Hammerson Regulatory News (HMSO)

Thursday 28 July 2022

HAMMERSON plc - UNAUDITED HALF-YEAR 2022 RESULTS

Focused on execution, delivering tangible results

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

"We continued to make good strategic, financial and operational progress in the first half. Adjusted earnings were up 154% to £51m reflecting a 48% increase in like-for-like net rental income, lower administration and finance costs, and a strong contribution from Value Retail. We completed £194m of disposals, reducing net debt by 6%. Portfolio values were broadly stable in the half and we have a solid balance sheet.

Footfall, sales, occupancy and collections are recovering and now close to 2019 levels. We saw a good leasing performance now ahead of previous passing rent and marginally ahead of ERV. We have strengthened our tenant profile, we have a strong and diversified leasing pipeline for the second half, and robust occupancy levels across our destinations.

We have also continued to make progress on our pre-development pipeline, with key milestones in the first half met that enable further options for value creation.

We are a better, more resilient, and financially secure business as a result of the actions taken since the beginning of 2021. We are conscious of the potentially volatile environment ahead and remain focussed on delivering our strategy. We have identified a number of levers within our control to continue to create value. We see more opportunities ahead."

Summary financial and operating performance

· Adjusted earnings up 154% to £51m (H1 21: £20m) reflecting:

− stronger LFL GRI (+16%) and LFL NRI (+48%);

− gross administration costs reduced 20%, 2023 cost reduction target (vs 2019) delivered 18 months early;

− net finance costs 25% lower year-on-year; and

− a strong year-on-year contribution from Value Retail (+£16m).

· IFRS profit of £50m (H1 21: £376m loss)

· Adjusted earnings per share up 0.7p to 1.1p (H1 21: 0.4p - restated (note (b)); Basic earnings per share of 1.1p (H1 21: (8.2)p loss per share - restated (note (b))

· Group portfolio value of £5.3bn, yields stable; total return 2.1% (H1 21: -4.7%)

· Completed £194m of disposals and anticipate delivering a further c.£300m by end of 2023

· EPRA NTA increased by £34m to £2,874m (FY21: £2,840m), EPRA NTA per share -2p to 62p reflecting scrip

Solid balance sheet

· Net debt down 6% to £1.7bn at 30 June 2022 (FY21: £1.8bn)

· Total liquidity of £1.2bn including undrawn committed facilities, and £0.5bn of cash

· No Group debt maturities not covered by current cash holdings until 2025

· Headline LTV 37% (FY21: 39%), fully proportionally consolidated (FPC) LTV 45% (FY21: 47%)

Resilient operational trends

· Footfall strengthening to end Q2 at 90% of 2019 levels

· Sales approaching 2019 levels overall, and ahead of 2019 levels in Q2

· £10.5m leasing deals concluded in H1 22, with headline leasing 31% above previous passing, net effective rent +1% vs ERV

· More than half of deals to non-fashion in H1 22; 68% since H1 21

· Flagship occupancy for managed portfolio stable at 95%, up 2% pts year-on-year

· Improved rent collection: FY21 now at 94%; H1 22 92%; Q3 22 84%

· Footfall and brand sales recovery continues at Value Retail, spend per visit +7% above 2019 levels

Dividend

· The Board has declared an interim cash dividend of 0.2 pence per share. Subject to shareholder approval, the Board intends to provide an enhanced scrip dividend alternative of 2.0 pence per share. This is currently expected to be the last enhanced scrip dividend alternative for the purpose of discharging the Company's remaining SIIC obligation of approximately €57m arising from the profit on disposal of 75% of Italie Deux in 2019. Both the cash dividend and the enhanced scrip dividend alternative will be paid as a non-Property Income Distribution ("Non-PID") and treated as an ordinary UK company dividend.

Half-year 2022 results at a glance

(a) These half-year 2022 results include discussion of alternative performance measures 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 1B to the interim financial statements and reconciliations for earnings and net assets measures to their IFRS equivalents are set out in note 9 to the interim financial statements.

(b) Adjusted earnings per share and basic earnings/(loss) per share for 2021 have been restated to reflect the bonus element of scrip dividends as set out in note 10B to the interim financial statements.

(c) Proportionally consolidated - basis as set out in notes 1B and 3 to the interim financial statements.

Results presentation today:

Hammerson will hold a virtual presentation for analysts and investors to present its half-year financial results for the six months ended 30 June 2022, 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 on: www.hammerson.com/investors/reports-results-presentations/2022-half-year-results on the morning of results.

Enquiries:

Timetable of events

Shareholders will be provided with further details in relation to the interim 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.

Disclaimer

This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement.

Many of these risks and uncertainties relate to factors that are beyond Hammerson's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Company's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis.

Hammerson does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Company should not be relied upon as a guide to future performance. Persons needing advice should consult an independent financial (or other professional) adviser.

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.

Chief Executive's Review

In the first half of 2022 we have delivered strong strategic, operational and financial progress as we have continued to execute against our strategy, set out this time last year. This has resulted in tangible results with improved earnings from stronger like-for-like net rental income, lower costs and a strong contribution from Value Retail.

We have further focussed and streamlined our portfolio and delivered gross proceeds of £194m from disposals of non-core assets. We continue to execute our disciplined disposals programme and anticipate a further c.£300m by the end of 2023, subject to pricing and market conditions. Alongside stabilising income streams and yields, we are approaching a sustainable and resilient capital structure, with stronger credit metrics, giving us optionality for capital allocation, sources of liquidity and value creation.

The headcount reduction over the past 12 months, alongside other cost saving initiatives has yielded a 20% reduction year-on-year in gross administration costs, 18 months earlier than our 15−20% guidance by the end of 2023. We are also exploring further savings opportunities.

Post pandemic the attractiveness of our assets for both occupiers and visitors has been underlined by our strong operational and leasing metrics. Footfall, sales and collections continued to recover, strengthening in the second quarter in particular, and are closing on, or are above 2019 levels in some of our core assets. Leasing performance was strong, particularly against previous passing rent with a solid and diversified pipeline for the second half. Occupancy levels are up year-on-year, and affordability levels are competitive, particularly in the increasingly omnichannel environment.

We have also continued to make progress on our land promotion and pre-developments with all planned milestones in the first half met, delivering further options for value creation.

FINANCIAL PERFORMANCE

Adjusted earnings increased 154% from £20m to £51m year-on-year, driven by stronger like-for-like net rental income from higher rental income, collections and the resulting release of bad debt provisions, gross administration and net interest cost reductions, and a stronger contribution from Value Retail.

For the first time since 2017, net assets increased by £55m to £2,801m (FY21: £2,746m). EPRA NTA also increased to £2,874m at 30 June 2022 (FY21: £2,840m). Valuations in the managed portfolio were slightly down, as ERVs approach trough, particularly in the UK, whilst yields continued to be stable. The strong recovery in Value Retail's performance led to a marginal revaluation gain. Overall, when combined with higher earnings and the reduction in net debt, the IFRS profit was in line with adjusted earnings at £50m (H1 21: £376m loss).

Our financial position has continued to improve. Net debt of £1.7bn was £115m lower, largely due to the disposals completed in the first half. Headline loan to value improved to 37% (FY21: 39%), while fully proportionally consolidated loan to value was 45% (FY21: 47%). Net debt to EBITDA improved to 9.6x (FY21: 12.4x), reflecting both lower net debt and the continued recovery in earnings.

OUR STRATEGY

We own flagship destinations around which we shape the future of sustainable, vibrant, city life for generations to come. 

Our strategy recognises the importance of our unique city centre locations and the opportunities we have to leverage our experience and capabilities to truly engage and excite the hundreds of millions of customers who visit our destinations each year.

Our aim is simple and clear - to deliver long-term, sustainable value for all of our stakeholders through consistent execution against our four strategic pillars:

· Deliver a sustainable and resilient capital structure

· Create an agile platform

· Reinvigorate our assets

· Accelerate development

Underpinning our strategy is our commitment to sustainability. We refreshed our sustainability strategy in the first half to demonstrate our commitment to ESG and Net Zero by 2030 to deliver benefits to our stakeholders, including comprehensive asset by asset plans to achieve our commitments.

Deliver a sustainable and resilient capital structure

We have continued 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 completed the sale of Victoria, Leeds for £120m and our 50% share of Silverburn, Glasgow for £70m, overall generating total gross proceeds of £194m including other non-core land, reducing net debt by 6% to £1.7bn. We have a further c.£300m to go by the end of 2023 to reach the £500m guided to at the full year. Conversations with a range of buyers are ongoing.

We refinanced £820m of expiring RCFs in late April into a new £463m facility on a 3+1+1 maturity with a smaller group of banks. At 30 June 2022, the Group had liquidity, in the form of cash balances (£0.5bn) and undrawn committed RCFs, totalling £1.2bn and has no significant unsecured refinancing requirements until 2025 not covered by existing cash.

Adjusted net finance costs were down 25%, driven by the early repayment of debt with proceeds from disposals and refinancing, the related restructuring of hedging derivatives and higher interest income received from cash deposits.

Create an agile platform

Improving and right-sizing our platform remains a priority. The actions we took in the second half of last year are already yielding results, with gross administration costs down 20% year-on-year, 18 months ahead of our target of full year 2023.

In addition to the reduction in headcount and other costs, we are exploring further opportunities to improve the agility and responsiveness of the business, and to create more efficient business processes. We are also creating more integrated, connected, automated systems that will drive further efficiency.

Reinvigorate our assets

The quality and location of our assets are what sets us apart. 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. Our city centre locations are also attractive focal points for click and collect and last mile logistics.

The attractiveness of our assets is also emphasised by the strong leasing performance in the first half, the continuation of the momentum that started in the second half of last year. We secured a further £10.5m of income, a total of £25m over the last 12 months, more than half of which are new lettings.

Headline rent is 31% ahead of previous passing, while net effective rent is marginally ahead of ERV, demonstrating some leasing tension returning, and reflecting the importance of physical space to occupiers as we approach the valuation trough.

New lettings are biased towards non-fashion uses as we continue to target a more diverse mix. Overall, non-fashion has been 51% of the mix in this half and 68% since the last half year. Increasingly, we are seeing a swing back to the majority of leases being longer term deals, and this is also reflected in the WAULB of 7.6 years recorded in principal deals in the first half.

Placemaking is an important element of our strategy and our commercialisation activity continues to endorse and enhance this. By bringing new experiences and brands we not only enliven our destinations and drive customer engagement but also deliver a meaningful contribution, with commercialisation revenue up 70% year-on-year.

It has been just four months since the full year announcement, so I would like to call out a few highlights that demonstrate this.

· The Commonwealth Games are coming to Birmingham. As well as being a sponsor, the Bullring is hosting the official store, and we have installed new EV charging spaces in Moor Street car park for use by the Games team in the immediate term, but important for sustainability in the longer term.

· Commercialisation continues to play a crucial role, not only enlivening assets and bringing new experiences and brands, but in a meaningful contribution to income, up 70% year-on-year and adding £12m of income since HY21. I would particularly call out our projects with:

- Sky Glass, and we have seen new permanent Sky stores coming to Dundrum and Bullring;

- Summer sports with free giant view screens at The Oracle, Westquay and Bullring;

- Big Sara, a dinosaur exhibit installed at Westquay, a major attraction for families; and

- Our music, events and immersive experiences across the portfolio, ranging from PRIDE, hip hop and music festivals to family days and yoga events.

· We saw good momentum in long-term renewals, including: Ernest Jones and Levi's in Westquay; Diesel in Pavilions, Swords; All Bar One at The Oracle; and Kiehls and dental clinic Smiles in Dundrum.

· The repurposing of the former House of Fraser space in Dundrum has continued with Penneys agreeing to upsize to take the remaining space not filled by Brown Thomas. This reinvigoration has seen new occupiers such as Watches of Switzerland choose Dundrum for their first Irish store and the return of brands such as Aldo.

· A key new entrant to the portfolio for us, and expanding the food and beverage selection at Brent Cross, was Marugame Udon, an authentic Japanese concept. Since the half year, we have also exchanged contracts for them to come into The Oracle.

· In terms of new uses, we are excited about LOST, an immersive theatre and events concept coming to Croydon, from the team behind Secret Cinema. 

· Finally, we've also opened two units with pop-up operator SOOK. These more than cover costs whilst driving vibrancy and footfall.

Looking ahead, we have a strong leasing pipeline for the second half of the year.

Sales and footfall

Footfall recovered steadily through the period with Q2 stronger than Q1, with the latter slightly dampened by the impact of the omnicron variant on consumer appetite. Having started the year with footfall at around 77% of 2019 levels, June levels were around 90% of 2019 for the Group as a whole. Certain core destinations have continued to exhibit footfall at or above 2019 levels.

We continued to see resilient sales, with customers spending with confidence. As with footfall, Q2 showed an improving trend over Q1. For the half, sales were 2% over 2019 levels in the UK, 3% in Ireland, and around 5% below in France, although we saw sales 2% above 2019 levels in France in Q2 ahead of the key summer sales period. Strong categories included leisure, sports & outdoors, men's fashion, jewellery, food & beverage and services.

Occupancy and passing rent

Occupancy at our flagships improved year-on-year from 93% to 95%, also broadly in line with December 2021. At 30 June 2022, the UK stood at 94%, France (excluding Cergy extension) 95% and Ireland 96%. A key focus of our strategy is to drive incremental revenues and reduce cost from leasing up lower value vacant space to new occupiers and uses, such as SOOK, at the same time increasing vibrancy and footfall.

Group passing rent at 30 June 2022 was £202m, £13m or 6% lower than at the start of the year. Properties sold in the year, principally the Group's 50% share of Silverburn, Glasgow and Victoria, Leeds resulted in a decrease of £21m. On a like-for-like basis, flagship passing rent was 1.2% higher.

Collections

A key success of last year was overhauling our collections process, implementing improvements including enhanced reporting, enabling us to target outstanding receivables and drive higher collection rates as the year progressed. This success has continued into 2022, alongside an increasingly normal post pandemic environment. For FY21, Group collection now stands at 94%, 92% for H1 22 and 84% for Q3 22, compared with 71% for H1 21 and 65% for Q3 21 at this time last year. In all periods, France's collections were slower than the UK and Ireland.

Value Retail

The Villages have been operating without Covid-19 restrictions for a full six months in 2022, continuing to deliver an exceptional shopping experience, which has been reflected in strong footfall and brand sales, both approaching 2019 levels for the half year. Strong footfall and loyalty from domestic customers has seen overall spend per visit continue to increase, exceeding 2019 levels by 7% year-on-year, coupled with an increase in European tourism, and the return of some tax free shoppers, particularly at La Vallée and Las Rozas. Occupier demand for space remains high, with 178 leases signed, occupancy at 94% and collection rates at 100%. Income was further underpinned by inflation-linked clauses in the base rents for the majority of Villages. Overall, this resulted in a year-on-year increase in gross rental income of £32m at our share, which combined with good operational and financial cost discipline led to adjusted earnings of £14m, compared with a loss of £2m for the first half of 2021.

At 30 June 2022, the Group's interest in Value Retail's property portfolio was £2.0bn, with net assets of £1.1bn, the variance between the two largely due to the secured debt of £0.7bn within the Villages where the average LTV is 35%. La Vallée completed its €340m refinancing during the first half and benefited from only a marginal incremental increase in the cost of financing, reflecting the confidence in the bank market for quality assets. We continue to expect the refinancing of Bicester to conclude in the ordinary course of business in the second half of the year.

Accelerate development

We own just over 100 acres of land in Europe's most exciting cities, often adjacent to or overlapping the flagship portfolio and therefore with holistic synergies to future value, use and operation. In the short term we are focused on capital light land promotion and pre-development work to unlock value and generate optionality to take developments forward, to potentially bring in relevant partners with sectoral expertise or aligned capital, or to seek liquidity.

In March 2022, we completed the major extension at Les 3 Fontaines, Cergy, today 86% let or with deals in solicitors' hands, and with the District Food Court already fully occupied and operating. We have a clear pipeline of deals to take occupancy above 90% by the end of the year.

In Ireland, we have worked up the potential to develop a 107 unit PRS scheme - The Podium - on a vacant piece of land at Dundrum, and are in the final phases of procurement, anticipating works commencing in H2 22. The Podium serves as a proof of concept for the Dundrum estate as a whole, where we lodged planning for a scale residential-led scheme of nearly 900 units in the first half.

In Dublin Central, we are delighted to achieve three of six planning permissions and expect to make progress on a further two in the second half. We have also signed an in-principle agreement with Transport Infrastructure Ireland to locate a future metro station on the site.

In the UK we signed the s106 agreement for The Goodsyard, Bishopsgate, which has allowed us to commence the next stages of design, enabling and marketing for this development working with our partner Ballymore. In Birmingham, we are progressing designs and feasibility for a major repositioning of Grand Central alongside our partner Canada Pension Plan Investment Board ('CPP Investments'), to create an amenity rich workspace-led proposal served by New Street Station, one of the UK's busiest and most central transport nodes. Since the half year, we were delighted to expand our partnership in Birmingham with CPP Investments, forming a new 50/50 joint venture at Bullring following their acquisition of Nuveen's one third stake. At Martineau Galleries, we are working with Birmingham City Council and the West Midlands Combined Authority to look at future plans and programming for development.

In Leeds we are progressing the master planning process for our remaining c.10 acres of land and considering options to accelerate the residential components.

SUSTAINABILITY

In the first half of 2022, we refreshed our strategy to demonstrate our commitment to Net Zero and ESG to deliver benefits to our stakeholders. We have begun the process of developing Net Zero asset plans for the Group to enable us to have a clear pathway and modelled investment plan to achieve Net Zero. We have also undertaken a number of projects in the first half of the year including lighting upgrades, EV charging points, jobs fairs and school enterprise projects.

Our 2022 annual targets are set against a 2021 baseline, however, we note that the first quarter of 2021 was more heavily impacted by Covid-19 restrictions. Post pandemic, as assets operate with increased air filtration and ventilation there continues to be significant upward pressure on energy usage. However, we have delivered efficiency projects and tighter controls, offsetting this impact such that we continue to operate below 2019 levels. The table below sets out the changes against our 2021 baseline.

Our medium term targets are aligned with those in our sustainability-linked bond issued in 2021.

OUTLOOK

Physical retail is a critical part of the omnichannel fulfilment and brand experience for our occupiers and to the consumer. Our strategy is focused on best-in-class city centre destinations which play a central role for our occupiers and the communities in which we operate, and which can continue to grow and thrive. 

Notwithstanding the macroeconomic events unfolding at the beginning of the year and the ensuing economic and political turbulence, the recovery in footfall, sales, collections, and leasing at our destinations has strengthened year-on-year.

We have a strong operational grip on the business. As a result of the actions we have taken since the start of 2021, Hammerson today is a better, more resilient, and financially secure business. Whilst mindful of the wider economic volatility, we have a good pipeline of opportunities ahead and look forward with more confidence.

FINANCIAL REVIEW

OVERVIEW

Adjusted earnings for the six months ended 30 June 2022 increased by £30m (154%) to £51m (IFRS Reported earnings increased to £50m compared with a loss of £376m in the prior period) driven by stronger like-for-like net rental income associated with improved collections and underlying gross rental income growth; administration cost reductions; lower net finance costs; and a strong contribution from Value Retail. On cost reductions, gross administration costs were down 20% year-on-year and 17% lower compared with H1 2019. We delivered on our commitment to reduce gross administration costs by 15%-20% by 2023, 18 months early. We see more opportunities for reductions in administration costs in the future.

Values for the managed portfolio fell marginally in the first half of the year, with a revaluation deficit of £43m, a significantly lower decline than the prior year, equivalent to a capital return of -1.5%. The premium outlets sector has remained more resilient, and the property value within our investment in Value Retail showed a £33m revaluation gain. When combined, the Group's portfolio recorded a capital return of -0.4% and a total return of +2.1%, these compared to -6.4% and -4.7%, respectively for the same period in 2021.

For the first time since 2017, net assets increased, and rose by £55m to £2,801m (FY21: £2,746m). The Group's EPRA net tangible assets grew by £34m to £2,874m (FY21: £2,840m).

We have continued to focus on strengthening the balance sheet in 2022, with £194m raised from disposals, principally Silverburn, Glasgow and Victoria, Leeds. Cash generated from operations on a proportionally consolidated basis was £65m (H1 21: £48m) resulting from the improved collection performance and better working capital management. The resulting Headline LTV reduced to 37% (31 December 2021: 39%) and fully proportionally consolidated LTV reduced to 45% (31 December 2021: 47%). During the period, the Group refinanced £820m of maturing RCFs with a new £463m facility with an initial maturity in 2025 with an option, at mutual consent, to extend to 2027. At 30 June 2022, total liquidity in committed and undrawn facilities together with cash is £1.2bn.

During the period, Moody's and Fitch's senior unsecured investment grade credit ratings were re-affirmed as Baa3 and BBB+, respectively and outlooks from both rating agencies were changed from negative to stable following recovery from the Covid-19 pandemic.

PRESENTATION OF FINANCIAL INFORMATION

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

Whilst the financial statements are prepared under IFRS, the Group evaluates the performance of its portfolio 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, including, where applicable, discontinued operations (in total described as the Group's 'Managed portfolio').

The Group's investment in Value Retail (VR) 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.

Following the full impairment of Highcross, Leicester as at 31 December 2021, the Group has ceased to recognise the results of this joint venture in the income statement, however, the Group's share of its assets and liabilities continue to be incorporated in note 12 to the interim financial statements.

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

Management reporting and IFRS accounting treatment

* Only applicable for H1 21, whereby proportionally consolidated figures include results up to the date of disposal in May 2021. See note 7B to the interim financial statements.

Going concern

The Directors have undertaken a detailed going concern assessment, reviewing the current and projected financial position of the Group over the period to 31 December 2023. This involved the preparation of two scenarios: a 'Base' scenario and a 'Severe but plausible' scenario. The scenarios take account of the latest economic and trading outlook, including the recovery from the Covid-19 pandemic and the increasing macro-economic and geopolitical challenges from the war in the Ukraine and cost, supply chain and inflationary pressures.

In both the Base and Severe but plausible scenarios, over the going concern period the Group has significant forecast liquidity and headroom against the Group's unsecured borrowing, gearing and interest cover covenants. Accordingly, the Directors have adopted the going concern basis when preparing the interim financial statements for the six months ended 30 June 2022.

Further details on going concern are set out in note 1D to the interim financial statements.

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 1B to the interim 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 believe are not 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 interim financial statements.

For the first half of 2022, adjusting items additional to EPRA adjusting items comprised:

• A charge of £1.4m (H1 21: £3.3m) in respect of business transformation as the Group continues its implementation of strategic change and comprises mainly non-capitalisable costs associated with digital transformation as well as severance costs following the reorganisation which occurred mainly in the second half of 2021.

• A credit of £1.6m (H1 21: credit of £6.6m) for 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 of £1.6m from assets held for sale which relates to the Group's 50% joint venture investment in Silverburn, Glasgow sold in March 2022. The IFRS and EPRA accounting treatment is to offset the operating income until disposal against the loss on sale, therefore it is excluded from adjusted earnings. As a result we have added the income back in order to reflect the fact that the property remained under the Group's ownership and management up until completion of the disposal and is considered to still be part of underlying earnings.

INCOME STATEMENT

The Group's IFRS reported profit for the period was £50.3m, compared with a loss of £375.5m in the prior period. The most significant year-on-year changes were: the net revaluation losses of £14.5m, an improvement of £125.7m on the comparative six month period; and an increase of £244.4m in respect of the Group's share of results of investment in joint ventures and associates. The revaluation loss in the period within our joint ventures of £26.0m was £180.6m lower than the prior period. The Group's share of results from Value Retail of £62.4m (H1 21: loss of £1.8m), included a revaluation gain of £33.0m compared with a revaluation loss of £7.9m in the prior period.

On a proportionally consolidated basis, the income statement reconciled to adjusted earnings is summarised in the table below:

Summary income statement

(a) Proportionally consolidated figures are set out in more detail in note 2 and adjustments are described in more detail in note 9A to the interim financial statements.

(b) Comparative figures for H1 21 have been restated to take account of the bonus element of scrip dividends as explained further in note 10B to the interim financial statements. Previously reported figures were: Reported basic loss per share: (9.2)p; adjusted earnings per share: 0.5p.

The Group's adjusted earnings for the period were £51.1m, £31.0m higher than in the first half of 2021. The table below bridges adjusted earnings between the two periods.

Reconciliation of movements in adjusted earnings*

* Decreases and increases are all on an adjusted basis and therefore exclude adjusting items as set out in note 9A to the interim financial statements.

Net Rental Income (NRI)

Like-for-like NRI for the managed portfolio of flagship properties is calculated based on properties owned throughout both current and prior periods, calculated on a constant currency basis such that the comparatives set out in the table below have been restated accordingly.

* Relates to the change in provision for amounts not yet recognised in the income statement for expected credit losses whereby the related income is deferred on the balance sheet. The amount has been excluded from Adjusted net rental income to eradicate the distortion of cost being recognised in one accounting period and the related revenue being recognised in a different accounting period as further described in note 9A to the interim financial statements. 

Like-for-like NRI increased by £22.5m (47.7%) against the comparative six months. The key factors causing the increase were improved collections which resulted in a reduced bad debt provision, increased variable turnover rent and income from car parks and commercialisation.

In the UK, like-for-like NRI increased by £12.4m with France up by £4.7m, and Ireland up £5.4m. Disposals during 2022 and 2021 reduced NRI for the period by £14.8m. £10.3m of the decline related to the disposal of the UK retail parks in 2021, and £3.3m in respect of Silverburn, Glasgow and Victoria, Leeds which were disposed in March 2022 and February 2022, respectively.

Further analysis of net rental income by segment is provided in Table 6 of the Additional information.

Analysis of rental income

NRI for the Group is analysed further below to break out Share of Property interests.

Share of Property interests

NRI decreased to £48.0m from £51.8m in the prior period (with adjusted NRI decreasing to £47.1m from £47.9m). The key movements from the prior period were an adverse impact of £2.4m from disposals and a year-on-year decrease in surrender premiums of £10.7m. These were largely offset by an improvement in collections resulting in a year-on-year reduction of £9.6m in the charge for provisions.

Administration expenses

During the first half of 2022, adjusted administration expenses, which exclude business transformation costs, decreased by £5.6m against the same period in 2021. The decrease, reflecting the Group's focus on cost reduction, principally relates to:

• Employee costs following the reduction in headcount arising from business transformation related reorganisation activities which occurred in the second half of 2021. Headcount during the first half of the year reduced from 426 to 371.

• Other corporate costs, where the most significant element was a decrease of £1.9m in Directors and Officers insurance premiums reflecting the strengthening of the Group's financial position. The remainder of the decrease was predominantly in professional fees which have reduced following fewer corporate projects than in the first half of 2021.

Business transformation costs comprised digital transformation costs, consisting mainly of fees for contractors and consultants, which were not eligible for capitalisation, and severance costs incurred in the first half, but relating to the ongoing strategic re-organisation initiated in the second half of 2021 (H1 21: £3.3m comprising mainly consultancy fees and severance costs).

Disposals and assets held for sale

During the first half of 2022, we raised proceeds of £194m, relating mainly to the disposals of Silverburn, Glasgow and Victoria, Leeds. These disposals resulted in a net loss of £0.1m. 

Share of results of joint ventures and associates, including Value Retail

Our interests in joint ventures and associates are set out in the property listing in Table 20 of the Additional information. Our Reported share of results under IFRS was a combined profit of £78.2m (H1 21: loss of £166.2m). 

On an adjusted basis, excluding properties classified on a proportionally consolidated basis as Share of Property interests, the share of results, which comprised solely the Group's investment in Value Retail, generated adjusted earnings of £13.7m compared to a loss of £2.0m in H1 2021. The year-on-year improvement principally reflects increased sales resulting from the easing of Covid-19 restrictions where lockdowns in H1 2021 meant that Villages were closed for part of the period. Additionally, in H1 21, due to the differing contract structures, rental adjustments granted by Value Retail were recognised for accounting purposes in the period to which they related and not as lease modifications, with rental adjustments more weighted to 2021 when longer lockdown periods were suffered.

Net finance costs

Adjusted net finance costs were £29.0m, a decrease of £9.9m, compared with H1 21. The decrease was driven by the early repayment of debt utilising proceeds from disposals, the related restructuring of hedging derivatives and higher interest income from cash deposits. Key components comprised a £0.9m reduction in interest paid following repayment of USPP notes, a £3.4m reduction in interest paid from cross currency swaps, a £5.3m increase in interest income from foreign exchange and interest rate swaps and a £0.8m increase in interest income from cash deposits.

Proportionally consolidated net finance costs decreased by £20.9m to £35.7m compared to H1 21, with £11.0m of the decrease relating to lower debt and loan facility cancellation costs partly offset by changes in the fair value of derivatives, both of which are treated as adjusting items and are described further in note 9A to the interim financial statements. Debt and loan facility cancellations costs totalled £1.2m (H1 21: £17.3m) and relate to unamortised facility fees in respect of revolving credit facilities which were extinguished and replaced with a new £463m facility as set out below.

Tax

The Group's tax charge was £0.3m which compares to £0.8m for the comparative period with the reduction being due to certain changes in the Irish capital structure.

The tax charge remains low as 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 6 to the interim financial statements.

In order to satisfy the REIT conditions, the Company is required, on an annual basis, to pass certain business tests. The Group expects to meet all requirements for maintaining its REIT status for the year ending 31 December 2022 and to continue doing so for the foreseeable future.

Dividends

The Board has declared an interim cash dividend of 0.2 pence per share. Subject to shareholder approval, the Board intends to provide an enhanced scrip dividend alternative of 2.0 pence per share. This is currently expected to be the last enhanced scrip dividend alternative for the purpose of discharging the Company's remaining SIIC obligation of approximately €57m arising from the profit on disposal of 75% of Italie Deux in 2019.

Both the cash dividend and the enhanced scrip dividend alternative will be paid as a non-Property Income Distribution ("Non-PID") and treated as an ordinary UK company dividend. As set out in note 8 to the interim financial statements, dividends of £63.2m were settled in respect of 2021 during the period, of which £1.2m was settled in cash.

NET ASSETS

Summary net assets

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

During the first six months of 2022, net assets increased by £55m, or 2%, to £2,801m. Net assets, calculated on an EPRA Net Tangible Assets (NTA) basis, were £2,874m, or 62 pence per share, a reduction of 2 pence compared to 31 December 2021 due to dilution from the final 2021 scrip dividend. This is equivalent to a total accounting return of 2%. The key components of the movement during the period in Reported Group net assets and EPRA NTA are as follows:

Movement in net assets

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

PROPERTY PORTFOLIO ANALYSIS

Investment markets

Increased investment activity, which was seen in the second half of 2021, continued in the first half of 2022 with improved investor sentiment despite the headwinds of high inflation, supply chain issues and the uncertainty surrounding the war in Ukraine.

In the UK, there were 23 shopping centre transactions totalling £1.2bn including transactions involving non-managed stakes in prime shopping centres and larger lot sizes evidenced by the recent closing of CPP Investments' acquisition of Nuveen's one third stake in the Bullring. Investment volumes therefore continue to remain resilient although around 50% of this volume related to the sale of the Cheshire Oaks and Swindon designer outlets, with the remaining schemes generally being well let, secondary assets or with the potential to redevelop. There are currently at least a further 30 centres (including outlets) in the market at a combined value of £1.2bn. There is still opportunity in the market with returns continuing to be attractive, however, caution remains around how the wider market headwinds will affect investor appetite in the second half of the year (Source: JLL).

In France, prime yields remain stable and lending institutions, mainly domestic, have become more open to lending on retail although criteria remain strict. Retail investment increased in the period, although this was linked to slippage of large deals which commenced in 2021 and a number of smaller transactions in out of town locations. Joint venture transactions continued with the transaction of Carré Senart in the Paris region with Unibail-Rodamco-Westfield disposing of a 45% stake in the centre to BNP Paribas Cardif/SOGECAP. A joint venture deal was also concluded on transport hubs (Gare Montparnasse in Paris and Italian stations) between ALTAREA and Credit Agricole Assurance (Source: JLL).

In Ireland, there was limited retail investment activity with retail representing just 3% of total transactions and no transactions of significance (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. At 30 June 2022 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, this is unchanged from 31 December 2021.

At 30 June 2022, the Group's portfolio was valued at £5,286m, a reduction of £86m (1.6%) since 31 December 2021. This movement was primarily due to disposals totalling £194m comprising mainly Silverburn, Glasgow and Victoria, Leeds partly offset by capital expenditure of £56m and favourable foreign exchange gains of £72m. Movements in the portfolio valuation are shown in the table below.

Movements in property valuation

* Revaluation losses of the Managed portfolio excluding the Highcross joint venture (included within 'Developments and other') were £43m and this is further analysed in Table 9 of the Additional information. The Highcross joint venture is excluded from that analysis owing to the Group's share of net losses after revaluation being restricted to £nil as described in note 12 to the interim financial statements.

During the period, capital expenditure on the managed portfolio was £54m and related mainly to the Cergy extension project, which opened in March, cladding works at Bullring and works to repurpose the former House of Fraser anchor unit at Dundrum where Brown Thomas opened in February. Table 11 of the Additional information analyses the spend between the creation of additional area and that relating to the enhancement of existing space.

The Cergy extension expenditure is recorded in both the Flagships and Developments and other portfolios as the project was reclassified to the Flagship portfolio upon opening.

Valuation change (£m)*

http://www.rns-pdf.londonstockexchange.com/rns/9956T_1-2022-7-27.pdf

* Revaluation losses of the Managed portfolio exclude the Highcross joint venture owing to the Group's share of net losses after revaluation being restricted to £nil as described in note 12 to the interim financial statements.

During the first half of 2022, we recognised a total net revaluation deficit of £10m across the Group portfolio, comprising £43m in respect of the managed portfolio which was largely offset by a revaluation gain of £33m in Value Retail. Yields were broadly unchanged, hence the valuation movements were associated with changes in income and development activities.

UK flagship destinations reported a revaluation deficit of £17m. Income changes reduced values by £21m, although this was partly offset by a £4m uplift from marginally inward yield shift at Bullring and Brent Cross. In France, values were largely unchanged, while in Ireland yields increased by an average of 4 basis points which reduced values by £7m and this was partly offset by £4m associated with higher income.

A deficit of £20m was recognised on the 'Developments and other' portfolio of which £8m related to Croydon associated with lower income and £8m related to the future development schemes in Dublin due to inflationary concerns over future development costs.

Consistent with continued strong post-pandemic recovery in trading, the Value Retail portfolio recorded a revaluation gain of £33m, driven solely by higher income, of which £25m related to Bicester Village.

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

Like-for-like ERV growth*

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

Consistent with the improved leasing metrics in the first half of the year, like-for-like ERV for the Group's flagships were broadly flat with an overall reduction of 0.3%.

UK ERVs were 1.4% lower with selective reductions at all assets, except for Westquay which reported a small increase in ERV.

ERVs in France increased by 0.8% with the most significant increase being at the existing Les 3 Fontaines, Cergy centre where like-for-like ERVs increased by 2.4% associated with the benefit of the completion of the extension project which opened in March 2022. 

In Ireland, ERVs were up 0.5%, with Dundrum reporting a 0.6% increase driven by the opening of Brown Thomas in the former House of Fraser unit in February, with Penneys relocating into the remaining space in the first half of 2023.

Property returns analysis

The Group's managed property portfolio generated a total property return of 1.0%, comprising an income return of 2.6% offset by a capital return of -1.5%. Incorporating the income and capital returns from the Value Retail portfolio, this generates a total return for the Group of +2.1% (H1 2021: -4.7%), comprising +2.5% income return and -0.4% capital return.

INVESTMENT IN JOINT VENTURES AND ASSOCIATES

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

Joint ventures

During the six months to 30 June 2022, our investment in joint ventures decreased by £26m to £1,426m where the most significant movements were the Group's share of net rental income of £46m offset by revaluation losses of £26m and cash distributions to the Group of £47m.

Associates

Our investment in associates increased by £84m to £1,331m of which the Group's investment in Value Retail ('VR') was £1,223m. Key movements were revaluation gains of £33m and adjusted earnings of £14m, both from VR and foreign exchange of £17m.

TRADE RECEIVABLES

In 2021, the intermittent closures of the majority of non-essential retail across all regions as a result of the pandemic, coupled with the UK governments restrictions on landlords' ability to enforce collection, impacted collection rates and consequently, the level of trade receivables remained high. Over the course of the first half of 2022, conditions have improved, especially as most of the government restrictions on collections in the UK were lifted in March 2022 and although restrictions differed in France and Ireland, similar improvements have also been seen. With the backdrop of macro-economic uncertainties, we consider it premature to be extrapolating this as a trend and our approach to provisioning remains cautious and prudent.

Gross trade (tenant) receivables on a proportionally consolidated basis totalled £86.6m (31 December 2021: £99.5m) against which a provision of £43.6m (31 December 2021: £53.3m) has been applied. This provision is 73% (31 December 2021: 76%) of trade receivables after excluding tenant deposits, guarantees and VAT of £59.9m (31 December 2021: £70.5m). Further analysis is set out below and in note 14 to the interim financial statements.

FINANCING AND CASHFLOW

Financing strategy

Our financing strategy is to borrow predominantly on an unsecured basis 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, where short term funding is principally through syndicated revolving credit facilities, and to ensure an appropriate medium to long term maturity profile. Long term debt comprises the Group's fixed rate unsecured bonds and private placement notes. The Group also has secured borrowings in three of the Group's joint ventures and in 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 reviews regularly 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 always strives to maintain an investment grade credit rating. The key financing metrics are set out below.

Key financial metrics 

(a) EBITDA calculated on a 12 month rolling basis.

(b) Headline: Loan excludes Value Retail net debt and Value includes Value Retail net assets.

(c) Full proportional consolidation of VR: Loan includes Value Retail net debt and Value includes Value Retail property values.

(d) Interest cover for the six months ended 30 June 2021 was 2.08 times.

(e) Applicable to bonds maturing in 2023, 2025 and 2027 (as set out in note 15 to the interim financial statements).

Credit ratings

Moody's and Fitch's senior unsecured investment grade credit ratings were re-affirmed during the period as Baa3 and BBB+ respectively and outlooks from both rating agencies were changed from negative to stable following the strengthening of the Group's financial position.

On 4 February 2022, Moody's re-affirmed their Baa3 corporate rating and changed 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.

• The progress the Group has made in managing its balance sheet including accessing debt markets and refinancing its upcoming debt maturities as well as its revolving credit facilities.

On 4 May 2022, Fitch re-affirmed their existing ratings of BBB+ (senior unsecured) and BBB Issuer Default Rating, also changing the outlook from negative to stable due to a "reduced downside risk of lower rents in UK shopping centres within Hammerson's portfolio after a cumulative reset in like-for-like lower passing rent by around 25% since end 2018".

Leverage

At 30 June 2022, the Group's gearing was 62% (31 December 2021: 67%) and Headline loan to value ratio was 37% (31 December 2021: 39%). 

At 30 June 2022, the Group's share of net debt in Value Retail totalled £677m (31 December 2021: £680m). Fully proportionally consolidating Value Retail's net debt, the Group's loan to value ratio was 45% (31 December 2021: 47%).

Calculations for gearing and loan to value are set out in Tables 18 and 17 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 as set out in the Key financial metrics table above. At 30 June 2022, the Group had significant headroom against these metrics.

In addition, some joint ventures and associates 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. At 31 December 2021 and 30 June 2022, certain covenants on the secured loan at the Highcross, Leicester joint venture were in breach and an impairment of the full equity value was recognised. The Group is working constructively and actively with lenders to realise 'best value'.

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 30 June 2022, the value of euro-denominated liabilities as a proportion of the value of euro-denominated assets was 88% compared with 89% 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 weakened against the euro during the period by 2.4%.

CASH FLOW AND NET DEBT

Movement in proportionally consolidated net debt (£m)

http://www.rns-pdf.londonstockexchange.com/rns/9956T_2-2022-7-27.pdf

On a proportionally consolidated basis, net debt decreased by £115m (6%) to £1,704m during the first six months. This comprised loans of £2,206m and the fair value of currency swaps of £7m, less cash and deposits of £509m, of which £399m is held by the Reported Group. Disposals during the period generated £193m net cash proceeds. Cash generated from operations of £65m comprised profit from operating activities of £67m less £2m movements in working capital and other non-cash items.

The Group completed significant refinancing during 2021, providing a resilient capital structure, including the refinancing of €1bn near term bond maturities with a new €700m sustainability-linked bond and proceeds from disposals. As at 31 December 2021, the Group had a number of Revolving Credit Facilities (RCFs) in place with a total of £1,030m commitments expiring between April 2022 and April 2024. During the first half of 2022, the following activities were undertaken to refinance and extend these facilities:

• £820m of facilities, comprising a £420m RCF with commitments expiring in 2023 and a £400m RCF with commitments expiring between 2023 to 2024, were refinanced with a new £463m RCF expiring in April 2025, which may be extended to April 2027 at the latest, subject to both lender and borrower consent. A further £10m of commitments expired in April 2022.

• £100m and JPY7.8bn (£47m) of RCF commitments expiring in June 2024 were extended to a new expiry in June 2025. The remaining £50m of commitments with an expiry of June 2024 remain unchanged.

Following these changes, committed facilities have been reduced by £370m from £1,030m at 31 December 2021 to £660m at 30 June 2022 with £2m utilised to support ancillary facilities. This will result in an interest cost saving of £0.8m per annum in undrawn commitment fees whilst maintaining a strong balance sheet and extending the maturities of remaining commitments.

In addition, further to the £297m of private placement notes repaid in 2021, notes totalling £42m were repaid early at par in April 2022, saving £0.9m of interest on an annualised basis.

The Group's liquidity at 30 June 2022, comprising cash and undrawn committed facilities, was £1,167m, £297m lower than at the beginning of the year. This was primarily due to the £370m reduction in RCF committed facilities, being partially offset by the retention of cash proceeds from disposals.

Debt and facility maturity  

Proportionally consolidated (£m)

http://www.rns-pdf.londonstockexchange.com/rns/9956T_3-2022-7-27.pdf

The Group's weighted average maturity is 3.6 years (31 December 2021: 4.1 years). The future repayment of 2023 unsecured Eurobonds and 2024 private placements are covered by existing cash with the Group having no further unsecured maturities until 2025.

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 Directors have considered the principal risks and uncertainties disclosed in the Annual Report for the year ended 31 December 2021 and do not consider the fundamental principal risks and uncertainties to have changed, however, during the period, a review has been undertaken of catastrophic event risk which has now been revised into two separate risks and the residual risk reappraised as follows.

4. Catastrophic event - now two separate risks

The principal risks and uncertainties for 2021 are listed below with the assessment of the residual risk. Full disclosure of these risks, including the factors which mitigate them, is set out within the Risk and uncertainties section of the Annual Report 2021.

Independent review report to Hammerson plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Hammerson plc's condensed consolidated interim financial statements (the 'interim financial statements') in the Half-year Report of Hammerson plc for the six month period ended 30 June 2022 (the 'period').

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting', International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union, the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority, and the Transparency (Directive 2004/109/EC) Regulations 2007.

The interim financial statements comprise:

· the Consolidated Balance Sheet as at 30 June 2022;

· the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;

· the Consolidated Cash Flow Statement for the period then ended;

· the Consolidated Statement of Changes in Equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the Half-year Report of Hammerson plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting', International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union, the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority, and the Transparency (Directive 2004/109/EC) Regulations 2007.

Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half-year Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the Directors have inappropriately adopted the going concern basis of accounting or that the Directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with this ISRE. However, future events or conditions may cause the Group to cease to continue as a going concern.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The Half-year Report, including the interim financial statements, is the responsibility of, and has been approved by the Directors. The Directors are responsible for preparing the Half-year Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007. In preparing the Half-year Report, including the interim financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Our responsibility is to express a conclusion on the interim financial statements in the Half-year Report based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

London

27 July 2022

statement OF DIRECTORS' RESPONSIBILITIES

The Directors' confirm that, to the best of their knowledge, the condensed consolidated interim financial statements (the 'interim financial statements') in the Half-year Report have been prepared in accordance with UK adopted International Accounting Standard 34 ('IAS 34'), IAS 34 as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and that the Half-year Report includes a fair review of the information required by the Disclosure Guidance and Transparency Rules ('DTR') 4.2.7R and DTR 4.2.8R, namely:

The interim financial statements comprise:

· An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· Any material related party transactions that have taken place in the first six months of the financial year and any material changes in the related party transactions described in the Company's last Annual Report.

A list of the current Directors is maintained on the Hammerson plc website: www.hammerson.com. The maintenance and integrity of the Hammerson plc website is the responsibility of the Directors. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that might have occurred to the interim financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Signed on behalf of the Board on 27 July 2022

Consolidated income statement

(a) Includes a net credit of £2.6m relating to provisions for impairment of trade (tenant) receivables and tenant incentives (30 June 2021: charge of £3.4m) comprising a credit of £1.9m (30 June 2021: charge of £4.7m) in relation to income recognised in the period and a reversal of provision of £0.7m (30 June 2021: £1.3m) relating to amounts not yet recognised in the income statement as described in note 9A.

(b) Other net gains comprise gains/losses and recycled exchange gains arising on disposals and changes in fair value of other investments. Such items are set out in more detail in note 2.

(c) The comparative loss per share figures have been restated to incorporate the bonus element of scrip dividends. Further details are provided in note 10B.

Consolidated statement of COMPREHENSIVE income

(a) Six months ended 30 June 2021: Relates to the sale of the Group's 25% interest in Espace Saint-Quentin and 10% interest in Nicetoile.

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

Consolidated balance sheet

* Certain reserves for the year ended 31 December 2021 marked * have been re-presented as set out in the consolidated statement of changes in equity.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2022