
EPRA net asset value per share
Financial ratios
Return on shareholders’ equity
Gearing
Interest cover
Dividend cover
(46.7)
(66.7)
490.8
53.2
111.9
367.6
49.0p
31.1p
25.5p
£7.58
£7.76
8.3%
58%
3.4x
1.2x
(127.2)
(137.2)
(164.0)
(184.4)
(122.9)
(55.2)
639.0
(45.1)
185.2
(39.8)
155.4
(17.5)
(48.0)
256.3
585.0
(155.0)
(735.6)
(118.9)
–
–
(91.2)
(23.6)
271.8
–
(60.8)
(164.1)
(376.7)
(25.5)
(23.7)
(13.9)
554.6
394.2
245.3
–
–
–
–
–
87.9
(14.0)
12.4
(30.8)
(72.4)
(34.9)
(0.8)
(66.0)
(783.0)
(468.6)
(167.5)
(34.1)
(190.3)
286.2
207.7
(325.7)
40.2p
29.2p
24.0p
£7.28
£7.39
7.8%
59%
3.5x
1.2x
92.8p
26.9p
22.3p
£7.03
£7.10
95.7p
23.9p
20.4p
£6.35
£6.38
14.3%
16.3%
54%
3.6x
1.2x
46%
2.8x
1.2x
47.4p
23.1p
19.1p
£5.70
£5.73
8.8%
56%
2.8x
1.2x
19.4p
20.9p
17.7p
£5.41
£5.42
47.3p
19.3p
16.6p
£5.30
£5.30
(54.1)p (368.9)p
87.2p
19.9p
19.7p
15.95p
15.45p
£4.93
£4.95
£4.20
£4.21
25.8p
18.9p
£6.61
£7.03
5.3%
11.2%
21.1%
-16.9% -32.5%
53%
2.8x
1.2x
52%
2.6x
1.2x
52%
2.6x
1.2x
72%
2.2x
1.3x
118%
1.7x
1.4x
* Comprises continuing and discontinued operations.
** Comparative per share data was restated following the rights issue in March 2009.
The Income statement, Balance sheet and Financial ratios for 2014 to 2017 have been presented on a proportionally consolidated basis, excluding the Group’s investment in Premium
outlets. Cash flow information has been presented on an IFRS basis throughout.
190
HAMMERSON PLC ANNUAL REPORT 2017
GHG EMISSIONS 2017
Reporting period and methodology
In line with requirements set out in the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013, this
statement reports the Company’s GHG emissions for the reporting
period 1 October 2016 to 30 September 2017. A different reporting
period from our financial reporting year has been selected, in
accordance with the DEFRA Environmental Reporting Guidance, to
avoid the use of estimated utility consumption data. The data has been
calculated and recorded in accordance with the Greenhouse Gas
(GHG) Protocol and ISO 14064. We are required by the new Scope 2
GHG Protocol to report our Scope 2 emissions using both market and
location-based methods.
Independent assurance
Total Scope 1, Total Scope 2, Total Scope 3, and Total GHG emissions
intensity data have been independently assured by Deloitte LLP who
have carried out limited assurance in accordance with the International
Standards on Assurance Engagements 3000. Their assurance statement
is available on the sustainability pages of our website.
Reporting boundaries
We have adopted operational control as our reporting approach. GHG
emissions data is provided for those assets where we have authority to
introduce and implement operating policies.
This includes properties held in joint ventures where JV Board
approval is required. We have reported 100% of GHG emissions data
for these reported assets. A detailed basis of reporting statement and
full list of operating entities and assets included within the reporting
boundary can be found on the Positive Places pages of our website.
GHG emissions 2017
Table 110
Baseline year
Boundary summary
Consistency with
financial statements
Emissions factor data source We have sourced our emissions factors from 2017 DEFRA GHG Conversion Factors for Company Reporting,
1/10/12 – 30/09/13
All assets and facilities under Hammerson direct operational control are included.
Variations from the financial statements are set out above.
Assessment methodology
Materiality threshold
Intensity ratio
Target
and additional sources including, but not limited, to International Energy Agency and Engie.
GHG Protocol and ISO 14064 (2006).
Activities generating emissions of <5% relative to total Group emissions have been excluded.
Denominator is adjusted profit before tax 1/10/16 – 30/09/17* of £241.3 million.
18% reduction in like-for-like carbon emissions by 2020 against 2015 baseline using location-based approach.
* Figure derived from unaudited management accounts as it does not reflect our financial reporting year.
Emissions disaggregated by country
Table 111
Source
Total GHG emissions metric tonnes (mt)1
Total GHG emissions metric tonnes (mt)
Scope 1: Direct emissions from owned/controlled operations
a. Direct emissions from stationary operations
b. Direct emissions from mobile combustion
c. Direct emissions from fugitive sources
Totals
Scope 2: Indirect emissions from the use of purchased
electricity, steam, heating and cooling
a. Indirect emissions from purchased/acquired electricity 1
a. Indirect emissions from purchased/acquired electricity
b. Indirect emissions from purchased/acquired steam
c. Indirect emissions from purchased/acquired heating
d. Indirect emissions from purchased/acquired cooling
Totals1
Totals
Scope 3:
Business travel
Waste
Water
Totals
1. Emissions using Market-Based Methodology.
Group emissions
(mtCO2e)
17,964
36,121
UK emissions
(mtCO2e)
9,456
23,697
France emissions
(mtCO2e)
7,065
7,065
Ireland emissions
(mtCO2e)
1,443
5,358
Group emissions
intensity
(mtCO2e/£m)
74
150
5,897
99
1,137
7,133
6,732
24,889
0
1,253
33
8,018
26,175
1,509
908
396
2,813
3,303
21
275
3,599
3,712
17,954
0
28
33
3,773
18,015
1,332
525
227
2,084
2,388
78
862
3,328
1,912
1,912
0
1,225
0
3,137
3,137
174
309
117
600
206
0
0
206
1,108
5,023
0
0
0
1,108
5,023
3
74
52
129
24
0
5
29
28
104
0
5
0
33
109
6
4
2
12
HAMMERSON.COM 191
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I
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F
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SHAREHOLDER INFORMATION
Key contact details
Registered office and principal UK address
Hammerson plc
Kings Place
90 York Way
London
N1 9GE
Registered in England No. 360632
Tel: +44 (0)20 7887 1000
Principal address in Ireland
Hammerson Group Management Limited
Pembroke District
Dundrum Town Centre
Dublin 14
Tel: + 353 (0)1695 0550
Principal address in France
Hammerson France SAS
40 – 48 rue Cambon
75001 Paris
Tel: +33 (0)156 69 30 00
Advisors
Valuer: Cushman & Wakefield LLP
Auditor: PricewaterhouseCoopers LLP
Solicitor: Herbert Smith Freehills LLP
Joint Brokers and Financial Advisors: J. P. Morgan Cazenove and
Deutsche Bank AG
Financial Advisor: Lazard Ltd
Joint South African Sponsors: Deutsche Securities (SA) (Proprietary)
Limited and Java Capital Proprietary Limited
Shareholder administration
For assistance with queries about the administration of shareholdings,
such as lost share certificates, change of address, change of ownership
or dividend payments, please contact the relevant Registrar or
Transfer Secretaries.
Registrar in the United Kingdom
Link Asset Services
The Registry
34 Beckenham Road
Kent
BR3 4TU
Tel: 0871 664 0300 (calls cost 12p per minute plus your phone
company’s access charge) or +44 371 664 0300 from overseas (calls
outside the UK will be charged at the applicable international rate).
Lines are open 9.00 am to 5.30 pm, Monday to Friday excluding public
holidays in England and Wales.
Email: enquiries@linkgroup.co.uk
Website: www.signalshares.com
Please note that Capita Asset Services became part of Link Group and
changed its name to Link Asset Services in November 2017.
192
HAMMERSON PLC ANNUAL REPORT 2017
Transfer Secretaries in South Africa
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank 2196
South Africa or
PO Box 61051
Marshalltown 2107
South Africa
Tel: 0861 100 950 (local in South Africa)
Email: web.queries@computershare.co.za
Annual General Meeting
The Annual General Meeting will be held at 11.00 am (UK time) on 24
April 2018 at Kings Place, 90 York Way, London N1 9GE.
Details of the Annual General Meeting and the resolutions to be voted
upon can be found in the Notice of Meeting which is available at
www.hammerson.com/investors.
Payment of dividends to mandated accounts
UK shareholders who do not currently have their dividends paid
direct to a bank or building society account and who wish to do so
should complete a mandate instruction available from the Registrar
or register their mandate at www.signalshares.com.
UK Dividend Reinvestment Plan (DRIP)
Shareholders can reinvest dividend payments in additional shares in
the Company under the DRIP operated by the Registrar by completing
an application form online at: www.signalshares.com.
Elections to participate in the DRIP (or cancellation of previous
instructions) in respect of the final dividend must be received by the
Company’s Registrar no later than 15 business days before the
dividend payment date. The DRIP will continue to be available to
shareholders who have already completed an application form. Such
shareholders should take no action unless they wish to receive their
dividend in cash, in which case they should contact the Registrar to
cancel their instruction.
South African DRIP
Shareholders registered on the South African branch register who
hold their shares through the Strate system and who wish to
participate in the DRIP should contact their Central Securities
Depository Participants or brokers.
Link share dealing services
An online and telephone share dealing facility is available to
shareholders wishing to deal in shares on the UK share register.
For more information visit www.linksharedeal.com.
ShareGift
Shareholders with a small number of shares, the value of which makes
it uneconomic to sell them, may wish to consider donating them to
charity through ShareGift, a registered charity (registered charity
number: 1052686). Further information about ShareGift is available
at: www.sharegift.org, by email at help@sharegift.org or by writing to
ShareGift, PO Box 72253, London, SW1P 9LQ. To donate shares please
contact ShareGift or Link Asset Services.
Strate Charity Shares
South African shareholders for whom the cost of selling their shares
would exceed the market value of such shares may wish to consider
donating them to charity. An independent non-profit organisation
called Strate Charity Shares has been established to administer this
process. For further details or donations contact the Strate Charity
Shares’ toll free help line on 0800 202 363 (if calling from South Africa)
or +27 11 870 8207 (if calling from outside South Africa).
Email: charityshares@computershare.co.za
Website: www.strate.co.za.
UK Real Estate Investment Trust (REIT) taxation
As a UK REIT, Hammerson plc is exempt from corporation tax on
rental income and gains on UK investment properties but is required
to pay Property Income Distributions (PIDs). UK shareholders will be
taxed on PIDs received at their full marginal tax rates. A REIT may in
addition pay normal dividends.
For most shareholders, PIDs will be paid after deducting withholding
tax at the basic rate. However, certain categories of UK shareholder
are entitled to receive PIDs without withholding tax, principally UK
resident companies, UK public bodies, UK pension funds and
managers of ISAs, PEPs and Child Trust Funds. Further information
on UK REITs is available on the Company’s website, including a form
to be used by shareholders to certify if they qualify to receive PIDs
without withholding tax.
PIDs paid to overseas shareholders are subject to withholding tax at
20%. South African shareholders may apply to Her Majesty’s Revenue
and Customs after payment of a PID for a refund of the difference
between the 20% withholding tax and the prevailing UK/South
African double tax treaty rate. South African shareholders will have no
further liability to dividends tax in South Africa. Other overseas
shareholders may be eligible to apply for similar refunds of UK
withholding tax under the terms of the relevant tax treaties.
Normal dividends paid to overseas shareholders are paid gross but
may be subject to taxation in the shareholder’s country of residence.
For South African shareholders, dividends tax at 15% will be withheld
and paid over to the South African Revenue Service on the
shareholders’ behalf. Certain shareholders, including South African
tax resident companies, retirement funds and approved public benefit
organisations are exempt from dividends tax but it is the
responsibility of each shareholder to seek their own advice. Dividends
tax does not apply to scrip dividends, whether paid as a PID or a
normal dividend.
Unsolicited mail
Hammerson is obliged by law to make its share register available on
request to other organisations. This may result in shareholders
receiving unsolicited mail. To limit the receipt of unsolicited mail
UK shareholders may register with the Mailing Preference Service,
an independent organisation whose services are free, by visiting
www.mpsonline.org.uk. Once a shareholder’s name and address
details have been registered, the Mailing Preference Service will
advise companies and other bodies that subscribe to the service not
to send unsolicited mail to the address registered.
Shareholder security
Share fraud includes scams where fraudsters cold-call investors
offering them overpriced, worthless or non-existent shares, or offer
to buy shares owned by investors at an inflated price. We advise
shareholders to be vigilant of unsolicited mail or telephone calls
regarding buying or selling shares. For more information
visit: www.fca.org.uk/scams or call the FCA Consumer Helpline
on 0800 111 6768.
Primary and secondary listing
The Company has its primary listing on the London Stock Exchange
and a secondary inward listing on the Johannesburg Stock Exchange.
Table 112
Financial Calendar
Recommended final dividend
Last day to effect removal of shares between the United Kingdom (UK) and South
African (SA) registers
Currency conversion announcement released
Last day to trade on the Johannesburg Stock Exchange to qualify for the dividend
Ex-dividend on the Johannesburg Stock Exchange from commencement of trading on
Ex-dividend on the London Stock Exchange from the commencement of trading on
Record date (applicable to both the UK principal register and the SA branch register)
Removal of shares between the UK and SA registers permissible from
Last day for receipt of Dividend Reinvestment Plan (DRIP) mandates by Central
Securities Depository Participants (CSDPs)
Last day for receipt of DRIP elections to SA Transfer Secretaries
Annual General Meeting
Last day for receipt of DRIP elections by UK Registrars
Final dividend payable (UK and SA)
DRIP purchases settlement date (subject to market conditions and the purchase of
shares in the open market)
Anticipated 2018 interim dividend
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5 March 2018
6 March 2018
13 March 2018
14 March 2018
15 March 2018
16 March 2018
19 March 2018
23 March 2018
26 March 2018
by 1.00pm (SA time)
5 April 2018
24 April 2018
26 April 2018
15 May 2018
October 2018
HAMMERSON.COM 193
GLOSSARY
Adjusted figures (per share)
Anchor store
Average cost of debt
or weighted average
interest rate
BREEAM
Capital return
Cost ratio (or EPRA cost ratio)
CPI
Dividend cover
Earnings per share (EPS)
EBITDA
EPRA
Equivalent yield (true and
nominal)
ERV
Gearing
Gross property value or Gross
asset value (GAV)
Gross rental income (GRI)
IAS/IFRS
Inclusive lease
Income return
Initial yield (or Net initial yield
(NIY))
Interest cover
Interest rate or currency swap
(or derivatives)
IPD
Like-for-like (LFL) NRI
LTV (Loan to value)
Reported amounts adjusted in accordance with EPRA guidelines to exclude certain items as set out in note 10 to
the financial statements.
A major store, usually a department or DIY store, a supermarket or leisure facility, occupying a large unit within a
shopping centre or retail park, which serves as a draw to other retailers and consumers.
The cost of finance expressed as a percentage of the weighted average of debt during the period.
An environmental rating assessed under the Building Research Establishment’s Environmental Assessment
Method.
The change in property value during the period after taking account of capital expenditure, calculated on a
monthly time-weighted basis after taking account of exchange translation movements.
Total operating costs (being property costs, administration costs less management fees) as a percentage of gross
rental income, after rents payable. Both operating costs and gross rental income are adjusted for costs associated
with inclusive leases.
Consumer Price Index. A measure of inflation based on the weighted average of prices of consumer goods and
services.
Adjusted earnings per share divided by dividend per share.
Profit for the period attributable to equity shareholders divided by the average number of shares in issue during
the period.
Earnings before interest, tax, depreciation and amortisation.
The European Public Real Estate Association, a real estate industry body. This organisation has issued Best
Practice Recommendations with the intention of improving the transparency, comparability and relevance of the
published results of listed real estate companies in Europe.
The capitalisation rate applied to future cash flows to calculate the gross property value. The cash flows reflect
the timing of future rents resulting from lettings, lease renewals and rent reviews based on current ERVs. The
true equivalent yield (TEY) assumes rents are received quarterly in advance. The nominal equivalent yield (NEY)
assumes rents are received annually in arrears. The property true and nominal equivalent yields are determined
by the Group’s external valuers.
The estimated market rental value of the total lettable space in a property calculated by the Group’s external valuers.
It is calculated after deducting head and equity rents, and car parking and commercialisation running costs.
Proportionally consolidated net debt expressed as a percentage of equity shareholders’ funds.
Property value before deduction of purchasers’ costs, as provided by the Group’s external valuers.
Income from rents, car parks and commercialisation income, after accounting for the net effect of the
amortisation of lease incentives.
International Accounting Standard/International Financial Reporting Standard.
A lease, often for a short period of time, under which the rent is inclusive of costs such as service charge, rates,
utilities etc. Instead, the landlord incurs these costs as part of the overall commercial arrangement.
The income derived from a property as a percentage of the property value, taking account of capital expenditure
and exchange translation movements, calculated on a time-weighted basis.
Annual cash rents receivable (net of head and equity rents and the cost of vacancy, and, in the case of France, net
of an allowance for costs of approximately 5%, primarily for management fees), as a percentage of gross property
value, as provided by the Group’s external valuers. Rents receivable following the expiry of rent-free periods are
not included. Rent reviews are assumed to have been settled at the contractual review date at ERV.
Net rental income divided by net cost of finance before exceptional finance costs, capitalised interest and change
in fair value of derivatives.
An agreement with another party to exchange an interest or currency rate obligation for a pre-determined period
of time.
Property market benchmark indices produced by MSCI.
The percentage change in net rental income for completed investment properties owned throughout both
current and prior periods, after taking account of exchange translation movements.
Net debt expressed as a percentage of the property portfolio value calculated on a proportionally consolidated
basis.
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HAMMERSON PLC ANNUAL REPORT 2017
Net asset value (NAV)
per share
Net rental income (NRI)
Occupancy rate
Equity shareholders’ funds divided by the number of shares in issue at the balance sheet date.
Income from rents, car parks and commercial income, after deducting head and equity rents payable, and other
property related costs.
The ERV of the area in a property, or portfolio, excluding developments, which is let, expressed as a percentage of
the total ERV of that property or portfolio.
Occupational cost ratio (OCR) The proportion of retailer’s sales compared with the total cost of occupation being: rent, business rates, service
Over-rented
Passing rents or rents
passing
Pre-let
Principal lease
Property Income
Distribution (PID)
Property joint ventures
Proportional consolidation
QIAIF
REIT
Reported Group
Return on shareholders’ equity
(ROE)
Reversionary or under-rented
Share of Property interests
SIIC
Total development cost (TDC)
Total property return (TPR)
(or total return)
Total shareholder return (TSR)
Turnover rent
Vacancy rate
Value Retail (VR)
VIA Outlets (VIA)
Yield on cost
charge and insurance. Calculated excluding anchor stores.
The amount, or percentage, by which the ERV falls short of rents passing, together with the estimated rental
value of vacant space.
The annual rental income receivable from an investment property, after any rent-free periods and after
deducting head and equity rents and car parking and commercialisation running costs. This may be more or less
than the ERV (see over-rented and reversionary or under-rented).
A lease signed with a tenant prior to the completion of a development.
A lease signed with a tenant with a secure term of greater than three years and where the unit is not reconfigured.
This enables letting metrics to be stated on a comparable basis.
A dividend, generally subject to withholding tax, that a UK REIT is required to pay from its tax-exempt property
rental business and which is taxable for UK-resident shareholders at their marginal tax rate.
The Group’s shopping centre and retail park joint ventures which management proportionally consolidate when
reviewing the performance of the business, but exclude the Group’s interests in the VIA Outlets joint venture.
The aggregation of the financial results of the Reported Group together with the Group’s share of Property
interests being the Group’s share of Property joint ventures as shown in note 12, and Nicetoile as shown in note 13.
Qualifying Investor Alternative Investment Fund. A regulated tax regime in the Republic of Ireland which
exempts participants from Irish tax on property income and chargeable gains subject to certain requirements.
Real Estate Investment Trust. A tax regime which in the UK exempts participants from corporation tax both on
UK rental income and gains arising on UK investment property sales, subject to certain requirements.
The financial results as presented under IFRS which represent the Group’s 100% owned properties and share of
joint operations, transactions and balances and equity accounted Group’s interests in joint ventures and
associates.
Capital growth and profit for the period expressed as a percentage of equity shareholders’ funds at the beginning
of the year, all excluding deferred tax and certain non-recurring items.
The amount, or percentage, by which the ERV exceeds the rents passing, together with the estimated rental value
of vacant space.
The Group’s non-wholly owned properties which management proportionally consolidates when reviewing the
performance of the business. These exclude the Group’s premium outlets interests in Value Retail and VIA
Outlets which are not proportionally consolidated.
Sociétés d’Investissements Immobiliers Côtées. A tax regime in France which exempts participants from the
French tax on property income and gains subject to certain requirements.
All capital expenditure on a development project, including capitalised interest.
Net rental income and capital growth expressed as a percentage of the opening book value of property adjusted
for capital expenditure, calculated on a monthly time-weighted basis after taking account of exchange translation
movements.
Dividends and capital growth in a Company’s share price, expressed as a percentage of the share price at the
beginning of the year.
Rental income which is related to an occupier’s turnover.
The ERV of the area in a property, or portfolio, excluding developments, which is currently available for letting,
expressed as a percentage of the ERV of that property or portfolio.
Owner and operator of luxury outlet Villages in Europe in which the Group has an investment and accounts for as
an associate.
A premium outlets joint venture which owns and operates premium outlet centres in Europe, in which the Group
has an investment and accounts for as a joint venture.
Passing rents expressed as a percentage of the total development cost of a property.
HAMMERSON.COM 195
OTHER INFORMATIONGLOSSARY Disclaimer
This document 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 implied by these statements. Many of these risks and uncertainties
relate to factors that are beyond Hammerson’s ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market
participants, the actions of governmental regulators and other risk factors such as the Company’s ability to continue to obtain financing to meet its liquidity needs, changes in
the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence,
on a global, regional or national basis. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document.
Hammerson does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this
document. Information contained in this document relating to the Company should not be relied upon as a guide to future performance.
196
HAMMERSON PLC ANNUAL REPORT 2017
We’d like to thank
everyone who has helped
to produce this report:
Michael Ashton, Warren Austin, Sarah Booth,
Michelle Boswell, Stephen Brown, Jenny Casson,
Oliver Choppin, Doug Cleary, Julia Collier, Paul Denby,
Mark Duhig, Lindsay Dunford, Abi Dunning, Louise Ellison,
Linda Garner-Winship, Karen Green, Dani Harris,
Sam Henton, Barbara Lees, Vanessa Mitchell,
Simon Maynard, Jindi Pank, Mike Pasmore, Maya Patel,
Rebecca Patton, Verity Pickard, Antony Primic,
Fay Rajaratnam, Hannah Risk, Louise Romain,
Amrit Rooprai, Sophie Ross, Catrin Sharp, Richard Sharp,
Richard Shaw, Aurelie Siha, Daniel Williams
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Printed on Heaven42 which is FSC® certified
and was manufactured at a mill that is certified to the ISO14001
and EMAS environmental standards.
Printed by Pureprint Group Limited, a Carbon Neutral Printing Company.
Pureprint Group Limited is FSC certified and ISO 14001 certified showing
that it is committed to all round excellence and improving environmental
performance is an important part of this strategy.
The inks used are vegetable oil-based.
Designed and produced by Black Sun Plc.
Hammerson plc
Kings Place
90 York Way
London
N1 9GE
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