Hammerson Regulatory News (HMSO)

29 February 2024

HAMMERSON plc - FULL YEAR 2023 RESULTS

Strong 2023: rental growth and earnings up, more to come

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

"Our city centre destinations are in high demand. This year we delivered a positive performance across our key strategic, operational and financial metrics. Like-for-like gross rental income was up 6%, following another record year of leasing. Occupancy remains strong and footfall and sales were up again. We've strengthened our operational platform, whilst reducing costs by 14%. As a result, adjusted earnings rose 11% to £116m, whilst net debt was down 23%, with ample liquidity.

Over the last three years, we have delivered against all strategic milestones. We now have a core portfolio focused on urban locations which are evolving into my vision: vibrant, 24/7 multi-use estates. These destinations are fast growing, and part of the fabric and infrastructure of the cities in which we operate.

Whilst our eyes are open to the current macro-economic environment, our occupiers are thriving and our visitor numbers are on the rise in our realigned portfolio. We are reaping the rewards of the investments we are making in our core portfolio alongside best-in-class occupiers, which underpins the high levels of demand for our space. We expect this trajectory to continue in the year ahead. We have a strong pipeline of leasing and repurposing opportunities. There is still more for us to do, but we are now entering a time where having the capability to invest and operate with discipline and conviction will be rewarded."

Positive performance across our key operational and financial metrics:

· Another record year of leasing with 306 deals, representing £46m of headline rent, £29m at our share, up +23% LFL

· Permanent deals signed +37% vs previous passing; net effective rent +12% vs ERV

· Footfall up +3% year-on-year; dwell time +5%; LFL sales +1% UK, +3% France

· Adjusted earnings growth of +11% to £116m, or 2.3p per share (+10%), driven by like-for-like GRI up +6%, NRI +4%

· Continued cost reduction outperformance: gross administration cost -14% year-on-year bringing total cost reduction since FY 20 to -24%; guiding to a further -10% cost reduction in 2024

· Value Retail adjusted earnings of £32m (FY 22: £27m), and £74m of catch-up cash distributions received

· Group portfolio value of £4.7bn (FY 22: £5.1bn), mainly due to disposals and derecognitions; capital return -2.6%

· IFRS loss of £51m (FY 22: £164m loss), basic loss per share of -1.0p (FY 22: -3.3p)

· EPRA NTA per share 51p (FY 22: 53p)

· Execution of disposal programme has strengthened balance sheet: net debt down 23% to £1,326m; LTV 34% (FY 22: 39%), FPC LTV 44% (FY 22: 47%); Net debt to EBITDA of 8.0x (FY 22: 10.4x); liquidity of £1.2bn (FY 22: £1.0bn)

· Balance sheet further strengthened since the year-end with the exchange for the sale of USQ for £111m

Dividend

· In July 2023, the Board reinstated a cash dividend as guided and announced a new dividend policy of 60-70% of annual adjusted earnings, balancing distributions to shareholders with our focus on reinvesting in our core portfolio to deliver further growth and value.

· Today, the Board has recommended a final cash dividend of 0.78p per share subject to shareholder approval, which will be paid as an ordinary dividend, bringing the full year cash dividend to 1.50p per share, representing a 64% payout, commensurate with the half year payment. The dividend declaration will be released as a separate announcement.

Outlook

We had a strong 2023. City centres remain the dominant locations for commerce and lifestyle. Our destinations are in high demand by occupiers and visitors. The importance of a physical presence in a digitally-integrated strategy for best-in-class operators is undeniable. Over time, we have a unique opportunity to complement our retail core with a broader mix of uses by repurposing existing space and unlocking value on adjacent land.

We have a strong platform with long term visibility of income. We remain operationally disciplined and expect further cost reductions in 2024. We are confident in our ability to grow top line and earnings off a new base, and therefore create value for shareholders.

Results presentation today:

Hammerson will hold a presentation for analysts and investors at its Marble Arch House office to present its full year financial results for the 12 months ended 31 December 2023, followed by a Q&A session.

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

The presentation and press release will be available at: https://www.hammerson.com/investors/reports-results-presentations on the morning of results.

Enquiries:

Disclaimer

Certain statements made in this document are forward looking and are based on current expectations concerning future events which are subject to a number of assumptions, risks and uncertainties. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group's control and which could cause actual results to differ materially from any expected future events or results referred to or implied by these forward-looking statements. Any forward-looking statements made are based on the knowledge and information available to Directors on the date of publication of this announcement. Unless otherwise required by applicable laws, regulations or accounting standards, the Group does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Accordingly, no assurance can be given that any particular expectation will be met, and reliance should not be placed on any forward-looking statement. Nothing in this announcement should be regarded as a profit estimate or forecast.

This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to subscribe for or purchase any shares or other securities in the Company or any of its group members, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares or other securities of the Company or any of its group members. Statements in this announcement reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this announcement shall be governed by English law. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

Index to key data

Unless otherwise stated, figures have been prepared on a proportionally consolidated basis, excluding Value Retail as outlined in the presentation of information section of the Financial Review.

a These results include discussion of alternative performance measures (APMs) which include those described as Adjusted, EPRA and Headline as well as constant currency (where current period exchange rates are applied to the prior period's results). Adjusted, EPRA and Headline measures are described in note 1C to the financial statements and reconciliations for earnings and net assets measures to their IFRS equivalents are set out in note 9 to the financial statements.

CHIEF EXECUTIVE'S REVIEW

In 2023, we delivered another year of significant strategic, operational and financial progress and growth, reflecting three years of transformational change for the business. We are now well positioned to invest for growth and value creation. Today, the Group is focused on a core portfolio of city centre destinations in some of the fastest growing cities in Europe that are evolving to my vision: 24/7, urban 'living spaces'. Occupier flight to quality - fewer, better stores in prime locations - is undeniable, with high flagship occupancy at 95% following another year of record leasing in our uniquely located city centre destinations.

We signed 306 leases representing £46m of headline rent, £29m at our share, split roughly evenly between: new to portfolio brands, new concepts, social and entertainment offers; and renewals with our current occupiers, including new concepts and upsizes. We attract best-in-class occupiers who in turn make significant investments in their physical footprint. Rental levels have rebased and we are driving growth with permanent deals signed 12% ahead of ERV on a net effective basis, and 37% ahead of previous passing rent, equating to additional annualised passing rent of £7m on our £179m flagship rent roll.

The exceptional environments we create for our occupiers and visitors is reflected in strong operational fundamentals. Despite the volatile macroeconomic environment, footfall and like-for-like sales continue to grow. Notably, we have seen particularly strong operational performances at assets where we have made significant investments in recent years, such as Bullring, Dundrum and Les 3 Fontaines.

Since 2020, we have transformed our operating model, and reshaped our organisation. We have brought in new skills and talent in asset management, leasing, commercialisation and placemaking, which means we can focus our energies on value creation. On-site property management and associated accounting services in the UK and France have largely been consolidated with proven scale strategic partners.

We have invested to realign and upgrade our IT and digital platform in areas where speed and data quality is critical. Today we are a more agile, resilient and market facing asset-centric organisation, one that continues to evolve and reshape our destinations to be fit for the future. We have again reduced gross administration costs, down 14% year-on-year and we are targeting a further 10% reduction in 2024.

We have further realigned our portfolio, exiting non-controlling minority stakes in Italie Deux in France, alongside realising value from standalone development assets in Croydon, and other non-core land generating £216m in disposal proceeds in 2023. At the same time, we have been disciplined in not allocating capital to assets with secured debt where these did not meet our location and catchment, investment or return criteria. Whilst recognising an impairment of £22m, £125m of secured debt was derecognised in the period following exits from Highcross and O'Parinor, also bringing a sharper focus to investment opportunities in the core portfolio. Since the balance sheet date, we have exchanged on the sale of Union Square, which will bring to a close our £500m disposal programme set out at FY 21.

At 31 December 2023, our financial position was significantly strengthened, with ample cash and undrawn committed facilities of £1.2bn, more than covering near term maturities and providing capital for investment. We will continue to be disciplined allocators of capital and select the best returns for shareholders, mindful of our own cost of capital and all options for capital deployment including maintaining balance sheet strength and flexibility.

Dividend

As announced at the 2023 half year results and outlined in the 2022 annual report, the Board reinstated a cash dividend in 2023, declaring an interim cash dividend of 0.72p in July which was paid entirely as a PID.

At the same time, the Board announced a new sustainable dividend policy of 60% to 70% of annual adjusted earnings to be paid semi-annually. This policy is based on disciplined capital allocation seeking to balance returns to shareholders whilst continuing to invest to drive growth and value creation in our core assets.

Therefore, the Board recommends a final cash dividend of 0.78p per share in respect of 2023 to be paid as an ordinary dividend subject to shareholder approval, which would represent a full year cash dividend of 1.50p per share and a payout ratio of 64%, commensurate with the half year.

The Board recognises dividends are an important constituent of shareholder returns and the policy will be kept under review.

FINANCIAL AND OPERATIONAL REVIEW

Adjusted earnings were up 11% to £116m or 2.3p per share, reflecting 6% like-for-like growth in GRI and 4% growth in like-for-like NRI, combined with significant further reductions in gross administration and net finance costs.

At FY 22, we committed to reduce our gross administration costs by 20% by FY 24. We have delivered a 14% reduction in 2023. There are more efficiencies to come as we pursue greater automation and digitalisation of our business, as well as outsourcing and consolidation of supplier opportunities. We expect to deliver a further 10% reduction in 2024 which means we are on track to exceed our target of 20% reduction by 2024, which would bring cumulative savings of more than 30% since FY 20.

Net debt was down 23% to £1,326m (FY 22: £1,732m). Headline LTV was 34% (FY 22: 39%) and 44% (FY 22: 47%) including the Group's proportionate share of Value Retail net debt. Our Net debt: EBITDA improved to 8.0x from 10.4x at FY 22, reflecting both lower debt and the improved operating performance.

EPRA NTA was 51p per share at 31 December 2023 (FY 22: 53p), with higher earnings in part offsetting disposal and impairment and revaluation losses, totalling £167m. Having been broadly flat for the first three quarters of the year, we saw some marginal yield expansion in the fourth quarter in all territories, which offset incremental flagship ERV growth in the UK, Ireland and France. Moreover, all but two of our flagship assets benefited from positive ERV movements, and all ten in the second half of the year. We are starting to see positive valuation movements on selected assets.

Overall, the Group recorded an IFRS loss of £51m (FY 22: £164m loss), and a negative total accounting return of -2.1%.

Footfall and sales

Footfall and sales performance reflects the exceptional nature of our destinations and the improving mix of uses. The recovery in footfall that we saw across our assets in FY 22 continued through FY 23 with consumers also increasingly returning to city centres, both for leisure and work. Footfall was +3% year-on- year (UK+1%, France +7% and Ireland +4%), closing the gap on 2019 levels, which we are now on average less than 10% below. Average dwell time was up 5% to 88 minutes.

Overall, total sales and sales densities have risen by mid-teens percentages since 2019, with substantial evidence that repurposed space and new concepts materially outperform that which it is replacing.

Consumer spending continues to be resilient, with an improving outlook for 2024. Despite the 'cost of living' crisis, savings built during the Covid-19 pandemic, high levels of employment and strong wage growth, which outpaced inflation in the second half of 2023, have helped underpin continued consumer spend, along with evolving lifestyle trends. Like-for-like sales were up 1% in the UK and 3% for France.

Occupancy

Our core portfolio continues to benefit from the increasing polarisation in the market and the flight to quality reflected in the wealth of key new openings, leasing demand and tension, and growing footfall and sales. It is now a fact that online/offline has balanced and occupiers have now adopted a holistic view, understanding that a high quality physical presence is an essential part of the supply chain.

Flagship portfolio occupancy remained strong at 95%, broadly flat year-on-year. UK flagship occupancy stands at 95% and Ireland at 96%, with some assets in these geographies full. France was slightly weaker at 93% reflecting the continuing lease-up at Les 3 Fontaines extension.

Value Retail

Value Retail delivered another solid operational performance. Brand sales increased 10% year-on-year and were 5% above 2019 levels. Footfall across the Villages saw a 9% increase year-on-year but remained below 2019 levels. Sales densities grew broadly in line with footfall and were marginally ahead of 2019, whilst spend per visit was up 1% year-on-year and 6% ahead of 2019.

Average occupancy was 95%, marginally up on 2022 but remaining around one percentage point below 2019 levels. Overall, the Group's share of Adjusted earnings was £32m (FY 22: £27m). Positive GRI growth was partially offset by rising finance costs reflecting the refinancing in FY 22 at Bicester and La Vallée, and higher administration costs. Year-to-date, Hammerson has received £74m of cash distributions from Value Retail, in part reflecting catch up payments from 2019 to 2023.

At 31 December 2023, the Group's interest in Value Retail's property portfolio was £1.9bn, unchanged year-on-year. Net assets were £1.1bn, down 6%, primarily due to distributions paid to the Group. The difference between gross and net asset value is principally due to £0.7bn of net debt within the Villages which is non-recourse to the Group. The average LTV across the Villages is 39%.

STRATEGY UPDATE

We own city centre destinations and adjacent land around which we can reshape entire neighbourhoods. Our strategy recognises the unique position that we have in our locations and the opportunities to leverage our experience and capabilities to create and manage vibrant 24/7, multi-use, urban 'living spaces' that realise value for all our stakeholders, connects our communities and delivers a positive impact for generations to come.

Our aim is simple and clear - to chart a path to growth that delivers strong income and total returns for shareholders through consistent execution against our strategic goals. Following three years of strategic and operational progress, we are now investing for growth and value creation in our core assets.

We are combining targeted leasing with repurposing and redevelopment opportunities, which are integral and complementary to our destinations, directing capital expenditure to our core estates, where we are able to realise high returns. This asset focus is underpinned by our now increasingly agile platform, our strong capital structure and by our commitment to ESG.

In FY 23, we made significant progress towards all our goals as follows:

Investment for growth and value creation

The key source of competitive advantage for Hammerson is the quality and location of our destinations in some of Europe's fastest-growing cites. We have some of the best assets in the very best prime city centre catchments and transportation hubs, and, due to the strong ties we have in the communities in which we operate, supportive local authorities. Additionally, our pre-development and strategic land represent a considerable set of unrealised long term opportunities which we can selectively draw upon.

The consumer and occupier landscape continues to evolve at pace. Occupiers are continuing to shift to using physical space for a broad mix of uses, including: point of sale; last mile fulfilment; returns; servicing; experiential; marketing; brand development; education; workspace; and leisure - 'living spaces'. At the same time, visitors demand top quality environments and experiences. We continue to invest in our assets to partner with best-in-class occupiers to cater to the communities and catchments in which we operate, whether this be repurposing of obsolete department store space into leisure and modern retail, or redevelopment to residential, workspace, healthcare and lifestyle uses.

Our investments to date have attracted some of the very best global brands. Our leasing strategy has evolved from an emphasis on filling space and increasing occupancy as we emerged from the Covid-19 pandemic. We now focus more proactively on a high quality, diverse and complementary mix and offer for both occupiers and customers, which in turn underpins a more diverse, resilient and higher quality income profile.

Following our best year for leasing in FY 22 since FY 18, our momentum continued in FY 23 with another record year: 306 leases signed on a more focused portfolio (FY 22: 317), a volume increase of 10% on a like-for-like basis, representing £46m of headline rent at 100% (FY 22: £45m), or £29m at share (FY 22: £25m), up 23% like-for-like. In this context, we saw much greater competitive tension with occupiers not exercising breaks to leverage better terms, which meant an additional £2m of rent retained.

For principal deals, headline rent was 37% ahead of previous passing rent (FY 22: +34%), continuing to reflect strong demand, the lease up of vacant space and the conversion of temporary leases onto long term deals. On a net effective basis, principal deals were 12% ahead of ERV (FY 22: +2%), with new leases +14% and renewals +8%. In terms of mix, just under half of leasing was to best-in-class and new fashion concepts, and the balance to non-fashion, services, leisure, food, workspace and Printemps in France.

Providing the exceptional spaces with high footfall, high demand, growing leasing tension and thereby rental levels which underpins this leasing performance requires investment: investment to repurpose obsolete or underutilised space; investment in time to select the right brand partners to enhance the mix and complete works to a high standard; investment alongside key brand partners in their offer; investment in public realm to maintain our appeal to customers and occupiers whilst ensuring further integration with the communities we serve; and investment in key leasing, asset management, placemaking and marketing talent. From our investments in the last few years, we've delivered solid returns and created value.

Looking at two key examples that came to fruition this year:

· In Dundrum, we opened Penneys (Primark) and Nike Live, to complete the repurposing of the former House of Fraser space, with the backfill allowing Dunnes Stores, which opened in November, to enter the destination for the first time. Taken as a whole, the significant increase in rents with an incremental ERV benefit to adjacent units generated an IRR in excess of 20% from an investment of ?31m (at 100%). Elsewhere in Dundrum, we converted underutilised storage space to modern workspace and leased it to Western Union, bringing a new use and income stream to the asset, as well as incremental customers to the food and leisure oriented Pembroke Square area. Dundrum has already seen an increase in footfall and sales following these openings in the second half of the year.

· In Bullring, we handed over former Debenhams space to M&S, which also opened in November, with an extremely strong sales performance and establishing a further consolidation of the city centre into our estate. We also handed over the top floor space to TOCA Social - the football themed entertainment operator - which will become their first operation outside London when it opens in 2024. This will strengthen the critical mass and complement the entertainment and social operators we opened in 2023, which included Lane 7 Bowling, and a new leisure concept, VR Sandbox. We target to complete the repositioning of the Debenhams space - representing about 15% of the total floorspace of the Bullring - by concluding negotiations with a best-in-class fashion operator which will concentrate the retail pitch alongside openings in 2023, including those to Bershka, JD Sports, Footlocker, and Pull and Bear. Taken together we expect our investment into this repositioning project will be around £17m (at 100%), which will not only deliver a high double digit IRR, but also a positive halo on the performance and presentation of the asset and the consequent rental demand and values, which we expect to further capitalise with future lettings. Following these openings, Bullring experienced a particularly strong Christmas period, with sales and footfall up in stark contrast to national indices. Importantly, it also saw an uplift in value of £35m (at 100%), reflecting a 5% increase in ERVs year-on-year.

We have a rich set of similar opportunities in our core portfolio relating to former department store space. Having proactively secured vacant possession, we have already commenced the repurposing of the former House of Fraser space in The Oracle, having agreed terms with Hollywood Bowl and TK Maxx, and are in detailed negotiations with other key partners. At the other end of the scheme, we await the outcome of a planning application for the major regeneration of the eastern quarter, including the former Debenhams, with the potential to develop c.450 residential units in phases alongside renewed landscaping and other commercial uses, much in demand in this strong catchment.

In Birmingham, we achieved planning consent for Drum, an amenity rich workspace led proposal, which predominantly occupies the former John Lewis Partnership space at Grand Central and is directly served by the UK's most connected rail station, Birmingham New Street. Strip out works have been completed, and we are working with stakeholders to unlock the next stages of de-risking and delivering this scheme.

In Cabot Circus, we are working up investment plans, alongside relevant operators, to reposition and maximise the value of major spaces including the House of Fraser department store at the gateway to the asset and to replace the cinema operator as part of the development of a social and entertainment quarter.

Overall, of the department store space the Group had at FY 19, roughly two-thirds has been repurposed or is in advanced planning, and a third has been sold.

Elsewhere, we continue to lease to high quality brand partners, enhancing the quality of the mix and bringing new uses to our destinations. Other than those already mentioned, key deals and openings in 2023 included:

· Renewals and new deals were secured with JD Sports, Uniqlo, Decathlon, Olympique de Marseille, Levi's, Puma, Hugo Boss, Michael Kors and Five Guys at Les Terrasses du Port as we approach the ten year anniversary of the opening of Marseille's super prime destination.

· At Les 3 Fontaines, we opened H&M in March and brought in New Yorker to an adjacent unit later in the year, whilst reconfigurations allowed the entry of Action, Celio and a new leisure offering from Smile World. In the extension, additions comprised increased presence from global brands including Eden Park and Swarovski.

· In Brent Cross, we signed a deal with Social Sports Society to bring a padel tennis and other outside sports facilities to the underutilised Southern Lands, subject to planning, alongside reconfigurations that allowed the renewal of Boots and the introduction of Superdrug into the scheme. We also relocated Moorfields Eye Hospital into an underutilised area of the scheme, after a period of testing customer appetite for alternative uses. In 2024, we expect to create a new market hall offering, where we have already agreed terms with three occupiers.

· In Bullring, in addition to repurposing and new leasing related to the former Debenhams unit, we opened the first Nike Rise concept outside of London, brought Footasylum in for the first time, and saw Goldsmiths undertake a significant refit and expansion which included the introduction of a separate Rolex store.

· Westquay saw the delivery of new offers from premium lifestyle and beauty brands Sweaty Betty and Space NK, and F&B from Wingstop and Mettricks.

· Cabot Circus saw four portfolio firsts, including the introduction of Stradivarius, bringing another sought-after Inditex brand into the destination, alongside the debuts of Lounge, German Donor Kebab and Lids.

· Meanwhile in Ireland, in Dundrum, Space NK signed a lease to open their second store in Ireland. Both with minimal vacancy, it was a quieter year at Pavilions and Ilac, although the former opened a new leisure offer from Zero Latency, whilst the latter signed a new flagship city centre store for Liverpool FC.

Our approach to leasing works in parallel with our greater emphasis on placemaking, which not only serves to enliven space and enhance the experience and environment for customers and occupiers, but also increasingly contributes meaningfully in its own right in terms of incremental footfall, income, and engagement across all channels. Key highlights in the year included:

· Staging our first Late Night Out ticketed event, bringing the after hours economy to Bullring

· We brought the Charity Super.Mkt, the UK's first shop space bringing multiple charities under one roof, to Brent Cross, The Oracle and Cabot Circus, driving incremental footfall, significant media coverage and winning us a Revo award for Pop-up of the Year. We aim to continue working with Charity Super.Mkt through 2024.

· We had further success bringing digitally native brands to physical space, most notably SHEIN to Bullring and Grand Central, and UK firsts including Trinny London's kiosk to Bullring.

· In France, we hosted a two-week pop-up store at Les Terrasses du Port for local rapper Jul, and then 'Sunset Live' later in the year, which showcased local and international musical artists on the seafront terrace, attracting significant media and influencer attention, and involving 25 brand partners.

· Meanwhile, at Les 3 Fontaines we hosted the second edition of the 3Festival which celebrates 'Art in all its forms' with local partners from street art workshops to culinary battles.

· We continue to exploit underutilised car parking space with new uses, occupiers and events, including the UK's largest Tesla collection point, the Florescenza garden centre, and Big Kid Circus at Brent Cross; Skatepark with Red Bull at Cabot Circus, and the Supercar Weekend at Dundrum.

· We enlivened our destinations with summer bars including large external screens showing major sporting events, and created winter wonderlands in our unique outside spaces with Apres ski bars and ice rinks plus a visit from the much-loved Coca Cola truck in Bullring and Grand Central creating high footfall.

· We increased our social media presence and partnerships with local influencers, contributing to increased visibility and customer engagement with our destinations.

Turning to other near term projects which are integral to our existing assets, at Ironworks in Dundrum, a 122 unit residential development, construction continued during 2023. We also agreed a long term indexed lease for the social housing units that we have built as part of the scheme and were completed in the year.

In France, we are considering options for incremental repurposing of underutilised space at Cergy 3, to capitalise on strong demand, following the opening of Les 3 Fontaines extension in March last year, and are in discussions on heads of terms with two operators.

During 2023, we have been disciplined with our resourcing and capital expenditure on our development projects and pre-development and strategic lands; focusing on those initiatives which give short term routes to value, and those integral projects which add most value to our wider estate.

The wider development market has been somewhat fractured during the course of 2023; with viability under pressure due to ongoing challenges with construction costs, cost of capital and valuation yield movements, alongside uncertainty of public policy and decisions. Nevertheless, structural demand from occupiers - and therefore rental performance - remains strong across most asset classes where we have exposure, particularly in city centre locations for best-in-class workplace and purpose-built rental apartments.

We have continued to advance planning consents and land assembly agreements across the portfolio, which is capital light. In Ireland, we expect the initial planning consents to be finalised in 2024 at Dublin Central and there are ongoing discussions with potential end users, while our planning application for a strategic residential masterplan at Dundrum Phase II remains in consideration with the local authority. At Martineau Galleries, part of the wider Birmingham Estate, we have been working closely with Birmingham City Council and other stakeholders to ensure that we have a route to prepare for the development of this multi-use estate which will complement and benefit from our other holdings in the city.

Lastly, in our longer term development opportunities, standing alone from existing destinations, we exited our 50% share of all land and corporate interests at Croydon at a narrow discount to book value, as well as some small land interests in Clonsilla, Dublin, focusing our core portfolio and creating additional liquidity for investment. At Eastgate, Leeds, we have agreed to update an historical development agreement with the City Council paving the way to unlock the value of the site. At Bishopsgate Goodsyard, we are progressing with detailed design and feasibility, the procurement of initial demolition and preparation works, and engagement with Network Rail.

Agile platform

We have transformed our platform and cost base to create an organisation focused on growth and value creation. We took decisive action in 2021 and 2022, shifting from a top heavy, geographically oriented and siloed organisation to a simplified, asset-centric operating model.

In 2023, we continued to drive efficiencies and adapt our ways of working, both in terms of technology - systems and automation - and in terms of greater collaboration, encouraging cross pollination of ideas and practices between asset management, leasing, placemaking and marketing, ESG, strategy and insights, finance and communications.

We are creating a high performance, high engagement culture with an emphasis on strategic value creation focused on asset management and delivery, placemaking and the repositioning of our assets. Property management and associated accounting services have largely been consolidated to proven third party partners of scale.

In 2023, we implemented the consolidation of our property management suppliers in the UK in February, and similar activity in France in the second half. Our 164 colleagues are now focused on strategic tasks as a result of the overhaul of our operations.

The actions we have taken over the last three years in realigning our portfolio and business model as well as introducing new systems, tools and more efficient ways of working have necessarily resulted in a reduction of headcount of 68% since FY 20. This has delivered a gross administration cost reduction of 24%.

By introducing these agile, more efficient and sustainable ways of working we are increasing speed to market and productivity. Today, we deliver more leasing and commercialisation activity than in 2019, with a leaner team, on a more focused portfolio. Other sources of savings include reductions in work space in the UK and France, insurance renewals, and a rigorous management of costs in general. We have also increased our efforts on employee engagement and talent management as part of our strategy to retain and develop key talent and we continue to invest in and promote key talent to be fit for the future.

Sustainable and resilient capital structure

Our capital allocation framework remains the same. We will maintain a stable and resilient capital structure, with an IG credit rating, to maintain access to capital markets. We are committed to a sustainable and growing cash dividend, covered by cashflow, and balanced with our total returns focus. We are mindful of our cost of capital, but will remain opportunistic on capital deployment. After strengthening of the balance sheet, our priority is to invest for growth and value creation.

Today, we have a resilient balance sheet, ample liquidity, and have maintained our IG credit rating. In 2023, in France we completed the sale of our 25% share of Italie Deux, and 100% of the Italik extension, and our 50% share of our interests in Croydon, together with non-core land in the UK and Ireland, generating gross proceeds of £216m.  Moreover, £125m of secured debt has been derecognised in connection with our exits from non-core assets in Highcross and O'Parinor.

Since the balance sheet date, we have exchanged unconditional contracts for the disposal of Union Square to an affiliate of Lone Star Real Estate Fund VI L.P. for gross proceeds of £111m, taking total proceeds since FY 21 to £521m and thereby completing our targeted £500m disposals programme. In September 2023, we issued a £100m increase of our existing £200m 7.25% coupon bonds maturing in 2028. The new issue was priced at a yield of 9.1%. In parallel, we redeemed £100m of our 3.5% coupon bonds maturing in 2025 and 6.0% coupon bonds maturing in 2026, at a discount of £4m.

Overall, net debt reduced 23% to £1,326m at 31 December 2023. Headline LTV stood at 34% (FPC: 44%), down from 39% (FPC: 47%) at FY 22. Net debt to EBITDA improved to 8.0x from 10.4x. At 31 December 2023, the Group had liquidity of £1.2bn in the form of cash balances (£570m) and undrawn committed RCFs (£655m), and had no significant unsecured refinancing requirements until 2026 not covered by existing cash.

Environmental, Social and Governance

Our ESG agenda grew in 2023, with a continued focus on achieving our targets, addressing both the Climate and Nature emergencies, whilst continuing to deliver an expanded Social Value programme.

We commenced our Net Zero Asset Plan (NZAP) programme of works focusing on degasification in Ireland, renewable energy in France, and HVAC and lighting design in the UK. To support this, we also undertook revised Physical Climate Risk Assessments in the UK and Ireland. These combine with our NZAPs to ensure a diligent, asset-centric approach to climate risk mitigation. Alongside the delivery of the NZAP projects across our destinations, renewable energy purchasing with true 'additionality' is a central pillar of our Net Zero transition and we are proactively seeking a Corporate Power Purchase Agreement (CPPA) to support our 2025 interim carbon target. Overall, our like-for-like scope 1, 2 and landlord 3 carbon emissions are down 13% year-on-year, and 35% since 2019.

Our climate and energy focus continues to receive external focus with Pavilions, Swords winning a Best Energy Achievement in Retail and Best Overall Achievement at the Business Energy Achievement Awards 2023 (Ireland) for going gas free in 2023, four years ahead of schedule. In addition to this we have launched a quantifiable program to deliver nature based action plans for each asset. This recognises that globally we are experiencing two emergencies, Nature and Climate. The rapid biodiversity loss globally not only needs to be addressed to maintain essential ecosystems but also to ensure a low carbon future aligned to the Paris agreement. In 2023 we took the step to gift a woodland and natural grassland in Lowestoft to the Wildlife Trust. This land gift recognised the natural value of the land over its commercial value and ensure it is preserved for nature and the community for the foreseeable future.

From a Social Value perspective, we delivered asset-centric events to support the communities we serve whilst also continuing to support our corporate charity partner, LandAid. We also introduced an all-colleague Giving Back Day which coincided with volunteering week and will occur annually in the future. We had very high participation rates of more than 90%, with 152 colleagues taking part doing everything from CV workshops to clearing wetlands.

We continued to focus on benchmarks identified by our stakeholders as key to their decision making. We rank as one of the top property companies in ISS ESG with a score of C+. We maintained our low-risk rating by Sustainalytics, making us a regional leader, and we also regained our 4-star GRESB rating with a ten-point score improvement to 85 points. We also achieved a related GRESB ESG public disclosure score of 96/100, scoring us an A, which ranks us first out of our peers in our transparency surrounding our ESG practices.

CONCLUSION AND OUTLOOK

Since FY 20, we have navigated the Company through a high-risk period of deleveraging and repositioning. We have realigned our portfolio to a core of unique city centre destinations, started to deliver strong investment returns in our properties, and we have ample further opportunity to invest for growth and value creation. In the wider portfolio, we remain capital disciplined and have realised value from our pre-development and strategic lands, most recently with the exit from Croydon.

At the same time, we have transformed our platform. We have become leaner and 'developed muscle', with headcount and costs down by more than two-thirds and a quarter respectively since FY 20, but with speed to market and performance increased. We remain committed to a high performance, high engagement culture with the right talent to be fit for the future.

Whilst our eyes are open to the current macro-economic environment, our occupiers are thriving and our visitor numbers are on the rise in our realigned portfolio. City centres remain the dominant locations for commerce and lifestyle. Our destinations are in high demand by occupiers and visitors. The importance of a physical presence in a digitally integrated strategy for best-in-class operators is undeniable.

Over time, we have a unique opportunity to complement our core with a broader mix of uses by repurposing existing space, consolidating, and unlocking value on adjacent land. We have a strong platform with long term visibility of income. We are confident in our ability to grow top line and earnings off a new base, and therefore create value for shareholders in the years to come.

FINANCIAL REVIEW

Overview

2023 has been another year of significant financial progress.

Adjusted earnings for 2023 of £116m were 11% higher than 2022. Key drivers were underlying rental growth; lower gross administration and net finance costs; higher earnings from Value Retail; partly offset by income foregone from disposals. We returned to the payment of cash dividends. In addition to the interim dividend of 0.72p per share, the Directors have recommended a final dividend of 0.78p per share, bringing the full year cash dividend to 1.50p per share.

IFRS reported losses decreased to £51m compared with £164m in 2022. The reduction was due to lower revaluation losses, principally associated with outward yield shift, of £127m in 2023 compared with £282m in 2022.

Net assets at 31 December 2023 were £2,463m (2022: £2,586m). EPRA NTA per share was 51p (2022:53p), equivalent to a total accounting return of -2.1% (2022: -6.8%).

Net debt reduced by £406m, or 23%, to £1,326m at 31 December 2023 benefiting from disposal proceeds of £216m, the derecognition of £125m of secured debt, £104m of cash generated from operations and £74m of distributions from Value Retail. The reduction strengthened the Group's balance sheet and credit metrics, with year end headline LTV of 34% (2022: 39%) and LTV on a fully proportional consolidation basis of 44% (2022: 47%). Net debt:EBITDA improved to 8.0x (2022: 10.4x). The Group also has ample liquidity in cash and undrawn committed facilities of £1.2bn.

Presentation of financial information

IFRS vs Proportional consolidation

The Group's property portfolio comprises properties that are either wholly owned or co-owned with third parties.

While the Group prepares its financial statements under IFRS (the 'Reported Group'), the Group evaluates the performance of its portfolio for internal management reporting by aggregating its wholly owned businesses together with its share of joint ventures and associates which are under the Group's management ('Share of Property interests') on a proportionally consolidated basis, line-by-line (in total described as the Group's 'Managed portfolio').

The Group's investment in Value Retail is not proportionally consolidated because it is not under the Group's management, is independently financed and has differing operating metrics to the Group's Managed portfolio. Accordingly, it is accounted for separately as 'Share of results of associates' as reported under IFRS and is also excluded from the Group's proportionally consolidated key metrics such as net debt or like-for-like net rental income growth.

However, for certain of the Group's Alternative Performance Measures (APMs), for enhanced transparency, we do disclose certain metrics combining both the Managed portfolio and Value Retail. These include property valuations, property returns and certain credit metrics.

Both IFRS and Management reporting bases are presented in the Group's financial statements with supporting analysis and reconciliations between management and IFRS bases in the Additional Information section.

Management reporting and IFRS accounting treatment

1 See note 11A to the financial statements for information on the Group's two joint operations (Pavilions, Swords and Ilac Centre, Dublin)

2 Only includes the Group's 25% investment in Italie Deux until its disposal on 31 March 2023.

Derecognition of Highcross and O'Parinor

During 2023, the Group derecognised its Highcross and O'Parinor joint ventures in which it had 50% and 25% interests respectively at 31 December 2022.

These two joint ventures had a total of £125m of borrowings secured against their individual property interests. These borrowings were non-recourse to the Group. At 31 December 2022, both loans were in breach of certain conditions and the Group was working constructively with the respective lenders on options to realise 'best value' for all stakeholders.

On 9 February 2023, a receiver was appointed by the lenders to administer Highcross for the benefit of the creditors. As a result of no longer having joint control, the Group derecognised its share of assets and liabilities, including the property value and £80m of secured borrowings. There was no loss on derecognition as the Group's joint venture investment in Highcross had been fully impaired at 31 December 2021, from which date the Group had ceased recognising the results of this joint venture in the income statement.

On 30 June 2023, the lenders to O'Parinor took control of the joint venture and the Group therefore impaired its joint venture investment by £22m and derecognised its share of assets and liabilities, including the property value and £45m of secured borrowings.

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. Details on the EPRA BPR can be found on www.epra.com and the Group's key EPRA metrics are shown in Table 1 of the Additional information.

We present the Group's results on an IFRS basis but also on an EPRA, Headline and Adjusted basis as explained in note 1C to the financial statements. The Adjusted basis enables us to monitor the underlying operations of the business on a proportionally consolidated basis as described in the basis of preparation and excludes capital and non-recurring items such as revaluation movements, gains or losses on the disposal of properties or investments, as well as other items which the Directors and management do not consider to be part of the day-to-day operations of the business. Such excluded items are in the main reflective of those excluded for EPRA earnings, but additionally exclude certain cash and non-cash items which we deem not to be reflective of the normal routine operating activities of the Group. We believe that disclosing such non-IFRS measures enables evaluation of the impact of such items on results to facilitate a fuller understanding of performance from period to period. These items, together with EPRA and Headline adjustments are set out in more detail in note 9A to the financial statements.

For 2023, adjusting items additional to EPRA adjusting items comprised:

· Exclusion of a charge of £13.2m (2022: £5.1m) in respect of business transformation costs as the Group continues its implementation of strategic change and refining its operating model. This charge comprises mainly non-capitalisable costs relating to digital transformation as well as severance and other costs associated with team and operational restructuring.

· A charge of £0.3m (2022: credit of £2.4m) to reverse expected credit losses charged to the income statement but where the related income is deferred on the balance sheet such that the exclusion of this removes the distortive mismatch this causes.

INCOME STATEMENT

Summary income statement

For the year ended 31 December 2023 the Group reported an IFRS loss of £51.4m (2022: £164.2m loss), a reduction of £112.8m. The key factors in the reduced loss were lower revaluation losses of £154.9m partly offset by the year-on-year change in the loss/profit on sale of properties of £18.4m and an impairment charge of £22.2m in 2023 in relation to the Group's O'Parinor joint venture.

On an Adjusted basis, earnings increased by £11.4m to £116.3m (2022: £104.9m). Adjusted net rental income was £7.3m lower, £11.2m was due to disposals partly offset by £4.8m higher income from the like-for-like Managed portfolio, equivalent to 3.6% growth. Gross administration costs were £8.3m, or 14%, lower reflecting reduced headcount and corporate costs. The Group's share of Value Retail Adjusted earnings grew by £4.7m and adjusted net finance costs were £8.1m lower, reflecting reduced debt levels and increased income from cash deposits benefiting from the higher interest rate environment.

A detailed reconciliation from Reported Group to the proportionally consolidated basis is set out in note 2 to the financial statements and further details on reconciling items between Adjusted earnings and IFRS loss are in note 9A to the financial statements.

Rental income

Analysis of rental income

Gross rental income decreased by a net £6.8m to £208.4m. Disposals reduced income by £17.8m, principally Silverburn and Victoria Leeds in 2022 and Italie Deux and Croydon in 2023. This was partly offset by growth in like-for-like income of £8.5m, or 5.5%. 60% of the growth was due to higher base rent consistent with the Group's strong leasing performance and the remainder was due to year-on-year increases in variable rent (turnover rent and car park and commercialisation income).

Adjusted net rental income decreased by a net £7.3m to £167.5m. Disposals reduced NRI by £11.2m. From a like-for-like perspective, UK adjusted NRI grew by 3.2%, with lower void costs and the strong like-for-like GRI growth of 6.8% partly offset by the year-on-year change in bad debt charges where 2022 benefited from credits due to the reversals of provisions associated with the strong improvement in collections post Covid-19. Income growth in France of 1.8% was muted due to the adverse impact of a small number of tenants entering administration. Ireland was the strongest performing country with growth of 6.0%, benefiting from the reversal of prior year bad debt charges as collection rates improved.

Further analysis of net rental income by segment is provided in Table 3 of the Additional information.

Analysis of rental income

Rental income is further analysed below between the Group's various ownerships.

Administration expenses

During 2023, Adjusted net administration expenses decreased by £6.2m against 2022. Gross administration costs fell by £8.3m reflecting the Group's focus on cost reduction, partly offset by a reduction in other income of £2.1m due to disposals, principally in France. The most significant elements of the cost reduction were:

· Employee costs, including variable costs, were £3.5m (9%) lower reflecting the organisational restructuring and simplification of the Group's operating model in 2023. Average headcount, excluding employees recharged to tenants, reduced from 225 in 2022 to 175 in 2023.

· Other corporate costs, comprising mainly professional fees, premises costs and software licences, fell by £4.8m (23%). The two most significant areas of savings were premises costs, with downsized relocations in both the UK and France during the year; and a decrease of £1.5m in corporate insurances, with the most significant reduction in Directors and Officers insurance premiums reflecting the strengthening of the Group's financial position.

Business transformation costs of £13.2m in 2023 comprised mainly severance costs directly associated with the simplification of the Group's operating model and fees for contractors and consultants from the Group's digitalisation programme, both of these matters were key outputs of the Group's strategic and operational review undertaken in 2021 and do not reflect underlying trading.

Disposals and assets held for sale

During 2023, we realised gross proceeds of £216m, relating mainly to the disposals of the Group's interests in Italie Deux (including the Italik extension) and our standalone development interests in Croydon. In total, disposals in the year resulted in a loss on disposal of £18m, and these disposals were at an average 5% discount (based on gross proceeds) to 31 December 2022 book value.

Since the year end, we exchanged contracts for the sale of Union Square, Aberdeen for gross proceeds of £111m, representing an 8% discount to book value at 31 December 2023. This disposal concludes the Group's £500m non-core disposal program commenced in 2022.

Share of results of joint ventures

A listing of our interests in joint ventures is included in note 12 to the financial statements. On an IFRS basis, the Group's share of results in 2023 was £9.4m (2022: £41.5m loss). The £50.9m improvement was principally due to lower revaluation losses in 2023 of £73.9m compared with losses of £132.1m 2022.

On an Adjusted basis, our share of results from joint ventures was £85.0m (2022: £88.1m). The £3.1m year-on-year reduction was principally due to the disposals of the Group's investments in Croydon in 2023 and Silverburn in 2022, and the derecognition of O'Parinor in June 2023.

Given that five out of six of our UK flagship destinations and Dundrum, the largest asset of our Ireland flagships, are held in joint ventures the financial and operating performance of these assets is consistent with the proportionally consolidated performance explained in this Review and shown in the Additional Information. The two French flagship destinations are wholly owned.

Share of results of associates

Following the sale of the Group's investment in Italie Deux in March 2023, at 31 December 2023 the Group's sole associate investment was Value Retail. On an IFRS basis, the Group's share of results in 2023 was £16.0m compared with a loss of £7.1m in 2022. The year-on-year increase of £23.1m was principally due to lower revaluation losses in 2023 of £7.7m compared with losses of £66.9m in 2022, partly offset by losses on the fair value of derivatives of £11.1m in 2023 compared to gains of £18.1m in 2022 and a year-on-year increase in profit from operating activities of £6.6m.

On an Adjusted basis, our share of results from associates was £33.3m (Value Retail: £32.1m, Italie Deux: £1.2m) compared with £31.8m (Value Retail: £27.4m, Italie Deux: £4.4m) in 2022. The £4.7m year-on-year increase in Adjusted earnings from Value Retail was due to £14.4m higher gross rental income reflecting stronger sales and the benefits from indexed rents. This growth was partly offset by increased administration costs of £3.4m and finance costs of £7.5m, this latter change relating to the refinancing of the loans secured against La Vallée and Bicester in 2022. The reduction in Italie Deux reflects its disposal in March 2023.

Value Retail's Adjusted earnings reflected an effective yield of 2.7% as a percentage of the Group's investment at the start of the year (2022: 2.4%).

Net finance costs

Adjusted net finance costs were £45.9m, a decrease of £8.1m compared with 2022. The decrease was driven by the benefits of deleveraging since the start of 2022, early repayment of debt utilising proceeds from disposals, the related restructuring of hedging derivatives and higher interest income from cash deposits benefiting from the higher interest rate environment.

In the second half of 2023, we repurchased £12m of the Group's £350m 3.5% bonds maturing in 2025 and £88m of the Group's 6.0% bonds maturing in 2026 at £4.3m below book value. This latter amount has been recognised in finance income in 2023, and given its one-off nature has been excluded from the Group's Adjusted earnings.

Tax

Due to the Group having tax exempt status in its principal operating countries the tax charge, on a proportionally consolidated basis, remained low at £0.8m (2022: £0.5m).

The low tax charge reflects that the Group benefits from being a UK REIT and French SIIC and its Irish assets are held in a QIAIF. The Group is committed to remaining in these tax exempt regimes and further details on these regimes are given in note 7 to the financial statements. In order to satisfy the REIT conditions, the Company is required, on an annual basis, to pass certain business tests. The Group is expected to meet all requirements for maintaining its REIT status for the year ended 31 December 2023.

Dividends

As explained in the Chair of the Board's Statement, the Group announced a new sustainable dividend policy of 60-70% of annual Adjusted earnings during the year with an interim cash dividend of 0.72p per share paid in October.

The Board has proposed a final cash dividend of 0.78p per share, payable as an ordinary dividend on 10 May 2024 to shareholders on the register on 5 April 2024. A dividend reinvestment plan ('DRIP') remains available to shareholders.

NET ASSETS

A detailed analysis of the balance sheet on a proportionally consolidated basis is set out in Table 12 of the Additional information with a summary reconciling to EPRA NTA set out in the table below:

1 See Table 13 in Additional Information for further details.

2 EPRA adjustments in accordance with EPRA best practice, principally in relation to deferred tax, as shown in note 9B to the financial statements.

During 2023, net assets decreased 5% to £2,463m (2022: £2,586m). Net assets, calculated on an EPRA Net Tangible Assets (NTA) basis, were £2,542m, or 51p per share, a reduction of 2p compared to 31 December 2022 and is equivalent to a total accounting return of -2.1% (see Table 15 in Additional Information). The key components of the movement in Reported Group net assets and EPRA NTA are shown in the table below:

Movement in net assets

PROPERTY PORTFOLIO ANALYSIS

Portfolio valuation

The Group's external valuations continue to be conducted by CBRE Limited (CBRE), Cushman and Wakefield LLP (C&W) and Jones Lang LaSalle Limited (JLL), providing diversification of valuation expertise across the Group. At 31 December 2023 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 and Brent Cross have been valued by C&W. This is unchanged from 31 December 2022.

There have been a limited number of comparable transactions in the Group's investment markets during 2023, with the higher interest rate environment and lower levels of liquidity resulting in an outward movement in valuation yields. However, there has been a growing polarisation based on asset quality from both an occupational and investment perspective, with the outward yield movements being more pronounced for less prime assets. Valuers have also begun to differentiate between properties based on future capital expenditure requirements.

At 31 December 2023, the Group's portfolio was valued at £4,662m, a reduction of £445m since 31 December 2022. This movement was primarily due to disposals, including the derecognition of Highcross and O'Parinor, of £331m; revaluation losses of £127m; adverse foreign exchange losses of £61m, partly offset by capital expenditure of £74m. Movements in the portfolio valuation are shown in the table below.

Movements in property valuation

Capital expenditure

During the year, capital expenditure on the Managed portfolio was £47m, of which £34m was on the Group's Flagship portfolio reflecting reconfiguration works, including the repurposing of the former Debenhams at Bullring where M&S and TOCA Social opened in the year, and lease incentives directly related to the Group's record leasing volume in 2023. In addition, £13m was invested in the Group's Developments and other portfolio, with £5m spent on the on-site development of the Ironworks residential scheme at Dundrum. Other key areas of expenditure were to advance planning at Bishopsgate Goodsyard and Dublin Central. Table 11 of the Additional information analyses the spend between the creation of additional area and that relating to the enhancement of existing space.

Disposals, principally the Group's share of Italie Deux (including the Italik extension) and Croydon in the first half of the year, reduced the portfolio by £206m, with a further £125m reduction due to the derecognition of Highcross and O'Parinor.

Revaluation losses

In 2023, we recognised a total revaluation loss across the Group portfolio of £127m, comprising £119m in respect of the Managed portfolio and £8m in Value Retail. £81m, or 64%, of these losses was due to the Group's valuers moving out yields to reflect the higher interest rate environment and lower levels of market liquidity. The remainder of the losses related to development and other cost factors, principally adverse changes to residual valuations on the Developments and other portfolio associated with outward yield shift on end values and project cost inflation.

UK flagship destinations reported a revaluation deficit of £22m, £17m was due to outward yield shift averaging 10 basis points ('bps'), with the remaining £5m associated with capital expenditure, principally the recognition of a cladding allowance at Union Square. Bullring saw a revaluation gain in the year of £11m, the yield was stable reflecting the recent investment to repurpose the former Debenhams and the strong leasing performance leading to higher ERVs.

In France, yields moved out by 10bp equivalent to a revaluation deficit of £27m, this was partly offset by income growth, with like-for-like ERVs 2.5% higher, equivalent to a revaluation gain of £12m. While Ireland reported a revaluation deficit of £37m, of which £36m was due to outward yield shift averaging 30bp.

Value Retail values were broadly flat during the year, with capital expenditure offset by a marginal revaluation loss of £8m and adverse foreign exchange of £20m.

Further valuation analysis is included in Table 9 of the Additional information.

Like-for-like ERV1

1 Calculated on a constant currency basis for properties owned throughout the relevant reporting period.

Like-for-like ERVs grew by 1.7% during 2023. In the second half of the year ERVs were marked up at all of the Group's flagship destinations, equivalent to growth of 1.6%.

UK ERVs were 1.8% higher, reflecting the strong leasing performance and investment to attract 'best-in-class' occupiers. Bullring had the strongest growth at 5.0% over the year with occupiers seeking space following the opening of the repurposed former Debenhams space. We signed 23 permanent leases at the asset in 2023 at an average net effective rent 9% above prevailing ERVs.

ERVs in France grew by 2.5%, driven by indexation and leasing demand at both of our two wholly owned assets. At Les Terrasses du Port we have secured over 70% of the expected income from the expiring leases which were signed when the destination opened in 2014. The new deals have been signed at an average of 6% above ERV.

In Ireland, ERVs were up 0.2%, the lower vacancy levels in the Irish portfolio meant that it was more challenging to provide multiple sources of evidence for the valuers to mark up ERVs in 2023. However, the leasing pipeline for space remains strong, particularly at Dundrum Town Centre where there have been a number of major asset management initiatives, the most significant being the opening of Brown Thomas in the former House of Fraser unit in February 2023.

Property returns analysis

The Group's managed property portfolio generated a total property return of 1.6%, comprising an income return of 5.9% offset by a capital return of -4.1%. Incorporating the income and capital returns from the Value Retail portfolio, this brought the Group's income return to 6.0% and the capital return to -2.6%, to generate a total return of 3.2% (2022: -0.7%).

Shareholder returns analysis

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

2 Benchmark is the FTSE EPRA/NAREIT UK index.

The Group's total shareholder return in 2023 over one year was 22.8%, outperforming the FTSE EPRA/NAREIT UK index of 5.5%. Over three years the Group also outperformed the benchmark of -4.6% with shareholder returns of 6.6% and 16.5% on a cash and scrip basis, respectively.

INVESTMENT IN JOINT VENTURES AND ASSOCIATES

Details of the Group's joint ventures and associates are shown in notes 12 and 13, respectively to the financial statements.

Reported Group

Joint ventures

During the year, our investment in joint ventures decreased by £149m to £1,193m (2022: £1,342m). £99m of the reduction related to the disposal of Croydon and derecogntion of O'Parinor; revaluation losses totalled £74m and cash distributions to the Group were £55m. These reductions were partly offset by the Group's share of Adjusted earnings of £85m.

Associates

Our investment in associates decreased by £182m to £1,115m (2022: £1,297m). £109m of the reduction was due to the disposal of Italie Deux in March, a further £74m due to distributions from Value Retail , partly offset by the Group's share of Adjusted earnings of £33m.

TRADE RECEIVABLES

Collection rates improved over the course of the year such that 96% of the rental income due in 2023 (as at 23 February 2024) has been collected. As a result we reduced the provisioning rates for amounts overdue by 3-12 months, although this did not have a significant financial impact to property outgoings.

On a proportionally consolidated basis, net trade receivables at 31 December 2023 were £43m (2022: £42m), reflecting gross trade receivables of £62m (2022: £74m) against which a provision of £19m (2022: £32m) has been applied.

PENSIONS

On 8 December 2022, the Trustees of the Group's principal defined benefit pension scheme ('the Scheme'), with the Company's support, purchased a bulk annuity policy ('buy-in') with Just Retirement Limited ('Just') for a premium of £87.3m. This contract fully insured all future payments to members of the Scheme, with the premium met from the Scheme's assets.

During 2023, a data cleansing process was completed and subsequently verified by Just, resulting in a small balancing premium receipt to the Scheme. Given the successful completion of the buy-in and for the Trustees to trigger the winding-up of the Scheme, on 20 December 2023 the Company terminated its liability to make further contributions to the Scheme. This initiated a process for the Trustees to assign the bulk annuity policy to individual Scheme members and to transfer the administration to Just which is expected to take place in the first quarter of 2024, after which the final steps to wind up the Scheme can be undertaken.

This material balance sheet de-risking exercise is in line with the Group's long term strategy to strengthen the resilience of the Group's balance sheet.

FINANCING AND CASH FLOW

Financing strategy

Our financing strategy is to borrow predominantly on an unsecured basis to maintain flexibility. Secured loans are occasionally used, mainly in conjunction with joint venture partners. Value Retail also uses predominantly secured debt in its financing strategy. All secured debt is non-recourse to the rest of the Group.

The Group's debt is arranged to maintain access to short term liquidity and long term financing. Short term liquidity is principally through syndicated revolving credit facilities. Long term debt comprises the Group's fixed rate unsecured bonds and private placement notes. At 31 December 2023, the Group also had secured loans in the Dundrum joint venture and Value Retail. 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 or disposals, and market conditions.

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. Where there is any non-compliance with the guidelines, this should not be for an extended period but the Group objective is to maintain an investment grade credit rating. The key financing metrics are set out below.

Key financial metrics

1 Headline: 'Loan' excludes Value Retail net debt and 'Value' includes Value Retail net assets.

2 Full proportional consolidation of VR: 'Loan' includes Value Retail net debt and 'Value' includes Value Retail property values.

3 Applicable to bonds maturing in 2025 and 2027 (as set out in note 16 to the financial statements).

Credit ratings

During the year, Moody's and Fitch's senior unsecured investment grade credit ratings were re-affirmed as Baa3 and BBB+ respectively.

Leverage

At 31 December 2023, the Group's gearing was 55% (2022: 68%) and Headline loan to value ratio was 34% (2022: 39%).

The Group's share of net debt in Value Retail totalled £730m (2022: £675m). Fully proportionally consolidating Value Retail's net debt, the Group's loan to value ratio was 44% (2022: 47%).

Calculations for gearing and loan to value are set out in Tables 18 and 19 of the Additional information, respectively.

Borrowings and covenants

The terms of the Group's unsecured borrowings contain a number of covenants which provide protection to the lenders and bondholders as set out in the Key financial metrics table above. At 31 December 2023, the Group had significant headroom against these metrics.

In addition, Dundrum and Value Retail have secured debt facilities which include covenants specific to those properties, including covenants for loan to value and interest cover. However, there is no recourse to the Group.

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 2023, the value of euro-denominated liabilities as a proportion of the value of euro-denominated assets was 91% the same level as at the beginning of the year. Interest on euro-denominated 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 2%.

CASH FLOW AND NET DEBT

Proportionally consolidated net debt

On a proportionally consolidated basis, net debt decreased by 23% to £1,326m (2022: £1,732m). At 31 December 2023 the Group's net debt comprised loans of £1,885m and the fair value of currency swaps of £11m, less cash and cash equivalents of £570m, of which £472m is held by the Reported Group. Disposals during the year generated proceeds of £216m. Cash generated from operations of £104m comprised profit from operating activities of £117m less a net £13m reduction in working capital and other non-cash items. We also received £74m of distributions from Value Retail. These cash inflows were partly offset by cash dividends paid of £30m, capital expenditure of £43m and net interest of £46m.

Refinancing

During the first half of the year, £605m of revolving credit facilities were extended by one year such that they now mature in 2026.

In the second half of 2023, we extended our debt maturity profile through the issuance of a £100m bond tap of our existing £200m 7.25% bonds maturing in 2028 resulting in a new outstanding notional of £300m. The issuance was at a discount of £6.7m, meaning the newly issued bonds were priced at an effective yield of 9.1%. At the same time a matching tender was launched for the £350m 3.5% bonds maturing in 2025 and the £300m 6.0% bonds maturing in 2026 for which we repurchased £12m and £88m at yields of 7.7% and 8.1% respectively, in total £4.3m below book value.

Liquidity

The Group's liquidity at 31 December 2023, calculated on a proportionally consolidated basis comprising cash of £570m and unutilised committed facilities of £655m, was £1,225m, £229m higher than at the beginning of the year. This was primarily due to proceeds from disposals.

Debt and facility profile

Maturity profile of loans and facilities

The Group's weighted average maturity of debt is 2.5 years (2022: 3.4 years). The near-term unsecured maturities including the £109m of private placement notes due in 2024 and the £337m sterling bonds due in 2025 are covered by existing cash with the Group.

Refinancing discussions are progressing in relation to the ?600m (Group's 50% share ?300m) secured loan held by the Dundrum joint venture which matures in September 2024.

Maturity analysis of loans and reconciliation to net debt

1 Maturity of loans at 31 December 2023

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 principal risks and uncertainties for 2023 are listed below with details of each risk. Full disclosure of the risks, including the factors which mitigate them, is set out within the Risk and uncertainties section of the Annual Report 2023.

Consolidated income statement

Year ended 31 December 2023

* Includes a charge of £9.4m (2022: £4.0m) and a corresponding credit of £8.0m (2022: credit of £10.7m) relating to provisions for impairment of trade (tenant) receivables.

Consolidated statement of COMPREHENSIVE income

Year ended 31 December 2023

a Relates to the sale of Italie Deux and the derecognition of O'Parinor as described in note 8.

b All items within total other comprehensive (loss)/income relate to continuing operations.

Consolidated balance sheet

As at 31 December 2023

These financial statements were approved by the Board on 28 February 2024 and signed on its behalf by:

CONSOLIDATED STATEMENT OF CHANGES IN EQUIty

Year ended 31 December 2023