Hammerson Regulatory News (HMSO)

Friday 4 March 2022

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

HAMMERSON plc - RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

Rebuilding a strong business

Rita-Rose Gagné, Chief Executive of Hammerson, said:

"Since the beginning of 2021, we have made fundamental changes in our business, realigning our portfolio with £623m of disposals, significantly strengthening the balance sheet, re-setting our organisation and putting in place a clear strategy for value creation focused on our prime urban estates.

The pandemic has accelerated trends in our operating environment, with people engaging with physical space in new ways. Our role is to create and curate relevant, appealing and sustainable spaces for the future.

We are already seeing the tangible results from our strategy with strong occupier leasing demand, reduced vacancies, improved collections, a lower cost base and clear path to value creation from our land bank.

We have more to do. Today we are a forward-looking organisation with our assets at the heart of driving value creation."

Summary financial and operating performance:

· Adjusted earnings up 122% to £81m (FY20: £37m), benefiting from increased net rental income, a strong recovery in Value Retail earnings, and lower finance costs. 2021 earnings benefit from a £17m year-on-year increase in surrender premiums and a £12m net rental income contribution from in year disposals

· Adjusted earnings per share up 38% to 1.8p (FY20: 1.3p - restated1)

· IFRS loss of £429m (FY20: £1,735m loss) largely due to £470m Group portfolio revaluation deficit (H1 £361m, H2 £109m). Basic loss per share of (9.8)p (2020: (62.4)p - restated1)

· Group portfolio value of £5.4bn, with capital returns beginning to stabilise in the second half: FY -7.9%, H2 -1.7%

· EPRA net tangible assets (NTA) per share reduced to 64p from 69p at 30 June and 82p at FY20

Strengthened balance sheet

· £503m of disposals contracted in 2021, including £70m from Silverburn due to complete in March 2022

- Net debt down 19% to £1.8bn at 31 December 2021

- Ample liquidity of £1.5bn in undrawn committed facilities and cash at 31 December 2021

- Headline LTV 39% (FY20: 40%), fully proportionally consolidated (FPC) LTV 47% (FY20: 46%)

· Further £120m disposal of Victoria, Leeds completed in 2022 bringing total disposals to £623m since the beginning of 2021

- pro forma net debt down 27% to £1.6bn, liquidity £1.7bn

- pro forma headline LTV 37%, FPC LTV 45%

· Investment grade credit rating re-affirmed by Moody's in February 2022; outlook changed from negative to stable

Strong operational trends

· Strong footfall recovery in all territories when restrictions relaxed; occupier sales ahead of footfall

· Strong demand for prime space: flagship leasing value of £25m, up 150% on 2020; flagship occupancy improved to 96% from 93% at half year

· Headline leasing broadly in line with previous passing rent, net effective rent -11% vs ERV (H1 -18%, H2 -5%)

· Strong momentum on leasing into 2022, with YTD deals above previous passing rent and in line with ERV

· Maintained focus on rent and arrears collection: FY20 now at 99%; FY21 90%; FY22 YTD 83%

· Strong recovery in footfall, brand sales and leasing in Value Retail

Dividend

· Subject to shareholder approval, the Board is proposing a final dividend of 0.2 pence per share in cash with an enhanced scrip dividend alternative of 2.0 pence per share. Both the Final 2021 Dividend and the Enhanced Scrip Dividend Alternative will be paid as a Property Income Distribution ("PID"), net of withholding tax where appropriate.

Results presentation today:

Hammerson will hold a presentation for analysts and investors to present its full year financial results for the 12 months ended 31 December 2021, followed by a Q&A session.

Date & time: Friday, 4 March 2022 at 09:00 am (GMT)

Webcast link: https://kvgo.com/IJLO/hammerson_2021_full_year_results

Conference call: Quote Hammerson when prompted by the operator

Please join the call 5 minutes before the booked start time to allow the operator to transfer you into the call by the scheduled start time

France: +33 (0) 1 7037 7166

Ireland: +353 (0) 1 436 0959

Netherlands: +31 (0) 20 708 5073

South Africa: +27 (0) 11 589 8302

UK: +44 (0) 33 0551 0200

USA: +1 212 999 6659

Enquiries:

Timetable of events

Shareholders will be provided with further details in relation to the final cash dividend and enhanced scrip dividend alternative in due course. The dates above are subject to change and any changes made will be communicated as soon as practicably possible.

1. Adjusted and basic loss per share for 2020 have been restated from 1.6p and (76.9)p respectively as a result of the application of IAS33 'Earnings per share' in respect of the bonus element of scrip dividends declared by the Company. See note 8B for further details

1. Adjusted and basic loss per share for 2020 have been restated from 1.6p and (76.9)p respectively as a result of the application of IAS33 'Earnings per share" in respect of the bonus element of scrip dividends declared by the Company. See note 8B for further details

Chief Executive's statement

2021 was always going to be a year of change. We announced a review of our strategy, portfolio and operating model whilst at the same time recognising the need to strengthen our balance sheet. The review showed that fundamentally Hammerson has a unique market position and considerable opportunities for future value creation. In order to address that potential, we needed radical change to adapt and thrive.

Our operating environment has changed extensively in the last few years. Covid-19 accelerated trends are impacting how we consume, work and live. People are engaging with spaces in a new way; at the same time occupiers are recognising the importance of their physical channels alongside digital. Our portfolio and offering had not kept pace with these changes. As a Group, our organisation, culture and working practices were not forward looking, and our organisational review identified the need to bring in new talent, to change our operating model and our culture. We are now focused on new ways of working, agility, innovation, and ultimately on driving performance.

Our team has shown incredible resilience, commitment and resourcefulness, and has delivered an improved performance. This has all been achieved alongside managing the continued impact of Covid-19 through periods of enforced closure for all but essential retail and additional restrictions in line with government guidance.

I would like to take this opportunity to thank all colleagues. A lot has been accomplished. Clear action has been taken and this will continue to drive the business forward and position it for the future:

- The first half of the year was about stabilising and de-risking the balance sheet; reducing debt through non-core asset sales and refinancing

- We set out a new strategic vision for the business at the half year, giving us a clear focus on a core portfolio of prime urban estates

- We introduced new brands and concepts throughout to reposition our destinations

- In the second half, we accelerated organisational changes across the business to foster a high performance culture with a focus on value creation.

Financial performance

Adjusted earnings increased from £37 million to £81 million. Gross rental income was £242 million, down £45 million largely due to in-year disposals, which will have a full year effect in 2022. The increase in adjusted earnings, therefore, was principally a result of stronger rent collections, higher than usual surrender premiums, a strong contribution from Value Retail, and reduced finance costs. 2021 earnings benefit from a £17 million year-on-year increase in surrender premiums and a £12 million net rental income contribution from in year disposals.

EPRA NTA was £2,840 million at 31 December 2021, a decline of 14% over the year (2020: -26%), largely attributable to the continuing effect of the global Covid-19 pandemic on property valuations in the first half of the year. Yields showed signs of stabilising in the second half of the year, and rental levels were more resilient in France and Ireland, while the decline in the UK is slowing as we approach trough values and investment markets gain more confidence in pricing income streams.

Nonetheless, the revaluation deficit drove an IFRS loss of £429 million (2020: £1,735 million).

Our financial position has improved. Net debt was £415 million lower, principally arising from disposals completed during the year. Headline loan to value improved to 39% (2020: 40%), while fully proportionally consolidated loan to value, including the Group's proportionate share of Value Retail debt, was 47% (2020: 46%). Net debt to EBITDA improved to 12.4x (2020: 14.1x), reflecting both the lower net debt and the recovery in earnings.

Our strategy

We own flagship destinations around which we can curate and reshape entire neighbourhoods and city centre spaces. Our new strategy recognises the unique position that Hammerson has in urban locations and the opportunities to leverage our experience and capabilities to create appealing destinations, serving occupiers, customers and communities.

Our aim is simple and clear - to create total returns for shareholders through consistent execution against our four strategic elements:

- Deliver a sustainable and resilient capital structure

- Create an agile platform

- Reinvigorate our assets

- Accelerate development

Underpinning our strategy is our commitment to sustainability. In a year where COP26 highlighted the urgency for individuals, businesses and nations to tackle climate change, our strong commitment to sustainability was manifested in our issue of the first sustainability-linked bond in the real estate sector. In 2022, we will review our sustainability strategy in the light of COP26.

Our strategy review identified that we own and operate unique assets in some of the fastest growing cities in the UK, Ireland and France and hold investments in the best-in-class premium outlet villages. Equally, we identified assets where we did not see opportunities to deliver a sustainable return on capital over the long term.

We continue to re-align our portfolio through a disciplined disposals programme of non-core assets, re-focusing the Group on a portfolio of prime urban estates; reducing indebtedness and generating capital for redeployment into core assets and developments.

We have made considerable progress in 2021, reducing our net debt by 19% to £1.8 billion, extending our debt maturities, and simplifying and focusing our portfolio. We achieved this through completed sales of £433 million of assets including minority stakes in Espace Saint-Quentin and Nicétoile in France, and a collection of non-strategic retail and commercial properties in the UK.

This work continues and since the year end, we have completed the sale of Victoria, Leeds for £120 million, and expect to complete the sale of Silverburn, Glasgow for £70 million, at our share, by the end of March. On a pro forma basis reflecting these post year end sales, net debt reduces to£1.6 billion and headline LTV to 37%.

In a first for the real-estate sector, in June 2021, we successfully issued a €700 million sustainability-linked bond with a six year maturity period and a 1.75% coupon. With the proceeds of sales and this issue, we refinanced near term debt maturities, repaying the €500 million 2022 and 53% of the €500 million 2023 bonds, and £297 million of private placement notes. These actions have materially extended and de-risked our maturity profile.

At 31 December 2021 the Group had liquidity, in the form of cash balances and undrawn RCFs, totalling £1.5 billion and has no significant unsecured refinancing requirements until 2025 not covered by existing liquidity.

At the start of the year, Hammerson was at an inflection point and we needed to reset the organisation to be more efficient and effective. Our operating model was dated, fragmented and too costly, and our decision making was overly bureaucratic. Creating an agile platform is about a shift to a high performance culture and a leaner, flatter, more empowered, asset-centric and customer-focused organisation.

Our strategy is to continually evolve our skills and capabilities to respond to the changing needs of our occupiers and customers, and the environments in which we operate; to create a more efficient organisation with more decision-making power for the teams closest to our assets and customers; to build new skill sets and strategic partnerships; and to increase the digitalisation and automation of our business.

Our organisational review identified the need to strengthen our leadership and capability in a number of key areas. I was pleased to be joined by Himanshu Raja, CFO, who brings a wealth of experience in transformation and in operating in UK listed plcs, and Harry Badham, Chief Development and Asset Repositioning Officer, who has a strong track record in urban regeneration as we look to reinvigorate and reshape our prime urban estates and adjacent development land to a greater mix of future uses.

During 2021 we also implemented a new operating model which is already delivering results, reducing layers of management to create a flatter structure centred on our assets. Sadly, these changes resulted in a number of colleagues leaving the Group over the financial year. Combined with a higher than usual level of voluntary turnover, this meant headcount was down 18% over the year. Further changes will occur as the portfolio evolves through disposals and reinvestment.

At the same time, we have taken the opportunity to bring the business together in a more connected way, with greater empowerment and accountability. We have brought in new talent and future-focused skills and capabilities. This will help us realise the full potential of our destinations and achieve greater value creation and performance in the future.

We have some of the best assets in the very best prime city centre catchments, and, due to the strong ties we have in the communities in which we operate, supportive local authorities. There are near term opportunities to grow income and significant opportunities for repositioning these assets in the medium term. We will do this by maximising income through optimising use of space including: the repurposing of department stores; redeveloping under-utilised space to alternative uses; curating new and engaging spaces; and attracting new occupiers and services.

My experience from other international markets inspires me when I think about the future of our destinations. Creating a more asset-focused portfolio and changing the makeup of occupiers to a broader mix of uses is a real opportunity. This is already happening.

In 2021, a key focus of our teams was reviving the leasing pipeline. We had a busy year signing 371 leases, 70% more than in 2020 and broadly in line with 2019. In value terms, we secured £24.7 million in 2021, 150% higher than in 2020, and 27% higher than 2019.

Net effective rent for principal deals was 11% below ERV; there has been a noticeable difference in the negotiating tension across our portfolio, and a clear improvement in the second half, as shown in Table 1. The UK remains the most challenging and fast-moving market, while France continues to exhibit stability and even some growth, and the fundamentals in Ireland remain strong.

We also continued to sign temporary leases of less than one year and we signed 109 short-term leases in 2021. These help to maintain vibrancy at our destinations, trial new concepts, mitigate potential annual vacancy costs of approximately £6.5 million, and allow time to secure a longer term lease with the best occupier for each destination's catchment.

To be successful, our destinations need to attract the best occupiers and provide an engaging offer for customers with greater entertainment and social spaces and a broader range of occupiers - including healthcare, wellbeing and education partners - to deliver experiences that are hard to get online. To support this, a new leasing approach has been taken in 2021, with 69% of principal leasing to restaurants, leisure, services and non-fashion brands. In fashion, our focus continues to be on best-in-class brands and exciting new concepts.

A more targeted and appealing offer to our customers, communities and local industry will create the most connected and vibrant places. We will forge new partnerships, try new concepts, create new customer experiences, and tap into new sources of revenue for the future. We have started to see a more symbiotic relationship between physical and digital commerce - recognition that it is not an either/or situation and that customers want both.

For example, in 2021:

- We commenced the repurposing of the former Debenhams department store in the Bullring, Birmingham, for a new consolidated Marks & Spencer with food, clothing and home offers. Moving from the High Street, it will open in late 2022/early 2023. In 2023, TOCA Social will introduce its immersive sports-led entertainment experience to the upper levels

- At Dundrum Town Centre, Dublin high-end specialist grocer, Donnybrook Fair opened an extensive food hall and restaurant that also delivers culinary masterclasses and events. Supplementing Brown Thomas moving into part of the former House of Fraser, JC Penney has taken the remaining former department store space, upgrading its in-centre offer and giving us opportunity to repurpose the existing footprint

- We also continued to partner with digital native brands - those having started their journey online and taking their first steps into physical - and helped them grow their consumer visibility. Two key successes this year were Kick Game in the Bullring, Birmingham and Colonel Moutarde in Les Terrasses du Port, Marseille

Sales and footfall

Our focus on activating our destinations and partnering with ambitious occupiers has seen footfall in our UK destinations recover steadily over the year: Q3 vs Q2 was up 15% points and Q4 vs Q3 was up a further 4% points. Ireland had some partial restrictions in the latter months of the year but despite this, footfall for H2 was up 33% points vs H1. Even with lockdowns in the early part of 2021 and vaccine passes introduced in August, France saw a similar recovery with footfall in Q4 +5% points vs Q3.

Sales during the year showed encouraging trends, reflecting higher spend per visit and larger basket sizes, particularly in the UK where Q3 and Q4 sales were 98 and 97% of 2019 levels, respectively. Strong category performers throughout 2021 included jewellery and sportswear.

Occupancy and passing rent

Maintaining this vibrancy, even in a challenged environment, meant Group flagship occupancy levels remained robust at 96%, compared to 95% at the beginning of the year, and up from 93% at the half year. Occupancy at UK destinations at the end of 2021 was 94%, Ireland 98% and France 96%. There is a significant opportunity to drive incremental income from leasing up lower value space to new occupiers and uses.

Group passing rent at 31 December 2021 was £215 million, £55 million lower than at the start of the year. £40 million of this reduction related to properties sold in the year, principally UK retail parks. On a like-for-like basis, Group destinations were 4% lower, with the UK being -6%, France -1% and Ireland -2%.

Collections

Over the course of the year we continued to support our occupiers, especially during periods of closure. During the third Covid-19 lockdown in the UK and Ireland, in early 2021, we offered occupiers 50% rent free for the period of closure, with some exceptions for businesses who were able to continue to trade strongly.

We rigorously reviewed our collections process and implemented improvements including enhanced reporting, which enabled us to maximise and drive collection rates higher as the year progressed. For FY20, the Group rent collection rates currently stands at 99%; for FY21, 90%. FY21 collections for the UK are 90%, with Ireland at 95% and France at 86%. We have been open and fair with our occupiers during the pandemic but we have not hesitated to resort to legal proceedings where our approach has not been reciprocated.

Value Retail

The restrictions imposed in the early part of 2021 saw the temporary closure of all but one of the Villages and impacted income in the first half of the year due to prevalence of turnover rents. However, during this period, brands continued to take space in the Villages with 120 leases signed, demonstrating the continued popularity of the premium outlets sector. Isabel Marant and Jil Sander opened in Bicester and Dolce & Gabbana opened a fully refitted flagship boutique in Fidenza all in the first half of 2021. Overall, Value Retail signed 288 new leases in 2021, and occupancy remained strong at 96%.

Domestic customers continued to remain loyal to the Villages with footfall of 26.9 million which was 23% above 2020 levels and 30% down on 2019 footfall. Brand sales saw recovery with €2.3 billion, 32% above 2020 levels.

Adjusted earnings were negative £2 million at half year but have recovered substantially in the second half of the year to finish at £15.9 million. This is primarily due to an increase in gross rental income driven by restrictions being lifted across Europe, and the drive to encourage domestic customers to the Villages, including virtual shopping. At 31 December 2021, the Group's interest in Value Retail's property portfolio was just under £1.9 billion and the net assets were £1.1 billion, the variance is principally due to the amount of secured debt within the Villages, with the average LTV across the Villages being 41%.

By driving excitement and placemaking we create an amazing platform to enable future successful development and city-centre regeneration.

In the short term we are focused on where we can unlock value and enable development, especially where this can complement our existing assets.

During 2021, we completed the expansion of Italie 2, Paris, with Italik, creating a new restaurant and food pop-ups offer in the heart of Paris. The major extension to Les 3 Fontaines, Cergy will open in March 2022, currently more than three quarters pre-let and with the District Food Court already fully occupied and operating.

We have just over 100 acres of land ownerships and we are progressing detailed feasibility studies for mixed-use developments, largely adjacent to our existing retail destinations.

Today this land promotion portfolio can be roughly divided into three:

- First, four near term projects - Martineau Galleries, Birmingham; The Goodsyard, London; Dublin Central; and Grand Central, Birmingham - where we are either well advanced on detailed planning, or able to achieve rapid progress in the case of the latter. Progressing these projects in the near term to a point where they are genuinely 'ready to go' development opportunities will create significant value and optionality about how we take them forward and/or look for liquidity opportunities

- Second, projects like Dundrum Village, Dublin; Eastgate, Leeds; Bristol Broadmead; and Croydon which are largely at earlier feasibility and planning stages, and therefore more mid-term prospects in terms of value creation and liquidity

- The strategic land in Swords is more long-term in nature

These projects offer the potential for us to become one of the leading city regeneration developers, creating lasting concepts and retaining long term custodianship using our placemaking and operational expertise.

Whilst the operation of our assets in 2021 continued to be impacted by the pandemic, we remained focused on our strong sustainability platform to deliver benefits to our stakeholders. In the first half of the year, we connected the Thassalia geothermal installation in Les Terrasses du Port, Marseille and in the second half, we installed solar panels, LED lighting and atrium vents in Dundrum Town Centre, Dublin. In the UK we continued with our roll-out of smart metering. All our projects led to a reduction in carbon emissions.

Our 2021 environmental targets were set against a 2019 baseline as the most recent normal operating year. Overall, carbon emissions fell by 17% in the year compared to 2019, reflecting the energy savings we were able to make in the second half of the year when our assets reopened and we were able to complete energy efficiency projects.

Our social impact work has delivered a strong programme of events with the use of available space for social enterprise and local initiatives. This resulted in 2021 in £2.0 million of investment through cash and in-kind donations. The exhibition celebrating the history of the Windrush generation in one of our units at the Whitgift Centre, Croydon proved to be particularly uplifting for the local community.

As the world transitions to a zero-carbon economy, it is essential that we continue to understand the implications this has for the Group's business and its wider stakeholders. Hammerson's long-standing sustainability strategy has put it in a strong position to respond to the forthcoming challenges, but progress in some areas will in the future rely on the business community working more closely together.

Outlook

The major changes across the consumer and occupier landscape mean it is an exciting time to be in real estate. We are anticipating and starting to set new trends in how physical space is used in Europe's major cities within our portfolio. Hammerson has a unique opportunity to be part of shaping future cities and transforming urban spaces.

We are a stronger business today. We have developed a robust strategy to take advantage of future opportunities. We will further strengthen the balance sheet by continuing to simplify the portfolio, as well as generating capital for reinvestment.

We are focused on: reducing vacancy and void costs; repurposing space; delivering a mix that occupiers and customers demand; and unlocking value from the development opportunities in the portfolio. By continuing to execute our strategy, we will continue to build a better business, and that will deliver value for shareholders.

When I joined, I was excited by the assets and how these can be curated. I am even more certain now that we have a unique opportunity to shape our cities and contribute positively to our communities.

This has once again been a busy year, and also one of great progress against our strategic priorities. I want to thank our investors, the Board, colleagues and all our stakeholders for their continued support as we continue to deliver our strategy during 2022 and beyond.

Financial review

1. See note 8D to the financial information for calculation.

Overview

Our financial focus for 2021 has been on strengthening the balance sheet to put in place a sustainable and resilient capital structure. At the beginning of the year, we embarked on a strategic and organisational review that set out a new strategy, and that has been underpinned by improved financial management disciplines in leasing, collections, reporting and performance management, and reducing our operating costs.

We contracted disposals of £503 million during the year, with a further £120 million of gross proceeds already received in 2022. Financing activities included the issuance of a €700 million 1.75% sustainability-linked bond maturing in 2027, the buyback of €765 million bonds maturing in 2022 and 2023, the buyback of £297 million private placement notes, and the refinancing of a €415 million Revolving Credit Facility by way of £200 million of new facilities.

Whilst our results continue to be impacted by the pandemic, with an IFRS loss of £429 million, this has been considerably less severe than the initial shock of Covid-19 in 2020 where the IFRS loss was £1,735 million. Adjusted earnings for the year were £80.9 million, compared to£36.5 million in the prior year. The broader economic recovery has facilitated the agreement of rent concessions and collection of arrears, albeit the continuing Government restrictions on landlords' ability to enforce payment has contributed to trade receivables remaining higher than pre-pandemic levels.

On 4 February 2022, Moody's re-affirmed the Group's Baa3 rating as well as changing the outlook to stable from negative. Moody's cited the following reasons for the change: the recovery in operating performance; recovering investment markets for retail reducing the likelihood of further significant valuation declines; the ongoing asset disposal plans that will aid further deleveraging; and the progress made in managing the balance sheet including accessing debt markets and refinancing upcoming debt maturities.

Revaluation losses for the year totalled £470 million, principally across our managed portfolio where the revaluation loss was £458 million. Approximately three quarters of the movement was recognised in the first half of the year, with values showing encouraging signs of stabilising in the second half of the year.

Our investment in Value Retail has remained resilient, contributing £15.9 million to adjusted earnings, driven by increased sales following the easing of Covid-19 restrictions, and the expansion of their virtual platform. Values have remained broadly unchanged.

Presentation of financial information

Our property portfolio comprises properties that are either wholly owned or co-owned with third parties. Whilst the financial information is prepared under IFRS, management reviews the results of the Group on a proportionally consolidated basis, accounting for our interests in joint ventures and associates on a line-by-line basis. The only exception to this relates to our investments in premium outlets, Value Retail and VIA Outlets (up to the date of its disposal in October 2020). As these are externally managed, independently financed and have differing operating metrics to the Group's managed portfolio, they are excluded from the proportional consolidation and consolidation of key metrics such as net debt or passing rent. However, for a number of the Group's Alternative Performance Measures (APMs), for enhanced transparency, we do disclose metrics combining all the Group's property interests. These include property valuations and returns and certain credit metrics.

This approach results in us splitting out property interests between our 'managed portfolio', being those properties we proportionally consolidate, and those owned by Value Retail and VIA Outlets prior to its disposal in 2020.

The information presented in this Financial review is derived from the Group's financial statements, prepared under IFRS. Within this Financial review, the Group financial information 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'.

As detailed in note 6 to the financial information, during the first half of 2021, we completed the sale of eight retail parks. As this formed substantially all of an identifiable segment of the business, the results from 'UK retail parks' for the current and comparative periods have been disclosed separately from the rest of the business as discontinued operations. However, for the purposes of the Financial review, proportionally consolidated figures include the results from the UK retail parks up to the date of their disposal.

Details of the classification of the portfolio and accounting treatment thereof, both under IFRS and management reporting bases are as follows.

Going concern statement

To assess whether it is appropriate to prepare the Group's 2021 financial statements on a going concern basis, the Directors have undertaken a detailed review of the current and projected financial position of the Group.

The review involved preparing and flexing two scenarios: a 'Base' scenario and a 'Severe but plausible' scenario.

The Group's balance sheet and financial position has significantly strengthened during the course of 2021 as a result of refinancing and disposals. Group net debt at 31 December 2021 was £1,819 million, £415 million lower than at the start of the year, and we had liquidity of £1,464 million, gearing of 67%, and interest cover of 2.5 times. Also, there are no material unsecured refinancing requirements which are not covered by existing cash balances until 2025.

At 31 December 2020 and 30 June 2021, the Group's going concern assessment included a material uncertainty clause, the latter associated with the material uncertainty concerning the refinancing of secured loans within the Group's investment in Value Retail.

Given the aforementioned improvements in net debt, liquidity and financial ratios, at 31 December 2021, under both the Base and Severe but plausible adverse scenarios, the Group now has sufficient forecast headroom in its unsecured banking covenants to withstand a full impairment of its net investment in two Value Retail Villages which have secured loans of £1,035 million (Group's share: £451 million) that mature over the going concern period.

Consequently, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence and meet its liabilities as they fall due for at least the next 12 months. The financial statements have therefore been prepared on the going concern basis, and the material uncertainty reported at the half year has been removed.

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. 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 23 within the Additional disclosures section. For other APMs, the Financial review and Additional disclosures sections contain supporting information, including reconciliations to the IFRS financial information. Definitions for APMs are also included in the Glossary.

We present the Group's results on both an IFRS and adjusted basis. The adjusted basis enables us to monitor the underlying earnings as it excludes capital and non-recurring items such as revaluation movements, gains or losses on the disposal of properties, other one-off exceptional items or balances which skew the results such as the change in provision for amounts not yet recognised in the income statement, which results in the cost and corresponding income being recognised in different periods. We follow EPRA guidance to calculate adjusted figures, with any additional Group specific adjustments detailed in note 8B to the financial information.

During 2021, following the implementation of the strategic review, £8.6 million has been incurred in relation to business transformation costs. These have been recognised as 'exceptional' by virtue of their nature and size and therefore removed from the Group's adjusted earnings metrics, as the Directors believe these costs distort the underlying recurring earnings of the Group.

The reclassification of substantially all of the Group's investment in VIA Outlets to assets held for sale at 30 June 2020 resulted in the Group ceasing equity accounting from 30 June 2020, with any subsequent movements in the net assets of the investment between the date of reclassification and completion being incorporated within impairment movements. For the year ended 31 December 2020 and all subsequent reporting periods, the adjusted earnings from investments in joint ventures and associates, from the date of reclassification to assets held for sale up to the completion date, have been included within the Group's adjusted earnings metric. Management believes this provides more relevant and useful information to users of the financial statements by incorporating all of the adjusted earnings to which the Group is entitled.

Income statement

Summarised income statement

1. As set out in note 2 to the financial information

2. Comprises net exchange gains and losses recycled on disposal of foreign operations and changes in fair value of other investments

3. As detailed in note 8B to the financial information. Comparatives for basic and adjusted earnings per share have been restated for the impact of the scrip dividend issue

4. The Group sold its investment in VIA Outlets in October 2020. As explained above, adjusted earnings from VIA Outlets include earnings for the period from reclassification to assets held for sale until completion

5. Comprises impairment of the Group's investments in Highcross, Leicester and a related loan (2020: Value Retail and VIA Outlets)

The Group's IFRS loss for the year ended 31 December 2021 was £429 million, compared to a loss of £1,735 million in the prior year. The principal year-on-year changes comprised: a reduction in revaluation losses on the Group's managed portfolio totalling £981 million; the recognition of impairments in our investments in Highcross, Leicester in 2021 versus impairments in our investments in Value Retail and VIA Outlets in 2020; and an increase in the Group's share of results from Value Retail of £156 million, of which £115 million was derived from lower revaluation losses.

We recognised adjusted earnings for the year of £81 million, £44 million higher than the prior year. The table below bridges adjusted earnings and adjusted EPS between the two years. Explanations of variances are provided later in this Financial review.

Reconciliation of adjusted earnings for the year

1. Net of £8.1 million income (2020: £12.0 million cost) in respect of changes in provision for amounts not yet recognised in the income statement. This has been excluded from adjusted earnings as management believes this distorts earnings by reflecting the income and corresponding cost in different periods.

2. Net of £8.6 million of exceptional administration expenses.

3. Net of £22.0 million of Debt and loan facility cancellation costs.

Net rental income (NRI)

Analysis of net rental income

Net rental income increased by £40.3 million, or £20.2 million on an adjusted basis excluding the change in impairment provision relating to items not yet recognised in the income statement.

The key factors causing the increased NRI were improved collections which resulted in a reduced bad debt allowance, surrender premiums, increased variable net turnover rent and income from car parks and commercialisation, partly offset by higher void costs, and reduced rents associated with lease renewals and temporary leasing.

Properties sold in 2021 caused a £12.9 million reduction in NRI. £11.0 million of this reduction related to the sale of Brent South Shopping Park in February 2021 and the portfolio of seven retail parks in May 2021. The remaining £1.9 million reduction related principally to the sale of the Group's investments in Nicétoile, Nice and Espace Saint-Quentin, Paris in April 2021.

Further analysis of net rental income is provided the Additional disclosures.

Administration expenses

Administration expense analysis

1. In 2021 £0.7 million (2020: £0.4 million) of the Group's proportionally consolidated administration expenses related to the Group's Share of Property interests.

During 2021, adjusted net administration expenses increased by £7.3 million. While employee costs, excluding variable costs, fell by £2.1 million, these were more than offset by variable employee costs which increased by £5.8 million year-on-year due to the minimal bonus payouts in the 2020 pandemic year. Increases in Directors and Officers insurance premiums totalling £2.2 million were offset by a reduction in other professional fees.

At the beginning of the year, we announced our business transformation programme. The programme is designed to: right-size the business and reorganise team structures to align with the new strategy; streamline processes and systems to drive efficiency; simplify and embed a performance culture across the business; and deliver significant cost savings. Business transformation costs recognised in 2021 totalled £8.6 million and comprised incremental consultancy costs of £4.4 million and redundancy costs of £4.2 million directly attributable to the programme. These costs are not reflective of the underlying earnings of the Group and have therefore been excluded from the Group's adjusted earnings metrics.

Our accounting policy is to capitalise the cost of colleagues working directly on onsite development projects. In 2021, £1.5 million of employee costs were capitalised on this basis, compared with £2.2 million in 2020.

Loss on sale of properties

We raised net cash proceeds of £425 million during the year, relating to the disposals of Brent South Shopping Park, Espace Saint-Quentin and Nicétoile, the portfolio sale of seven retail parks in the first half of the year and the sale of six non-core assets in the second half of the year. These disposals, which were recognised at an aggregate discount to the December 2020 value of 4%, generated a loss on disposal of £22 million, principally in relation to the retail parks portfolio sale.

Share of results of joint ventures and associates, including investments in premium outlets

Our interests in joint ventures and associates are detailed in the property listing on page 69 and notes 10 and 11 to the financial information. Our share of results from joint ventures and associates under IFRS for the year ended 31 December 2021 was a loss of £154.8 million (2020: £1,023.9 million loss). As detailed on page 9 of the Financial review, for the purposes of management reporting, joint ventures and associates are proportionally consolidated with the exception of our investments in Value Retail and VIA Outlets (up to the date of its disposal in 2020) which are reported as prescribed under IFRS as an associate and joint venture, respectively.

In 2021, due to the breach of financial covenants on the secured loan at Highcross, Leicester, we recognised an impairment of £11.5 million against our investment in the Highcross joint venture. During 2020, we reviewed our investments in joint ventures and associates for impairment, resulting in the recognition of impairments against the Group's s investments in Value Retail and VIA Outlets of £94.3 million and £9.6 million respectively, equivalent to the goodwill previously reported.

The table below shows the contribution to the Group's adjusted earnings from joint ventures and associates.

Contribution to adjusted earnings

1. Includes discontinued operations and VIA Outlets up to the date of its disposal

2. VIA Outlets was reclassified to assets held for sale in June 2020, prior to its disposal in October 2020

Adjusted earnings from the Share of Property interests increased by £18.5 million year on year to £99.3 million. The increase was principally due to higher NRI in 2021, derived from the unwinding of provisions against trade receivables and surrender premiums received, partially offset by the net impact (after smoothing) of rent concessions completed in the year.

Value Retail

On an adjusted basis, the Group's investment in Value Retail generated adjusted earnings of £15.9 million compared to a £7.1 million adjusted loss in 2020. The year-on-year improvement principally reflects increased sales resulting from the easing of Covid-19 restrictions and the expansion of the virtual platform which was launched in May 2020. Additionally, due to the differing contract structures, rental adjustments granted by Value Retail have been recognised for accounting purposes in the period to which they relate and not as lease modifications. Consequently, the impact of rental adjustments was more weighted to 2020 when longer lockdown periods were suffered.

Finance costs

1. Interest capitalised on our two Paris development schemes, Italie Deux and Les 3 Fontaines, Cergy.

Net finance costs, calculated on a proportionally consolidated basis, totalled £103.6 million in 2021, £20.0 million higher than the prior year.

£97.9 million related to the Reported Group and £5.7 million to the Share of Property interests as shown in note 2 to the financial information.

Adjusted net finance costs, which exclude the change in fair value of derivatives, debt and loan facility cancellation costs (which include early redemption fees), totalled £71.8 million for the year ended 31 December 2021, a decrease of £23.6 million year-on-year. The reduction principally related to the refinancing undertaken over 2021 and 2020, with the former explained on pages 19 and 20, and a reduction in net debt during the year from £2,234 million to £1,819 million, arising principally from disposals.

We incurred debt and loan facility cancellation costs of £22.0 million in the year, primarily relating to the repayment of bonds and private placement notes.

The supporting calculation for adjusted finance costs is shown in Table 41 of the Additional disclosures on page 66.

Tax and dividends

The Group's tax charge was £1.8 million in 2021, or £1.6 million on an adjusted basis excluding £0.2 million relating to disposals, compared to £0.6 million in the prior year. The Group is a UK REIT and a French SIIC. These tax regimes exempt the Group's property income and gains from corporate taxes subject to its activities meeting certain conditions including, but not limited to, distributing at least 90% of the Group's UK tax exempt profit as property income distributions (PID). The Irish assets are held in a QIAIF which provides a similar tax treatment to a UK REIT, but subjects distributions and certain excessive interest payments to a 20% withholding tax. The residual businesses in the UK, France and Ireland are subject to corporate taxes as normal.

We publish guidance explaining the Group's tax strategy annually in 'Hammerson's Approach to Tax' which is available on the Group's website www.hammerson.com.

On 5 August 2021, the Company declared a 2021 interim dividend of 0.2 pence per share in cash with an enhanced scrip dividend alternative of 2.0 pence per share. As detailed in note 7 of the financial information, the total dividend of £73.0 million was paid on 7 December 2021. A final dividend of 0.2 pence per share in cash has been proposed by the Board, to be paid entirely as a PID, net of withholding tax where applicable. The Company will be offering an enhanced PID scrip dividend alternative of 2.0 pence per share.

Net assets

1. Adjustments in accordance with EPRA best practice, principally in relation to deferred tax, as shown in note 8D to the financial information.

During 2021, equity shareholders' funds decreased by £463 million, or 14%, to £2,746 million, principally due to the revaluation deficit on the managed property portfolio totalling £458 million. Net assets, calculated on an EPRA Net Tangible Assets (NTA) basis, were £2,841 million, or 64 pence per share, a reduction of 18 pence year-on-year. This is equivalent to a total accounting return of -14.0%. The movement in net assets during the year is shown in Table 11.

Movement in net assets

1. Adjustments in accordance with EPRA best practice shown in note 8D to the financial information.

Property portfolio analysis

Investment markets

During the first half of 2021, the retail investment market continued to be adversely impacted by the closure of non-essential shops, compounding the recent structural changes and accelerating the shift online, particularly in the UK. The second half of 2021 saw a noticeable improvement in investment sentiment and transaction activity.

In the UK, shopping centre transaction volumes totalled £1.6 billion, compared to £0.3 billion in 2020, still significantly lower than the ten year average of c. £3 billion, but higher than the five year average of £1.2 billion (Source: C&W). Key transactions in the year were the sale of a 25% stake in Bluewater in December 2021 and Touchwood, Solihull in the first half of the year.

In France, shopping centre transactions totalled €0.7 billion (2020: €1.8 billion), the most significant being the sale by Wereldhave of a portfolio of shopping centres for €305 million at a yield of 8.1%. In addition, market evidence was provided by the sale of Shopping Centre Sud in Austria at a yield of 4.35% and creation of a new joint venture of two portfolios between Altarea and Crédit Agricole Assurances which transacted at a yield of around 5% (Source: JLL).

In the Irish property investment market, there was limited activity with retail transactions of approximately €300 million with no major shopping centre transactions.

During 2021 there was one outlet transaction in Europe at Outlet Aubonne, Switzerland for a reported €95 million at a 7% yield. Additionally, VIA Outlets proceeded with a bond issue raising €600 million. The bond was six times oversubscribed, reflecting returning market confidence in the sector. Demand appears to remain for the best outlet assets, driven by their perceived resilience, potential rental growth and a lack of supply, and it is anticipated that a number of European outlets will come to market in 2022. (Source: C&W).

Portfolio valuation

The Group's external valuations continue to be conducted by CBRE Limited (CBRE), Cushman & Wakefield LLP (C&W) and Jones Lang LaSalle Limited (JLL), providing diversification of valuation expertise across the Group. For the year ended 31 December 2021, the majority of our UK flagship destinations have been valued by JLL and CBRE, the French portfolio by JLL, and the Irish portfolio, Value Retail (VR) and Brent Cross have been valued by C&W.

At 31 December 2021, the Group's portfolio was valued at £5,372 million, a reduction of £966 million or 15% during the year. This movement was primarily due to revaluation losses of £470 million and disposals totalling £452 million, including £386 million relating to the disposal of the Group's remaining UK retail parks properties.

Movements in the portfolio valuation are shown in Table 12.

Movements in portfolio valuation

1. Includes the Group's investments in Italik, Paris, where 75% was transferred to trading properties, and Silverburn, Glasgow which was moved to assets held for sale in 2021.

2. Comprises the reclassification of Grand Central, Birmingham and Highcross, Leicester from Flagships and ancillary UK retail parks properties. Further details are set out in note 3 to the financial information.

Valuation change

Chart 13 below analyses the valuation change for the Group's portfolio, allocating the underlying valuation movement between yield, income and development and other impacts.

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During 2021, we recognised a £470 million revaluation deficit on the Group portfolio, principally comprising £458 million in respect of the managed portfolio. Reflecting improved investor sentiment, this was split £109 million in the second half of the financial year compared to£361 million in the first half of the financial year.

UK flagship destinations suffered a revaluation deficit of £254 million, of which £103 million was attributable to outward yield shift, averaging 52 basis points across the portfolio. All UK flagships suffered revaluation deficits in the year. The remaining £151 million was attributable to lower income.

The underlying value of the French portfolio fell by £64 million, with outward yield movements averaging 15 basis points accounting for £21 million of the reduction and lower income causing a further loss of £42 million. All assets were subject to some yield expansion.

In Ireland, a combination of yield expansion, averaging 26 basis points across the portfolio, and a 3% reduction in ERVs, resulted in a valuation deficit of £61 million.

A deficit of £79 million was recognised on the 'Developments and other' portfolio. This principally reflected the scheme revisions at Les 3 Fontaines, Cergy and reductions to the value of the Group's land holdings in Birmingham, Bristol, Croydon, Dublin, Leeds and London.

The Value Retail portfolio was more resilient, reporting a revaluation deficit of £12 million.

Further analysis is included in Table 33 in the Additional disclosures on page 61.

Change in ERV

ERV change (like-for-like)

ERVs for the Group's flagships fell by 6.7% in 2021 comprising a 4.1% reduction in the first half of the year but a lesser reduction of 2.7% in the second half of the year. This compared to a reduction of -10.6% in 2020.

ERVs at UK flagships fell by 10.6% in 2021, compared with a decline of 14.3% in 2020, and 6.8% in the first half of 2021. This was largely due to continued weak occupational demand and an over-supply of retail space following CVAs and administrations, principally in 2020. This was further exacerbated by the forced closures of non-essential stores during lockdown periods. The most significant ERV reductions were at Victoria, Leeds and Union Square, Aberdeen.

ERVs in France reduced by 1.5%, following a 4.9% decline in 2020, and a 0.3% decline in the first half of 2021. Rental values were reduced at all properties with the most significant movements at Italie 2, Paris and Les 3 Fontaines, Cergy, where in the latter case the ongoing extension work has increased the supply of space at the centre.

In Ireland, ERVs fell by 3.0% following a decline of 6.5% in 2020 and 1.1% in the first half of 2021. Covid-19 closures continued to have an adverse impact on the occupational market.

Capital expenditure

In 2021, capital expenditure totalled £102 million. Table 15 shows the expenditure on a segmental basis and analyses spend between the creation of additional area and the creation of value through the enhancement of existing space.

Capital expenditure analysis

Further analysis of capital expenditure between Reported Group and Share of Property interests is provided in Table 35 on page 62.

Capital expenditure where no additional area was created of £25 million included the progression of development schemes at Croydon, Dublin Central, Martineau Galleries and The Goodsyard totalling £9 million, with a further £16 million relating to other asset management initiatives including cladding works and car park works in Birmingham and reconfiguration of anchor space at Dundrum Town Centre, Dublin.

Capital expenditure creating area of £54 million principally related to the two extension projects in France at Les 3 Fontaines, Cergy and Italik, Paris. Italik was opened in June 2021 and at Les 3 Fontaines, Cergy, the main extension is due to open at the end of March 2022.

The extension scheme at Les 3 Fontaines is currently valued at £211 million, recognising a small revaluation loss of £9 million in the year. Pre-letting for the extension is currently 75% and when fully complete and let, the project is forecast to achieve an estimated yield on cost of 5%.

Disposals

Disposals reduced the property portfolio by £452 million. The total proceeds were £430 million and related to the sale of Brent South Shopping Park in February 2021 for £22 million, Espace Saint-Quentin and Nicétoile in April 2021 for £48 million, the Group's remaining UK retail parks for £330 million in May 2021 and the sale of other non-core properties totalling £30 million in the second half of the year.

Returns

Property returns analysis

2021

The Group's property portfolio generated a total property return of -3.9% in 2021, comprising a capital return of -7.9% and an income return of 4.3%. The capital return is consistent with the underlying valuation performance explained in the 'Valuation change' section on page 15 and an analysis of the capital and total property returns by business segment is included in Table 33 in the Additional disclosures on page 61.

We compare the individual portfolio returns against their respective MSCI benchmarks and compare the Group's portfolio against a weighted 50:50 UK All Retail Universe: Bespoke Europe (excluding UK) All Retail Universe index. These indices include returns from all types of retail property.

As the annual MSCI benchmarks are not available until after this Annual Report has been published, it is not yet possible to gauge the Group's comparative performance. The UK MSCI Annual All Retail Universe for 2021 reported a total property return for UK shopping centres of -7.0%, 380 basis points higher than the Group's UK flagship return of -10.8%.

In 2021, the Reported Group portfolio produced a total property return of -5.0%, whilst properties held by our joint ventures and associates generated a total property return of -8.1%.

Shareholder returns

1. Cash and scrip bases represent the return assuming investors opted for cash or scrip dividends, respectively, with the assumption that those opting for scrip dividends continued to hold the additional shares issued.

Hammerson's total shareholder return for 2021 was 47.5% on a scrip basis (33.6% on a cash basis), an outperformance compared with the FTSE EPRA/NAREIT UK index of 25.2% as the retail property sub-sector (which was hit harder by the Covid-19 global pandemic than the wider property index) recovered.

Investment in joint ventures and associates

Details of the Group's joint ventures and associates are shown in notes 10 and 11 to the financial information. Table 18 shows the Group's investment in joint ventures and associates on both IFRS and EPRA net tangible assets (NTA) bases, split between the proportionally consolidated Share of Property interests and investments in premium outlets.

Investment in joint ventures and associates

During the year, on an EPRA NTA basis, our total investment in the Group's Share of Property interests reduced by £404 million to £1,560 million. The most significant movements were net revaluation losses totalling £284 million, disposals of Nicétoile, Espace Saint-Quentin and Brent South, London totalling £77 million, and the transfer of Silverburn, Glasgow, to assets held for sale totalling £72 million. These variances were partially offset by adjusted earnings of £99 million.

Value Retail

The Group's total investment in Value Retail, on a net tangible asset basis, reduced by £34 million during the year. This principally comprised adverse foreign exchange movements of £32 million and revaluation losses of £12 million, partially offset by adjusted earnings of £16 million. As explained earlier, the premium outlets sector remained more resilient than the flagship portfolio during the year.

Trade receivables

The Group applies the simplified approach under IFRS 9 and adopts a provisioning matrix to determine the Expected Credit Loss (ECL). This involves grouping receivables dependent on the risk level, taking into account historical default rates, credit ratings, ageing, future expectations and the ongoing impact of Covid-19, and applying an appropriate provision percentage after taking account of rent deposits and personal or corporate guarantees held.

Trade receivables have reduced from £170 million at 31 December 2020 to £100 million at 31 December 2021. Whilst continuing government restrictions on landlords' ability to enforce collection has resulted in trade receivables remaining higher than normal, collection rates have improved across the Group, facilitated by the conclusion of many Covid-19 related rent concession agreements.

On a proportionally consolidated basis, a total provision of £53 million was recognised at 31 December 2021, compared to £80 million at 31 December 2020, equating to a 76% provision against trade receivables net of deposits and VAT. The reduction includes £13 million utilisation of the opening provision associated with amounts written off. Management recognises that remaining trade receivables which relate to periods of Covid-19 related closures have become more challenging to recover with the passage of time. This is reflected in the increase in the overall provision rate from 64% at 31 December 2020.

The table below analyses the total provision by country against the respective trade receivable balances. Further information on the ageing of receivables is provided in note 12B to the financial information.

Trade receivables and provisioning

Assets held for sale

In December 2021, we exchanged contracts for the sale of Silverburn, Glasgow, with completion due in March 2022. At the date of exchange, the investment in Silverburn met the IFRS 5 criteria for 'held for sale'. Consequently, the assets and liabilities relating to the Group's investment in Silverburn were reclassified to assets held for sale and impaired to their fair value, based on the agreed sale price, less costs of disposal.

Financing and cash flow

Our financing strategy is to borrow predominantly on an unsecured basis under the Group's standard financial covenants to maintain flexibility at a low operational cost. Secured borrowings are occasionally used, mainly in conjunction with joint venture partners. Value Retail also predominantly uses secured debt in its financing strategy, although this is independent of the rest of the Group.

The Group's 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 depending on the Group's financing position in terms of maturities, future commitments, disposals and market conditions. 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 comprises the Group's fixed rate unsecured bonds, private placement senior notes and secured borrowings within three of the Group's 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 approves financing guidelines against which it monitors the Group's financial structure. In 2021, the Group's guideline loan to value and net debt:EBITDA metrics have been changed to reflect the strategy update and the focus on maintaining an investment grade rating. These guidelines, together with the relevant metrics, are summarised in Table 20 which shows the Group's much improved financial position at 31 December 2021.

Key financial metrics

1. Guidelines should not be exceeded for an extended period.

2. Included in borrowing covenants as detailed on page 21.

3. See Table 47 in Additional disclosures for supporting calculation.

4. See Table 46 in Additional disclosures for supporting calculation.

5. See Table 44 in Additional disclosures for supporting calculation.

6. See Table 48 in Additional disclosures for supporting calculation.

Net debt

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The Group completed significant refinancings during 2021 which has strengthened the capital structure.

On a proportionally consolidated basis, net debt reduced by £415 million to £1,819 million at 31 December 2021. This comprised loans of £2,209 million and the fair value of currency swaps of £44 million, less cash and deposits of £434 million.

The Group's weighted average interest rate was 3.0% for 2021, consistent with the average rate for 2020, and 85% of debt was at fixed interest rates at 31 December 2021.

The Group's liquidity at 31 December 2021, comprising cash and undrawn committed facilities, was £1,464 million, £284 million lower than at the beginning of the year, substantially as a result of the repayment of debt and refinancing of revolving credit facilities. The Group's weighted average maturity of debt increased to 4.1 years (2020: 3.5 years).

On 3 June 2021, the Group issued a new €700 million sustainability-linked bond with a 1.75% coupon and a maturity in 2027. The bond incentivises the reduction of carbon emissions. The coupon is linked to the achievement of two Sustainability Performance Targets: 60% reduction in Scope 1 and 2 and selected Scope 3 Greenhouse gas (GHG) emissions under the Group's direct control and 50% reduction in Scope 3 GHG emissions (which relate to space operated by brands within its destinations) both against the Group's 2019 (pre-Covid-19) baseline. If these targets are not met, an additional margin will be payable of 37.5 basis points per annum for the last year of the bond from June 2026 to the June 2027 maturity date for each of the two targets, 75 basis points in total, payable at the final interest payment date.

Together with existing liquidity, the proceeds of the new €700 million bonds were used in June to repay €310 million of the €500 million 2.0% bond maturing in 2022 and €265 million of the €500 million 1.75% bond due to mature in 2023 and £297 million of private placement notes. On 8 July 2021, the Group repaid the remaining €190 million of the €500 million 2.0% bonds.

On 18 June 2021, Hammerson refinanced its £415 million Revolving Credit Facility (RCF) maturing in April 2022 with two new RCFs totalling £200 million at an initial margin of 115 basis points and maturing in 2024 with an option to extend to 2026 at the Group's request. The existing £415 million facility maturing in 2022 was cancelled, resulting in a net decrease of £215 million of undrawn facilities. The decrease in liquidity will result in an interest cost saving of approximately £0.5 million per year on an annualised basis in undrawn commitment fees.

On 6 July 2021, the Group refinanced the maturing loan secured against O'Parinor, Aulnay-Sous-Bois, following a €2 million partial repayment. The €52.5 million loan (Group's 25% share) now matures in July 2023.

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The above chart excludes unamortised fees of £3 million relating to revolving credit facilities.

Leverage

At 31 December 2021, the Group's gearing ratio was 67% (2020: 70%) and headline loan to value ratio was 39% (2020: 40%). Supporting calculations are in Tables 47 and 46 in Additional disclosures.

At 31 December 2021, the Group's share of net debt in Value Retail (VR) totalled £680 million (2020: £689 million). Proportionally consolidating this net debt with the Group's share of net debt and including property values held by VR, the Group's fully proportionally consolidated loan to value is 47% (2020: 46%).

Borrowings and covenants

The terms of the Group's unsecured borrowings contain a number of covenants which provide protection to the lenders. The financial covenants within the Group's borrowing are:

Bonds: Gearing and secured borrowings

- Gearing should not exceed 150% for two of the bonds and 175% for the remaining bonds. All the bonds include a limitation that secured borrowings should not exceed 50% of equity shareholders' funds

Bank facilities: Gearing, secured borrowings and interest cover

- Gearing should not exceed 150%, secured borrowings should not exceed 50% of equity shareholders' funds and interest cover should be not less than 1.25 times

Private placement notes: Gearing, secured borrowings, unencumbered assets and interest cover

- Gearing should not exceed 150%, secured borrowings should not exceed 50% of equity shareholders' funds, unencumbered assets should not be less than 150% of net unsecured borrowings and interest cover should be not less than 1.25 times

As shown on page 3, the Group's financial metrics were all in compliance with the Board's internal guidelines, with significant improvements on the 2020 comparatives.

Following an amendment to the unencumbered asset ratio in the private placement notes agreed in June 2020, the Group was obliged to make an offer of prepayment at par (i.e. not including a make-whole amount) for 30% of any applicable proceeds from disposals or capital raisings in excess of £50 million. Following completion in the first half of the year of the disposal of the UK retail parks portfolio and our stakes in Brent South Shopping Park, Nicétoile and Espace Saint-Quentin, we prepaid at par a total of £297 million, comprising £65 million relating to an offer in accordance with this condition, a further £119 million following an additional voluntary offer and £113 million relating to the repayment of notes which matured in June 2021. Combined, these repayments will save approximately £7 million of interest cost on an annualised basis.

The Group retains significant headroom to its financial metrics and covenants. From a stress test perspective, the valuation of the Group's property portfolio at 31 December 2021, would have to fall by 18%, to breach the unencumbered asset covenant in the private placement notes, or by 28% to breach the Group's tightest gearing covenant. Net rental income would need to fall by 50% compared to 2021 levels in order to breach the interest cover covenant in the Group's revolving credit facilities and private placement notes. Compliance with covenants is a key consideration for the going concern assessment as detailed on page 9 and in note 1 to the financial information.

In addition, some joint ventures and associates have secured debt facilities which include specific covenants to those properties, including covenants for loan to value and interest cover. This secured debt is non-recourse to the Group.

The covenants for secured debt facilities are generally tested quarterly and include specific financial covenants in relation to the secured assets, typically loan to value and interest cover. Where deemed necessary to address the adverse financial effect of Covid-19 due to lower collection rates or property valuations, short term covenant waivers have been obtained during the year in relation to a number of these debt facilities to avoid covenant breach. At 31 December 2021, there were no waivers in place on secured borrowings in joint ventures. During 2021 the secured loan at Highcross, Leicester, breached its covenants and therefore an impairment of the full equity value of £11.5 million was recognised against our investment in the Highcross joint venture. Discussions with the lenders are underway to find a mutually acceptable solution. There is no recourse to the Group.

Credit ratings

Following the publication of the Group's 2020 results in the second quarter of the year, Fitch and Moody's re-affirmed Hammerson's senior unsecured investment grade credit rating as BBB+ and Baa3 respectively.

On 4 February 2022, Moody's re-affirmed the Baa3 rating as well as changing the outlook to stable from negative due to; the recovery in operating performance (including footfall and retail sales that are now close to their pre-pandemic levels); recovering investment markets for retail assets making further large value drops in asset values far less likely (and reducing the risk of decreased capacity under covenants); the Group's ongoing asset disposal plans that will aid further deleveraging; and the progress the Group has made in managing its balance sheet including accessing debt markets and refinancing its upcoming debt maturities.

Managing foreign exchange exposure

The Group's exposure to foreign exchange translation differences on euro-denominated assets is managed through a combination of euro borrowings and derivatives. At 31 December 2021, the value of euro-denominated liabilities as a proportion of the value of euro-denominated assets was 89%, vs 73% at the beginning of the year. Interest on euro debt also acts as a partial hedge against exchange differences arising on net income from our overseas operations. Sterling strengthened against the euro during the year by 6.6%.

Risks and uncertainties

The Board continually reviews and monitors the principal risks and uncertainties which could have a material effect on the Group's results. The updated principal risks and uncertainties for 2021 are listed below with details of our assessment of the residual risk. New risks have been highlighted as such. Full disclosure of the risks, including the factors which mitigate them, is set out within the Risk and uncertainties section of the Annual Report 2021.

Consolidated income statement

for the year ended 31 December 2021

1. The results reported for the year ended 31 December 2020 have been reclassified to represent discontinued operations in line with the requirements of IFRS 5 'Non-current assets held for sale and discontinued operations'. Refer to note 6B for further details.

2. Included within 'Operating profit before other net losses and share of results of joint ventures and associates' is a provision credit against trade receivables totalling £0.1 million (2020: £18.9 million charge), comprising a charge of £1.5 million (2020: £16.4 million) in relation to income recognised up to year end (included in other property outgoings in note 2) and a credit of £1.6 million (2020: £2.5 million charge) relating to amounts not yet recognised in the consolidated income statement (separately identified in note 2).

3. Included within 'Operating profit before other net losses and share of results of joint ventures and associates' is a £1.6 million (2020: £9.5 million) provision for impairment of lease incentives.

4. Other losses in 2021 comprise £0.7 million relating to the impairment of a receivable balance due from a joint venture entity, less £0.4 million credit from the change in fair value of other investments. Other losses in 2020 comprise £0.3 million relating to indirect costs of the rights issue and £0.1 million change in fair value of other investments.

5. For 2020 the loss per share figures have been restated from (77.0) pence per share for continuing operations and (76.9) pence in total, to the figures stated above, as a result of the application of International Accounting Standard 33 'Earnings per share' (IAS 33), in respect of the bonus element of scrip dividends declared by the Company. See note 8B for further details.

Consolidated statement of comprehensive income

for the year ended 31 December 2021

1. Relates to the sale of the Group's 25% interest in Espace Saint-Quentin, Saint Quentin-En-Yvelines and 10% interest in Nicétoile, Nice in 2021, and the sale of substantially all of the Group's investment in VIA Outlets in 2020.

2. All items within total other comprehensive (loss)/income relate to continuing operations as defined by IFRS 5.

Consolidated balance sheet

As at 31 December 2021

Consolidated statement of changes in equity

for the year ended 31 December 2021

1. Other reserves comprise capital redemption reserves of £198.2 million (2020: £198.2 million) and share-based employee remuneration reserves of £9.4 million(2020: £8.9 million). Capital redemption reserves comprise £14.3 million (2020: £14.3 million) relating to share buybacks and £183.9 million (2020: £183.9 million) resulting from the cancellation of the Company's shares as part of the reorganisation of share capital in 2020.

2. Investment in own shares is stated at cost and at 31 December 2021, includes 2,290,410 shares (at a cost of £1.0 million) held in the employee share trust, and 7,691,247 shares (at a cost of £2.5 million) held in treasury. At 31 December 2020, 962,180 shares (at a cost of £0.4 million) were held in the employee share trust.

3. Relates to continuing and discontinued operations.

1. During 2020, the Company completed a capital reorganisation and rights issue.

2. Only costs directly related to the rights issue have been recognised in the share premium account. A further £0.3 million of indirect costs were recognised in the consolidated income statement in 2020.

3. Other reserves comprise a capital redemption reserve of £198.2 million (2019: £14.3 million) and share based employee remuneration of £8.9 million (2019: £11.3 million). Capital redemption reserves comprise £14.3 million (2019: £14.3 million) relating to share buybacks and £183.9 million (2019: £nil) resulting from the cancellation of the Company's shares as part of the reorganisation of share capital in 2020.

4. Investment in own shares is stated at cost and comprises 962,180 shares (at a cost of £0.4 million) held in the employee share trust.

5. Relates to continuing and discontinued operations.

Consolidated cash flow statement

for the year ended 31 December 2021