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ANNUAL REPORT2006

HAMMERSON PLC 10 GROSVENOR STREET, LONDON, W1K 4BJ www.hammerson.com [

Contents

Subject Page

9 place Vendôme – a case study 6Accounting policies 74, 102Acquisition 99Adjustment for non-cash items in the cash fl ow statement 99Administration expenses 46,79Analysis of movement in net debt 73Board of Directors 12Borrowings 47, 71, 75, 91, 95, 101, 103Business review 37Cash and deposits 71, 91Chairman’s statement 8Chief Executive’s statement 17Company balance sheet 101Consolidated balance sheet 71Consolidated cash fl ow statement 73Consolidated income statement 70Consolidated statement of recognised income and expense 72Contingent liabilities 99Corporate governance 52Corporate responsibility 49Development pipeline 43Directors’ remuneration 60, 80Directors’ report 57Directors’ responsibilities 56, 68, 100Dividends 57, 84Fair value of fi nancial instruments 95Financial highlights 2Financial review 44Glossary of terms 112Independent auditors’ report (group fi nancial statements) 68Independent auditors’ report (parent company fi nancial statements) 100Investment in own shares 71, 98, 101Investment in subsidiary companies 74, 101, 102Investment proposition 4Investments 71, 76, 90Joint ventures 74, 87Key Performance Indicators (KPIs) 19Markets 8, 10Net fi nance costs 46, 70, 75, 82Obligations under fi nance leases 71, 82, 95Operating profi t 70, 77Operational highlights 3

Subject Page

Other payables 71, 91, 103Our ten major investments 5Outlook 8, 11Payables – current liabilities 71, 91Pensions 66, 80Per share data 2, 84, 109Plant, equipment and owner-occupied property 71, 76, 86Portfolio review 105Principal group addresses 111Principal subsidiary companies 104Profi t for the year 44, 70, 102Receivables – current assets 71, 90, 101, 102Reconciliation of equity 72Real Estate Investment Trusts (REITs) 46, 82, 112Remuneration report 60Reserves 71, 98, 101, 103Returns 48Risk management 18Segmental analysis 78Senior management 14Share capital 57, 71, 96Shareholder information 110Strategy 17Tax 46, 82Ten-year fi nancial summary 109

Index

[ ]1 Who we are

2 Financial highlights

3 Operational highlights

4 Our investment proposition

5 Our ten major investments

6 9 place Vendôme... a case study

Hammerson’s portfolio of prime real estate assets was valued at £6.7 billion at 31 December 2006 and provides a secure and growing income stream that will be enhanced as we exploit our extensive development pipeline.

01 [ ]02 8 Chairman’s statement

12 Board of Directors

14 Senior management

We have achieved strong returns in recent years and this is demonstrated by our outperformance in the UK of the IPD index in nine out of the last ten years. [ ]

17 Chief Executive’s statement

18 Risk management

19 Key Performance Indicators

Our strategy is to invest in, develop and manage prime real estate assets in the retail and offi ce sectors in two key markets, the UK and France.

03

[ ] 21 Hammerson property portfolio

The group’s critical mass and track record in each of its sectors has earned it a reputation for the high quality of its developments and for innovative asset management.

04 [ ] 37 Business review

44 Financial review

49 Corporate Responsibility

Our property portfolio generated a capital return of 14.6%, with the investment and development portfolios showing capital returns of 13.5% and 31.5% respectively.

05 [ ] 52 Corporate governance

56 Directors’ responsibilities

57 Directors’ report

60 Remuneration report

The Board is committed to maintaining a high standard of corporate governance within the Company.

06 [ ]07 68 Independent auditors’ report on the group fi nancial statements

70 Consolidated income statement

71 Consolidated balance sheet

72 Consolidated statement of recognised income and expense

72 Reconciliation of equity

73 Consolidated cash fl ow statement

73 Analysis of movement in net debt

74 Notes to the accounts

100 Independent auditors’ report on the parent company fi nancial statements

101 Company balance sheet

102 Notes to the Company accounts

105 Portfolio review

109 Ten-year fi nancial summary

110 Shareholder information

111 Principal group addresses

112 Glossary of terms

113 Index

Financial statements

Portfolio review

Shareholder information

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Front cover photograph: fi rst and second fl oor interior of 10 Grosvenor Street, London, W1

Back cover photograph: Bullring shopping centre, Birmingham

Who we are

Hammerson is a leading REIT (Real Estate Investment Trust) which operates principally in the retail sector. The group invests in, develops and manages shopping centres, retail parks and prime offi ces in the UK and France. Its high quality portfolio was valued at £6.7 billion at 31 December 2006 and provides a secure and growing income stream that will be enhanced as Hammerson exploits its extensive development pipeline.

Hammerson has investments in 14 major shopping centres and 18 retail parks providing a total of 1.3 million m² of retail space. It also owns nine offi ce buildings, principally in central London and central Paris, which provide 275,000m² of prime accommodation.

[Section 01] Annual Report 2006 1

Net rent�l income£237.4m

Adjusted e�rnings per sh�re32.8p

Tot�l dividend per sh�re21.68p

5.1% 10.0%12.9%

EPRA net �sset v�lue per sh�re£15.00

21.3%

Financial highlights

(1) Excluding gains on investment properties, the changes in the fair value of interest rate swaps and costs of bond redemption totalling £697.9 million (2005: £609.2 million). (2) Excluding gains on investment properties, the changes in the fair value of interest rate swaps, costs of bond redemption, the UK REIT entry charge, deferred tax and related minority interests. (3) Recommended fi nal dividend of 15.3 pence per share (2005: 13.91 pence) making a total for the year of 21.68 pence. (4) The European Public Real Estate Association (EPRA) has issued recommended bases for the calculation of certain data. Further details of these calculations are provided in note 10 to the accounts

on pages 84 and 85. (5) Excluding deferred tax and the UK REIT entry charge.

Per share data

Return on sh�reholders’ equity(�)

(200�: 34.0%)

Interest cover(200�: 1.9x)

Dividend cover(200�: 1.�x)

B�sic e�rningsper sh�re357.5p(200�: 198.0p)

Adjusted e�rnings per sh�re(2)

32.8p(200�: 31.2p)

Tot�l dividend per sh�re(3)

21.68p(200�: 19.�1p)

EPRA net �sset v�lue per sh�re(4)

£15.00(200�: £12.3�)

Equity sh�reholders’ funds£4,165m(200�: £3,12�m)

Property �ssets£6,716m(200�: £�,�32m)

2 Annual Report 2006

Ratios

Property �ssets£6,716m(200�: £�,�32m)

Equity sh�reholders’ funds£4,165m(200�: £3,12�m)

Financial highlightsNet rent�l income£237.4m(200�: £210.3m)

Profit before t�x£792.4m(200�: £�98.�m)

Adjusted profit before t�x(1)

£94.5m(200�: £89.4m)

13.4% 5.7%12.9%

33.2%17.2%

80.6% 10.0%5.1%

21.3%

25.3% 1.5x1.8x

Operational highlights

[Section 01]

Capital expenditure of over £800 million including the acquisition of fi ve retail parks in the UK for £427 million.[ ]

Capital recycling of £1.4 billion continued with £628 million raised from property disposals including Liberty Shopping Centre, Romford; two assets in Germany; and a 50% interest in 125 Old Broad Street, London EC2.[ ]

UK lettings totalling nearly 34,000m2, principally within the London offi ces portfolio, contributed to a substantial reduction in vacancy to 3.4%.[ ]

Development programme underway at estimated £915 million total development cost includes major retail schemes at: Cabot Circus, Bristol; Highcross Quarter, Leicester; Parinor, near Paris; Union Square, Aberdeen; and offi ce schemes in London at 125 Old Broad Street and 60 Threadneedle Street.[ ]

Completion in Paris of 9 place Vendôme, generating a development profi t to Hammerson of £81 million, or 94% above cost. [ ]

Planning permission received for major mixed-used regeneration scheme in Sheffi eld city centre; resolution passed to grant planning consent for Eastgate & Harewood Quarters, Leeds.[ ]

Annual Report 2006 3

Our investment proposition

Adjusted net asset value per share (£)

Hammerson’s objective is to provide investors with a tax effi cient real estate vehicle which achieves fi nancial returns above its cost of capital.

4

6

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10

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0605040302

UK GAAP IFRS

7.518.03

9.45

12.37

15.00

Adjusted earnings per share(pence)

10

15

20

25

30

35

060504040302

UK GAAP IFRS

29.229.8 30.0

28.7

31.232.8

[ High quality £6.7 billion retail and offi ce portfolio in UK and France. ]

[ Consistent record of

outperforming IPD Universe in the UK. ]

[ Substantial income growth potential.] [ Major development programme and pipeline. ] [ Active recycling

of capital to enhance returns. ] [ Strong balance sheet and fi nancial resources. ]

[ Benefi ciary of new UK REIT structure and French SIIC tax regime. ]


Total shareholder return(rebased to 100)

0

100

200

300

400

500

FTSE100Hammerson FTSE All Share Real Estate

FTSE AW Euro Real Estate Index

02 03 04 05 06

Our ten major investments

Property Ownership interest % Are� m2

81,80041

75

100

33

100

100

67

100

100

50

% let by income

98

100

100

99

99

99

99

92

94

87

P�ssing rent £m

24.9

25.6

17.1

15.1

13.2

13.3

10.5

9.5

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9.2

76,600

76,200

125,300

71,200

56,200

29,700

30,000

31,200

32,600

V�lue £m

395

588

511

318

281

277

217

201

199

194

[Section 01]

Notes Figures show Hammerson’s share of value and rent in respect of joint ventures *Excludes the extension currently underway

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Annual Report 2006 �

[ Substantial income growth potential.]

[ Beneficiary of new UK REIT structure and French SIIC tax regime. ]

Total shareholder return (rebased to 100)

0

100

200

300

400

500

FTSE100Hammerson FTSE All Share Real Estate

FTSE AW Euro Real Estate Index

02 03 04 05 06

� Annual Report 2006

9 place Vendôme... a case study

Hammerson secured access to the development opportunity at 9 place Vendôme, Paris 1er, in 1999. Owner AXA REIM France, aware of Hammerson’s reputation for delivering complex schemes, approached the Company to enter into a joint venture agreement and act as development manager for this sensitive project.

The development of 9 pl�ce Vendôme presented � highly �ttr�ctive opportunity for H�mmerson. Loc�ted �t the he�rt of P�ris’ C�rré d’Or, pl�ce Vendôme is situ�ted between the rue de C�stiglione �nd rue de l� P�ix. Commissioned by King Louis XIV �nd built in 1�8�, it is � site of gre�t �rchitectur�l

be�uty �nd historic�l signific�nce; the First French Republic w�s procl�imed from the b�lcony of the Ch�ncellery (now tod�y’s Ministry of Justice, next door to 9 pl�ce Vendôme).

The squ�re h�s long been f�mous for its f�shion�ble shops �nd exclusive hotels �nd is currently home to the Ritz Hotel �nd luxury ret�ilers including V�n Cleef & Arpels, C�rtier, Guerl�in �nd Ch�nel. The scheme would constitute one of the l�rgest developments in the he�rt of P�ris, offering modern floorpl�tes in �n historic loc�tion. But it �lso presented � number of ch�llenges, not le�st the �rchitectur�l sensitivity of the loc�tion �nd the proximity of occupiers including the Ministry of Justice �nd � prim�ry school.

The te�m’s t�sk w�s to h�ndle � symp�thetic restor�tion �nd development of 9 pl�ce Vendôme to cre�te �n exception�l property consisting of 22,200m2 of prestigious office sp�ce �nd eight shops. H�mmerson’s �im w�s to combine contempor�ry design with the finest technic�l specific�tion, whilst ret�ining its origin�l �rchitecture.

During the project H�mmerson w�s sensitive to the concerns of � number of �udiences including neighbouring occupiers. To ensure their support, H�mmerson implemented � communic�tion progr�mme providing regul�r upd�tes to ten�nts �nd neighbours including the Comité Vendôme, Ministry of Justice �nd the City Council.

� Annual Report 2006

Annual Report 2006 � [Section 01]

As � demonstr�tion of its commitment to corpor�te responsibility, H�mmerson introduced � number of techniques to protect the neighbours �nd environment. Throughout the demolition process � snow c�nnon w�s inst�lled on site, blowing � perm�nent mist over the demolition zones so th�t dust would not f�ll on �dj�cent sites. A screen w�s erected between the works �nd the re�r f�c�de of the neighbouring �p�rtment building to protect inh�bit�nts from the noise of the building works. The screen w�s infl�ted e�ch morning �nd

defl�ted �t the end of e�ch working d�y to restore the views from the �p�rtment windows. Unw�nted on-site m�teri�ls were �lso recycled.

H�mmerson’s redevelopment of 9 pl�ce Vendôme w�s completed in M�y 200�. Due to the qu�lity of the building �nd the success of the te�m’s m�rketing c�mp�ign, � number of high-profile ten�nts were secured �t record

rents. These included intern�tion�l l�w firms Clifford Ch�nce �nd Prosk�uer Rose �nd luxury goods �nd f�shion ret�ilers including Brooks Brothers, Anne Font�ine, C�ch�rel �nd Hugo Boss. The project gener�ted � development profit to H�mmerson of £81 million or 94% comp�red with cost.

Annual Report 2006 �

Chairman’s statement

“ I am pleased to report on another year of outstanding progress by Hammerson. Our focus on prime real estate assets in the UK and France continues to offer shareholders attractive returns.”

John Nelson

In 2006 the Company showed an increase in net asset value per share of 21.3% to £15.00 and generated a return on shareholders’ equity of 25.3%.

Adjusted earnings per share increased by 5.1% to 32.8 pence, primarily reflecting additional rental income.

The Board is recommending a final dividend of 15.3 pence per share, making a total for 2006 of 21.68 pence per share, an increase of 10% on last year.

Progress in 2006Hammerson enjoyed another very active year in 2006, maintaining momentum across the business. We continued our policy of active recycling of capital to enhance returns. We invested over £800 million, principally on acquiring assets and on our development programme. Highlights were the acquisition in August of a portfolio of retail parks in the UK for £427 million and the completion in May of the redevelopment of 9 place Vendôme in Paris, with the latter generating a development profit to Hammerson of £81 million on our cost of £86 million. Disposals during 2006 raised £628 million and included the sale of Liberty Shopping Centre, Romford, two assets in Germany and a 50% stake in 125 Old Broad Street, London EC2.

Excellent progress has been made on the major city centre retail-led regeneration schemes in Leicester and Bristol, both of which are scheduled to open in Autumn 2008. I am particularly encouraged by the level of lettings we have achieved and this augurs well for the future success of both projects.

During 2006 we started the redevelopments of 125 Old Broad Street, previously the London Stock Exchange, and the adjacent site, 60 Threadneedle Street. In November we sold a 50% interest in the former scheme to show a very high return. We also commenced work on a substantial retail development in Aberdeen and a major expansion and refurbishment of the group’s Parinor retail centre on the outskirts of Paris.

Good progress was also made in advancing a number of other major retail-led city centre schemes. Planning permission was obtained for the New Retail Quarter in Sheffield in August, whilst in February 2007 a resolution to grant planning consent was passed for Eastgate & Harewood Quarters, Leeds. Both of these are medium-term projects that we shall advance over the next few years.

Taxation and REITs

The UK Government introduced the tax-exempt Real Estate Investment Trust (REIT) regime in January 2007. I believe that the REIT environment will lead to greater liquidity and transparency in the real estate market and attract new capital to the industry, resulting in an improvement to the nation’s commercial property stock. This is likely to benefit investors in real estate companies and the wider UK economy.

Following approval by shareholders at the Extraordinary General Meeting in December 2006, Hammerson elected for REIT status. From 1 January 2007 Hammerson is exempt from corporation tax on its property income and capital gains on disposals of UK investment properties. Starting in July 2007 Hammerson will make four quarterly payments totalling £101 million, representing the entry charge, to the Treasury. The Company has been able to write back deferred tax no longer required amounting to £457 million in respect of unrealised capital gains, thereby increasing equity shareholders’ funds.

Property markets and outlook

Ret�il property

UK consumer confidence improved in 2006 following weakness in 2005. Sales for non-food retailers increased by 2.2% in 2006, compared to a fall of 0.7% the previous year. Against this backdrop, there was modest rental growth at prime shopping centres and retail parks, but retailers are looking for additional incentives, including longer rent-free periods.


Annual Report 2006 9 [Section 02] Annual Report 2006 9

Chairman’s statement continued

We expect retailers generally to see positive sales growth in 2007 at the strongest trading locations, leading to further increases in rental levels.

In France non-food retail sales grew by 3.7% in 2006 compared to 3.4% the previous year. Demand from retailers for space improved at the best locations, supporting higher rents for new leases, a trend we expect to continue in 2007. Rents on existing leases in France are linked annually to a cost of construction index. The latest index, applicable from 1 January, is 7.1%.

Office propertyDemand for office accommodation followed similar trends in the City of London and Paris, with buoyant levels of letting activity. The central London office market saw a substantial increase in the level of take-up of space during 2006 compared to the previous year, with a combination of sustained demand and little additional supply leading to a reduction in the overall market vacancy rate. Rent-free periods shortened dramatically and rents saw strong growth, particularly for prime office accommodation. Although there has been an increase in the level of development activity during 2006, continued demand for space and further reductions in vacancy are anticipated to lead to higher rents in 2007.

In the central Paris office market, there was a substantial increase in leasing activity in 2006 over the previous year with many office occupiers seeking to consolidate their businesses into single locations offering more efficient office accommodation. This trend is expected to continue into 2007, leading to further rental growth.

Investment marketsDuring 2006 demand from investors for real estate in the UK and France was buoyant, particularly during the first half of the year, leading to further appreciation in capital values. We expect continued demand from a broad range of investors for prime investment properties. However,

following the recent increases in interest rates in both countries, the positive differential between property investment yields and borrowing costs has been largely eliminated or reversed, reducing the attractions of property to some debt financed investors. Against this background, we believe that capital growth in 2007 will depend more on asset management initiatives and increases in rental income than a further downward movement in investment yields. In France continued demand should lead to further capital growth. Secondary property remains potentially more vulnerable to any market weakness.

Board changes I am delighted that David Atkins was appointed to the Board as an Executive Director in January 2007. David is a Chartered Surveyor and joined Hammerson in February 1998. He retains responsibility for the management of the group’s retail property business in the UK.

I am pleased to announce that Jacques Espinasse has agreed to join the Board as a Non-Executive Director with effect from 1 May 2007. Jacques is a member of the Management Board and Chief Financial Officer of Vivendi Universal. His outstanding career in the management of major international companies means that he brings a wealth of experience and I am confident he will make a major contribution to Hammerson.

John Bywater, currently Managing Director of Hammerson’s UK business, will stand down from the Board in March 2007 on reaching his normal retirement age. On behalf of the Board I would like to thank John for his leadership, enthusiasm and contribution to Hammerson over the past nine years. I would also like to pay tribute to John Barton who will stand down from the Board at the AGM in May 2007. John has served as a Non-Executive Director since 1998, latterly as Senior Independent Director, and I would like to take this opportunity to thank him for his wise counsel.


I am also pleased to announce that John Clare will become Hammerson’s new Senior Independent Director at the AGM in May.

Hammerson’s success is due to the skills, commitment and enthusiasm of our staff. I am sure that our shareholders will join me, on behalf of the Board, in thanking them all for their continuing efforts.

Summary and outlook Hammerson has a portfolio of real estate assets of the highest quality in the UK and France. We have a very experienced management team focusing on prime retail and office assets and creating value through developments. We have achieved strong returns in recent years and this is demonstrated by our outperformance in the UK of the IPD index in nine out of the last ten years, making us one of the best performing large real estate investors. Our financing model is efficient and provides operational flexibility.

The Company now has major tax-exempt businesses in the UK and France. Looking ahead, our rental income is projected to show substantial growth in 2007 with continued growth thereafter, enhanced by one of the most extensive development programmes in the sector. Against this background, the Board expects to be able to recommend an increase of around 25% in the total dividend for 2007 over the proposed level for 2006.

We have a strong base from which to take Hammerson forward and I have every confidence that the Company will continue to thrive.

John Nelson, Chairman 9 March 2007

“ The Board expects to be able to recommend an increase of around 25% in the total dividend for 2007.”


Board of Directors

1 John Nelson FCA, Ch�irm�nJohn Nelson, a Chartered Accountant, was appointed Chairman in 2005 and is a member of the Remuneration Committee and Chairman of the Nomination Committee. He is Deputy Chairman of Kingfisher plc, a non-executive director of BT Group plc and Senior Advisor to Charterhouse Capital Partners LLP.

2 John Rich�rds BSc, FRICS, Chief ExecutiveJohn Richards, a Chartered Surveyor, joined the Company in 1981 as a development surveyor and was appointed a Director of the Company in 1990. He was responsible for the Company’s UK operations from 1993 to 1998 and was appointed Chief Executive of Hammerson in 1999.

3 D�vid Atkins BSc, MRICSDavid Atkins, a Chartered Surveyor, joined the Company in 1998 and was appointed to the Board of the Company’s UK business in 2003. He was appointed an Executive Director of Hammerson on 1 January 2007 and is responsible for the group’s UK retail properties. In addition, he is responsible for insurance and health and safety throughout the group.

4 John Cl�re CBE, BScJohn Clare was appointed a Non-Executive Director of Hammerson in 1999 and is a member of the Audit, Nomination and Remuneration Committees. He is Chief Executive of DSG International plc. He will become the Senior Independent Director and Chairman of the Remuneration Committee in May 2007.


1

2

3

4

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� John B�rton CA, MBAJohn Barton was appointed a Non-Executive Director of Hammerson in 1998 and is the Senior Independent Director, Chairman of the Remuneration Committee and a member of the Nomination Committee. He will be retiring from the Board at the Annual General Meeting on 3 May 2007. He is Chairman of Next plc and a non-executive director of WH Smith plc.

� Peter Cole BSc, MRICSPeter Cole, a Chartered Surveyor, joined the Company in 1989 as a senior development surveyor and was appointed to the Board of the Company’s UK business in 1993. He was appointed an Executive Director of Hammerson in 1999 and is Managing Director Group Investment and Development. He is a general council member and past President of the City Property Association.

� John Byw�ter FRICSJohn Bywater, a Chartered Surveyor, joined Hammerson as an Executive Director in 1998 having previously been a partner of Donaldsons. He is Chairman of Hammerson’s UK Management Board. He will be retiring from the Board on 31 March 2007. He is a non-executive director of Workspace Group plc, British Waterways Board and West Bromwich Building Society.

8 D�vid Edmonds CBE, D.Litt, BADavid Edmonds was appointed a Non-Executive Director of Hammerson in 2003 and is a member of the Audit Committee. He acts as Chairman to the Hammerson Pension Fund Trustees. He is a non-executive director of Wincanton plc, William Hill plc and Keele University Science and Business Park Limited and is Chairman of NHS Direct and NHS Shared Business Services. He is a member of the Legal Services Commission.

9 Gér�rd Dev�ux HEC, FRICSGérard Devaux was appointed an Executive Director of Hammerson in 1999. He is Chairman of Hammerson’s continental Europe Management Board. He joined the Company in 1986 as general manager and a director of the group’s operations in France, assuming responsibility for operations in continental Europe in 1999. He is a director of the National Council of Shopping Centres in France.

10 John Hirst BA, FCA, ACT, CCMIJohn Hirst, a Chartered Accountant, joined the Board as a Non-Executive Director in 2004 and is Chairman of the Audit Committee. He is Chairman of ASBISc Enterprises plc and of the Trustees of the Fund for Epilepsy.

11 J�cques Espin�sse BBA, MBAJacques Espinasse has been appointed as a Non-Executive Director and a member of the Audit Committee with effect from 1 May 2007. He is Chief Financial Officer of Vivendi and a non-executive director of SFR, Maroc Telecom, Universal Music Group, Canal+ France, SES-Global and LBPAM.

12 Anthony W�tson BSc (Econ), B�rrister �t L�w, ASIP, FSI (Hon)Tony Watson was appointed a Non-Executive Director on 1 February 2006 and is a member of the Remuneration Committee. He will become a member of the Nomination Committee in May 2007. He was formerly Chief Executive of Hermes Pensions Management. He is Chairman of the Strategic Investment Board (Northern Ireland), a member of the Financial Reporting Council, a non-executive director of Witan Investment Trust PLC and Vodafone Group plc and Chairman of Marks & Spencer Pension Trust.

13 Simon Melliss BA, FCASimon Melliss, a Chartered Accountant, joined the Company in 1991 as group financial controller, having worked in various financial positions for other companies and was appointed Group Finance Director in 1995. He is a member of the Committee of Management of Hermes Property Unit Trust.


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Senior management

UK1 Andrew Locke Director London Group DevelopmentAndrew joined Hammerson in 2005 and was recently appointed Director of Development within the London Group assuming additional responsibility for the office development portfolio.

2 J�mes Aitchison Director of Taxation James has been Hammerson’s Director of Taxation for nine years having previously worked for another leading property company. He is Chairman of the British Property Federation Tax Committee and played a leading role in the introduction of UK REITs.

3 Stu�rt H�ydon Company Secretary Stuart joined Hammerson in 1992 and was appointed Company Secretary in 1996. He is responsible for the group’s statutory obligations and corporate governance. Prior to joining Hammerson he held company secretarial positions at other companies in the financial sector.

4 W�rren Austin Group Financial ControllerWarren spent five years with Coopers & Lybrand in London before joining Hammerson in 1995. At Hammerson he is responsible for financial reporting and internal control.

� Dunc�n Be�rdsley Group Treasurer Duncan joined Hammerson in 1996 as Group Treasurer and is responsible for raising finance and treasury risk management. He oversees the group’s investments in Value Retail and its projects.

� Andrew Thomson Information Systems Director Andrew joined Hammerson in 1994 as Property Analyst. He was appointed to his current role of Information Systems Director in 2005 and joined the UK Board in June 2006.

� Jon Emery Managing Director, UK DevelopmentSince joining Hammerson in 1989, Jon has been responsible for managing several of the group’s major developments including The Oracle, Reading and Bullring, Birmingham. He was appointed Head of UK Development and Construction in March 2005 and is a director of the UK Board.

8 Sheil� King Director, Retail Leasing Sheila joined Hammerson in 1994 from Capital Shopping Centres and is responsible for leasing across the UK retail portfolio and for letting strategies for all new retail developments.

9 Phil Groom Director, Human ResourcesPhil has spent the last ten years in Human Resources and joined Hammerson in 2005. Prior to joining the Company he held HR roles at Schering Plough and Racal Electronics.

10 Nick H�rdie UK Finance Director Nick joined Hammerson in 1995 and is a director of the UK Board. He spent eight years at Marks & Spencer in a number of roles, latterly as Group Financial Planning Manager. Prior to that he spent three years at United Biscuits.

11 Vinod Th�kr�r Director, Project Management Vinod joined Hammerson in 1994 as Senior Project Manager on the refurbishment and extension of Brent Cross Shopping Centre. In 2005 he was promoted to Director of Project Management focusing on the group’s developments in Bristol, Leicester and the City.

12 John Mulqueen Director, Investment Management London GroupJohn joined Hammerson in 2003 from Liverpool Victoria Asset Management. He was appointed Director of Investment Management within the London Group in February 2007. John is responsible for maximising value within the central London office portfolio and new business opportunities.

13 Chris Smith Director of Corporate Affairs Chris joined Hammerson in 1990 as Director of Corporate Affairs. He has responsibility for the Company’s corporate communications programme and marketing activities. His early career was spent in the City and he subsequently held senior roles in a number of advertising and corporate communications consultancies.

14 Andrew Berger-North Director, Retail ParksAndrew joined Hammerson in 2003 and was appointed Director, Retail Parks in 2005. Andrew is responsible for all aspects of the retail parks portfolio, including acquisitions, disposals, development and asset management.


1�1�

1�18

1920

2122

23

[Section 02]

V�ness� Forster Director, Retail Asset Management (not pictured) Vanessa joined Hammerson in 1995 and was appointed Director of Retail Asset Management in 2002. She is responsible for the asset management of the UK shopping centre portfolio.

Bruce Isles Director, Retail Development (not pictured) Bruce joined Hammerson in 2001 having previously been a partner of Donaldsons, Chartered Surveyors. He is responsible for the UK city centre retail development pipeline.

France1� Mich�el Krief Director, ITMichael joined Hammerson in 2002 as MIS Manager and was appointed Director of IT for France in 2004.

1� V�lérie Courtecuisse Director, AcquisitionsValérie joined Hammerson in October 2006 as Director, Acquisitions. She began her career with Bouygues in the UK in 1999 before transferring to France.

1� D�vid Seg�rd Director, Retail ParksDavid was appointed Retail Parks Director in February 2006. He is responsible for the creation and management of a retail parks portfolio. Prior to joining the Company, David spent seven years with Immochan as Retail Parks Director for the northern area of France.

18 Je�n-Louis Coqu�nd Director, Retail DevelopmentJean-Louis was appointed Director, Retail Development in 2004. He is responsible for the developments at Parinor and Villebon 2.

19 Je�n-Philippe Mouton Director of Operations, FranceJean-Philippe joined Hammerson in 2003 as Managing Director of Marketing & Valorisation. In February 2006 he was appointed Director of Operations and is in charge of the management of the French portfolio.

20 L�urent S�nti�go Director, Project ManagementLaurent joined Hammerson in 1997 as Project Manager and was appointed Director, Project Management in 2001. He has managed most of Hammerson’s developments in Paris.

21 Eddie Bohbot Director, Retail ManagementEddie began his career with Habitat France, subsequently joining Immobilière Carrefour, Segécé and SNCF. He joined Hammerson in 2005 as Director, Retail Management with responsibility for management of the French shopping centres.

22 M�rie-Fr�nçoise Cholin Director, Retail LettingMarie-Francoise joined Hammerson in 1998 as Retail Letting Manager, working on Les 3 Fontaines, Espâce Saint-Quentin, Les 3 Quartiers and Parinor. She was appointed Retail Letting Director in 2004.

23 Olivier M�rguin Director, Mixed Buildings Asset Management Olivier was appointed Director, Mixed Buildings Asset Management in February 2006 having joined Hammerson in 2004 as Office Letting Director.

Ingrid J�nssen Director, Communications and Marketing (not pictured) Ingrid was appointed Director, Communications and Marketing in 2002 having joined Hammerson in 1999 as Marketing and Communications Manager.

Annual Report 2006 1�

1� Annual Report 2006

Hammerson’s objectiveOur objective is to build an outstanding real estate business, providing investors with a tax-efficient real estate vehicle which consistently achieves financial returns above its cost of capital.

How we run our businessOur strategy is to invest in, develop and manage prime real estate assets in the retail and office sectors in two key markets, the UK and France. Today the group has an investment portfolio of the highest quality, which is valued at over £6.7 billion and which provides a secure and rising income stream. We refresh the portfolio by developing new properties, by acquiring income-producing assets and by appropriate disposals.

The group’s strategy is established by the Board and set out in the group’s annual business plan covering the following three years. The group’s real estate strategy is supported by operational and financial strategies implemented within a risk management framework designed to identify and manage risk. A summary of the principal risks faced by Hammerson and how these are managed is set out on page 18.

Our management reporting systems provide financial and operational performance measures. The Key Performance Indicators (KPIs) which we believe are most important to the group’s performance are shown on page 19.

The decisions we make affect how people live, work and spend their leisure time. What we build and how we build it have a lasting impact on the environment. We take these responsibilities seriously in planning

new developments, in our approach to managing and improving our existing assets, and in the relationships we have with those affected by or involved in our business. Further details of our approach to Corporate Responsibility are set out on pages 49 to 51.

We recognise the importance of attracting and retaining the skilled staff necessary to run the business. We endeavour to provide an attractive working environment, an appropriate remuneration structure and opportunities for our people to maximise their potential for career progression. We place emphasis on good communication within the Company to ensure that employees understand our objectives. We encourage all employees to become shareholders in Hammerson both through share-based remuneration and savings schemes.

Pages 21 to 48 provide details of the properties we own and a review of our performance in 2006.

John Richards, Chief Executive 9 March 2007

Chief Executive’s statement

“ The decisions we make affect how people live, work and spend their leisure time. What we build and how we build it have a lasting impact on the environment. We take these responsibilities seriously in planning new developments, in our approach to managing and improving our existing assets, and in the relationships we have with those affected by or involved in our business.”

John Richards

Annual Report 2006 1� [Section 03]


Risk management

How we manage riskIn common with all businesses, the management of risk is key to the achievement of the group’s fi nancial objectives. Managing risk helps to reduce the chance of losses and enables the Company to enhance its performance when the right opportunities arise.

We have identifi ed fi ve principal areas of risk and these, together with the steps we take to mitigate them, are shown in the table below.

Risk Mitigation

Business strategy

Implementation of a strategy inconsistent with the market environment.

Over-concentration of activities and investment exposure in particular markets.

We commission and evaluate research into the economy and investment and occupational markets and use this to prepare an annual Business Plan and regular fi nancial forecasts.

Hammerson’s portfolio is diversifi ed by country and sector and its allocation is regularly reviewed.

Property investment

Acquisition of properties that fail to meet performance expectations.

Opportunities for the sale of underperforming properties are missed.

Acquisitions are thoroughly evaluated, including due diligence reviews.

The performance of individual properties is benchmarked against target returns, adjusted for risk.

Property development

Poor control of the development programme and failure to address investment and occupational market risks.

Detailed analysis, including market research, is undertaken prior to the approval of each development project.

The group’s overall exposure to developments is monitored andprojects phased.

A programme of post completion reviews ensures potentialimprovements to processes are identifi ed.

Business organisation and human resources

Failure to recruit and retain key staff with appropriate skills and calibre.

.

Recruitment procedures and the remuneration structure areregularly reviewed and benchmarked.

Succession plans are developed for senior positions.

Treasury

Breach of borrowings covenants, triggering repayment.

Insuffi cient liquidity to progress the development programme.

Adverse currency or interest rate movements.

Financial ratios are monitored and regularly reported to the Board.

Future investment requirements are reviewed and suffi cient facilities put in place in advance.

Fixed rate borrowings are used where appropriate and foreign currency denominated assets fi nanced by borrowings in the same currency.

Annual Report 2006 19 [Section 03]

Key performance indicators

Return Ungeared on shareholders’ portfolio returns equity (ROE) relative to IPD* Occupancy

Description ROE represents the income The group compares The ERV of the space and capital returns in a year the ungeared total in the portfolio which expressed as a percentage returns it achieves from is currently let, as a of shareholders’ equity its portfolio against percentage of the total at the start of the year. the relevant IPD index. ERV of the portfolio.

Why it is important It is a measure of how It enables the group The group aims to effective Hammerson is to monitor the returns maximise the occupancy in generating a return it achieves from its of its properties as on the shareholders’ equity portfolio against a income lost through invested in the business. recognised benchmark. vacancy has a direct impact on profi tability.

Benchmark Achieve a return greater IPD Universe +1.0% 97.0% than the estimated cost of equity, currently 7.8%

2005 actual 34.0% 21.8% 93.2% (IPD Universe: 19.1%)

2006 actual 25.3% 18.7% 96.6% (IPD Universe: 18.5%)

Source of data Annual Report Annual Report Annual Report

Commentary Financial review Financial review Business review Page 48 Page 48 Page 40

How we measure our performanceWe monitor the performance of our business using three principal measures and by comparing them with appropriate benchmarks. The table below summarises these KPIs and the degree of success in achieving our targets for them.

*Refers to UK only. The IPD data for France was unavailable at the time of publication.


Our strategy is to invest in, develop and manage prime real estate assets in the retail and office sectors in two key markets, the UK and France.

In the next section we present profiles of the top 40 properties in which Hammerson has an interest. Between them, these properties:

are valued at £6.2 billion[ ] house over 1,800 tenants[ ]

provide 1.6 million square metres of accommodation[ ]

represent a balanced investment portfolio[ ]

HAMMERSON PROPERTY PORTFOLIO

TOP 40 PROPERTIES[


HAMMERSON PROPERTY PORTFOLIOTOP 40 PROPERTIES

top 40 properties

UK

Hammerson owns interests in six of the top 30 UK shopping centres and has led the development of three of the top centres in recent years – Bullring, The Oracle and WestQuay. It also owns 17 retail parks, providing efficient floor space for both bulky goods occupiers and expanding fashion retailers.

The group’s UK retail portfolio provides 970,000m2 of modern retail accommodation and is valued at £3.6 billion.

The six UK office buildings owned or co-owned by Hammerson provide over 200,000m2 of grade A office space, principally in the City of London, and are valued at £1.2 billion. These high quality buildings accommodate a range of occupiers, from lawyers and insurance companies to banks and financial services providers.

Hammerson is increasingly taking a mixed-use approach to development, incorporating an element of retail, restaurants and residential into its major office schemes.

The eight French retail assets Hammerson owns or co-owns are concentrated in the Paris area, giving the group critical mass in this key catchment. The portfolio, valued at £1.2 billion, provides 400,000m2 of predominantly retail accommodation, including 43,000m2 of retail park accommodation. Many assets have the potential for expansion.

Hammerson has a track record of office development in Paris’ CBD, creating modern schemes in architecturally sensitive locations. The company’s excellent reputation has allowed it to form joint ventures to carry out complex developments, most recently at 9 place Vendôme.

The portfolio is valued at almost £500 million and provides 50,000m2 of high quality office accommodation.

France[[

Hammerson owns a high quality portfolio of prime property assets focused on two principal markets, retail and offices, in two countries, the UK and France. The group’s critical mass and track record in each of its sectors has earned it a reputation for the high quality of its developments and for innovative asset management.

Retail RetailOffices Offices


Front cover of portfolio: exterior of Bullring shopping centre, Birmingham

Back cover : One London Wall, London EC2

The Oracle

UK shopping centres


WesTQuay, sOuThampTOn

Size: 76,200m2

Opened: 2000

Ownership: Hammerson 100%

No. of tenants: 95

Anchor stores: John Lewis, Marks & Spencer

Tenure: Leasehold

Average rent: £590 per m2

Developed by Hammerson and opened in 2000, WestQuay has established Southampton as the region’s premier shopping destination. Many of WestQuay’s retailers are unique to the region, including flagship fashion and lifestyle stores such as Gap, H&M, Arcadia Group and Next. Recent openings include Apple and Fat Face. Hammerson has been appointed development manager to the next phase, WestQuay III, the 2.2-hectare site adjacent to the shopping centre.

BrenT crOss, lOndOn nW4

Size: 81,800m2

Refurbishment: 1995

Ownership: Hammerson 41%/Standard Life 59%

No. of tenants: 115

Anchor stores: John Lewis, Fenwick, M&S

Tenure: Leasehold

Average rent: £1,070 per m2

Brent Cross is situated within the affluent North West London suburbs. The centre is served by three main arterial routes – the M1, A406 and A41 – three train stations, and a major bus station. The centre has always been fashion-focused and is regularly the site of choice for international retailers opening their first UK stores. Recent openings include Apple, The White Company and Rigby & Peller.

Bullring, Birmingham

Size: 125,300m2

Opened: 2003

Ownership: Hammerson 33%/Henderson Global Investors 33%/Land Securities 33%

No. of tenants: 166

Anchor stores: Selfridges, Debenhams

Tenure: Leasehold


Developed in a three-way joint venture between Hammerson, Henderson Global Investors and Land Securities Group, Bullring attracts over 37 million visitors a year. In October 2004, The Birmingham Alliance opened Bullring Link, an 8,910m2 mall connecting the main scheme with New Street Station via Debenhams.

The Oracle, reading

Size: 71,200m2

Opened: 1999

Ownership: Hammerson 50%/Akaria Investments Limited 50%

No. of tenants: 111

Anchor stores: House of Fraser, Debenhams

Tenure: Leasehold


Since opening in 1999, The Oracle has become the foremost shopping and leisure destination in the Thames Valley region. Developed in joint venture between Hammerson and Akaria Investments Limited. The Oracle attracted 50 retailers to the town for the first time, including fashion style leaders Zara, Mango, Karen Millen, Muji, and H&M. The Riverside, the scheme’s waterside restaurant and leisure venue, is home to 18 cafes and restaurants and a 10-screen Vue cinema.

WesTQuay BrenT crOss Bullring

Average rent is the average rent passing before deducting head and equity rent and excluding rents passing from anchor units and car parks.

QueensgaTe, peTerBOrOugh

Size: 81,400m2

Redeveloped: 1982

Ownership: Hammerson 50%/Norwich Union 50%

No. of tenants: 135

Anchor stores: John Lewis, Waitrose, M&S

Tenure: Freehold


Hammerson acquired a 50% interest in the freehold of Queensgate shopping centre in November 2005. The centre is a fully enclosed two level shopping centre providing 135 stores and 2,300 car parking spaces. A major refurbishment of the centre is planned as part of the North Westgate project, a 60,000m2 mixed-used scheme by Hammerson and Norwich Union on land adjoining the centre.

The shires, leicesTer

Size: 46,600m2

Opened: 1991

Ownership: Hammerson 60%/Hermes 40%

No. of tenants: 77

Anchor stores: House of Fraser, Debenhams

Tenure: Freehold


Acquired by Hammerson in 2002, The Shires is Leicester ’s principal city centre shopping destination. Built in 1991 with a second phase completed in 1994, the two-level scheme provides the city’s prime offer for major fashion multiples with retailers such as Next, River Island, Oasis, Monsoon, Warehouse and Showcase Cinemas. New retailers to have opened at the scheme as part of a tenant mix revitalisation strategy include Swarovski, Karen Millen, Principles, Schuh and Starbucks. Construction work on Highcross Quarter, a 60,000m2 mixed-use extension to The Shires, is progressing well and is scheduled to open in September 2008.

highcrOss QuarTer, leicesTer

Size: 60,000m2 extension

Start on site: January 2006

Completion: Autumn 2008

Developers: Hammerson 60%/Hermes 40%

Anchor store: John Lewis

Architects: Chapman Taylor, Foreign Office

Hammerson, and its joint venture partner, Hermes, are developing a 60,000m2 mixed-use extension to The Shires, Leicester ’s principal city centre shopping destination. The scheme, which will more than double the size of the existing shopping centre to over 105,000m2, will regenerate a 10-hectare site. In addition to John Lewis, which will anchor the scheme, the development will create 30,000m2 of new retail accommodation including five additional major stores and 40 mall retail units; a 7,000m2 cinema, 6,000m2 of cafes and restaurants; 143 residential units; a 2,000 space car park and two new public squares.

caBOT circus, BrisTOl

Size: 92,000m2

Start on site: September 2005

Completion: Autumn 2008

Developers: Hammerson 50%/Land Securities 50%

Anchor stores: House of Fraser, Harvey Nichols

Architects: Chapman Taylor, Stanton Williams

The Cabot Circus mixed-use development started in Autumn 2005. The 92,000m2 retail element will be anchored by House of Fraser and Harvey Nichols department stores and provide 120 retail units, including 15 flagship stores, cafes, bars and restaurants. The scheme will also include 240 residential units, a 6,800m2 cinema, 28,000m2 of office space, two new public squares, three pedestrianised shopping streets, and 2,600 parking spaces.

QueensgaTe The shires highcrOss QuarTer caBOT circus


manOr Walks, cramlingTOn, near neWcasTle

Size: 52,200m2

No. of tenants: 108


Main tenants: Sainsbury, Asda, Next

Tenure: Freehold

Planning: Open A1


Manor Walks Shopping Centre and the adjoining Westmorland Retail Park, which form the core retail area of Cramlington, are situated nine miles north of Newcastle. Manor Walks is an enclosed scheme, which links into the Westmorland Retail Park. The covered mall is currently let at rents of circa £700 per m2 Zone A. The retail park is let at rents of less than £160 per m2. Overall, the scheme has significant development potential to add units suited to larger space users.

cyfarThfa reTail park, merThyr Tydfil

Size: 23,700m2

No. of tenants: 16


Main tenants: B&Q, Matalan, Boots, Next, Debenhams, Argos, JJB, Dixons, New Look, Arcadia

Tenure: Freehold

Planning: Predominantly open A1


Hammerson completed construction of Cyfarthfa Retail Park in January 2005. The 23,700m2 part open A1 scheme is fully let and comprises 13 retail units, and three fast food outlets let to KFC, McDonalds, and Pizza Hut. The scheme also includes a JJB Sports health club, and parking for over 1,000 cars.

aBBey reTail park, neWTOWnaBBey, BelfasT

Size: 23,400m2

No. of tenants: 6


Main tenants: Tesco, B&Q

Tenure: Leasehold

Planning: Open A1


The scheme is located approximately three miles north of Belfast city centre in an established retail destination adjacent to a new flagship Marks & Spencer store. The scheme is currently let to six tenants at rents between £100 per m2 and £180 per m2. The property was developed in two phases, which are currently not connected. Development proposals have been prepared to integrate both phases of the scheme, create new retail warehouse units and extend some existing stores.

sT OsWald’s reTail park, glOucesTer

Size: 22,500m2

No. of tenants: 12


Main tenants: B&Q, JJB, Mothercare

Tenure: Freehold

Planning: Mixed


In September 2005, Hammerson completed construction of the first phase of this 35,000m2 mixed-use development to the north of Gloucester city centre. This phase provides 21,800m2 of bulky goods retail and leisure space in two terraces, 700m2 of restaurant uses, and 990 parking spaces. Other phases will include 450 residential units, a 150-unit urban care village, and leisure.

manOr Walks cyfarThfa reTail park aBBey reTail park sT OsWald’s reTail park

UK retail parks


fife cenTral reTail park, kirkcaldy

Size: 19,400m2

No. of tenants: 15


Main tenants: Boots, Homebase, Next, Sainsbury

Tenure: Freehold

Planning: Mixed


Hammerson acquired Fife Central Retail Park in Kirkcaldy in April 2005 for £75 million. The park was developed in 1997 and comprises 15 retail units totalling 19,400m2 of accommodation. The scheme also includes 1,080 car parking spaces. Hammerson plans to develop a 11,000m2 extension to the park with a possible start on site in 2007.

drakehOuse reTail park, sheffield

Size: 20,600m2

No. of tenants: 18


Main tenants: Carpetright, Co-op, Comet, Currys

Tenure: Freehold

Planning: Bulky goods


Hammerson acquired Drakehouse Retail Park in 2003. The 20,600m2, part bulky goods/part restricted open A1 scheme is located seven miles from Sheffield city centre and adjoins Crystal Peaks Shopping Centre. In addition to an 830 space car park, the scheme includes a McDonalds Drive-Thru restaurant. Homebase has recently committed to a 2,800m2 unit at the scheme.

The Orchard cenTre, didcOT

Size: 17,200m2

No. of tenants: 37


Main tenants: Sainsbury, Argos, Next, Woolworths

Tenure: Leasehold

Planning: Open A1


The Orchard Centre provides the main retail offer for Didcot, 14 miles south of Oxford. Part open mall, part retail park, it is anchored by a Sainsbury food store. Prime rents in the mall are £540 per m2 Zone A. The retail warehouse units are let at average rents of approximately £160 per m2. There is the potential for development of over 10,000m2 of open A1 retail warehousing and residential accommodation on an adjacent site.

cleveland reTail park, middlesBrOugh

Size: 24,500m2

No. of tenants: 11


Main tenants: B&Q, Currys, Wickes, Matalan, MFI

Tenure: Freehold

Planning: Mixed


Cleveland Retail Park provides 24,500m2 of part open A1 retail warehousing and 825 parking spaces. B&Q is the main anchor tenant, occupying a 9,530m2 unit . A 3,700m2 extension was completed in September 2006, providing new units for Currys, Halfords, Storey Carpets and Carpetright.

fife cenTral reTail park drakehOuse reTail park The Orchard cenTre cleveland reTail park


seacOurT reTail park, OxfOrd

Size: 10,100m2

No. of tenants: 5


Main tenants: Habitat, Homebase

Tenure: Leasehold

Planning: Open A1


The Seacourt Retail Park is located to the south of Oxford on the Botley Road, one of the main arterial routes into the city. The area is an established retail warehouse location with a number of bulky goods parks in the area. The scheme consists of 7,800m2 of retail and a small office building of 2,300m2. Although the scheme has an open consent, the majority of occupiers are bulky goods retailers. There is potential for a major refurbishment and reconfiguration of the space.

vicTOria reTail park, nOTTingham

Size: 15,500m2

No. of tenants: 6


Main tenants: B&Q, Halfords, Next, Argos

Tenure: Freehold

Planning: Mixed


In August 2004, Hammerson completed construction of 10,400m2 of new retail space at Victoria Retail Park. The scheme now consists of eight units totalling 15,500m2 of bulky goods retail space. The largest occupier is B&Q in a 5,600m2 warehouse. Two other 930m2 units are occupied by Miller Brothers and Allied Carpets and recent deals have been agreed with Argos and Next. The scheme also includes 640 car parking spaces.

BrenT sOuTh shOpping park, lOndOn, nW2

Size: 8,600m2

No. of tenants: 9

Ownership: Hammerson 41%/Standard Life 59%

Main tenants: Borders, Next, TK Maxx, Arcadia

Tenure: Freehold

Planning: Open A1 retail


Funded by Hammerson and Standard Life Investments, Brent South Shopping Park was completed in November 2004. The 8,600m2 scheme is fully let to tenants including Next, Borders and TK Maxx. Located directly opposite Brent Cross Shopping Centre, with frontages on Tilling Road, the shopping park also provides 350 parking spaces.

uniOn sQuare, aBerdeen

Size: 49,000m2

Status: Detailed planning consent secured


Start on site: Autumn 2006

Pre-lets: H&M, New Look, Next, Cine UK, Pizza Hut

Average rent: N/A

Hammerson is redeveloping a nine-hectare site adjacent to Aberdeen’s central railway station, to provide a combination of traditional mall shopping and retail park. On completion, in Autumn 2009, the scheme will be the largest development of its type in Scotland, providing 21,000m2 of retail units, a 16,000m2 retail terrace, a 4,200m2 multiplex cinema, 7,800m2 of leisure and catering accommodation, 1,700 parking spaces, and a new civic square.

seacOurT reTail park vicTOria reTail park BrenT sOuTh shOpping park

uniOn sQuare

UK retail parks


dallOW rOad reTail park


dallOW rOad reTail park, luTOn

Size: 10,100m2

No. of tenants: 2


Tenants: B&Q, Aldi

Tenure: Freehold

Planning: Food and bulky goods


Hammerson completed the construction of a new 8,700m2 B&Q Warehouse in February 2006. The scheme, which is located midway between Luton and Dunstable town centres, also includes an Aldi store with 670 car parking spaces.

WesTWOOd and easT kenT reTail parks, ThaneT

Size: 23,200m2

No. of tenants: 14


Main tenants: Argos, Comet, Currys, Homebase, Matalan

Tenure: Freehold

Planning: Mixed


The adjoining East Kent Retail Park and Westwood Retail Park extend to over 180,000 sq ft of part open, part bulky retail warehousing and are located in the coastal town of Thanet. The area is an established retail destination with over 1,000,000 sq ft of retail in the immediate vicinity. Following completion of Westwood Gateway Retail park in 2006, planning permission has recently been granted for the redevelopment of Westwood Retail Park.

WesTWOOd and easT kenT reTail parks

[Section 04]

iTalie 2, paris 13ème

Size: 56,200m2

Opened: 1976


No. of tenants: 126

Main tenants: Champion, Darty, Printemps, Go Sport

Tenure: Freehold


Hammerson’s 1998 acquisition of this three-level shopping complex was followed by a major refurbishment which was completed in 2001. The scheme is the second largest shopping centre in central Paris and is a key location for fashion and leisure brands. Principal tenants include Printemps, Champion, Zara, Darty, and Go Sport. Italie 2 forms part of a large mixed-use scheme incorporating residential towers, offices and a hotel.

parinOr shOpping cenTre, aulnay-sOus-BOis

Size: 66,500m2

Opened: 1974

Ownership: Hammerson 32,600m2

No. of tenants: 137

Main tenants: Carrefour, C&A, fnac

Tenure: Freehold


Built in 1974, and refurbished in 1996, Parinor is the fifth largest shopping centre in the Paris region. The two-level scheme is anchored by Carrefour and C&A. The scheme includes an UGC cinema and restaurants on the upper floor, and 4,500 parking spaces. Principal tenants include H&M, Darty, Zara and New Look. Hammerson bought the former Castorama shell in 2005 and is carrying out a 24,100m2 redevelopment/ extension which will complete in 2008.

espace sainT QuenTin, sT QuenTin-en-yvelines

Size: 58,700m2

Opened: 1987


No. of tenants: 118

Main tenants: Carrefour, C&A, H&M, Darty, Sephora

Tenure: Freehold


Acquired by Hammerson in 1994, Espace Saint Quentin is part of a larger mixed-use development including residential, office and hotel accommodation and a foodcourt. Hammerson’s ownership is 25,700m2. The single level retail element has direct access to two levels of car parking providing 2,600 spaces. Anchored by Carrefour, the centre was refurbished in 1999 and an extension added. Hammerson is working on a redevelopment of 5,800m2 (2007) and a 4,000m2 extension (2009).

place des halles, sTrasBOurg

Size: 41,400m2

Opened: 1979


No. of tenants: 116

Main tenants: C&A, H&M, Galeries Gourmandes

Tenure: Freehold


Part of a mixed use development consisting of four office buildings, two residential buildings, two hotels and three car parks, Place des Halles is the main shopping destination in Strasbourg. The two-level shopping centre was extensively refurbished in 2002 and offers parking for 2,600 cars. Principal tenants include C&A, H&M, Galeries Gourmandes, Go Sport, Mango, Sephora and Surcouf. Hammerson acquired its 65% interest of 39,500m2 in the centre in 1998.

place des halles

Retail France


iTalie 2 parinOr shOpping cenTre espace sainT QuenTin

les 3 fOnTaines, cergy-pOnTOise

Size: 58,900m2

Opened: 1972


No. of tenants: 80

Main tenants: Auchan, C&A, Darty, H&M

Tenure: Freehold


Opened in 1972, and refurbished in 1996, following Hammerson’s acquisition in 1995, Les 3 Fontaines is a three-level enclosed shopping centre with direct access to 3,300 car parking spaces. Anchored by Auchan and C&A, principal tenants include fnac, La Redoute, Darty, H&M and Go Sport.

villeBOn 2, villeBOn-sur-yveTTe

Size: 42,900m2

No. of tenants: 40


Main tenants: PC City, Toys ‘ ’ Us, Darty

Tenure: Freehold


Villebon 2 is the first French retail park in Hammerson’s portfolio. It was acquired in July 2005 for £104 million. The scheme is one of the largest retail parks in the Paris region. The scheme accommodates 40 retailers, such as Darty, PC City, and Toys ‘ ’ Us, with 1,200 car parking spaces and forms part of a larger retail destination including an Auchan hypermarket. Villebon 2 has the required authorisations and permits for the creation of 5,500m2 additional retail space.

Bercy 2, charenTOn-le-pOnT

Size: 35,200m2

Opened: 1990


No. of tenants: 65

Main tenants: Carrefour, H&M, Darty, Esprit

Tenure: Freehold


In 2000, Hammerson acquired a 57% interest in Bercy 2, representing 20,000m2. Built in 1990 and refurbished in 1997, the three-level scheme has 2,300 parking spaces. Principal tenants include Carrefour, H&M, Darty, Esprit , and Virgin. The landmark scheme occupies a high profile site on one of the key exits from Paris on the boulevard Périphérique, and is one of the most important shopping destinations in the eastern suburbs of the capital.

54-60 rue du fauBOurg sainT-hOnOré, paris 8ème

Size: 7,000m2


No. of tenants: 17

Main tenants: Chloé, Comme des Garçons, Fratelli Rossetti, Montblanc, Frank Namani

Tenure: Freehold


Located on rue du Faubourg Saint-Honoré, between rue d’Aguesseau and rue d’Anjou, the buildings comprise six blocks of multi-let properties, providing 7,000m2 of accommodation. This comprises 2,500m2 of retail space set across three floors, 1,100m2 of offices and 3,400m2 of residential accommodation. Principal occupiers include Chloé, Comme des Garçons, Fratelli Rossetti and Montblanc.

les 3 fOnTaines villeBOn 2 Bercy 2 54-60 rue du fauBOurg


BishOps sQuare, lOndOn e1

Size: 76,600m2

Completion: July 2005

Ownership: Hammerson 75%/City of London 25%

No. of tenants: 22

Tenure: Leasehold


Developed in joint venture between Hammerson and the City of London, Bishops Square provides some 71,900m2 of offices and 21 retail units. The retail element opened in October 2005 and international law firm, Allen & Overy, took occupation of the office element in Autumn 2006.

mOOrhOuse, lOndOn ec2

Size: 30,000m2

Completion: November 2004

Ownership: Hammerson 67%/Pearl Assurance 33%

No. of tenants: 7

Tenure: Leasehold


Designed by Foster and Partners, Moorhouse provides 30,000m2 of office accommodation in a landmark 17-storey building at the intersection of Moorgate and London Wall. At the end of 2004, Hammerson increased its interest in Moorhouse to 67%. Occupiers include HVB Group; Citadel Investment Group; Pictet Asset Management; TT International; CLSA and Macquarie Bank.

99 BishOpsgaTe, lOndOn ec2

Size: 31,200m2

Completion: 1995


No. of tenants: 7

Tenure: Leasehold


Acquired by Hammerson in 1993, and extensively reconstructed in 1995, 99 Bishopsgate provides 26 floors of high specification office accommodation totalling 31,200m2. Principal tenants include Deutsche Bank and Latham & Watkins. Hammerson carried out a refurbishment of the top five floors, totalling 5,000m2, in 2006, and successfully re-let the space to Charles River Associates and existing tenant Latham & Watkins.

exchange TOWer, lOndOn e14

Size: 44,900m2

Acquired: 1999


No. of tenants: 40

Tenure: Freehold


Acquired by Hammerson in 1999, the scheme consists of twin 16-storey towers totalling 44,900m2 with parking for 500 cars. Tenants are largely within the financial, telecommunications, and software development sectors. Leases signed in the last year include JCB International, Rouse & Co and Barclays Bank.

BishOps sQuare mOOrhOuse 99 BishOpsgaTe exchange TOWer

Offices


125 Old BrOad sTreeT, lOndOn ec2

Size: 31,000m2

Start on site: February 2006

Ownership: Hammerson 50%/ GE Real Estate 25%/Bank of Ireland 25%

No. of tenants: N/A

Tenure: Freehold

Average rent: N/A

In February 2006, Hammerson started work on the redevelopment of the 26-storey tower building at 125 Old Broad Street, formerly occupied by the London Stock Exchange, to provide 29,400m2 of Grade A office accommodation and 1,600m2 of retail and storage space. Completion is scheduled for December 2007. Hammerson recently sold a 50% stake in the development to two joint venture partners, GE Real Estate and Bank of Ireland (Private Banking).

One lOndOn Wall, lOndOn ec2

Size: 18,500m2

Completion: October 2003

Ownership: Hammerson 50%/Kajima 50%

No. of tenants: 8

Tenure: Leasehold


Developed in a 50:50 joint venture between Hammerson and Kajima Europe BV, One London Wall provides 18,500m2 of office accommodation. The 13-storey building is predominantly occupied by international law and finance firms. Occupiers include Maclay Murray Spens; Dewey Ballantine; Melli Bank; Bowne International; Hymans Robertson; Nikko Global Asset Management; Osborne Clarke; and DLA Piper.

60 Threadneedle sTreeT, lOndOn ec2

Size: 20,400m2

Start on site: December 2006


Tenure: Freehold

Average rent: N/A

Hammerson has recently started construction work on 60 Threadneedle Street, a 20,400m2 nine-storey building adjacent to the group’s current development at 125 Old Broad Street. The scheme, which forms part of the site previously occupied by The London Stock Exchange, incorporates 1,000m2 of retail space. Completion is scheduled for November 2008.

les TrOis QuarTiers, 21 BOulevard de la madeleine, paris 1er

Size: 29,700m2

Acquired: 2000


No. of tenants: 25

Tenure: Freehold


Les Trois Quartiers, a 1930’s building, was acquired by Hammerson in 2000 and refurbished in 2002. The mixed-use scheme provides 17,900m2 of office accommodation on six levels, and 11,800m2 of retail space on ground and first floor. The building houses 25 office and retail tenants, including Barclays, White & Case, Décathlon and Madelios. The scheme includes 192 parking spaces.

125 Old BrOad sTreeT One lOndOn Wall 60 Threadneedle sTreeT les TrOis QuarTiers


Offices

9 place vendôme & 368/374 rue sainT-hOnOré, paris 1er

Size: 27,700m2

Completion: May 2006

Ownership: Hammerson 50%, AXA REIM France 50%

No. of tenants: 10

Tenure: Freehold


In April 2006, Hammerson, together with its joint venture partner, AXA REIM France, completed the redevelopment of adjoining properties at 9 place Vendôme and 368/374 rue Saint-Honoré. The scheme comprises 22,200m2 of prime offices, with 5,500m2 of retail space. Clifford Chance, Proskauer Rose and Swarovski are to occupy the office space with retail tenants including Cacharel, Hugo Boss and Brooks Brothers. Five retail tenants opened in 2006. The scheme also includes 150 parking spaces.

148 rue de l’universiTé, paris 7ème

Size: 10,300m2

Completion: 2002


No. of tenants: 6

Tenure: Freehold


Acquired by Hammerson in 1999, 148 rue de l ’Université was redeveloped in 2002 to provide 10,300m2 of modern office accommodation in a seven-storey building. The scheme includes 150 parking spaces. Principal tenants are CDC Enterprises Capital, Microsoft France, LBO France and the Japanese Delegation for UNESCO.

9 place vendôme 148 rue de l’universiTé

Offices


Business review

Real estate strategyHammerson’s real estate strategy, aimed at maximising the total returns from our portfolio, has three strands:

• the allocation of our portfolio between the markets and sectors in which we operate by appropriate investment and disposal decisions;

• management of our properties so that they remain attractive to our customers enabling us to increase the group’s rental income and other revenue over time; and

• the development of properties that will generate attractive income and capital returns.

The following pages provide more detail on how we performed in these areas during 2006 and also the potential future growth in income and valuation in the investment and development portfolios.

Property portfolio and allocationWe base our decisions on the overall portfolio allocation by detailed analysis of the markets in which we are represented, using both internal and external research. We review and project the performance of each of our existing properties as part of our annual business planning process, enabling us to identify assets for disposal. We actively recycle our capital and have raised over £2.3 billion from disposals in the last five years.

In recent years we have increased the proportion of retail property in the portfolio to over 70%. Large dominant shopping centres and retail parks of the type in which Hammerson is invested have shown sound performance over the longer term with low volatility and we anticipate that this will continue in the future. The balance of the group’s portfolio is represented by prime office buildings in central London and Paris. The office sector shows substantially greater volatility than the retail sector but provides opportunities to exploit market cycles and generate high returns.

Hammerson owns and manages 14 major shopping centres and 18 retail parks, principally in the UK and France, providing a total of 1.3 million m2 of retail space. The office portfolio consists of nine prime buildings, mostly located in and around the City of London and in central Paris, and provides 275,000m2 of accommodation.

At 31 December 2006 the value of our property portfolio was £6.7 billion. The investment portfolio was valued at £6.2 billion and developments at £0.5 billion. Joint ventures accounted for 34% of the portfolio value, including five major shopping centre investments in the UK which represented 21% of the total portfolio.

Valuation increases in 2006 amounted to £732 million and capital expenditure including capitalised interest totalled £810 million, principally on acquisitions and the development programme. During 2006 the weighting of the portfolio to the UK increased by three percentage points to 74%. The retail and office weightings were unchanged at 72% and 28% respectively.

The property portfolio generated a capital return of 14.6%, with the investment and development portfolios showing capital returns of 13.5% and 31.5% respectively.

Approximately two thirds of the valuation uplift in the UK portfolio was the result of a reduction in investment yields, whilst the balance reflected increases in rental values, development surpluses and asset management initiatives.

In France, the capital return was 16.7%. The majority of the increase was accounted for by lower valuation yields and the balance from rising rental values and completed developments.

The table below shows the capital returns for the portfolio during the year ended 31 December 2006.

capital returnsFor the year ended 31 December 2006 shopping centres retail parks Offices total

Capital Capital Capital Capital Value return Value return Value return Value return £m % £m % £m % £m %

UK 2,350 10.9 1,203 7.8 1,384 26.0 4,937 14.5France 1,100 17.4 118 9.3 489 16.9 1,707 16.7Germany 72 (5.8) – – – – 72 (5.8)

total 3,522 12.1 1,321 8.0 1,873 23.6 6,716 14.6


In August we completed the acquisition for £427 million of LxB Holdings Limited, which owns five retail assets in the UK providing total floor space of 123,600m2. Each of the properties has an open A1 planning consent and there are excellent opportunities to expand the schemes to increase the floorspace and enhance rental values. The portfolio generates annual rental income of £14.7 million compared to its current ERV of £19.1 million, demonstrating its reversionary growth potential.

Bishops Square, a major office building in the City, was transferred to the investment portfolio in 2006 following the completion of the tenant’s fit-out works. At 31 December, Hammerson’s share of the property was valued at £511 million, some £233 million above the cost of redevelopment.

During 2006 we completed the redevelopment of 9 place Vendôme, Paris 1er, our 50:50 joint venture office development with AXA and this was also transferred to the investment portfolio. The property provides 22,200m2 of high-quality office accommodation and 5,500m2 of prime retail space and its principal office occupier is international law firm Clifford Chance. The property is now 91% let and Hammerson’s share of the income will amount to £6.2 million after rent-free periods. At 31 December, our interest in the property was valued at £167 million, a surplus of £81 million over the group’s cost of £86 million.

In line with our strategy of recycling assets we sold 11 properties, or interests in properties, raising £628 million in 2006. In aggregate, the proceeds from these sales were £96 million in excess of the book value of the assets at 31 December 2005, of which £52 million related to the Liberty Shopping Centre, Romford. The sales of two properties in Germany leave Forum Steglitz as our sole German asset, the refurbishment of which was completed in December.

valuatiOn data: investment prOpertyFor the year ended 31 December 2006 true properties revaluation capital total initial equivalent at valuation in the year return return yield yield £m £m % % % %

Notes (1) (2)

united Kingdom Retail: Shopping centres 2,090 169 10.5 15.4 4.4 4.8 Retail parks 1,131 66 7.8 12.0 3.7 4.8

3,221 235 9.9 14.6 4.2 4.8

Office: City 997 162 22.0 25.3 2.2 5.1 Other 212 42 24.9 30.6 4.5 5.4

1,209 204 22.5 26.4 2.7 5.2

total united Kingdom 4,430 439 13.2 17.7 3.8 4.9

continental europe France Retail 1,190 161 15.8 21.1 4.4 5.0 Office 489 73 16.9 20.7 3.0 4.7

total France 1,679 234 16.2 21.0 4.0 4.9

Germany Retail 72 (8) (5.8) (5.5) 3.5 6.5

total continental europe 1,751 226 14.5 19.0 4.0 4.9

Group Retail 4,483 388 10.8 15.5 4.2 4.9 Office 1,698 277 20.9 24.7 2.8 5.0

total investment portfolio 6,181 665 13.5 18.0 3.8 4.9

Developments 535 67 31.5 31.4

total Group including developments 6,716 732 14.6 18.8

Notes

(1) Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of property value.(2) The average income return, reflecting the timing of future rental increases, based on current ERV, resulting from lettings, lease renewals and rent reviews, assuming rents are received quarterly

in advance.

Investment portfolio

Business review continued


rental data: investment prOpertyFor the year ended 31 December 2006 Gross net estimated rental rental vacancy rents rental reversionary/ income income rate passing value (Over-rented) £m £m % £m £m %

Notes (1) (2) (3) (4)

united Kingdom Retail: Shopping centres 112.6 96.8 1.1 95.8 104.3 7.7 Retail parks 35.9 34.4 2.7 43.5 52.7 16.7

148.5 131.2 1.7 139.3 157.0 10.6

Office: City 32.3 27.0 3.3 50.9 52.7 (4.8) Other 13.9 11.2 8.3 14.8 15.3 (3.7)

46.2 38.2 4.4 65.7 68.0 (4.5)

total united Kingdom 194.7 169.4 2.6 205.0 225.0 5.6

continental europeFrance Retail 57.0 50.2 2.4 58.6 64.0 6.7 Office 16.7 14.9 11.0 22.0 23.7 (2.1)

total France 73.7 65.1 4.2 80.6 87.7 4.2

Germany Retail 4.4 0.8 26.4 3.0 4.9 3.3

total continental europe 78.1 65.9 5.4 83.6 92.6 4.1

Group Retail 209.9 182.2 2.4 200.9 225.9 9.3 Office 62.9 53.1 5.6 87.7 91.7 (3.9)

total investment portfolio 272.8 235.3 3.4 288.6 317.6 5.2

Income from developments and other sources not analysed above 5.4 2.1

as disclosed in note 2 to the accounts 278.2 237.4

Notes

(1) The ERV of the area in a property, or portfolio, excluding developments, which is currently available for letting, expressed as a percentage of the total ERV of the property or portfolio.(2) The annual rental income receivable from an investment property, after any rent-free periods and after deducting head and equity rents.(3) The estimated market rental value of lettable space in a property after deducting head and equity rents, calculated by the group’s valuers.(4) The percentage by which the ERV exceeds, or falls short of, rents passing together with the estimated rental value of vacant space.

Rental incomeHammerson’s property portfolio generates a secure, high-quality income stream. In 2006 net rental income totalled £237.4 million, whilst at the year end rents passing from the investment portfolio amounted to £288.6 million.

During 2006 we agreed over 140 rent reviews in the UK. We agreed rent reviews in respect of leases with passing rents of £15.6 million, giving rise to an increase in rents of £4.5 million per annum. We anticipate that reviews remaining to be settled from 2006 could increase annual rents by a further £5.4 million. Rents for shopping centre leases in France are indexed annually according to a construction cost index. The index applicable during 2006 was 0.7%, whilst the comparable figure from 1 January 2007 is 7.1%.




lease expiries and breaKs As at 31 December 2006 Weighted average rents passing that expire/break in erv of leases that expire/break in unexpired lease term 2007 2008 2009 2007 2008 2009 to break to expiry £m £m £m £m £m £m years years

Notes (1) (1) (1) (2) (2) (2)

united Kingdom Retail: Shopping centres 7.9 2.5 2.1 9.0 2.7 2.4 9.9 10.6 Retail parks 1.0 0.3 0.3 1.3 0.3 0.4 15.3 15.5

8.9 2.8 2.4 10.3 3.0 2.8 11.8 12.3

Office: City 0.4 2.4 – 0.3 2.2 – 13.9 16.7 Other 2.0 1.4 1.5 2.0 1.5 1.6 6.7 8.9

2.4 3.8 1.5 2.3 3.7 1.6 12.4 15.0

total united Kingdom 11.3 6.6 3.9 12.6 6.7 4.4 12.0 13.3

continental europe France: Retail 5.7 1.9 4.2 7.6 2.3 4.7 1.5 4.9 Office 5.2 1.0 – 5.4 1.0 – 4.4 6.5

total France 10.9 2.9 4.2 13.0 3.3 4.7 2.3 5.3

Germany: Retail 0.2 0.1 0.1 0.2 0.1 0.1 6.9 8.4

total continental europe 11.1 3.0 4.3 13.2 3.4 4.8 2.4 5.4

Group Retail 14.8 4.8 6.7 18.1 5.4 7.6 8.5 10.0Office 7.6 4.8 1.5 7.7 4.7 1.6 10.5 13.0

total Group 22.4 9.6 8.2 25.8 10.1 9.2 9.2 11.0

Notes

(1) The amount by which rental income, based on rents passing at 31 December 2006, could fall in the event that occupational leases due to expire are not renewed or replaced by new leases. For the UK it includes tenants’ break options. For France and Germany, it is based on the earliest date of lease expiry.

(2) The ERV at 31 December 2006 for space that expires or breaks in each year, after deducting head and equity rents and ignoring the impact of rental growth and any rent-free periods.

Almost 120 leases with rents passing of £12.4 million were renewed following expiries in 2006. On renewal, additional annual income of £0.2 million was secured. During 2006, 49 units became vacant within the UK shopping centre portfolio and a further eight units were occupied by retailers which entered administration. Of these units, new leases have been signed in respect of 52, resulting in an increase in annual rents of £0.1 million.

OccupancyAt 31 December 2006, the occupancy rate in the investment portfolio as a whole was 96.6%, an increase of 3.4 percentage points in the year. The increase resulted primarily from lettings at the London office buildings and the inclusion of Bishops Square, which is fully let, following its transfer to the investment portfolio during the year.

Following the surrender in 2005 of the top five floors of 99 Bishopsgate, we refurbished the space vacated. Three of the floors were let during 2006 and the remaining two floors have been let since the year end.

Income security and qualityHammerson’s investment portfolio provides both a secure income stream and substantial growth potential. The weighted average unexpired lease term is 11 years and the overall risk to Hammerson of individual tenant default is low as we have a large number of tenants, generally of good financial standing, with diverse businesses.

The group’s five largest retail tenants by rental income accounted for 10.3% of the passing rent from the investment portfolio at the year end as follows: B&Q 2.8%; Pinault Printemps Redoute 2.2%; Arcadia 2.1%; H&M 1.9%; and DSG Retail 1.3%. Rents passing from our three largest office tenants accounted for 13.8% of the total passing rent from the investment portfolio at 31 December 2006 as follows: Allen & Overy 9.0%; Deutsche Bank 3.6%; and Clifford Chance 1.2%.

Lease expiries and breaksLeases with current rents passing of £40 million are subject to expiry or tenants’ break clauses during the period from 2007 to 2009 as shown in the table opposite. Nevertheless, these expiries are spread throughout the portfolio and there are no instances where the current rent is significantly above market rent. We estimate that, assuming renewals take place at current rental values, additional rents of £5 million per annum would be secured. This is not a forecast and takes no account of void periods, lease incentives or possible changes in rental values before the relevant expiry or break dates.

Rent reviewsThe UK shopping centre portfolio was 7.7% reversionary at 31 December 2006 and the retail parks 16.7% reversionary. The office portfolio in the UK was 4.5% over-rented, principally accounted for by two office buildings, 99 Bishopsgate and Exchange Tower. The retail portfolio in France was 6.7% reversionary and the office portfolio 2.1% over-rented.

In the UK, leases subject to rent review in the three years from 2007 to 2009 have current rents passing of £59 million. We estimate that, on review, rents receivable in respect of these leases would increase by £6 million by 2009 if reviewed at current rental values. This is not a forecast and takes no account of increases or decreases in rental values before the relevant review dates.

The majority of rents in France and Germany are subject to annual indexation.

rent revieWs As at 31 December 2006 rents passing subject to review in projected rent at current erv of leases subject to review in Outstanding 2007 2008 2009 Outstanding 2007 2008 2009 £m £m £m £m £m £m £m £m

Notes (1) (1) (1) (1) (2) (2) (2) (2)

united Kingdom Retail: Shopping centres 15.8 3.3 15.0 13.3 18.7 3.8 16.0 13.8 Retail parks 8.5 8.5 5.8 4.8 10.9 9.9 6.9 5.4

24.3 11.8 20.8 18.1 29.6 13.7 22.9 19.2

Office: City 10.4 0.6 – 3.2 10.4 0.6 – 3.2 Other 5.4 0.3 1.0 2.9 5.5 0.3 1.1 3.3

15.8 0.9 1.0 6.1 15.9 0.9 1.1 6.5

total united Kingdom 40.1 12.7 21.8 24.2 45.5 14.6 24.0 25.7

Notes

(1) The rental income passing at 31 December 2006, after deducting head and equity rents, which is subject to review in each year.(2) The projected rents for space that is subject to review in each year, based on the higher of the current rental income and the ERV as at 31 December 2006, after deducting head and equity rents and

ignoring the impact of changes in rental values before the review date.

Additional contracted incomeHammerson’s cash flow will increase substantially in 2007 and 2008 from leases and contracts that have already been signed. The table below shows additional contracted income on both cash and accounting bases.

2006 2007 2008 2009rents passing £m £m £m £m

Bishops Square, London E1 0.4 13.4 25.6 25.6Other completed offices – UK 0.8 4.1 11.8 13.7Retail parks 0.8 2.1 3.5 5.19 place Vendôme, Paris 0.4 2.4 5.2 5.9Current retail developments – UK – – 1.0 8.7Current developments – France – 0.3 1.0 1.3

total – cash flow 2.4 22.3 48.1 60.3 – accounting basis 18.9 44.1 50.4 60.1

Note: Figures show Hammerson’s share of the income in respect of joint ventures.

The increase in rental income in 2007 of £25.2 million to £44.1 million for those assets shown in the table above, should result in an increase in profit before tax of approximately £10 million after taking account of the associated cost of finance.

There are six major developments underway at present. The income contracted in respect of these projects included in the table above for 2009 is £10 million. On full letting we estimate that passing rents on these schemes will be £71 million, as shown in the table overleaf.


current develOpments

cost to Ownership lettable Forecast 31 december costs to Forecast estimated interest area completion 2006 complete total cost % let passing rent property % m2 date £m £m £m £m

Notes (1) (1) (1) (2)

retailCabot Circus, Bristol 50 92,000 Sep 2008 95 150 245 51 18Highcross Quarter, Leicester 60 60,000 Sep 2008 71 139 210 42 12Union Square, Aberdeen 100 49,000 Sep 2009 40 175 215 28 14Parinor extension, Aulnay-sous-Bois 100 24,100 Apr 2008 17 58 75 21 6Office125 Old Broad Street, London EC2(3) 50 31,000 Dec 2007 (3) 48 45 – 960 Threadneedle Street, London EC2 100 20,400 Nov 2008 32 93 125 – 12

total development properties 252 663 915 71

Costs to date of other development properties 125 Add: Profit realised on 50% disposal of 125 Old Broad Street 46 Add: Revaluation surplus 112

total development properties (note 11 to the accounts) 535

Notes:

(1) Capital costs including capitalised interest.(2) Amount let or under offer by income at 26 February 2007.(3) 125 Old Broad Street cost to 31 December 2006 and forecast total cost shown net of disposal profit of £46 million.

Our objectives from development are threefold: first, to create assets which will generate an attractive initial yield; second, to create assets valued at a surplus above our costs; third, to create prime assets for Hammerson’s portfolio of a type which are rarely offered on the open market.

Real estate development requires us to take a view of future market conditions, anticipate occupiers’ needs, exercise strong project management skills and carefully manage risk. Besides the projects underway at any one time, we aim to maintain and advance a substantial pipeline of future development opportunities.

Through the schemes we have carried out in recent years, Hammerson has built a reputation as one of the foremost developers in the UK and France, managing complex urban regeneration schemes and forging strong links with local authorities.

At 31 December 2006 six developments were underway with an estimated total development cost of £915 million. The value of our development portfolio at 31 December 2006 was £535 million, compared with its cost of £423 million.

We are making good progress at Cabot Circus, Bristol, the 92,000m2 retail-led mixed-use scheme being developed in a 50:50 joint venture with Land Securities Group PLC. Over 50% of the forecast rental income has been secured. Hammerson’s share of the estimated rental income is £18 million and its total development cost £245 million. On completion Cabot Circus will provide a new retail heart to Bristol.

The Highcross Quarter development in Leicester, a 60:40 joint venture with Hermes, started on site in January 2006 and over 40% of the target income has been secured or is in solicitors’ hands. Work is progressing well, with opening scheduled for September 2008 at an estimated total development cost to Hammerson of £210 million. When complete, the project will more than double the size of the existing Shires shopping centre to over 105,000m2.

In July we acquired for £20 million a further 50% interest in the Union Square development in Aberdeen, taking our interest to 100%. The scheme, on a nine-hectare site adjacent to Aberdeen railway station, is a hybrid of a traditional shopping mall and retail park, providing 49,000m2 of space including retail units, leisure and catering and 1,700 car parking spaces. The first phase of development started in November and 28% of the development is let or in solicitors’ hands. The estimated total development cost of the scheme, which is expected to be completed in September 2009, is £215 million and the projected rental income is £14 million per annum.

Current developments



A major extension to the Parinor shopping centre to the north of Paris commenced in October and is expected to be completed in two phases in April and November 2008 at an estimated total development cost of £75 million. The works will increase the area of the scheme to over 90,000m2, benefit retailers in the existing malls and make it the largest shopping centre serving the north of Paris. Just over 20% of the forecast annual rental income of £6 million has been secured. The extension will be anchored by Planète Saturn and Toys ‘ ’ Us.

Construction started in February 2006 on the redevelopment of the former London Stock Exchange at 125 Old Broad Street to provide 29,400m2 of prime office space and 1,600m2 of retail accommodation. Completion is scheduled for December 2007. In November 2006 Hammerson sold a 50% interest in the scheme to two co-investors and the project will now go forward as a joint venture with those investors. The sale raised £75 million before costs and Hammerson is managing the development and will be retained as the asset manager when the building is completed.

In August 2006 demolition work began on the adjacent side at 60 Threadneedle Street and construction work is now underway to create an 18,800m2 nine-storey office building and 1,600m2 of retail space. When completed in November 2008 it will provide excellent modern accommodation in one of the best locations in the City of London.

Future developmentsWe have an excellent pipeline of future development opportunities, which are summarised in the table below. These cover all areas of our business and include: major retail-led city centre regeneration schemes; extensions to existing retail centres; retail parks; and offices. We made good progress in 2006 in advancing many of these schemes through the various feasibility, site assembly and planning stages.

It is anticipated that at least four of these schemes could start in the next three years dependent on site assembly, planning and letting markets. The indicative total development cost of these four projects, which are summarised below, is £1.6 billion, with a projected yield on cost of approximately 7%.

We received planning consent in August for our proposed 105,000m2 mixed-use regeneration of Sheffield city centre. The scheme will be anchored by a John Lewis department store and will also include 100 smaller retail units, up to 200 apartments and 2,200 car parking spaces. Construction of the first phase could start in 2008.

In February 2007 a resolution to grant planning consent was passed for our 100,000m² retail-led regeneration in Leeds city centre. The scheme is centred around the Eastgate & Harewood Quarters of the city, and is to be developed in a 90:10 joint venture between Hammerson and Leeds-based Town Centre Securities. It will be anchored by a 24,000m² John Lewis store and include over 100 retail units, restaurants and bars, a hotel, office accommodation, up to 600 new homes and 2,700 car parking spaces.

The group is currently progressing the Northgate project in Bishopsgate, London E1, having acquired an option to purchase a development site adjoining its existing Norton Folgate site. Hammerson intends to submit a planning application during 2007 for a mixed-use development totalling 100,000m², incorporating approximately 65,000m² of offices.

In France, plans are being worked up for the expansion of our shopping centre at Les 3 Fontaines in Cergy-Pontoise. The scheme will create an additional 30,000m² of space, of which Hammerson’s ownership would be 18,000m², encompassing 15 stores, 50 shop units and 2,200 car parking spaces.

major retail-led schemes

New Retail Quarter, SheffieldEastgate & Harewood Quarters, LeedsQueensgate, PeterboroughEden Quarter, Kingston-upon-ThamesBrent Cross and Cricklewood, London NWCentral Area, Milton Keynes

retail extensions

Espace St Quentin, St Quentin-en-YvelinesItalie 2, ParisLes 3 Fontaines, Cergy-PontoiseWestQuay III, Southampton

retail parks

Fife Central Retail Park, KirkcaldyAbbey Retail Park, BelfastThe Orchard Centre, DidcotManor Walks, CramlingtonNice Lingostière, NiceBerkshire Retail Park, Theale

Offices

Northgate, London E1Shoreditch High Street, London, E1Bishopsgate Goodsyard, London E1Paddington Triangle, London W2Harbour Quay, London E14

Future develOpment pipeline



Financial review

The financial information contained in this review is extracted or calculated from the attached income statement, balance sheet, cash flow statement, other statements, notes and glossary of terms.

Profit before tax and dividendFor the year ended 31 December 2006, profit before tax, which includes property revaluation gains, was £792.4 million, compared with £698.6 million in 2005. The table below shows how adjusted profit before tax, which rose by £5.1 million to £94.5 million, is calculated.

2006 2005 analysis of profit before tax £m £m

profit before tax 792.4 698.6Adjustments: Profit on sale of investment properties (95.8) (32.1)Revaluation gains on investment properties (664.8) (575.5)Goodwill impairment 12.6 –Bond redemption costs 34.0 –Change in fair value of interest rate swaps 16.1 (1.6)

adjusted profit before tax 94.5 89.4

Adjusted earnings per share in 2006 increased by 1.6 pence, or 5.1%, to 32.8 pence, as the growth in net rental income more than offset increased finance and administration costs. Details of the calculations for earnings per share are provided in note 10 to the accounts.

A final dividend of 15.3 pence per share is proposed which, together with the interim dividend of 6.38 pence per share, makes a total of 21.68 pence per share for the year. This is an increase of 10.0% over the total dividend for 2005.

Net rental incomeNet rental income for the year ended 31 December 2006 was £237.4 million, compared with £210.3 million in 2005. Approximately half of the increase was the result of lettings at recently completed developments. The balance principally reflected the contributions from properties acquired over the last two years, in particular the LxB portfolio, and a full year’s rent from Queensgate Shopping Centre, Peterborough, all of which more than offset the rent forgone from properties sold.

The investment portfolio showed a like-for-like increase in net rental income of 3.9%. The table opposite shows the year-on-year movements for the portfolio as a whole.

During 2006, net rental income related to retail tenants’ turnover accounted for £3.2 million of the total; it also included net income of £7.7 million from shopping centre car parks. Rent receivable of £17.5 million has been accrued and allocated to rent-free periods in 2006, including £6.6 million for Bishops Square, which was transferred to the investment portfolio following completion of the tenant’s fit out.

net rental incOme analysisFor the year ended 31 December 2006 properties owned total throughout net rental 2005/06 acquisitions disposals developments income current year £m £m £m £m £m

united Kingdom Retail 97.6 17.6 8.1 7.9 131.2 Office 29.2 0.8 1.4 6.8 38.2

total united Kingdom 126.8 18.4 9.5 14.7 169.4

continental europe France 56.1 6.6 0.1 2.3 65.1 Germany – – 0.9 (0.1) 0.8

total continental europe 56.1 6.6 1.0 2.2 65.9

Group Retail 141.2 24.2 9.0 7.8 182.2 Office 41.7 0.8 1.5 9.1 53.1

total investment portfolio 182.9 25.0 10.5 16.9 235.3

Income from developments and other sources not analysed above 2.4 – (0.9) 0.6 2.1

total portfolio 185.3 25.0 9.6 17.5 237.4

properties owned exchange total throughout translation net rental 2005/06 acquisitions disposals developments difference income prior year £m £m £m £m £m £m

united Kingdom Retail 89.6 3.5 11.7 7.1 – 111.9 Office 27.6 0.7 (0.2) 0.2 – 28.3

total united Kingdom 117.2 4.2 11.5 7.3 – 140.2

continental europe France 58.9 2.4 1.7 (0.1) (0.2) 62.7 Germany – – 2.9 2.3 – 5.2

total continental europe 58.9 2.4 4.6 2.2 (0.2) 67.9

Group Retail 134.0 5.9 14.4 9.5 (0.2) 163.6 Office 42.1 0.7 1.7 – – 44.5

total investment portfolio 176.1 6.6 16.1 9.5 (0.2) 208.1

Income from developments and other sources not analysed above 3.5 (0.1) (0.4) (0.8) – 2.2

total portfolio 179.6 6.5 15.7 8.7 (0.2) 210.3


2006 2005analysis of net asset value £m £ per share £m £ per share

basic 4,165.1 14.60 3,125.8 10.97Effect of dilution: On exercise of share options 8.7 n/a 8.5 n/a

diluted 4,173.8 14.61 3,134.3 10.97Adjustments:Fair value of interest rate swaps 8.8 0.03 (7.3) (0.02)Deferred tax on revaluation surpluses and other items 103.1 0.36 370.3 1.30Deferred tax on capital allowances 0.2 – 36.1 0.12

epra, diluted 4,285.9 15.00 3,533.4 12.37

Basic shares in issue used for calculation (million) 285.2 285.0Diluted shares used for calculation (million) 285.7 285.7

Financial review continued

Administration expensesAdministration expenses in 2006 rose by £4.7 million to £36.1 million. Increases in staff costs and the costs of relocating our head office to 10 Grosvenor Street were partially offset by increased asset management and development management fees receivable.

Net finance costsExcluding the change in fair value of interest rate swaps and the bond redemption costs, net finance costs increased in 2006 by £17.3 million to £106.8 million. This was primarily a result of increased borrowings drawn to fund acquisitions and the development programme. The average cost of borrowing in 2006 was 5.6% and interest cover was 1.8 times in 2006, compared with 1.9 times the previous year.

TaxIn 2006 we have provided for the effects of our adoption of REIT status. The current tax charge includes the one-off entry charge of £101 million, representing approximately 2% of the value of the UK property portfolio at 31 December 2006, which will be paid in four equal quarterly instalments, the first in July of this year. We have released to the income statement deferred tax of £449 million, relating to unrealised UK capital gains and capital allowances, as this is no longer required.

Excluding the REIT impacts, there was a current tax credit of £1.1 million in 2006 which resulted principally from a write-back of foreign tax from prior years. The French tax exemption, capital allowances and capitalised interest continued to shelter profits from tax.

Cash flowThere was a cash inflow from operating activities of £6 million in 2006, compared with £45 million in the previous year. The reduction arose principally from the premium and costs paid for the bond redemption.

Disposals in 2006 raised £628 million, whilst acquisitions and capital expenditure amounted to £501 million. After the net cash outflow of £130 million from financing activities, there was a net decrease in cash and short-term deposits over the year of £6 million.

Balance sheetAt 31 December 2006, the group’s net asset value per share, calculated in line with the recommendations of EPRA, was £15.00, representing an increase of £2.63, or 21.3% over 2005. In 2006, provision was made for the one-off entry charge of £101 million on adoption of REIT status and bond redemption costs of £34 million were incurred. Together these reduced adjusted net asset value per share by 47 pence. Excluding these the increase in adjusted net assets per share would have been 25.1%. The tables below and opposite show how the EPRA measure is calculated and give a breakdown of the increase.


equity shareholders’ funds* epra nav*movement in net asset value (£ million) (£ per share)

31 December 2005 3,533.4 12.37 Revaluation – equity changes 89.0 0.31 – income changes 664.8 2.33 Retained profit (excluding revaluation gains and bond redemption costs) 168.9 0.59 Costs of bond redemption (34.0) (0.12)UK REIT entry charge (100.5) (0.35)Dividend (57.7) (0.20)Exchange loss and other movements 22.0 0.07

31 december 2006 4,285.9 15.00

*Excluding deferred tax and the fair value of interest rate swaps.

FinancingOur financial strategy is to ensure that Hammerson has access to committed finance to meet its capital investment requirements. Our policy is to achieve an appropriate mix of debt and equity capital in order to minimise the group’s weighted average cost of capital. The group’s financial structure is monitored against guidelines which currently include interest cover of at least 1.8 times and gearing no greater than 85% for an extended period.

The group aims to achieve a return on equity in excess of 8%. In order to achieve this return we have established hurdle rates for investment. The hurdle rates are based on a minimum five-year internal rate of return and are adjusted according to risk and to reflect the lower cost of borrowings in euros. The hurdle rates for 2007 range from 7% to 12%.

We aim to manage our exposures to interest and currency rate risks by appropriate hedging policies. We seek to maintain good relationships

with shareholders, bond investors and lenders to ensure that they are able to make informed investment decisions and to assist in minimising the group’s cost of capital.

Hammerson’s financial position remains strong. During 2006 we continued to manage our borrowings with three major new financings:

£300 million 5.25% unsecured bonds due 2016 £330 million five-year sterling bank facility F700 million 4.875% unsecured bonds due 2015

In addition we made a tender offer in May for the 10.75% 2013 bonds, following which almost half their nominal value, or £93.8 million, was redeemed and cancelled at a premium, including costs, of £34.0 million. At the year end, we had undrawn committed facilities of £845 million which, when added to cash and deposits, provided liquidity of £884 million. This may be compared with bonds that mature in 2007 totalling £202 million.

The weighted average maturity of debt at the year end was ten years, 82% of borrowings were at fixed rates of interest and virtually all debt was unsecured. With borrowings of £2,282 million and cash and deposits of £39 million, net debt amounted to £2,243 million at 31 December 2006.

Gearing was 54% compared with 66% at the end of 2005 and the loan to value ratio was 38%. The balance sheet at 31 December 2006 included a deferred tax liability of £103 million. If deferred tax is added back to equity shareholders’ funds, gearing would have been 53%.

The market value of borrowings at 31 December 2006 of £2,373 million was £91 million greater than their book value, equivalent, after tax relief, to a reduction in net asset value of 22 pence per share.



ReturnsIn the table below, we have brought together information on the key returns, including those from joint ventures, we achieved in 2006 and compared them with appropriate benchmark indices.

return %

Portfolio capital return* 14.5Portfolio income return* 3.7Portfolio total return* 18.7

Return on shareholders’ equity 25.3

Total shareholder return over one year 56.9Total shareholder return over three years p.a. 37.4Total shareholder return over five years p.a. 32.3

*UK portfolio only. The IPD data from France was unavailable at the time of publication.

benchmark %

IPD Universe – capital 13.2IPD Universe – income 4.7IPD Universe – total 18.5

Estimated cost of equity 7.8

FTSE 350 real estate index over one year 49.2FTSE 350 real estate index over three years p.a. 37.4FTSE 350 real estate index over five years p.a. 27.0

The IPD Universe includes retail, office and industrial property returns for all grades of property in the UK. We do not invest in the industrial sector. Hammerson outperformed the IPD Universe capital return index principally because of the valuation increases on current and recently completed developments. Income returns were lower than the index as the group invests in prime shopping centres and offices, which provide low initial yields.

In 2006 Hammerson achieved a return on shareholders’ equity of 21.3% after providing for the REIT entry tax charge, but adding back the bond redemption costs. Excluding the one-off tax charge, the return on equity was 25.3%, substantially above the estimated cost of equity at 7.8%. The outperformance in 2006 was principally due to the portfolio revaluation gains in the year.

Total shareholder return for 2006 exceeded the FTSE 350 real estate index by nearly eight percentage points. Over the last five years, Hammerson’s average annual total shareholder return has been 32.3% compared with 27.0% for the real estate index.

Financial review continued

Hammerson creates environments in which people live, work and spend their leisure time. What we build and how we build it has a lasting impact on the environment and the local community. A commitment to corporate responsibility is therefore integral both to Hammerson’s approach to business and its management of risk and we are determined to demonstrate continuous improvement in this area.

Hammerson formally commits to a corporate responsibility and sustainability strategy which is encapsulated within the Hammerson Corporate Responsibility Report published in March 2007. The group recognises its responsibilities to the many organisations, communities and individuals affected by its operations. The group sets high standards for the way in which it conducts its business and manages its relationship with customers and suppliers. In addition, the group has clear policies designed to protect the environment and provide support to the local communities in which it operates. All staff are encouraged to act in a way which supports Hammerson’s aims and objectives, to maximise their own potential and to participate in the group’s charitable activities.

Hammerson’s Corporate Responsibility (CR) Group Hammerson’s multi-disciplinary CR Group is chaired by Hammerson’s Chief Executive and is responsible for overseeing the group’s CR management framework and ensuring that our performance, approach and philosophy are consistent with best practice.

The group meets on a quarterly basis, gives regular reports to the Board and ensures that progress against targets is formally reviewed annually. The group has seven key areas of focus: occupiers and customers; suppliers; local communities; employees; fi nancial stakeholders; environmental; and communications.

We have set three to fi ve-year objectives, alongside annual targets. These targets and objectives are presented to the Board. Responsibility for managing and reporting on those targets has been allocated to senior executives.

Subsidiary working groups have been formed for key impact areas of CR implementation. Individuals throughout the organisation have taken personal responsibility for implementing procedures and achieving specifi c targets and overall group objectives. However, the achievement of our CR objectives is a team effort and the groups work together, sharing their experience and thinking.

Hammerson CR Group – responsibilities Occupiers and customers Head of Hammerson Management Services Suppliers Director of Project Management Local communities Head of Sustainability Employees Director of Human Resources Financial stakeholders Director of Corporate Affairs Environment Managing Director UK Development Communications Director of Corporate Affairs

We have started a programme whereby all members of Hammerson staff will be given specifi c responsibilities for our CR procedures. These will be reviewed as part of individuals’ annual appraisals.

Our commitment to CR is demonstrated by our recent creation of a new position of Head of Sustainability. This executive has assumed responsibility for formulating and implementing the group’s strategy on sustainable development.

Corporate Responsibility

How we manage Corporate Responsibility (CR)

Hammerson CR Group Seven working groups

ChairJohn RichardsChief Executive

Deputy ChairJon Emery Managing Director UK Development

Occupiers/customersSuppliersLocal communitiesEmployeesFinancial stakeholdersEnvironmentalCommunications


Corporate Responsibility continued

Target:

To raise awareness of standards to be achieved for both property design and construction through workshops for project managers.

This target has been achieved. A workshop was held in Bristol with Hammerson’s project management team to discuss the fi ndings of the audit reports on sustainability and to discuss its importance to Hammerson’s business.

Target:

To switch all shopping centre landlord-purchased energy due for renewal in 2006 to a green tariff and communicate this to retailers.

This target has been achieved. All shopping centre landlord- purchased energy was switched to green energy during the year.

Target:

To investigate the potential for use of solar panels to power car park lighting, pumps and signage across Hammerson’s retail parks portfolio.

This target has been largely achieved. During 2006 we appointed advisers to undertake a feasibility study across the portfolio for the installation of solar-powered lighting. As a result of this, all new schemes will include such lighting. Our retail park scheme in Thanet is being used as a pilot.

Target:

All shopping centres within the Hammerson portfolio to engage in a minimum of one education programme or local initiative in 2006.

.

This target was achieved. Among initiatives undertaken during the year, Brent Cross shopping centre, London, engaged in 150 days of educational programmes and local initiatives, including a mentoring programme with Barnet Education and Business Partnership. The Oracle shopping centre, Reading, supported 13 local schools and colleges in educational programmes, including the BBC Reading and Writing campaign to encourage reading and writing for all ages. Queensgate shopping centre, Peterborough, formed an association with the Cambridge and Peterborough Learning Partnership to raise the standards of adult numeracy and literacy through the ‘Skills for Life’ initiative.

In addition to ensuring that progress was made in achieving the group’s 2006 targets, Hammerson’s CR Group has formulated targets for 2007 and three-to fi ve-year objectives for each area of the business. These are also outlined in the full CR report.

Objectives and targets In 2006, our CR objectives were revised and communicated to our staff by John Richards, Chief Executive.

• To enhance long term asset value through sustainable solutions• To increase the attractiveness of our buildings and services to customers, tenants and investors• To lead the property sector through sustainable innovation• To engender a culture of sustainability within out people• To ensure that we maintain a profi table business proposition into the future

A total of 34 targets for 2006 were set across the group’s areas of responsibility and a detailed review of our progress in achieving them is given in Hammerson’s 2006 Corporate Responsibility Report.

Below are examples of progress made with some of those targets.


In 2006 16 of our targets were 100% completed, four were 75% completed and one 50% completed.

Overview of progress against our 2006 CR targets

External benchmarking We undertake independent research to record and monitor the perceptions of our key stakeholders including customers and occupiers, suppliers, staff, business partners and investors. This enables us to improve our working practices and relationships. We also work with external consultants who give us strategic and technical advice on current CR issues.

Hammerson participates in and has received accreditation from a number of external surveys including FTSE4Good, Business in the Community (BITC), Corporate Responsibility Index and Investors in People.

Hammerson joined the London Stock Exchange’s Corporate Responsibility Exchange (CRE) (http://www.londonstockexchange.com/en-gb/products/ irs/cre/CRE.htm) in 2005. This online tool enables us to complete and submit a single questionnaire on our corporate governance, economic, environmental and social performance, and gives investors a single site where they can locate and analyse company data. Hammerson no longer participates in the Dow Jones Sustainability Index as this is not encompassed by the CRE scheme.

Hammerson is a founding member of the Corporate Benchmarking Service, formerly known as the Property Environment Group (PEG). We participate in the annual PEG benchmarking survey undertaken by Upstream, a strategic sustainability consultancy with a specialist focus on the property sector. In 2006 Hammerson came fifth out of nine near peers (real estate companies), achieving an overall average score of 72%. Hammerson also continues to participate in Upstream’s annual Environmental Benchmarking of Shopping Centres survey.

Hammerson’s 2006 CR Report Full details of our approach to corporate responsibility, our activities and performance during 2006, together with our targets, are given in our 2006 Corporate Responsibility Report. The report is available on our website, www.hammerson.com. Hard copies of the report and additional information on the group’s CR activities are available by contacting:

Katharine Sharkey Investor Relations Manager Tel +44 (0) 20 7887 1000 Fax +44 (0) 20 7887 1018

0

5

10

15

20

n/a1007550250

% of target achieved

Source: Upstream 2007

4

6

1

4

16

3



the cOmbined cOdeThe Board is committed to maintaining high standards of corporate governance within the Company. Throughout the year ended 31 December 2006 the Company has complied with section 1 of the Combined Code on Corporate Governance, save that it has taken advantage of the amendments to the Code issued by the Financial Reporting Council in June 2006.

bOard OF directOrsThe Board operates within the terms of its written authorities, which include a schedule of matters reserved for the approval of the Board. The Board currently consists of the Chairman, six Executive Directors and five Non-Executive Directors. Following the forthcoming retirements of John Barton and John Bywater and the appointment of Jacques Espinasse, the Board will comprise the Chairman, five Executive and five Non-Executive Directors. The Board meets not less than ten times during the year. Non-Executive Directors are encouraged to communicate directly with Executive Directors between formal Board meetings and, in addition to these regular Board meetings, the Board holds an annual strategy meeting at which it considers the future direction of the Company. All Directors are expected to attend all meetings of the Board, and of those Committees on which they serve, and to devote sufficient time to the Company’s affairs to enable them to properly fulfil their duties as Directors. However, on occasion, it may be necessary to convene or rearrange meetings at short notice which may preclude directors from attending. All Directors were present at all meetings of the Board held during the year. The roles and responsibilities of the Chairman, Chief Executive, Executive Directors and Non-Executive Directors are clearly defined and documented.

The Board has ultimate responsibility for Hammerson’s overall management and its business and financial strategy and there is a formal schedule of matters reserved for its approval, including:

• strategy;

• acquisition and divestment policy;

• approval of major capital expenditure projects;

• risk management;

• internal control;

• treasury and the raising of finance;

• human resources; and

• corporate governance.

Other specific responsibilities are delegated to the Audit, Remuneration and Nomination Committees and documented in their terms of reference. The procedures and accountability for these matters are set out in the Company’s operations and control manuals. A schedule of routine matters to be addressed by the Board and its Committees is agreed on an annual basis and information is supplied to the Board and its Committees in a manner that enables them to fulfil their responsibilities. Presentations on business and operational issues are made regularly to the Board by senior management.

Corporate governance

resOurcesAll Directors have access to independent professional advice and to the advice and services of the Company Secretary who is responsible to the Board for advice on corporate governance matters and for ensuring that Board procedures are followed and that the Company and the Board operate within applicable legislation, rules and regulations. The Company Secretary is also responsible for facilitating the programme of director induction and professional development and Board performance evaluation. The appointment and removal of the Company Secretary is a matter requiring approval of the Board.

The Company maintains Directors’ and officers’ liability insurance, which is reviewed annually. The Company’s Directors and officers are adequately insured in line with the guidelines produced by the Institute of Chartered Secretaries and Administrators. In accordance with the Company’s Articles of Association, Directors are required to submit themselves for election at the first opportunity after their appointment and thereafter for re-election at least every three years.

traininG and develOpmentAll Directors are kept informed of changes in relevant legislation and changing commercial risks with the assistance of the Company’s legal advisers and auditors where appropriate. During the year under review, this has included consideration of Directors’ responsibilities, the Listing, Prospectus and Disclosure Rules, the market abuse regime, the Transparency Directive and the Companies Act 2006. The professional development requirements of Executive Directors are identified and progressed as part of each individual’s annual appraisal. Non-Executive Directors are encouraged to attend seminars and undertake external training at the Company’s expense in areas they consider to be appropriate for their own professional development and a record of this is maintained. Each year, the programme of Board meetings is tailored to enable some Board meetings to be held at the Company’s properties. During 2006, the Board made visits to Bicester, Bristol, Gloucester and Paris.

bOard eFFectivenessThe effectiveness of the Board and its Committees is vital to the success of the Company and they therefore monitor and evaluate their own performance and the contribution made by individuals. An external evaluation of the Board’s effectiveness and procedures, and those of its Committees, was undertaken in 2006 by ICSA Corporate Services Limited. The evaluation concluded that the Board and its Committees were operating effectively.

The Chairman meets as necessary, but at least once each year, with the Non-Executive Directors without Executive Directors present. The Non-Executive Directors meet annually without the Chairman in order to appraise his performance. This meeting is chaired by the Senior Independent Director.

nOn-executive directOrsThe Board is satisfied that the Non-Executive Directors, each of whom is independent from management and has no material commercial or other connection with the Company, are able to exercise independent judgement. Their experience, gained from varied commercial backgrounds, enables them to make a valuable contribution to the Company. The Chairman holds other positions which are set out on page 12. The Board is satisfied that these appointments do not adversely affect his commitment as the Company’s Chairman.


[Section 06]

There is an induction programme in place which is tailored to the specific requirements of newly appointed Non-Executive Directors. On their appointment, Non-Executive Directors meet with the Chairman and the Chief Executive and are provided with briefings on their responsibilities as Directors and on the Company’s business, finances, risks, strategy, procedures and the markets in which the Company operates. Non-Executive Directors also meet with representatives from the Company’s auditors and advisers and with members of senior management who provide further information on the Company’s operations including visits to the Company’s properties.

relatiOns With sharehOldersThe Company has an active dialogue with its shareholders through a programme of investor meetings including formal presentations of the full year and interim results. Non-Executive Directors are available to attend meetings if requested to do so by shareholders and may attend meetings between shareholders and management if desired. The Board receives reports of meetings with institutional shareholders. This process and reporting enables the Directors to obtain the required understanding of the views of shareholders. John Barton is the Senior Independent Director as defined in the Code and is available to shareholders if the normal channels of contact are inappropriate for whatever reason. In this role he would deputise for the Chairman in his absence and is available to advise and counsel particularly Non-Executive, but also Executive, colleagues. He is a member of the Remuneration and Nomination Committees. Following John Barton’s retirement on 3 May 2007, John Clare, who is a member of the Audit, Remuneration and Nomination Committees, will become the Senior Independent Director. Shareholders are invited to ask questions at the Company’s Annual General Meeting and meet the Directors informally after the meeting. The number of proxy votes cast in resolutions is announced at the Annual General Meeting and published on the Company’s website.

external appOintmentsExecutive Directors are encouraged to take non-executive positions in other companies, subject to the approval of the Board, to broaden their experience. During the year, Simon Melliss and John Bywater held the following external appointments in respect of which they retain the fees payable recognising the personal commitment and expertise required for such positions.

Simon Melliss is a member of the Committee of Management of Hermes Property Unit Trust for which he received a fee of £20,000 in 2006. He was also a non-executive director of Associated British Ports Holdings PLC for which he received a fee of £35,000 p.a. until his resignation in August 2006.

John Bywater is a non-executive director of Workspace Group plc for which he received a fee of £33,000 in 2006 and, until 31 December 2006, was a non-executive director of Land Management Limited for which he received a fee of £10,000 p.a. Since the year end he has been appointed a non-executive director of West Bromwich Building Society and British Waterways Board for which he receives fees of £35,000 and £14,390 p.a. respectively.

standinG cOmmittees OF the bOardThe Board has Audit, Remuneration and Nomination Committees, each of which has written terms of reference which are regularly reviewed and which deal clearly with their authorities and duties. A formal review is undertaken annually. Copies of these terms of reference are available on the Company’s website. Each of these Committees is comprised of Non-Executive Directors of the Company.

the audit cOmmitteeThe Audit Committee is responsible for ensuring that management has systems and procedures in place to ensure the integrity of financial information. The Committee maintains an appropriate relationship with the Group’s external auditors and reviews the effectiveness, objectivity and independence of the external auditors and considers both the scope of their work and the fees paid to them for audit and non-audit services. The Committee reviews the Company’s internal audit arrangements, internal financial controls and the audit process.

The Committee has access to employees and all documentation and information it may require. Members of the Committee may, in pursuit of their duties, take independent professional advice on any matter at the Company’s expense.

Committee MembershipThe Committee currently comprises:

Name Date of appointment

John Hirst (Chairman) 6 May 2004John Clare 26 February 1999David Edmonds 8 May 2003

Jacques Espinasse will become a member of the Committee on 1 May 2007.

Members of the Committee are appointed by the Board on the recommendation of the Nomination Committee. Its terms of reference are set by the Board and are modelled closely on those recommended by the Institute of Chartered Secretaries and Administrators. The Company Secretary is secretary to the Committee.

John Hirst, the Chairman of the Committee, is a Chartered Accountant and the Board is satisfied that he has the required recent and relevant experience. All Audit Committee members are expected to be financially literate.

MeetingsThe Committee meets at least four times each year. During 2006 it met on four occasions and all members of the Committee attended all meetings.

The Chairman of the Company, the Chief Executive, the Group Finance Director, and other senior finance management together with senior representatives of the external auditors are invited to attend all meetings. Other Executive Directors and senior management are invited to present such reports as required by the Committee.

The Audit Committee Chairman reports the outcome of meetings to the Board.

The Committee meets with the external auditors in the absence of management at least once each year.



Review of the YearIn order to fulfil its duties as defined in its terms of reference, the Audit Committee receives presentations and reviews reports from the group’s senior management, consulting as necessary with the external auditors.

During the year, the Committee reviewed the draft interim and annual reports and associated interim and preliminary year-end results announcements prior to their approval by the Board.

These reviews considered the application of the Company’s accounting policies and practices and any changes to them, major judgemental areas, significant adjustments resulting from the audit and going concern assumptions. The reviews also included consideration of the group’s compliance with statutory tax obligations, compliance with accounting standards and with regulatory requirements, the statement on internal control, property valuations and clarity of disclosure.

The Committee is required to assist the Board to fulfil its responsibilities relating to the adequacy and effectiveness of the control environment and the group’s compliance with the Combined Code. To fulfil these duties, the Committee reviewed:

• the external auditor’s management letters;

• internal audit reports, including recommendations arising from them and the review of progress in implementing previous recommendations; and

• reports on the systems of internal controls and the risk management framework.

The Audit Committee is responsible for the development, implementation and monitoring of the group’s policy on external audit in which is set out the categories of non-audit services which the external auditors will, and will not, be allowed to provide to the group. To fulfil its responsibilities regarding the external auditors, the Committee reviewed:

• the scope of the audit as set out in the external auditors’ engagement letter for the forthcoming year;

• the external auditors’ overall work plan for the forthcoming year;

• the external auditors’ fee proposal;

• a report from the external auditors describing their arrangements to identify, report and manage any conflicts of interest;

• the extent of non-audit services provided by the external auditors;

The Committee has recommended to the Board that the external auditors should be reappointed.

remuneratiOn cOmmitteeThe Remuneration Committee comprises John Barton (Chairman), John Clare, John Nelson and Tony Watson. Tony Watson was appointed to the Committee on 1 February 2006 and John Nelson was appointed to the Committee on 21 July 2006 following a revision to the Combined Code permitting company chairmen to be members of remuneration committees. Following John Barton’s retirement on 3 May 2007, John Clare will become Chairman of the Committee.

Corporate governance continued

The Committee met five times during 2006 and all members of the Committee attended all meetings which they were eligible to attend, with the exception of Tony Watson who was unable to attend one meeting. It reviews the terms and conditions of employment of the Executive Directors and senior management. The report of the Remuneration Committee is given on pages 60 to 67. The Chief Executive (other than in respect of his own position) is invited to attend the meetings.

nOminatiOn cOmmitteeThe Nomination Committee comprises John Nelson (Chairman), John Barton and John Clare. Following John Barton’s retirement on 3 May 2007, Tony Watson will become a member of the Committee. All members of the Committee were present on each of the three occasions on which the Committee met in 2006. The Committee undertakes an annual review of succession planning and ensures that the membership and composition of the Board, including the balance of Executive Directors and Non-Executive Directors, continues to be appropriate. This review includes consideration of the independence of Non-Executive Directors and of the balance of skills and knowledge required of both Executive Directors and Non-Executive Directors. During the year, on the recommendation of the Committee, the appointment of David Atkins as an Executive Director with effect from 1 January 2007 was approved by the Board. This followed a thorough review of internal and external candidates with the assistance of external recruitment consultants. Following a review of the composition of the Board and consideration of potential candidates, the Committee recommended the appointment of Jacques Espinasse as a Non-Executive Director with effect from 1 May 2007. As part of this review, the Committee recommended that John Clare should be appointed as the Senior Independent Director and that Jacques Espinasse and Tony Watson should be appointed members of the Audit and Nomination Committees respectively.

Other cOmmitteesIn addition to the principal committees referred to above, the Board has established committees to deal with share plan administration, compliance with the Listing, Prospectus and Disclosure Rules and the administrative arrangements required for financing.

external auditOrsThe Company’s external auditors are Deloitte & Touche LLP. The audit partner responsible for the Company’s audit matters is changed every five years in accordance with the Ethical Standards issued by the Auditing Practices Board. In forming their opinion on the independence and objectivity of the external auditors, the Audit Committee takes into account the safeguards operating within Deloitte & Touche LLP. Under the Company policy governing the provision of non-audit services by the external auditors, they may not provide a service which places them in a position where they may be required to audit their own work.


Where non-audit services are provided, the fees are based on the work undertaken and are not success related. Regard is had to the nature of and remuneration received for other services provided by Deloitte & Touche LLP to the Company and, inter alia, confirmation is sought from them that the fee payable for the annual audit is adequate to enable them to perform their obligations in accordance with the scope of the audit. In respect of the year ended 31 December 2006, the auditors’ remuneration comprised £590,400 for audit work and £112,550 for other work.

The Audit Committee has reviewed the briefing paper on effective communication between audit committees and external auditors issued in September 2002 by the Auditing Practices Board and, having considered the recommendations of the briefing paper with the external auditors, has concluded that the relationship between the Audit Committee and Deloitte & Touche LLP is in accordance with the objectives contained therein.

trustees OF the pensiOn schemeThe Company’s principal pension scheme, The Hammerson Group Management Limited Pension & Life Assurance Scheme, is administered by two corporate trustees. One is an independent trustee. The other is a subsidiary of the Company which has five directors. The Chairman of this subsidiary is David Edmonds, one of the Company’s Non-Executive Directors. Graham Pimlott, a former Non-Executive Director, is also a director of this subsidiary and the remaining directors are employees, but not directors, of the Company. The Scheme’s funds are invested and managed independently of the Company.

This Scheme was closed to new entrants on 31 December 2002 following which a Group Personal Pension Plan was established for new employees.

ethical behaviOurAll employees are required to follow the Company’s Code of Conduct which is designed to ensure that the Company complies with all laws and regulations, acts fairly in its dealings with third parties, maintains integrity in financial reporting, treats employees fairly and encourages them to undergo training and development and operates a control framework that includes environmental and health and safety policies.

internal cOntrOlThe Board has ultimate responsibility for the group’s system of internal control and for reviewing its effectiveness. This system is designed to safeguard assets against unauthorised use or disposition, ensure the maintenance of proper accounting records, provide reliable financial information and ensure compliance with relevant legislation and regulations.

There is a regular review process throughout the year of the effectiveness of the group’s system of internal controls, including financial, operational and compliance controls and risk management, although any such system can only provide reasonable and not absolute assurance against material misstatement or loss. This system is designed to manage the achievement of business objectives.

The group has established, and the Board regularly reviews, a risk management framework and procedures necessary to enable the Directors to report on internal controls in compliance with the Code. The risk management procedures involve the analysis, evaluation and management of the key risks to the group and include plans for the continuance of the Company’s business in the event of unforeseen interruption. The Board has allocated responsibility for the management of each key risk to Executive Directors and senior executives within the group who report on these risks to the Board. Any recommendations arising from such reports and reviews are implemented under the supervision of the Board.

The Company conducts internal audit activities through a programme of reviews principally undertaken by BDO Stoy Hayward, but also on occasion by Company employees. The reviews are overseen and co-ordinated by an Internal Controls and Risk Management Committee. The Committee comprises executives from the finance and operational parts of the business, is chaired by the Group Finance Director, and is intended to ensure that internal control is integrated into Hammerson’s daily operations. The Audit Committee has reviewed these arrangements and is satisfied that they provide an appropriate overview of the Company’s internal control procedures.

The other key elements of the group’s system of internal control are as follows:

• regular meetings of the Board and the Audit Committee whose overall responsibilities are set out above;

• a management structure that is designed to enable effective decision making with clearly defined responsibilities and limits of authority. The monthly meetings of the Executive Directors and of the management boards in the UK and France are an important part of this structure;

• the maintenance of operational control manuals setting out a control framework for management to operate within and containing guidance and procedures for the group’s operations; and

• the measurement of the group’s financial performance on a regular basis against budgets and long-term financial plans.

The Company has ‘whistleblowing procedures’ under which staff may report any suspicion of fraud, financial irregularity or other malpractice. The Company subscribes to the independent charity, Public Concern at Work, so that staff may have free access to their helpline.

The system of internal control and the effectiveness thereof have been reviewed by the Board for the year under review and during the period up to the date of this report and the process accords with the Turnbull guidance.

By Order of the Board

Stuart Haydon Secretary 9 March 2007


directOrs’ respOnsibilities in respect OF the preparatiOn OF the Financial statementsThe Directors are responsible for preparing the Annual Report and the consolidated financial statements for the group in accordance with International Financial Reporting Standards (IFRS), company law and relevant regulations. They have chosen to continue to prepare the accounts for the Company in accordance with United Kingdom Generally Accepted Accounting Practice.

International Accounting Standard 1 requires that financial statements present fairly for each financial year the group’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definition and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s “Framework for the preparation and presentation of financial statements”. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards.

Directors are also required to:

• select and apply appropriate accounting policies;

• present relevant, reliable, comparable and understandable information, including accounting policies; and

• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

In the case of UK GAAP company accounts, the Directors are also required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to select suitable accounting policies and apply them consistently, to make judgements and estimates that are reasonable and prudent and to state whether applicable accounting standards have been followed.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report and Directors’ Remuneration Report which comply with the requirements of the Companies Act 1985. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors’ responsibilities


Directors’ report

[Section 06]

The Directors submit their Report and the audited financial statements for the year ended 31 December 2006.

1. results FOr the yearThe results for the year are set out in the consolidated income statement on page 70.

2. dividendsThe Directors recommend a final dividend of 15.30 pence per share which, together with the interim dividend paid on 20 October 2006, will make a total dividend for the year of 21.68 pence (2005: 19.71 pence). It is intended that warrants in respect of the final dividend will be posted on 11 May 2007 for payment on 14 May 2007 to shareholders on the register at the close of business on 13 April 2007.

3. principal activities and Future prOspectsThe principal activities of the Company have continued to be property investment and development. The Chairman’s Statement, Chief Executive’s Statement, Business Review and Financial Review should be read in conjunction with this Report.

4. business revieWA detailed review of the business of the group and a description of the principal risks and uncertainties facing it including an analysis of the development and performance of the Company during the year and the position of the Company at the year end including analysis using key performance indicators and any other information required to fulfil the requirements of the Business Review can be found on pages 17 to 19 and 37 to 48, which are incorporated into this report by reference.

5. Fixed assetsChanges in tangible fixed assets during the year are set out in notes 11 and 12 to the financial statements on pages 85 and 86, whilst details of Hammerson’s property portfolio are provided on pages 105 to 108.

6. share capitalChanges in the Company’s share capital are set out in note 22 to the financial statements on pages 96 and 97. On 31 December 2006 there were 285,201,940 ordinary shares of 25 pence each in issue.

7. purchase OF OWn sharesThe Company was granted authority at the Annual General Meeting in 2006 to purchase its own shares up to a total aggregate value of 15% of the issued nominal capital. That authority expires at the 2007 Annual General Meeting and a resolution will be proposed for its renewal. The Company did not purchase any of its shares during the year.

8. GOinG cOncernAfter making appropriate enquiries, the Directors have a reasonable expectation that the Company has the resources to continue in business for the foreseeable future. Therefore, the financial statements have been prepared on the going concern basis.

9. substantial interests in the share capital OF the cOmpanyAt 1 March 2007 the following substantial interests in the issued share capital of the Company had been notified:

Percentage Ordinary shares of total of 25p each issued capital

Legal & General Group PLC 16,079,372 5.64%Stichting Pensionenfonds ABP 14,821,552 5.20%


Directors’ report continued

10. directOrsThe Directors of the Company and biographical details are shown on pages 12 and 13. John Nelson, John Richards, John Barton, John Bywater, John Clare, Peter Cole, Gérard Devaux, David Edmonds, John Hirst and Simon Melliss served throughout the year.

Tony Watson was appointed as a Non-Executive Director with effect from 1 February 2006. David Atkins was appointed as an Executive Director on 1 January 2007 and Jacques Espinasse has been appointed as a Non-Executive Director with effect from 1 May 2007.

John Bywater will be retiring as a Director on 31 March 2007. Gérard Devaux, David Edmonds, John Hirst and Simon Melliss who retire in accordance with the Articles of Association, and David Atkins and Jacques Espinasse, who retire having been appointed since the last Annual General Meeting, offer themselves for re-election at the forthcoming Annual General Meeting. David Atkins, Gérard Devaux and Simon Melliss are Executive Directors. John Hirst is a Non-Executive Director and Chairman of the Audit Committee. Jacques Espinasse will be a Non-Executive Director and member of the Audit Committee.

John Richards, David Atkins, John Bywater, Peter Cole and Simon Melliss have service agreements with the Company. Gérard Devaux’s appointment is governed by a deed of appointment. The appointments of the Non-Executive Directors, including the Chairman, are governed by letters of appointment. Details of the service agreements and the letters of appointment are set out in the Remuneration Report on page 64. Details of the Directors’ interests in the share capital of the Company are set out in paragraph 11 below.

11. directOrs’ interestsThe beneficial interests of the Directors in the ordinary shares of the Company are set out below: 1 March 31 December 1 January 2007 2006 2006

John Nelson 10,000 10,000 10,000

John Richards 77,582 72,896 39,907

John Barton 6,000 6,000 6,000

John Bywater 34,685 34,685 17,739

John Clare 7,000 7,000 7,000

Peter Cole 30,257 26,981 23,036

Gérard Devaux 66,991 65,164 73,286

David Edmonds 4,000 4,000 4,000

John Hirst 2,455 2,455 1,455

Simon Melliss 42,152 38,876 27,283

Tony Watson – – –

In addition, as beneficiaries under the discretionary trust which holds shares to satisfy awards under the Company’s various share incentive scheme, each of John Richards, David Atkins, John Bywater, Peter Cole, Gérard Devaux and Simon Melliss had an interest on 31 December 2006 in the 735,137 shares held by that trust (1 January 2006: 740,083).

No contract existed during the year in relation to the Company’s business in which any Director was materially interested.

David Atkins, who was appointed a Director on 1 January 2007, had a beneficial interest in 1,704 ordinary shares of the Company on that date and 2,493 ordinary shares on 1 March 2007.

12. directOrs’ remuneratiOnDetails of the remuneration and share options of each of the Directors are set out in the Remuneration Report on pages 60 to 67.

13. dOnatiOnsDuring the year Hammerson made charitable donations in the United Kingdom of £117,944 (2005: £112,670). Under the Company’s charitable donations policy, donations are made to a variety of social, medical and arts charities and to charities connected to localities in which the Company is represented. In addition to these charitable donations, the Company provides financial assistance to other projects of benefit to the community. Political donations are not made.

14. creditOr payment pOlicyIt is the Company’s policy and practice that the terms of payment to suppliers are agreed in advance of the supply of any goods and services and that payments are made in accordance with those terms and conditions provided that the supplier has also complied with them. At 31 December 2006, the Company had 24 days’ (2005: 25 days’) purchases outstanding.

Annual Report 2006 59[Section 06]

15. Financial instrumentsDetails of the financial instruments used by the group are set out in note 20 to the financial statements on pages 93 to 95.

16. reGistered OFFiceOn 23 June 2006 the Company’s registered office was changed to 10 Grosvenor Street, London W1K 4BJ.

17. auditOrsDeloitte & Touche LLP are willing to be reappointed as auditors to the Company and a resolution concerning their reappointment will be proposed at the Annual General Meeting. Their reappointment has been considered and recommended by the Audit Committee.

18. disclOsure OF inFOrmatiOn tO auditOrsEach of the persons who is a Director at the date of approval of this report has confirmed that:

• so far as he is aware, there is no relevant audit information of which the Company’s auditors are unaware; and

• he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

This confirmation has been given and should be interpreted in accordance with the provisions of s234ZA of the Companies Act 1985.

19. annual General meetinGThe Annual General Meeting will be held on Thursday 3 May 2007 at 10 Grosvenor Street, London W1K 4BJ at 10.30am. The Notice of Meeting and the explanatory notes can be found in a separate notice sent to all shareholders.




Remuneration report

The Directors submit their report on remuneration for the year ended 31 December 2006.

This report has been approved and adopted by the Board and has been prepared in accordance with the requirements of s234B of the Companies Act 1985 (as amended by The Directors’ Remuneration Report Regulations 2002 (‘the Regulations’)) and the Listing, Prospectus and Disclosure Rules. The information, the headings of which have been noted with an asterisk, is subject to audit in accordance with the Regulations.

the remuneratiOn cOmmittee The Remuneration Committee’s responsibilities are set out in its terms of reference which are available on request to shareholders and on the Company’s website. These responsibilities include determination of company policy on the remuneration of Executive Directors and approval of the composition and level of remuneration of Executive Directors and certain senior executives. This includes an annual review of all incentive plans to ensure that they remain appropriate to the Company’s current circumstances and prospects. The Board has accepted, without amendment, the Committee’s recommendations relating to remuneration policy.

cOmmittee membershipThe Committee currently comprises John Barton (Chairman), John Clare, John Nelson and Tony Watson. John Nelson was appointed on 21 July 2006 following a revision to the Combined Code permitting company chairmen to be members of remuneration committees. John Nelson was considered independent on his appointment as Chairman in 2005 and the Board considers each of the other members of the Committee to be independent. The Committee met on five occasions during 2006.

Following John Barton’s retirement on 3 May 2007, John Clare will become Chairman of the Committee.

remuneratiOn pOlicyIn determining an appropriate remuneration policy for recommendation to the Board, the Committee’s objective is to ensure that the Company continues to attract, retain and motivate experienced individuals, capable of making a major contribution to Hammerson’s success. Remuneration for Executive Directors and senior executives takes account of performance through an annual performance-related bonus scheme and, for long- term performance, by the award of shares under a long term incentive plan. The Board’s intention is that Executive Directors and senior executives should build a shareholding in the Company with a value equivalent to at least their annual basic salary.

In implementing the policy, following its approval by the Board, the Committee takes into account remuneration packages available within other comparable companies, the Company’s overall performance, achievement of corporate objectives, individual performance and published views of investors and their representatives.

advisersAs referred to below, New Bridge Street Consultants LLP were appointed by the Committee during the year to assist in a review of remuneration policy. They have provided no other services to the Company during 2006.

John Richards attends all meetings of the Committee by invitation, except when his own remuneration is being discussed, to provide information and advise on strategy and performance and on remuneration strategy for senior executives. The group’s Director of Human Resources attends certain meetings by invitation.

remuneratiOn cOmmittee – revieW OF the yearDuring the year, the Remuneration Committee appointed New Bridge Street Consultants LLP to undertake a review of the Company’s remuneration policy, with particular reference to its application to Executive Directors and senior management.

This review concluded that variable remuneration, in the form of bonus and long-term incentive plans, was low compared to market levels, the consequence of which was to depress total remuneration below median levels.

It is the Committee’s objective, having regard to the views of investors, that the Company’s remuneration policy should provide for median, or below median, basic salary but with the opportunity to increase total potential remuneration for superior performance through variable remuneration in the form of bonus and long-term incentives.

In conjunction with New Bridge Street Consultants LLP, the Committee has therefore designed a Long-Term Incentive Plan which will initially use a combination of total shareholder return and total property return as performance measures in order to provide a challenging target which will enable an appropriate level of reward to be paid for superior performance. The Company’s leading institutional shareholders and their representative bodies were consulted prior to these proposals being finalised and they have indicated that they are supportive of them.

The proposed new Long-Term Incentive Plan, which will replace the existing Deferred Share Plan, provides for conditional awards of Performance Shares worth up to 200% of salary (with a 300% limit in exceptional circumstances) although the Committee has no current intention to make awards worth more than 150% of salary.


The Committee has considered various performance measures and has concluded that a combination of Total Shareholder Return (‘TSR’) performance (thus aligning the interests of Directors with shareholders) and Total Property Return (‘TPR’) (to focus on the underlying property returns) is appropriate. For Executive Directors, one half of the award will be based on each of these performance measures over a single three year performance period.

TPR performance will be measured over three financial years commencing with the year of grant and will be compared to a composite index comprising Investment Property Databank’s (‘IPD’) Annual UK Index and Annual France All Property Index, the relative composition of which will potentially vary with each grant to ensure that it reflects the Company’s portfolio. For the initial grant it is intended that the ratio will be 70% UK and 30% France. Vesting under the TPR performance condition will be as follows:

less than index 0%equal to index 25%index + 0.5% (average) p.a. 55%index + 1.0% (average) p.a. 85%index + 1.5% (average) p.a. 100%

Vesting for intermediate performance will be pro-rata on a straight-line basis.

Prior to each grant, the Committee will consider this range of targets to ensure they remain appropriate in the light of experience and anticipated future performance.

TSR performance will be measured over a single three year period from the date of grant, in comparison with a comparator group currently comprising 17 entities, including some European real estate companies.

Vesting under the TSR performance condition will be as follows:

Below TSR of median-ranked entity 0%Equal to TSR of median-ranked entity 25%Equal to TSR of upper quartile-ranked entity 100%

Awards between median and upper quartile entities will be on a sliding scale between 25% and 100%.

The level of threshold vesting will apply only for awards with a face value of up to 150% of salary (i.e. with a maximum threshold vesting of 37.5% of salary) and for larger awards (other than when used on recruitment) the vesting at threshold will not exceed 37.5% of salary.

The Committee has also reviewed the existing Executive Share Option Scheme and has concluded that awards to certain UK employees, except Directors, under a Restricted Share Plan would provide a more appropriate reward and an opportunity to build up a shareholding in the Company for those employees who currently participate in the Executive Share Option Scheme. Accordingly a Restricted Share Plan, under which grants of conditional share awards which will vest on the third anniversary of grant (subject to continued employment) will be introduced for certain UK employees at the same time as the new Long Term Incentive Plan.

For French employees, a scheme appropriate to French legislation governing share schemes under which awards vest two years after grant, subject to the satisfaction of a performance target, has been introduced following approval at the Company’s 2006 Annual General Meeting.

The Committee also reviewed the effect of ‘A’ Day on the pensions of Executive Directors. Details of pension arrangements are set out on page 66 of this report.

remuneratiOn OF executive directOrs and seniOr executivesThe remuneration packages for senior staff, including Executive Directors, consist of the following elements and are structured to reward corporate and individual performance. Details of all payments to Executive Directors, which are disclosed in the table on page 65, show the relative values of basic and performance-related elements of remuneration.

basic salary and beneFitsBasic salaries for Executive Directors and other senior executives are reviewed by the Committee, normally annually or otherwise on promotion, having regard to responsibility, competitive market practice, company and individual performance and independently compiled salary survey information. Benefits include the use of a company car or the provision of a car allowance, medical insurance and life assurance cover.


annual perFOrmance-related bOnus scheme*Full-time staff throughout the Company, including Executive Directors, participate in a performance-related bonus scheme. Payments under the scheme, which are not pensionable, are based on the achievement of profit, net asset value and operational targets. The amount payable to Executive Directors in any one year could be up to 100% of their basic salary, with 60% of the payment receivable in shares in the Company of which half vest immediately and half vest two years after the date of grant.

Between 1 January 2006 and 1 March 2007 the following shares were issued to Executive Directors under the bonus scheme, based on the achievement of performance targets in respect of the previous financial year: Number of shares

Date of grant 1 March 2006 1 March 2007

John Richards 4,669 4,686

David Atkins 694 789

John Bywater 2,847 –

Peter Cole 2,935 3,276

Gérard Devaux 2,310 1,827

Simon Melliss 3,095 3,276

deFerred share plan*Provided the recommendation for the introduction of the Hammerson plc 2007 Long-Term Incentive Plan referred to above is approved by shareholders at the forthcoming Annual General Meeting, no further options will be granted under the existing Deferred Share Plan. Executive Directors and senior executives have been awarded shares under the Hammerson plc Deferred Share Plan (‘the Plan’). The Plan was established to align the rewards received by participants to the Company’s financial performance and provide them with the opportunity to build a holding of shares in the Company. Following the introduction of the Plan, participants are no longer eligible for grants of options under the Company’s share option schemes which are described below. The Committee approves awards under the Plan by way of nil cost options. The annual value of awards under the Plan are set to a maximum of 95% of salary. Under the terms of the Plan, the actual number of shares received by participants is based on the comparative total shareholder return performance of the Company against a peer group of the eight largest quoted UK property companies, including Hammerson.

There will be no vesting of shares unless the Company’s performance is in the top half of the comparator group and there will be a progressive vesting schedule according to the Company’s ranking within the top half of the comparator group as follows: % ofRanking shares vesting

1st 100.002nd 83.333rd 66.674th 50.00

The Plan is administered by a Trustee which has acquired shares, financed by drawing down interest-free loan facilities from the Company, to satisfy the issue of shares to participants under the Plan and other share incentive schemes. During the year, the Company financed the purchase of 300,000 shares for the Trust by a loan of £3,951,943. At 31 December 2006 the Trustee held 735,137 shares, 304,946 shares having been used during the year for payments under the Plan and other share incentive schemes. Under the terms of the Trust, the Trustee is obliged to waive dividends on this holding of shares, except for a nominal amount.

At 31 December 2006 the maximum number of shares that could be awarded to Executive Directors under all grants made under the Plan to date was as follows: Maximum number of shares

Date of grant 11 May 2004 8 March 2005 1 March 2006

John Richards 55,165 46,685 38,700

David Atkins 13,273 13,600 10,934

John Bywater 31,523 26,600 21,183

Peter Cole 33,672 28,771 27,701

Gérard Devaux 32,956 27,685 22,813

Simon Melliss 38,687 32,571 27,701

Remuneration report continued


executive share OptiOn scheme*Employees, including Executive Directors prior to the introduction of the Deferred Share Plan in 2000, have been granted share options under the Hammerson plc 1995 Approved and Unapproved Share Option Schemes. No payment is made by participants in consideration for the grant of options. The Unapproved Scheme was established to allow the grant of options where the cumulative value of subsisting options as at the date of their grant is in excess of £30,000. The Committee approves grants, which are phased, of share options under the Schemes. Both Schemes are subject to performance targets. Options granted between 1995 and 2004 can be exercised only if the rate of increase in the Company’s earnings per share over any three year period is at least 6% in excess of the rate of increase in the Retail Price Index during that period. Following renewal of the schemes in 2005, options granted since 2005 can be exercised only if earnings per share over three years exceed the Retail Price Index over the same period by 9%. During the year, John Richards exercised options granted on 4 October 1999 over 63,081 ordinary shares at an exercise price of £4.80. The market prices on the dates of exercise were £11.83 in respect of 33,081 of the resultant shares sold and £12.95 in respect of 30,000 of the resultant shares sold resulting in a total gain of £447,059.

No Directors have any interests in options over ordinary shares of the Company under the Company’s executive share option schemes.

savinGs related share OptiOn scheme*The Directors’ interests in options over ordinary shares of the Company under the Company’s savings related share option scheme are as follows:

1 January 31 December Exercise Expiry 2006 Granted Exercised Lapsed 2006 price year

John Richards 5,360 – (5,360) – – 342.80p 2006 – 995 – – 995 939.20p 2009

David Atkins 1,351 – – – 1,351 701.20p 2008

John Bywater – 995 – – 995 939.20p 2009

Peter Cole 2,356 – – – 2,356 701.20p 2010

Simon Melliss – 995 – – 995 939.20p 2009

The middle market quotation of the Company’s ordinary shares, as derived from the London Stock Exchange Daily Official List, was £15.77 on 31 December 2006 and the range during the year was £9.81 to £15.77.

share incentive plan*Following the introduction of the Share Incentive Plan (‘SIP’), all UK employees are eligible to receive Free Shares up to a value of £3,000 each year, subject to achievement of a performance target. In addition, such employees can purchase Partnership Shares, up to a value of £1,500 each fiscal year, which the Company will match through the award of Matching Shares on the basis of two Matching Shares for every Partnership Share purchased. Dividends on shares held under the Share Incentive Plan are used to purchase additional shares.

The first award of Free Shares was made in April 2006 in respect of the year ended 31 December 2005 and employees have been able to purchase Partnership Shares from March 2006.

The Directors’ interests in shares of the Company under the Share Incentive Plan at 31 December 2006 are as follows:

Partnership Matching Dividend Total SIP Cost to Total SIP Shares Shares Free Shares Shares Shares held Company of Shares purchased in granted in granted in obtained in 31 December shares granted 1 January 2006 2006 2006 2006 2006 2006 in 2006

John Richards – 251 502 253 4 1,010 £8,979

David Atkins – 251 502 253 4 1,010 £8,979

John Bywater – 251 502 253 4 1,010 £8,979

Peter Cole – 251 502 253 4 1,010 £8,979

Simon Melliss – 247 494 253 4 998 £8,977



French share planFor French employees, who are not able to participate in the Share Incentive Plan referred to above, a share plan under which conditional awards of shares are made was introduced in October 2006. The number of shares which will vest after a two-year period is dependent on a combination of the performance of the Company’s investment portfolio in France and the group’s performance.

share OWnership GuidelinesAll Directors are encouraged to own shares in the Company. Certain elements of total remuneration are designed to encourage Executive Directors and senior executives, over a period of time, to acquire a shareholding of a value equivalent to at least their annual basic salary.

service aGreementsJohn Richards, David Atkins, Peter Cole and Simon Melliss have service agreements which may be terminated by the Company on 12 months’ notice. If a contract is terminated at short notice, any resulting compensation would not be subject to mitigation. John Bywater is retiring as a director on 31 March 2007.

Gérard Devaux’s appointment is governed by a deed of appointment under which there is a notice period of four weeks. He is based in Paris and, in accordance with French employment legislation, has a service agreement as an employee and director with a French subsidiary of the Company with a notice period of three months, but under which any payment made in the event of termination at short notice is subject to a minimum of 12 months and a maximum of 21 months.

The Chairman and the Non-Executive Directors do not have service contracts with the Company. Their appointments are governed by letters of appointment, which are available for inspection on request. The Chairman’s appointment, which is subject to 12 months’ notice, is for a period of three years ending 30 September 2008. The appointments of the Non-Executive Directors are reviewed by the Chairman and the Executive Directors every three years and, accordingly, will next be reviewed as follows:

John Clare 31 December 2007Tony Watson 31 January 2009David Edmonds 7 May 2009John Hirst 28 February 2010Jacques Espinasse 1 May 2010

Notwithstanding the intention that the appointments of Non-Executive Directors are for a term of three years, such appointments are at all times subject to the right of either party to terminate the appointment on not less than three months’ notice.

Gérard Devaux, David Edmonds, John Hirst and Simon Melliss, who retire in accordance with the Articles of Association, and David Atkins and Jacques Espinasse, who retire having been appointed since the previous Annual General Meeting, offer themselves for re-election at the forthcoming Annual General Meeting.

nOn-executive directOrs’ remuneratiOnThe Chairman of the Board, John Nelson, is a Non-Executive Director and his fee, and those of the other Non-Executive Directors, are determined by the Board, having regard to the contribution required from and the responsibility taken by Non-Executive Directors and current market practice, including the level of fees paid to Non-Executive Directors of comparable companies. Currently the Chairman receives an annual fee of £200,000. Non-Executive Directors are not eligible for performance-related bonuses or participation in the Company’s share plans and their fees are not pensionable.

The Chairman’s fee is reviewed annually and those of the other Non-Executive Directors are reviewed every two years. The level of fees is set to reflect the responsibilities of the role and, in order to recognise the additional responsibility of membership and chairmanship of the Audit and Remuneration Committees, further fees are payable in respect of these positions. The current annual fees payable are listed below:

Non-Executive Director – basic annual fee £40,000Audit Committee chairmanship £6,000Audit Committee membership £4,000Remuneration Committee chairmanship £6,000Remuneration Committee membership £4,000

The Senior Independent Director is paid an additional fee of £10,000.


remuneratiOn OF directOrs*The following table shows a breakdown of the remuneration of the Directors for the year ended 31 December 2006:

Total emoluments

Performance excluding pension Deferred Share Plan Gain on exercise

Salary related Benefits

contributions gain on shares of share options

and fees bonus in kind 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 £000 £000 £000

executive directorsJohn Richards 464 285 34 783 663 532 148 447 205

John Bywater 256 175 19 450 392 292 88 – 268

Peter Cole 321 199 17 537 406 – 95 – 100

Gérard Devaux 302 142 1 445 445 – 100 – 479

Simon Melliss 330 199 26 555 454 379 113 – 340

non-executive directors John Nelson 181 – – 181 73 – – – –

John Barton 55 – – 55 44 – – – –

John Clare 44 – – 44 42 – – – –

David Edmonds 40 – – 40 40 – – – –

John Hirst 45 – – 45 44 – – – –

Tony Watson (appointed 1 February 2006) 37 – – 37 – – – – –

2,075 1,000 97 3,172 2,603 1,203 544 447 1,392

The value of benefits in kind includes the use of a company car or provision of a car allowance, medical insurance and life assurance cover.

During the year ended 31 December 2006 no payments were made to Directors for expenses other than those incurred wholly and directly in the course of their employment or appointment.

Peter Cole and Gérard Devaux hold nil cost options which became exercisable on 26 September 2006 over 22,217 and 24,495 shares respectively under the Deferred Share Plan.

The performance-related bonus included in the table above is payable as to 40/70ths in cash and 30/70ths in shares. A further element of the performance-related bonus is receivable in the form of options, the shares in respect of which vest two years after the date of grant.

The potential entitlement to shares under this element of the scheme, is set out below.

2006 bonus 2005 Bonus 2004 Bonus market value Market value Market value shares at date Shares at date Shares at date vesting in of grant vesting in of grant vesting in date of grant 2009 £000 2008 £000 2007 £000

John Richards 7,943 122 7,914 90 6,676 57

John Bywater – – 4,825 55 3,977 34

Peter Cole 5,553 85 4,975 56 4,219 36

Gérard Devaux 3,972 61 5,022 57 3,424 29

Simon Melliss 5,553 85 5,245 60 4,682 40


pensiOns*The UK resident Executive Directors all participate in the Company’s pension scheme, more fully described in note 6 to the financial statements on pages 80 and 81, which provides pension and other benefits.

Pension entitlements are based on basic salary. In previous years, members who joined the Scheme on or after 1 June 1989 (namely John Bywater and Simon Melliss) were subject to restrictions imposed by the Income and Corporation Taxes Act 1988. Following the introduction of the Finance Act 2004, these restrictions no longer apply for service accrued on or after 6 April 2006. In the case of John Bywater, provision is made by way of an unfunded commitment to ensure a pension of 1/30th of final salary for each year of pensionable service prior to 6 April 2006. In the case of Simon Melliss, provision in respect of pensionable salary above the restriction was paid to a money purchase arrangement prior to 6 April 2006. Although this unapproved fund will remain active, no further provision will be made. Gérard Devaux also participates in the unfunded pension scheme to obtain the same overall level of pension provision as other Executive Directors. No pension arrangements are made by the Company for Non-Executive Directors.

Since 6 April 2006 an individual’s benefits under the Company’s pension scheme would be subject to additional tax should those benefits exceed certain defined limits. The Remuneration Committee has agreed that, in these circumstances, a Director may elect to receive a Pension Compensation Payment rather than further contributions being made to the Scheme. Such compensation payments will be subject to income tax and national insurance contributions and will not qualify for annual bonus purposes or entitlements under long-term incentive plans. These compensation payments will not result in the Company incurring any greater cost than would have been the case prior to the changes introduced with effect from 6 April 2006.

The following tables set out information on Directors’ defined benefit pension entitlements, including funded and unfunded arrangements: Increase Total Increase in accrued Years accrued in accrued benefit during Age at service at benefit at benefit the year 31 December 31 December 31 December during excluding 2006 2006 2006 the year inflation £000 £000 £000

John Richards 50 25 235 31 23

John Bywater 59 9 76 13 10

Peter Cole 47 17 135 36 32

Gérard Devaux 58 20 129 41 38

Simon Melliss 54 15 59 10 9

For each Director, the total accrued benefit at 31 December 2006 represents the annual pension that is expected to be payable on eventual retirement, given the length of service and salary of each director at 31 December 2006. The increase in accrued benefit earned during the year represents the increase in this expected pension, including the effect of inflation, when compared with the position at 31 December 2005.

The increase in accrued pension excluding the effect of inflation over the year is also shown.

Schedule 7A of the Requirements under: Companies Act 1985 The Listing Rules

Transfer Transfer Transfer value at value at Value value at 31 December 31 December of increase 31 December 2005 2006 in accrued 2006 of total of total benefit of increase accrued accrued during in accrued benefit benefit the year benefit £000 £000 £000 £000

John Richards 2,064 2,848 784 280

John Bywater 1,324 1,629 305 214

Peter Cole 870 1,452 582 346

Gérard Devaux 1,488 1,928 440 565

Simon Melliss 649 817 168 119

All transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. In 2006, the Scheme Actuary has considerably strengthened the Transfer Value basis to reflect the move by the Company to bring the Scheme back to full funding. This has resulted in an increase in benefit accrual greater than the increase in members’ entitlements. The transfer value of the increase in accrued benefits, required by the Listing, Prospectus and Disclosure Rules, more closely discloses the current value of the increase in accrued benefits that the Director has earned in the period.

The total accrued benefit at 31 December 2006 for David Atkins, who was appointed a Director on 1 January 2007, was £16,657. The transfer value of this benefit at 31 December 2006 was £136,720.

During 2006 there was no additional payment made to Simon Melliss’ money purchase arrangement (2005: £101,300).



sharehOlder returnThe graph below shows the total shareholder return in respect of the Company’s ordinary shares of 25 pence each for the five years ended 31 December 2006 relative to the total return of the FTSE Real Estate Index, which comprises shares of the Company’s peers. The total shareholder return is rebased to 100 at 31 December 2001.

Hammerson FTSE Real Estate Index

01 02 03 04 05 060

50

100

150

200

250

300

350

400

450

Source: Datastream



INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF HAMMERSON PLCWe have audited the group financial statements (the ‘financial statements’) of Hammerson plc for the year ended 31 December 2006 which comprise the consolidated income statement, the consolidated balance sheet, the consolidated statement of recognised income and expense, the reconciliation of equity, the consolidated cash flow statement, the analysis of movement in net debt and the related notes 1 to 27. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the remuneration report that is described as having been audited.

We have reported separately on the parent company financial statements of Hammerson plc for the year ended 31 December 2006.

This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIvE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The directors’ responsibilities for preparing the Annual Report, the remuneration report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of directors’ responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant United Kingdom legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view, whether the financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation and whether the part of the remuneration report described as having been audited has been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the directors’ report is consistent with the financial statements.

In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We review whether the corporate governance statement reflects the Company’s compliance with the nine provisions of the 2003 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statement on internal control covers all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures.

We read the other information contained in the Annual Report as described in the contents section and consider whether it is consistent with the audited group financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any further information outside the Annual Report.

Independent auditors’ report on the group financial statements


[Section 07]

BASIS OF AUDIT OPINION We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the remuneration report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the remuneration report to be audited.

OPINIONIn our opinion:

• the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2006 and of its profit for the year then ended;

• the financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation;

• the part of the remuneration report described as having been audited has been properly prepared in accordance with the Companies Act 1985; and

• the information given in the directors’ report is consistent with the financial statements.

SEPARATE OPINION IN RELATION TO IFRS As explained in note 1 to the financial statements, the group, in addition to complying with its legal obligation to comply with IFRSs as adopted by the European Union, has also complied with IFRSs as issued by the International Accounting Standards Board. In our opinion the financial statements give a true and fair view, in accordance with IFRSs, of the state of the group’s affairs as at 31 December 2006 and of its profit for the year then ended.

Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 9 March 2007



For the year ended 31 December 2006 2006 2005 Notes £m £m

Gross rental income 278.2 249.2

Operating profit before gains on investment properties 2 201.3 178.9 Gains on investment properties 2 748.0 607.6

Operating profit 2 949.3 786.5 Finance costs (118.0) (102.1)Bond redemption costs (34.0) – Change in fair value of interest rate swaps (16.1) 1.6 Finance income 11.2 12.6 Net finance costs 7 (156.9) (87.9)

Profit before tax 792.4 698.6 Current tax (99.4) 1.0 Deferred tax 333.8 (133.9) Tax credit/(charge) 8A 234.4 (132.9)

Profit for the year 1,026.8 565.7

Attributable to: Equity shareholders 1,016.9 554.4 Minority interests 9.9 11.3

Profit for the year 1,026.8 565.7

Basic earnings per share 10 357.5p 198.0pDiluted earnings per share 10 356.9p 197.6p

Adjusted earnings per share are shown in note 10. All results derive from continuing operations.

Consolidated income statement


As at 31 December 2006 2006 2005 Notes £m £m

Non-current assets Investment and development properties 11 6,716.0 5,731.7 Interests in leasehold properties 32.4 35.6 Plant, equipment and owner-occupied property 12 42.2 44.3 Investments 14 64.9 49.5 Receivables 15 13.6 4.5

6,869.1 5,865.6 Current assets Receivables 16 148.0 144.2 Cash and deposits 17 39.4 45.5

187.4 189.7

Total assets 7,056.5 6,055.3

Current liabilities Payables 18 218.2 220.7 Tax liabilities 111.1 60.5 Borrowings 19 210.2 0.5

539.5 281.7 Non-current liabilities Borrowings 19 2,072.4 2,094.3 Deferred tax 8D 103.3 406.4 Tax liabilities 55.1 25.5 Obligations under finance leases 21 32.3 35.9 Net pension liability 6 11.2 16.9 Other payables 21.0 18.9

2,295.3 2,597.9

Total liabilities 2,834.8 2,879.6

Net assets 4,221.7 3,175.7

Equity Share capital 22 71.3 71.2 Share premium account 23 660.5 659.5 Translation reserve 23 (62.9) (32.8)Hedging reserve 23 59.9 32.9 Capital redemption reserve 23 7.2 7.2 Other reserves 23 8.9 6.7 Revaluation reserve 23 78.9 221.8 Retained earnings 23 3,348.3 2,163.7 Investment in own shares 24 (7.0) (4.4)

Equity shareholders’ funds 4,165.1 3,125.8 Equity minority interests 56.6 49.9

Total equity 4,221.7 3,175.7

Diluted net asset value per share 10 £14.61 £10.97 EPRA net asset value per share 10 £15.00 £12.37

These financial statements were approved by the Board of Directors on 9 March 2007.

Signed on behalf of the Board

John Richards DirectorSimon Melliss Director

Consolidated balance sheet



Foreign exchange translation differences (31.1) (39.3)Net gain on hedge of net investment in foreign subsidiaries 23 27.0 32.9 Revaluation gains on development properties 23 67.0 197.5 Revaluation gains on owner-occupied property 23 7.6 11.6 Revaluation gains on investments 23 14.4 2.7 Acquisition of minority interests 23 (2.2) –Actuarial losses on pension schemes 23 (0.9) (6.3)Tax on items taken directly to equity 8C (4.0) (55.5)

Net gain recognised directly in equity 77.8 143.6 Profit for the year 1,026.8 565.7

Total recognised income and expense 1,104.6 709.3

Attributable to: Equity shareholders 1,095.7 699.2 Minority interests 8.9 10.1

Total recognised income and expense 1,104.6 709.3

Reconciliation of equityFor the year ended 31 December 2006 2006 2005 Notes £m £m

Opening equity shareholders’ funds 3,125.8 2,414.2 Issue of shares 1.1 63.6 Purchase of own shares 24 (4.0) (2.3)Share-based employee remuneration 23 3.8 2.1 Gain on award of own shares to employees 23 0.4 –

3,127.1 2,477.6 Total recognised income and expense 1,095.7 699.2

4,222.8 3,176.8 Dividends 9 (57.7) (51.0)

Closing equity shareholders’ funds 4,165.1 3,125.8

Consolidated statement of recognised income and expense



Operating activities Operating profit before gains on investment properties 201.3 178.9 Adjustment for non-cash items 25 (12.7) 1.8 Decrease/(Increase) in receivables 14.1 (44.4)(Decrease)/Increase in payables (31.9) 38.9

Cash generated from operations 170.8 175.2 Interest and bond redemption costs paid (155.2) (123.6)Interest received 11.0 13.1 Tax paid (21.1) (19.8)

Cash flows from operating activities 5.5 44.9

Investing activities Purchase of property and capital expenditure (116.4) (314.9)Development of property (250.5) (223.2)Sale of property 628.0 224.4 Purchase of interests in joint ventures and subsidiary companies (132.7) 6.8 Purchase of investments (1.0) (0.5)(Increase)/Decrease in long-term receivables (9.2) 18.2

Cash flows from investing activities 118.2 (289.2)

Financing activities Issue of shares 1.1 3.0 Purchase of own shares (4.0) (2.3)Proceeds from award of own shares 0.2 – (Decrease)/Increase in medium and long-term borrowings (277.7) 318.6 Increase/(Decrease) in short-term borrowings 211.0 (30.3)Dividends paid to minorities (2.4) (1.8)Equity dividends paid (57.7) (51.0)

Cash flows from financing activities (129.5) 236.2

Net decrease in cash and deposits (5.8) (8.1) Opening cash and deposits 45.5 53.7 Exchange translation movement (0.3) (0.1)

Closing cash and deposits 17 39.4 45.5

Analysis of movement in net debt For the year ended 31 December 2006 Short-term Cash Current Non-current deposits at bank borrowings borrowings Net debt £m £m £m £m £m

Balance at 1 January 2006 22.4 23.1 (0.5) (2,094.3) (2,049.3)Unamortised bond issue costs written off – – – (2.0) (2.0)Acquisition of subsidiaries, including loan notes issued 40.8 3.7 – (275.1) (230.6)Cash flow (49.9) (0.4) (211.0) 277.7 16.4 Exchange (0.2) (0.1) 1.3 21.3 22.3

Balance at 31 December 2006 13.1 26.3 (210.2) (2,072.4) (2,243.2)

Consolidated cash flow statement


1. SIGNIFICANT ACCOUNTING POLICIESSTATEMENT OF COMPLIANCEThe consolidated financial statements have been prepared in accordance with IFRS and interpretations adopted by the European Union and issued by the International Accounting Standards Board (IASB).

At 31 December 2006, the following accounting standards had been issued but were not effective as at that date and have not yet been adopted by the group:

IFRS 7 Financial Instruments: DisclosuresIFRS 8 Operating Segments

When these standards are adopted they will affect only presentation and disclosure and will not result in any adjustments to the financial statements. All other standards and interpretations issued but not effective at the balance sheet date are expected to have no material impact on the financial statements.

BASIS OF PREPARATIONThe financial statements are presented in sterling. They are prepared on the historical cost basis except that investment and development properties, owner-occupied properties and derivative financial instruments are stated at fair value.

The accounting policies have been applied consistently to the results, other gains and losses, assets, liabilities and cash flows of entities included in the consolidated financial statements.

The preparation of financial statements requires management to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Management believes that the estimates and associated assumptions used in the preparation of the financial statements are reasonable. However, actual outcomes may differ from those anticipated.

Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period. If the revision affects both current and future periods, the change is recognised over those periods.

BASIS OF CONSOLIDATIONSubsidiariesSubsidiaries are those entities controlled by the group. Control is assumed when the group has the power to govern the financial and operating policies of an entity, or business, to benefit from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Where properties are acquired through corporate acquisitions and there are no significant assets or liabilities other than property, the acquisition is treated as an asset acquisition, in other cases the acquisition method is used.

Joint venturesJoint ventures are those entities over whose activities the group has joint control, established by contractual agreement. The consolidated financial statements include the group’s proportionate share of assets, liabilities, results and cash flows of joint ventures.

GoodwillGoodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the acquired entity over the group’s interest in the fair value of the assets, liabilities and contingent liabilities acquired. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reviewed.

Where the fair value of the assets, liabilities and contingent liabilities acquired is greater than the cost, the excess, known as negative goodwill, is recognised immediately in the income statement.

FOREIGN CURRENCyForeign currency transactionsTransactions in foreign currencies are translated into sterling at exchange rates approximating to the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to sterling at the exchange rate ruling at that date and, unless they relate to the hedging of the net investment in foreign operations, differences arising on translation are recognised in the income statement.

Financial statements of foreign operationsThe assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into sterling at the exchange rates ruling at the balance sheet date. The operating income and expenses of foreign operations are translated into sterling at the average exchange rates for the period. Significant transactions, such as property sales, are translated at the foreign exchange rate ruling at the date of each transaction.

The principal exchange rate used to translate foreign currency-denominated amounts in the balance sheet is the rate at the end of the year, £1 = F1.484 (2005: £1 = F1.455). The principal exchange rate used for the income statement is the average rate, £1 = F1.467 (2005: £1 = F1.463).

Notes to the accounts


1. SIGNIFICANT ACCOUNTING POLICIES continuedNet investment in foreign operationsExchange differences arising from the translation of the net investment in foreign operations, including the effective portions of related foreign currency hedges, are taken to the translation reserve. They are released to the income statement upon disposal of the foreign operation.

BORROwINGS, INTEREST AND DERIvATIvESBorrowingsBorrowings are held at amortised cost. They are recognised initially at fair value, after taking account of any discount on issue and attributable transaction costs. Subsequently, such discounts and costs are charged to the income statement over the term of the borrowing at a constant return on the carrying amount of the liability.

Derivative financial instrumentsThe group uses derivative financial instruments to hedge its exposure to foreign currency movements and interest rate risks.

Derivative financial instruments are recognised initially at fair value, which equates to cost and subsequently remeasured at fair value, with changes in fair value being included in the income statement, except that a gain or loss on the portion of an instrument that is an effective hedge for the net investment in a foreign operation is recognised in equity.

Trade receivables and payablesTrade receivables and payables are initially measured at fair value, subsequently measured at amortised cost and discounted to reflect the time value of money.

Net finance costsNet finance costs include interest payable on borrowings, net of interest capitalised, interest receivable on funds invested, and changes in the fair value of derivative financial instruments.

Capitalisation of interestInterest is capitalised if it is directly attributable to the acquisition, construction or production of development properties or the redevelopment of investment properties. Capitalisation commences when the activities to develop the property start and continues until the property is substantially ready for its intended use. Capitalised interest is calculated with reference to the actual rate payable on borrowings for development purposes or, for that part of the development cost financed out of general funds, to the average rate.

PROPERTy PORTFOLIOTenant leasesManagement has exercised judgement in considering the potential transfer of the risks and rewards of ownership in accordance with IAS 17 Leases for all properties leased to tenants and has determined that such leases are operating leases.

Development propertiesProperties acquired with the intention of redevelopment are classified as development properties and stated at fair value. Changes in fair value above cost are recognised in equity, and changes in fair value below cost are recognised in the income statement.

All costs directly associated with the purchase and construction of a development property are capitalised. When development properties are completed, they are reclassified as investment properties and any accumulated revaluation surplus or deficit is transferred to retained earnings.

Investment propertiesInvestment properties are stated at fair value, being market value determined by professionally qualified external valuers, and changes in fair value are included in the income statement.

DepreciationIn accordance with IAS 40 Investment Property, no depreciation is provided in respect of investment or development properties.

Leasehold propertiesLeasehold properties that are leased out to tenants under operating leases are classified as investment properties or development properties, as appropriate, and included in the balance sheet at fair value.

The obligation to the freeholder or superior leaseholder for the buildings element of the leasehold is included in the balance sheet at the present value of the minimum lease payments at inception. Payments to the freeholder or superior leaseholder are apportioned between a finance charge and a reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents payable, such as rent reviews or those related to rental income, are charged as an expense in the periods in which they are incurred.

Notes to the accounts continued


1. SIGNIFICANT ACCOUNTING POLICIES continuedNet rental incomeRental income from investment property leased out under an operating lease is recognised in the income statement on a straight-line basis over the lease term.

Contingent rents, such as turnover rents, rent reviews and indexation, are recorded as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants.

Lease incentives and costs associated with entering into tenant leases are amortised over the period to the first break option or, if the probability that the break option will be exercised is considered low, over the lease term.

Property operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to the income statement.

Profits on sale of propertiesProfits on sale of properties are taken into account on the completion of contract, and are calculated by reference to the carrying value at the end of the previous year, adjusted for subsequent capital expenditure.

Plant, equipment and owner-occupied propertyOwner-occupied property held under a finance lease is stated at fair value with changes in fair value recognised directly in equity. The cost of owner-occupied property is depreciated through the income statement over the period to the end of the lease on a straight-line basis, having due regard to its estimated residual value.

Plant and equipment are stated at cost less accumulated depreciation. Depreciation is charged to the income statement on a straight-line basis over the estimated useful life, which is generally between three and five years, or in the case of leasehold improvements, the lease term.

InvestmentsInvestments for which the fair value can be reliably determined are classified as ‘available for sale’ and carried at fair value with changes in fair value recognised directly in equity. Other investments are carried at cost.

EMPLOyEE BENEFITSDefined contribution pension plansObligations for contributions to defined contribution pension plans are charged to the income statement as incurred.

Defined benefit pension plansThe group’s net obligation in respect of defined benefit pension plans comprises the amount of future benefit that employees have earned, discounted to determine a present value, less the fair value of the pension plan assets. The discount rate used is the yield on AAA credit-rated bonds that have maturity dates approximating to the terms of the group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method.

Actuarial gains and losses are recognised in equity. Where the assets of a plan are greater than its obligation, the asset included in the balance sheet is limited to the present value of any future refunds from the plan or reduction in future contributions to the plan.

Share-based employee remunerationShare-based employee remuneration is determined with reference to the fair value of the equity instruments at the date at which they are granted and charged to the income statement over the vesting period on a straight-line basis. The fair value of share-based employee remuneration is calculated using the binomial option pricing model and is dependent on factors including the exercise price, expected volatility, option life and risk-free interest rate. IFRS 2 Share-based Payment has been applied to share options granted from November 2002.

TAxTax is included in the income statement except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates applicable at the balance sheet date, together with any adjustment in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates applicable at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.


2. OPERATING PROFIT 2006 2005 Notes £m £m

Gross rental income 278.2 249.2 Rents payable (5.1) (4.0)

Gross rental income, after rents payable 273.1 245.2 Service charge income 45.4 43.2 Service charge expenses (53.0) (52.3) Net service charge expenses (7.6) (9.1)Other property outgoings (28.1) (25.8)

Property outgoings (35.7) (34.9)

Net rental income 3 237.4 210.3 Management fees receivable 4.1 3.0 Cost of property activities (20.9) (17.5)Corporate expenses (19.3) (16.9) Administration expenses (36.1) (31.4)

Operating profit before gains on investment properties 201.3 178.9 Profit on the sale of investment properties 95.8 32.1 Revaluation gains on investment properties 664.8 575.5 Goodwill impairment 27 (12.6) –

Gains on investment properties 748.0 607.6

Operating profit 949.3 786.5

Included in gross rental income is £3.2 million (2005: £4.8 million) calculated by reference to tenants’ turnover.



3. SEGMENTAL ANALySISPRIMARy AND SECONDARy SEGMENTSThe group’s primary reporting segments are the geographic locations of its properties. The secondary reporting segments are the business sectors in which the group operates.

TOTALS By GEOGRAPHIC SEGMENT

United Kingdom France Germany Unallocated Total

2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £m

Gross rental income 200.9 170.2 73.6 69.0 3.7 10.0 – – 278.2 249.2 Rents payable (5.1) (4.0) – – – – – – (5.1) (4.0)Property outgoings (22.8) (24.1) (9.3) (5.8) (3.6) (5.0) – – (35.7) (34.9)

Net rental income 173.0 142.1 64.3 63.2 0.1 5.0 – – 237.4 210.3 Administration expenses (10.7) (11.7) (5.5) (5.2) (0.6) (0.5) (19.3) (14.0) (36.1) (31.4)

Operating profit before gains on investment properties 162.3 130.4 58.8 58.0 (0.5) 4.5 (19.3) (14.0) 201.3 178.9 Gains on investment properties 527.0 401.8 231.4 230.3 (10.4) (24.5) – – 748.0 607.6

Operating profit 689.3 532.2 290.2 288.3 (10.9) (20.0) (19.3) (14.0) 949.3 786.5 Net finance costs – – – – – – (156.9) (87.9) (156.9) (87.9)

Segment result 689.3 532.2 290.2 288.3 (10.9) (20.0) (176.2) (101.9) 792.4 698.6

Non-cash flow items (charge)/credit included in operating profit 11.7 2.6 1.0 (1.3) – (0.5) – (2.6) 12.7 (1.8)

Property assets 4,937.2 4,093.1 1,707.0 1,494.7 71.8 143.9 – – 6,716.0 5,731.7 Net debt – – – – – – (2,243.2) (2,049.3) (2,243.2) (2,049.3)Other net liabilities (187.7) (431.3) (113.8) (121.4) (6.2) (3.9) – – (307.7) (556.6)

Equity shareholders’ funds 4,749.5 3,661.8 1,593.2 1,373.3 65.6 140.0 (2,243.2) (2,049.3) 4,165.1 3,125.8

Capital expenditure 746.1 401.9 25.4 181.5 11.6 11.3 – – 783.1 594.7

Other net liabilities include all operating assets and liabilities that can be allocated to the segment on a reasonable basis but exclude net debt.

TOTALS By BUSINESS SEGMENT Shopping centres Retail parks Offices Total

2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m

Gross rental income 173.0 163.1 41.8 29.3 63.4 56.8 278.2 249.2 Rents payable (1.8) (0.4) (0.1) – (3.2) (3.6) (5.1) (4.0)Property outgoings (26.2) (24.9) (2.4) (1.2) (7.1) (8.8) (35.7) (34.9)

Net rental income 145.0 137.8 39.3 28.1 53.1 44.4 237.4 210.3

Property assets 3,521.5 3,312.7 1,321.1 807.0 1,873.4 1,612.0 6,716.0 5,731.7

Capital expenditure 178.6 265.2 493.5 235.5 111.0 94.0 783.1 594.7


3. SEGMENTAL ANALySIS continuedANALySIS OF EqUITy SHAREHOLDERS’ FUNDS Equity shareholders’ Assets employed Net debt funds

2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m

United Kingdom 4,749.5 3,661.8 (1,246.8) (975.1) 3,502.7 2,686.7 Continental Europe 1,658.8 1,513.3 (996.4) (1,074.2) 662.4 439.1

6,408.3 5,175.1 (2,243.2) (2,049.3) 4,165.1 3,125.8

As part of the group’s foreign currency hedging programme, at 31 December 2006 the group had sold F369.2 million (2005: F100.0 million) forward against sterling for value on 3 January 2007, at a spot rate of £1 = F1.490.

Net debt cannot be allocated between countries within continental Europe.

4. ADMINISTRATION ExPENSESAdministration expense include the following items:

STAFF COSTS, INCLUDING DIRECTORS 2006 2005 Notes £m £m

Salaries and wages 14.8 13.8

Performance-related bonuses – payable in cash 3.3 2.3 – payable in shares 0.6 0.6 3.9 2.9 Other share-based employee remuneration 3.2 1.5 Social security 3.5 3.2

Net pension expense – defined benefit plans 6 2.2 1.7 – defined contribution plans 6 0.9 0.7 3.1 2.4

28.5 23.8

Of the above amount £4.2 million (2005: £3.0 million) was recharged to tenants. Further details of share-based payment arrangements are provided in the Remuneration Report on pages 60 to 67.

STAFF NUMBERS 2006 2005 Number Number

Average number of staff 247 226 Staff recharged to tenants, included above 58 52

OTHER INFORMATION 2006 2005 £m £m

Auditors’ remuneration: Audit of Company’s annual accounts 0.2 0.3 Audit of subsidiaries, pursuant to legislation 0.3 0.3 Other services, pursuant to legislation 0.1 – Other services 0.1 0.2 Other auditors’ remuneration: Audit of subsidiaries, pursuant to legislation, and other services 0.1 0.1

Depreciation of plant, equipment and owner-occupied property 0.8 0.5



5. DIRECTORS’ EMOLUMENTSFull details of the Directors’ emoluments, as required by the Companies Act 1985, are disclosed in the audited sections of the Remuneration Report on pages 60 to 67.

6. PENSIONS The group operates the following pension schemes:

DEFINED BENEFIT PENSION SCHEMESHammerson Group Management Pension & Life Assurance Scheme (the ‘Scheme’)The Scheme is funded and the funds, which are administered by trustees, are independent of the group’s finances. The Scheme was closed to new entrants with effect from 1 January 2003. The Scheme provides a pension linked to final salary at retirement.

UK Unfunded Unapproved Retirement SchemeThe UK unfunded scheme provides pension benefits to two Executive Directors. The amount of pension is linked to final salary at retirement. Following 6 April 2006, one of the Executive Directors ceased accruing benefits under this scheme as changes in legislation now allow these benefits to accrue within the Scheme.

US Unfunded Unapproved Retirement SchemeThe US unfunded pension commitment relates to obligations to four former employees and their spouses.

DEFINED CONTRIBUTION PENSION SCHEMESThe Company operates the UK funded approved Group Personal Pension Plan and the UK funded unapproved retirement benefit scheme, both of which are defined contribution pension schemes. The group’s total cost for the year relating to defined contribution pension schemes was £0.9 million (2005: £0.7 million).

PRINCIPAL ACTUARIAL ASSUMPTIONS USED FOR DEFINED BENEFIT PENSION SCHEMES 31 December 31 December 31 December 2006 2005 2004 % % %

Discount rate for scheme liabilities 5.20 4.75 5.75Expected return on plan assets 6.10 5.70 5.90Increase in pensionable salaries 3.50 3.00 3.00Increase in retail price index 3.00 2.50 2.50Increase in pensions in payment 3.00 2.50 2.50

The expected return on scheme assets has been calculated as the weighted rate of return on each asset class. The return on each asset class is taken as the market rate of return.

AMOUNTS RECOGNISED IN THE INCOME STATEMENT IN RESPECT OF DEFINED BENEFIT PENSION SCHEMES

2006 2005 Included in income statement line item £m £m

Current service cost Administration expenses 2.2 1.7 Expected return on assets Other interest payable (2.3) (1.5)Interest cost Other interest payable 2.4 2.2

Total pension expense 2.3 2.4

The group expects to make regular contributions totalling £0.8 million to the Scheme in the next financial year.


6. PENSIONS continuedAMOUNTS RECOGNISED IN THE BALANCE SHEET IN RESPECT OF DEFINED BENEFIT PENSION SCHEMES 2006 2005 2004 £m £m £m

Fair value of plan assets of the Scheme 43.0 33.6 25.5 Present value of obligation of the Scheme (47.7) (42.7) (32.6)

(4.7) (9.1) (7.1)Present value of unfunded UK defined benefit obligations (2.8) (2.2) (1.5)Present value of unfunded US defined benefit obligations (4.5) (5.6) (4.4)

Net pension liability (12.0) (16.9) (13.0)

Analysed as: Current liabilities – Payables (0.8) – – Non-current liabilities – Net pension liability (11.2) (16.9) (13.0)

The actual return on the plan assets of the Scheme for the year ended 31 December 2006 was 9.5% (2005: 16%).

The present value of defined benefit obligations has been calculated by an independent actuary. This was taken as the present value of accrued benefits and pensions in payment calculated using the projected unit credit method and allowing for projected compensation.

AMOUNTS FOR CURRENT AND PREvIOUS yEARS 2006 2005 2004 £m £m £m

Experience losses on plan liabilities (1.8) (0.5) (0.5)Experience gains on plan assets 1.5 2.6 1.1

ANALySIS OF CLASSES OF DEFINED BENEFIT PENSION SCHEME ASSETS AS A PROPORTION OF THE TOTAL FAIR vALUE OF ASSETS

2006 2005 % %

UK equities 37 42Overseas equities 18 19Cash 45 39

CHANGES IN THE PRESENT vALUE OF DEFINED BENEFIT PENSION SCHEME OBLIGATIONS 2006 2005 £m £m

At 1 January 50.5 38.5 Service cost 2.2 1.7 Interest cost 2.4 2.2 Actuarial losses 2.4 8.9 Benefits (1.8) (0.8)Exchange gains (0.7) –

At 31 December 55.0 50.5

CHANGES IN THE FAIR vALUE OF DEFINED BENEFIT PENSION SCHEME ASSETS 2006 2005 £m £m

At 1 January 33.6 25.5 Expected return 2.3 1.5 Actuarial gains 1.5 2.6 Contributions by employer 7.0 4.8 Benefits (1.4) (0.8)

At 31 December 43.0 33.6

The cumulative net actuarial losses recognised in the statement of recognised income and expense at 31 December 2006 were £11.4 million (2005: £10.5 million).



7. NET FINANCE COSTS 2006 2005 £m £m

Interest on bank loans and overdrafts 13.7 16.8 Interest on other loans 121.5 102.0 Interest on obligations under finance leases 3.1 3.2 Other interest payable 6.3 1.3

Gross interest costs 144.6 123.3 Less: Interest capitalised (26.6) (21.2)

Finance costs 118.0 102.1 Bond redemption costs 34.0 – Change in fair value of interest rate swaps 16.1 (1.6)Finance income (11.2) (12.6)

Net finance costs 156.9 87.9

In May 2006, £93.8 million of the £200 million 10.75% sterling bonds 2013 were redeemed. Bond redemption costs include a redemption premium of £32.0 million and unamortised issue costs of £2.0 million.

8. TAxA. TAx (CREDIT)/CHARGE 2006 2005 £m £m

UK current tax On net income before revaluations and disposals 0.2 1.0 Credit in respect of prior years (0.5) – Entry charge payable on election for UK REIT status 100.5 –

100.2 1.0

Foreign current tax On net income before revaluations and disposals 1.1 2.0 Credit in respect of prior years (1.9) (4.0)

(0.8) (2.0)

Total current tax charge/(credit) 99.4 (1.0)

Deferred tax On net income before revaluations and disposals 17.9 21.0 On revaluations and disposals 127.6 129.6 On bond redemption costs (10.2) – On movements in fair value of interest rate swaps (4.8) 0.5 Credit in respect of prior years (15.7) (17.2)Released on election for UK REIT status (448.6) –

(333.8) 133.9

Tax (credit)/charge (234.4) 132.9


8. TAx continuedB. TAx CHARGE RECONCILIATION 2006 2005 £m £m

Profit before tax 792.4 698.6

Profit multiplied by the UK corporation tax rate of 30% 237.7 209.6 Deferred tax released in excess of entry charge payable on election for UK REIT status (348.1) – Non-taxable surpluses on UK investment properties (53.5) (3.6)Benefit of SIIC tax exemption net of deferred tax on SIIC dividends (33.9) (34.6)Indexation relief on UK investment properties (30.8) (18.4)Prior year adjustments (18.1) (21.2)Other items 12.3 1.1

Tax (credit)/charge (234.4) 132.9

C. TAx RECOGNISED DIRECTLy IN EqUITy 2006 2005 £m £m

Deferred tax charge on revaluations 12.1 57.0 Deferred tax released on election for UK REIT status (8.5) – Deferred tax charge/(credit) on actuarial gains/(losses) on pension schemes 0.4 (1.5)

Tax recognised directly in equity 4.0 55.5

D. DEFERRED TAx MOvEMENTS 1 January Recognised Recognised Corporate Foreign 31 December 2006 in income in equity acquisitions exchange 2006 £m £m £m £m £m £m

UK Capital gains net of capital losses 328.7 (335.2) 2.1 7.0 – 2.6 Capital allowances 36.1 (35.9) – – – 0.2 Surpluses in trading subsidiaries 0.4 (3.6) – 20.9 – 17.7 Other timing differences (2.3) (4.1) 0.4 – – (6.0)Dividends receivable from France 62.0 34.9 1.5 – (1.2) 97.2 Revenue tax losses (33.1) (4.1) – – – (37.2)

391.8 (348.0) 4.0 27.9 (1.2) 74.5

France 14.6 14.2 – – – 28.8

Net deferred tax provision 406.4 (333.8) 4.0 27.9 (1.2) 103.3

E. UNRECOGNISED DEFERRED TAxDeferred tax is not provided on potential gains on investments in subsidiaries and joint ventures when the group can control whether gains crystallise and it is probable that gains will not arise in the foreseeable future. At 31 December 2006 the total of such gains was £900 million and the potential tax effect £270 million (2005: £490 million, potential tax effect £150 million).

If a UK REIT sells a property within three years of completion of development, the REIT exemption will not apply. When such properties are expected to be retained past the three-year period, provision is not made for the tax that could arise on an early disposal. The properties concerned had an aggregate value at 31 December 2006 of £1,570 million and the unprovided deferred tax was £130 million.

A deferred tax asset of £8.2 million (2005: £nil), for carried forward UK tax losses that may not be utilised, was not recognised because it is uncertain whether appropriate taxable profits will arise.

F. UK REIT STATUSThe group has elected to be treated as a UK REIT with effect from 1 January 2007. The UK REIT rules exempt the profits of the group’s UK property rental business from corporation tax. Gains on UK properties are also exempt from tax, provided they are not held for trading or sold within three years of development. The group is otherwise subject to UK corporation tax.

As a REIT, Hammerson plc is required to pay property income dividends equal to at least 90% of the group’s exempted net income.

On entering the REIT regime, an entry charge is payable equal to 2% of the market value of the group’s qualifying UK properties at 31 December 2006. The financial statements for the year ended 31 December 2006 provide for this entry charge in current tax and show a release of deferred tax relating to UK capital gains and UK capital allowances. The total entry charge is £100.5 million and this will be paid in quarterly instalments between July 2007 and April 2008. The total deferred tax release, including an amount recognised directly in equity, is £457.1 million.



8. TAx continuedF. UK REIT STATUS continuedTo qualify as a UK REIT there are a number of conditions to be met in respect of the principal company of the group, the group’s qualifying activity and its balance of business which are set out in the UK REIT legislation in the Finance Act 2006.

G. FRENCH SIIC STATUSHammerson plc has been a French SIIC since 1 January 2004 and all the French properties with the exception of 9 place Vendôme are within the SIIC tax exempt regime. Income and gains are exempted from French tax but the French subsidiaries are required to distribute a proportion of their profits to Hammerson plc, which will then pay UK dividends to its shareholders. Hammerson plc will be taxed in the UK on dividends received from France, subject to available UK tax losses. If all the properties were realised at the 31 December 2006 values, a total of £324 million of dividends would arise (2005: £207 million), and deferred tax is provided for the potential UK tax thereon. Dividend obligations will arise after property disposals but there will be a period of approximately four years after a sale before dividends are required to be received in the UK.

Under the SIIC qualifying conditions, Hammerson plc must continue to be listed in France and at least 80% of assets must be employed in property investment. If the conditions are breached before 2014, the original conversion charge would be recalculated at full rates giving an additional £74 million tax cost.

H. COMMENTARyUnless tax exemptions apply, UK corporation tax and deferred tax is calculated at a rate of 30% (2005: 30%) and foreign tax is calculated using appropriate local rates.

Current tax in the year, before the UK REIT entry charge, was reduced by the French tax exemption, capital allowances and tax relief for capitalised interest.

Current tax in the future should generally be low because of UK REIT and French SIIC status and carried forward UK tax losses. The principal taxable property is 9 place Vendôme.

9. DIvIDENDSThe proposed final dividend of 15.3 pence per share (2005: 13.91 pence per share) was approved by the Board on 26 February 2007 and is payable on 14 May 2007 to shareholders on the register at the close of business on 13 April 2007. The dividend has not been included as a liability at 31 December 2006. The total dividend for the year ended 31 December 2006 will be 21.68 pence per share (2005: 19.71 pence per share).

The £57.7 million dividend included in the reconciliation of equity statement comprises the 2005 final dividend of £39.6 million, which was paid on 17 May 2006 along with the 2006 interim dividend of £18.1 million paid on 20 October 2006.

10. EARNINGS PER SHARE AND NET ASSET vALUE PER SHAREThe calculations for earnings per share, based on the weighted average number of shares, are shown in the table below. The weighted average number of shares excludes those shares held in the Hammerson Employee Share Ownership Plan (note 24), which are treated as cancelled.

The European Public Real Estate Association (EPRA) has issued recommended bases for the calculation of certain per share information and these are included in the following tables.

2006 2005

Earnings Shares Pence Earnings Shares Pence £m million per share £m million per share

Basic 1,016.9 284.4 357.5 554.4 280.0 198.0 Adjustments: Dilutive share options – 0.5 (0.6) – 0.5 (0.4)

Diluted 1,016.9 284.9 356.9 554.4 280.5 197.6

Adjustments: Revaluation gains on investment properties (664.8) (233.3) (575.5) (205.1)Profits on the sale of investment properties (95.8) (33.6) (32.1) (11.4)Goodwill impairment 12.6 4.4 – – Change in fair value of interest rate swaps 16.1 5.7 (1.6) (0.6)Deferred tax (credit)/charge (333.8) (117.2) 133.9 47.7 UK REIT entry tax charge 100.5 35.3 – – Minority interests in respect of the above 7.8 2.7 8.4 3.0

EPRA, diluted 59.5 20.9 87.5 31.2

Bond redemption costs 34.0 11.9 – –

Adjusted, diluted 93.5 32.8 87.5 31.2


10. EARNINGS PER SHARE AND NET ASSET vALUE PER SHARE continuedThe calculations for net asset value per share are shown in the table below: 2006 2005

Equity Net asset Equity Net asset shareholders’ value shareholders’ value funds Shares per share funds Shares per share £m million £ £m million £

Basic 4,165.1 285.2 14.60 3,125.8 285.0 10.97 Company’s own shares held in Employee Share Ownership Plan – (0.7) n/a – (0.7) n/a Unexercised share options 8.7 1.2 n/a 8.5 1.4 n/a

Diluted 4,173.8 285.7 14.61 3,134.3 285.7 10.97

Fair value adjustment to borrowings (net of tax) (63.5) (0.22) (144.6) (0.51)

EPRA triple net, diluted 4,110.3 14.39 2,989.7 10.46

Fair value of interest rate swaps 8.8 0.03 (7.3) (0.02)Fair value adjustment to borrowings (net of tax) 63.5 0.22 144.6 0.51 Deferred tax 103.3 0.36 406.4 1.42

EPRA, diluted 4,285.9 15.00 3,533.4 12.37

11. INvESTMENT AND DEvELOPMENT PROPERTIES Investment properties Development properties Total

valuation Cost valuation Cost valuation Cost £m £m £m £m £m £m

Balance at 1 January 2006 4,958.0 3,348.2 773.7 512.4 5,731.7 3,860.6 Exchange adjustment (30.2) (21.2) (1.8) (1.8) (32.0) (23.0)

Additions – Capital expenditure 79.7 79.7 200.9 200.9 280.6 280.6 – Asset acquisitions 22.9 22.9 53.1 53.1 76.0 76.0 – Corporate acquisitions 400.9 400.9 25.6 25.6 426.5 426.5 503.5 503.5 279.6 279.6 783.1 783.1 Disposals (482.5) (375.5) (42.7) (28.0) (525.2) (403.5)Transfers 567.0 364.9 (567.0) (364.9) – – Capitalised interest 0.6 0.6 26.0 26.0 26.6 26.6 Revaluation adjustment 664.8 – 67.0 – 731.8 –

Balance at 31 December 2006 6,181.2 3,820.5 534.8 423.3 6,716.0 4,243.8

Investment properties Development properties Total

Valuation Cost Valuation Cost Valuation Cost £m £m £m £m £m £m

Balance at 1 January 2005 4,082.5 3,085.7 520.5 420.5 4,603.0 3,506.2 Exchange adjustment (39.0) (32.6) (2.3) (2.2) (41.3) (34.8)

Additions – Capital expenditure 77.9 77.9 130.8 130.8 208.7 208.7 – Asset acquisitions 279.6 279.6 2.1 2.1 281.7 281.7 – Corporate acquisitions 104.3 104.3 – – 104.3 104.3 461.8 461.8 132.9 132.9 594.7 594.7 Disposals (193.3) (214.9) – – (193.3) (214.9)Transfers 95.9 59.8 (95.9) (59.8) – – Transfer to owner-occupied property (25.6) (11.8) – – (25.6) (11.8)Capitalised interest 0.2 0.2 21.0 21.0 21.2 21.2 Revaluation adjustment 575.5 – 197.5 – 773.0 –

Balance at 31 December 2005 4,958.0 3,348.2 773.7 512.4 5,731.7 3,860.6



11. INvESTMENT AND DEvELOPMENT PROPERTIES continuedProperties are stated at market value as at 31 December 2006, valued by professionally qualified external valuers. In the United Kingdom, office properties and the group’s interests in the Birmingham Alliance properties were valued by DTZ Debenham Tie Leung, Chartered Surveyors, and all other retail properties were valued by Donaldsons, Chartered Surveyors. In France and Germany, the group’s properties were valued by Cushman & Wakefield, Chartered Surveyors. The valuations have been prepared in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors and with IVA 1 of the International Valuation Standards. Valuation fees are based on a fixed amount agreed between the group and the valuers and are independent of the portfolio value. Summaries of the valuers’ reports are available on the Company’s website www.hammerson.com.

At 31 December 2006 the total amount of interest included in development properties was £12.1 million (2005: £34.7 million) calculated using the group’s average cost of borrowings. Long Freehold leasehold Total £m £m £m

Balance at 31 December 2006 3,479.9 3,236.1 6,716.0

Balance at 31 December 2005 3,166.6 2,565.1 5,731.7

2006 2005 £m £m

Capital commitments 746.6 540.1

At 31 December 2006, Hammerson’s share of the capital commitments in respect of joint ventures, which is included in the table above, was £334.7 million (2005: £356.1 million).

12. PLANT, EqUIPMENT AND OwNER-OCCUPIED PROPERTy Owner-occupied Plant and property equipment Total £m £m £m

Cost or valuation Balance at 1 January 2005 5.2 3.6 8.8 Additions 0.1 1.3 1.4 Transfers from investment property 25.6 – 25.6 Disposals – (0.1) (0.1)Revaluation adjustment 11.6 – 11.6

Balance at 31 December 2005/1 January 2006 42.5 4.8 47.3 Additions 0.1 6.4 6.5 Disposals (15.3) (1.5) (16.8)Revaluation adjustment 7.6 – 7.6

Balance at 31 December 2006 34.9 9.7 44.6

Depreciation Balance at 1 January 2005 (0.1) (2.5) (2.6)Depreciation charge for the year – (0.5) (0.5)Disposals – 0.1 0.1

Balance at 31 December 2005/1 January 2006 (0.1) (2.9) (3.0)Depreciation charge for the year – (0.8) (0.8)Disposals 0.1 1.3 1.4

Balance at 31 December 2006 – (2.4) (2.4)

Book value at 31 December 2006 34.9 7.3 42.2

Book value at 31 December 2005 42.4 1.9 44.3


13. JOINT vENTURESAs at 31 December 2006 certain property and corporate interests, being jointly controlled entities, have been proportionately consolidated, and these are set out in the following table: Group share %

Investments Brent Cross Shopping Centre 41.2Brent South Retail Park 40.6Bristol Alliance Limited Partnership 50Cricklewood Regeneration Limited 50Queensgate Limited Partnership 50Shires Limited Partnership 60The Bull Ring Limited Partnership 33.33The Grosvenor Street Limited Partnership 50The London Wall Limited Partnership 50The Martineau Galleries Limited Partnership 33.33The Moor House Limited Partnership 66.67The Oracle Limited Partnership 509 place Vendôme SCI 50

Developments 125 OBS Limited Partnership 50Bishopsgate Goodsyard Regeneration Limited 50Paddington Triangle 50Wensum Developments Limited 50

The group’s interest in Shires Limited Partnership and The Moor House Limited Partnership do not confer the majority of voting rights nor the right to exercise dominant influence over the partnerships. Instead the partnerships are under the joint control of Hammerson and its respective partners. Consequently, the group’s interests are accounted for by proportional consolidation and not treated as subsidiaries.

The following summarised income statements and balance sheets show the proportion of the group’s results, assets and liabilities which are derived from its joint ventures:



13. JOINT vENTURES continuedINCOME STATEMENTS FOR THE yEAR ENDED 31 DECEMBER 2006

Bristol Alliance Bull Ring Oracle queensgate Shires Moor House 9 place Brent Limited Limited Limited Limited Limited Limited vendôme Total Cross* Partnership Partnership Partnership Partnership Partnership Parntership SCI Other 2006 £m £m £m £m £m £m £m £m £m £m

Net rental income 17.2 3.2 14.8 11.9 8.0 7.5 5.0 2.5 7.0 77.1 Administration expenses – (0.1) (0.1) (0.4) (0.7) (0.4) (0.3) – (0.2) (2.2)

Operating profit before gains on investment properties 17.2 3.1 14.7 11.5 7.3 7.1 4.7 2.5 6.8 74.9 Gains on investment properties 25.9 3.1 21.7 19.3 20.6 10.8 55.1 39.7 14.6 210.8 Net finance costs – 0.1 0.1 0.2 0.1 0.1 (4.5) – (2.2) (6.1)

Profit before tax 43.1 6.3 36.5 31.0 28.0 18.0 55.3 42.2 19.2 279.6

BALANCE SHEETS AS AT 31 DECEMBER 2006

Bristol Alliance Bull Ring Oracle queensgate Shires Moor House 9 place Brent Limited Limited Limited Limited Limited Limited vendôme Total Cross* Partnership Partnership Partnership Partnership Partnership Parntership SCI Other 2006 £m £m £m £m £m £m £m £m £m £m

Non-current assets Investment and development properties at valuation 438.7 176.2 317.9 285.2 180.0 258.1 201.3 167.7 235.3 2,260.4 Interests in leasehold properties – 0.3 – – – – 1.9 – 10.1 12.3

438.7 176.5 317.9 285.2 180.0 258.1 203.2 167.7 245.4 2,272.7 Current assets Other current assets 4.0 1.2 2.0 3.8 1.9 1.7 0.6 3.1 17.1 35.4 Cash and deposits – 3.3 2.6 2.8 1.9 3.0 1.2 0.2 4.2 19.2

4.0 4.5 4.6 6.6 3.8 4.7 1.8 3.3 21.3 54.6 Current liabilities Other liabilities (11.6) (3.3) (4.8) (5.3) (3.3) (4.5) (0.9) (2.3) (9.6) (45.6)

(11.6) (3.3) (4.8) (5.3) (3.3) (4.5) (0.9) (2.3) (9.6) (45.6)

Non-current liabilities Borrowings – – – – – – – – (15.8) (15.8)Other liabilities – (0.3) – – – – (2.2) (0.2) (10.1) (12.8)

– (0.3) – – – – (2.2) (0.2) (25.9) (28.6)

Net assets 431.1 177.4 317.7 286.5 180.5 258.3 201.9 168.5 231.2 2,253.1

Other than as shown above, the joint ventures are funded by the Company and the relevant partners.

*Includes Brent Cross Shopping Centre and Brent South Retail Park.


13. JOINT vENTURES continued INCOME STATEMENTS FOR THE yEAR ENDED 31 DECEMBER 2005

Bristol Alliance Bull Ring Oracle Queensgate Shires Moor House 9 place Brent Limited Limited Limited Limited Limited Limited Vendôme Total Cross* Partnership Partnership Partnership Partnership Partnership Parntership SCI Other 2005 £m £m £m £m £m £m £m £m £m £m

Net rental income 15.9 3.1 12.1 11.9 1.0 7.6 (0.5) (0.2) 2.3 53.2 Administration expenses – (0.2) (0.1) – – – – – – (0.3)

Operating profit before gains on investment properties 15.9 2.9 12.0 11.9 1.0 7.6 (0.5) (0.2) 2.3 52.9 Gains on investment properties 52.7 3.1 27.4 36.5 3.5 8.5 22.0 – 18.3 172.0 Net finance costs – 0.1 0.1 0.1 – – (4.9) – (0.4) (5.0)

Profit before tax 68.6 6.1 39.5 48.5 4.5 16.1 16.6 (0.2) 20.2 219.9

BALANCE SHEETS AS AT 31 DECEMBER 2005

Bristol Alliance Bull Ring Oracle Queensgate Shires Moor House 9 place Brent Limited Limited Limited Limited Limited Limited Vendôme Total Cross* Partnership Partnership Partnership Partnership Partnership Parntership SCI Other 2005 £m £m £m £m £m £m £m £m £m £m

Non-current assets Investment and development properties at valuation 409.3 106.0 297.0 266.4 159.6 172.9 129.3 121.2 174.1 1,835.8 Interests in leasehold properties – 0.3 – – – – 1.9 – 10.0 12.2

409.3 106.3 297.0 266.4 159.6 172.9 131.2 121.2 184.1 1,848.0 Current assets Other current assets 4.5 1.6 1.6 1.2 – 0.6 – 2.9 4.5 16.9 Cash and deposits – 5.9 3.7 3.2 2.6 2.4 0.3 1.8 1.7 21.6

4.5 7.5 5.3 4.4 2.6 3.0 0.3 4.7 6.2 38.5 Current liabilities Borrowings – – – – – – – – (0.5) (0.5)Other liabilities (12.0) (3.0) (5.0) (7.5) (2.4) (2.1) (1.4) (1.7) (2.7) (37.8)

(12.0) (3.0) (5.0) (7.5) (2.4) (2.1) (1.4) (1.7) (3.2) (38.3)

Non-current liabilities Borrowings – – – – – – (69.1) – – (69.1)Other liabilities – (0.3) – (1.3) – – (1.9) – (10.1) (13.6)

– (0.3) – (1.3) – – (71.0) – (10.1) (82.7)

Net assets 401.8 110.5 297.3 262.0 159.8 173.8 59.1 124.2 177.0 1,765.5

Other than as shown above, the joint ventures are funded by the Company and the relevant partners.

*Includes Brent Cross Shopping Centre and Brent South Retail Park.



14. INvESTMENTS 2006 2005Available for sale investments £m £m

Value Retail Investors Limited Partnerships 47.3 34.1 Interests in Value Retail plc and related companies 16.1 14.3 Other investments 1.5 1.1

64.9 49.5

The group has an effective 33.5% interest in Value Retail Investors Limited Partnership I and an effective 27.5% interest in Value Retail Investors Limited Partnership II, both of which have interests in a designer outlet centre in Bicester, in the United Kingdom. The total cost of the interests was £15.7 million and they are included at a total value, based on the market value of the underlying property, at 31 December 2006 of £47.3 million (2005: £34.1 million), the property elements of which have been reviewed by Donaldsons, Chartered Surveyors. These investments have not been consolidated within the group accounts as the group does not have significant influence over the management of the partnerships. Investments in Value Retail plc and certain related companies are included at fair value. The cost of these investments was £14.9 million.

Other investments include the group’s 15% stake in Stonemartin plc, which was acquired for a total cost of £4.4 million. Stonemartin plc, which operates serviced offices under the brand name of the Institute of Directors, is listed on the Alternative Investment Market (AIM) and at the balance sheet date the investment has been included at market value.

15. RECEIvABLES: NON-CURRENT ASSETS 2006 2005 £m £m

Loans receivable 10.8 – Other receivables 2.8 4.5

13.6 4.5

Loans receivable comprised a loan of F16.0 million (£10.8 million) to Value Retail plc bearing interest based on EURIBOR and maturing on 22 August 2008. The loan is classified as ‘available for sale’ and is included in the balance sheet at fair value, which equates to cost. At 31 December 2005 a loan to Value Retail plc of F30.0 million (£20.6 million) was included in receivables within current assets.

16. RECEIvABLES: CURRENT ASSETS 2006 2005 £m £m

Trade receivables 57.1 34.3 Loans receivable – 20.6 Other receivables 87.0 78.6 Corporation tax 0.6 0.5 Prepayments 3.3 2.9 Fair value of interest rate swaps – 7.3

148.0 144.2

The figures shown above are after deducting a provision for bad and doubtful debts of £4.3 million (2005: £2.6 million).


17. CASH AND DEPOSITS 2006 2005 £m £m

Cash at bank 26.3 23.1 Short-term deposits 13.1 22.4

39.4 45.5

Analysis by currency Sterling 27.3 29.4 Euro 12.1 16.1

39.4 45.5

Short-term deposits principally comprised deposits placed on money markets with rates linked to LIBOR for maturities of not more than one month, at an average rate of 4.1% (2005: 3.5%). Such deposits are considered to be cash equivalents.

18. PAyABLES: CURRENT LIABILITIES 2006 2005 £m £m

Trade payables 48.7 46.7 Other payables 137.3 154.3 Accruals 23.4 19.7 Fair value of interest rate swaps 8.8 –

218.2 220.7

19. BORROwINGS 2006 2005 £m £m

Unsecured £200 million 7.25% Sterling bonds due 2028 197.5 197.4 £300 million 6% Sterling bonds due 2026 296.5 296.4 £250 million 6.875% Sterling bonds due 2020 247.0 246.9 £300 million 5.25% Sterling bonds due 2016 296.9 – F700 million 4.875% Euro bonds due 2015 469.3 – £106.2 million (2005: £200 million) 10.75% Sterling bonds due 2013 103.9 195.6 F500 million 6.25% Euro bonds due 2008 336.2 342.4 £26 million variable rate loan notes due 2008 26.0 – F300 million 5% Euro bonds due 2007 202.0 205.6 Bank loans and overdrafts 90.8 540.9

2,266.1 2,025.2 Exchange difference on currency swaps 1.0 –

2,267.1 2,025.2

Secured Sterling fixed rate mortgages due 2009 15.5 – Sterling variable rate mortgages due 2007 – 69.1 Sterling variable rate loans due within one year – 0.5

15.5 69.6

2,282.6 2,094.8

Security for secured borrowings as at 31 December 2006 is provided by charges on property.



19. BORROwINGS continuedMATURITy Bank loans Other 2006 2005 and overdrafts loans Total Total £m £m £m £m

After five years (1.1) 1,611.1 1,610.0 936.3 From two to five years 100.2 – 100.2 883.3 From one to two years – 362.2 362.2 274.7

Due after more than one year 99.1 1,973.3 2,072.4 2,094.3 Due within one year 7.2 203.0 210.2 0.5

106.3 2,176.3 2,282.6 2,094.8

At 31 December 2005 and 2006 no loans due after five years were repayable by instalments.

UNDRAwN COMMITTED FACILITIES 2006 2005 £m £m

Expiring between one and two years – 225.9 Expiring after more than two years 845.0 57.7

845.0 283.6

INTEREST RATE AND CURRENCy PROFILE Floating rate 2006 Fixed rate borrowings borrowings Total

% years £m £m £m

Sterling 7.11 14 857.3 416.8 1,274.1 Euro 5.36 5 1,007.5 1.0 1,008.5

6.16 10 1,864.8 417.8 2,282.6

Floating rate 2005 Fixed rate borrowings borrowings Total

% Years £m £m £m

Sterling 7.83 16 759.9 244.6 1,004.5 Euro 5.78 2 548.0 542.3 1,090.3

6.97 11 1,307.9 786.9 2,094.8

RATES AT wHICH INTEREST IS CHARGED ON BORROwINGS DUE AFTER MORE THAN ONE yEAR 2006 2005 £m £m

Up to 7% 1,361.4 914.9 7% to 10% 197.5 197.4 Over 10% 103.9 195.6

1,662.8 1,307.9 Variable rates 409.6 786.4

2,072.4 2,094.3

Variable rate borrowings bear interest based on LIBOR, with the exception of certain euro borrowings whose interest costs are linked to EURIBOR. The above analysis reflects the effect of currency and interest rate swaps in place at 31 December 2005 and 2006, further details of which are set out in note 20.


20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENTExposure to credit, interest rate and currency risks arise in the normal course of the group’s business. 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 group’s risk management policies and practices are as follows:

DEBT MANAGEMENTThe group generally borrows on an unsecured basis on the strength of its covenant in order to maintain operational flexibility. Borrowings are arranged to ensure an appropriate maturity profile and to maintain short-term liquidity. Acquisitions may be financed initially using short-term funds before being refinanced for the longer term when market conditions are appropriate. Short-term funding is raised principally through syndicated revolving credit facilities from a range of banks and financial institutions with whom Hammerson maintains strong working relationships. Medium and long-term debt mainly comprises the group’s fixed rate unsecured bonds.

INTEREST RATE MANAGEMENTInterest rate swaps are used to alter the interest rate basis of the group’s debt, allowing changes from fixed to floating rates or vice versa. Clear guidelines exist for the group’s ratio of fixed to floating rate debt and management regularly reviews the interest rate profile against these guidelines.

The Company has interest rate swaps of £300.0 million (2005: £176.4 million) maturing within the next five years. Under these swaps the Company receives interest at a fixed rate of 5.25% (2005: 6.0%) and pays interest at variable rates linked to LIBOR. At 31 December 2006, the fair value of these swaps was a liability of £8.8 million (2005: £7.3 million asset).

The group does not hedge account its interest rate swaps and states them at fair value with changes in fair value included in the income statement.

FOREIGN CURRENCy MANAGEMENTThe impact of foreign exchange movements is managed by financing the cost of acquiring euro denominated assets with euro borrowings. The group borrows in euros and uses currency swaps to match foreign currency assets with foreign currency liabilities.

To manage the foreign currency exposure on its net investments in subsidiaries in France and Germany, the group has designated both euro denominated bonds and currency swaps as hedges. The carrying amount of the bonds at 31 December 2006 was £1,007.5 million (2005: £548.0 million) and their fair value was £1,018.2 million (2005: £578.9 million).

At 31 December 2006 the group had currency swaps of £247.8 million, being F369.2 million sold forward against sterling for value on 3 January 2007, at a rate of £1 = F1.490. At 31 December 2005 the group had swaps of £68.7 million, being F100.0 million sold forward against sterling for value on 31 January 2006, at a rate of £1 = F1.455.

The exchange differences on hedging instruments and on net investments are recognised in equity.

PROFIT AND LOSS ACCOUNT AND BALANCE SHEET MANAGEMENTThe group maintains internal guidelines for interest cover and gearing. Management monitors the group’s current and projected financial position against these guidelines.

CASH MANAGEMENTCash levels are monitored to ensure sufficient resources are available to meet the group’s operational requirements. Short-term money market deposits are used to manage liquidity whilst maximising the rate of return on cash resources, giving due consideration to risk.

CREDIT RISKThe group’s principal financial assets are bank and cash balances, short-term deposits, trade and other receivables and investments. The group’s credit risk is primarily attributable to its trade and other receivables. The amounts in notes 15 and 16 are presented net of allowances for doubtful receivables and allowances for impairment are made where appropriate. The credit risk on short-term deposits and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and tenants.



20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT continuedEFFECTIvE INTEREST RATES AND FINANCIAL MATURITy ANALySISIn respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and shows a maturity analysis of individual elements. The table excludes the impact on effective interest rates at the balance sheet date of foreign currency swaps. 2006 Maturity

Effective Less than One to Two to More than interest rate Total one year two years five years five years % £m £m £m £m £m

Cash and cash equivalents 4.1 (39.4) (39.4) – – – Secured bank loans Sterling fixed rate loans 5.4 15.5 – – 15.5 – Unsecured bond issues Sterling fixed rate loans 7.1 1,141.8 (300.0) – 300.0 1,141.8 Euro fixed rate loans 5.4 1,007.5 202.0 336.2 – 469.3 Interest rate swaps (floating) 5.9 – 300.0 – (300.0) – Unsecured bank loans and overdrafts 5.6 90.8 7.2 – 84.7 (1.1)Unsecured loan notes 4.7 26.0 – 26.0 – – Exchange difference on currency swaps – 1.0 1.0 – – –

2,243.2 170.8 362.2 100.2 1,610.0

2005 Maturity

Effective Less than One to Two to More than interest rate Total one year two years five years five years % £m £m £m £m £m

Cash and cash equivalents 3.5 (45.5) (45.5) – – – Secured bank loans Sterling fixed rate loans 6.1 69.6 0.5 69.1 – – Unsecured bond issues Sterling fixed rate loans 7.8 936.3 (176.4) – 176.4 936.3 Euro fixed rate loans 5.8 548.0 – 205.6 342.4 – Interest rate swaps (floating) 4.7 – 176.4 – (176.4) – Unsecured bank loans 2.9 540.9 – – 540.9 –

2,049.3 (45.0) 274.7 883.3 936.3

SENSITIvITy ANALySISIn managing interest rate and currency risks the group aims to reduce the impact of short-term fluctuations on the group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates may have an impact on consolidated earnings.

At 31 December 2006, it is estimated that a general increase of one percentage point in interest rates would have decreased the group’s annual profit before tax by approximately £4.2 million (2005: £7.4 million). The effect of interest rate swaps has been included in this estimate.

It is estimated that a general increase of one percentage point in the value of the euro against sterling would have had no impact on the group’s profit before tax for the year ended 31 December 2006 (2005: increase in profit before tax of £0.2 million). Forward foreign exchange contracts have been included in this estimate.


20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT continuedFAIR vALUES OF FINANCIAL INSTRUMENTSThe fair values of borrowings together with their carrying amounts included in the balance sheet are as follows:

2006 2005

Book value Fair value Book value Fair value £m £m £m £m

Current borrowings (209.4) (210.4) (0.5) (0.5)Non-current borrowings (2,091.3) (2,181.0) (2,111.2) (2,317.8)Unamortised borrowing costs 19.1 19.1 16.9 16.9 Currency swaps (1.0) (1.0) – –

Total borrowings (2,282.6) (2,373.3) (2,094.8) (2,301.4)

Interest rate swaps (8.8) (8.8) 7.3 7.3

The fair values of the group’s borrowings have been estimated on the basis of quoted market prices. The fair values of the group’s outstanding interest rate swaps have been estimated by calculating the present value of future cash flows, using appropriate market discount rates.

Details of the group’s cash and short-term deposits are set out in note 17. Their fair values and those of other financial assets and liabilities equate to their book values. Details of the group’s trade and other receivables are set out in notes 15 and 16. The amounts are presented net of allowances for doubtful receivables and allowances for impairment are made where appropriate. Details of the group’s investments are set out in note 14. The amounts are stated at fair value.

At 31 December 2006, the fair value of financial liabilities exceeded their book value by £90.7 million (2005: £206.6 million), equivalent to 32 pence per share (2005: 72 pence per share) on an adjusted net asset value per share basis. On a post-tax basis, using a tax rate of 30%, the difference was equivalent to 22 pence per share (2005: 51 pence per share).

21. OBLIGATIONS UNDER FINANCE LEASESFinance lease obligations in respect of rents payable on leasehold properties are payable as follows:

2006 2005

Present value Present value Minimum of minimum Minimum of minimum lease lease lease lease payments Interest payments payments Interest payments £m £m £m £m £m £m

Within one year 3.1 (3.1) – 3.5 (3.5) – From two to five years 12.3 (12.3) – 13.9 (13.8) 0.1 From five to 25 years 61.7 (61.5) 0.2 69.4 (68.9) 0.5 After 25 years 536.6 (504.5) 32.1 554.7 (519.4) 35.3

613.7 (581.4) 32.3 641.5 (605.6) 35.9


22. SHARE CAPITAL Called up, allotted Authorised and fully paid

2006 2005 2006 2005 £m £m £m £m

Ordinary shares of 25p each 94.8 94.8 71.3 71.2

Number

Movements in issued share capital Number of shares in issue at 1 January 2006 284,985,440

Share options exercised – Share option scheme s 183,680 – Save As You Earn 32,820

Number of shares in issue at 31 December 2006 285,201,940

Share optionsAt 31 December 2006 the following options granted to staff remained outstanding under the Company’s executive share option schemes:

Expiry year Exercise price (pence) Number of ordinary shares of 25p each

2008 379-528 19,4322009 417-562.5 9,9462010 391-422 303,7812011 517.5-651 237,0542012 472.5-861.8 242,9182013 422 66,0072014 651 56,4262015 861.8 51,0972016 1,240 164,052

1,150,713

At 31 December 2006 the following options granted to Executive Directors and staff remained outstanding under the Company’s savings-related share option scheme:

Expiry year Exercise price (pence) Number of ordinary shares of 25p each

2007 480.8 1,1012007 550.0 11,9882008 384.0 3,8482008 701.2 17,0152009 550.0 2,3782009 939.2 22,6802010 701.2 6,5962011 550.0 1,6002011 939.2 1,3702013 939.2 582

69,158


[Section 07]

22. SHARE CAPITAL continuedThe number and weighted average exercise prices of share options under the Company’s executive share options schemes are as follows:

2006 2005 weighted Weighted average average Number exercise price Number exercise price of options £ of options £

Outstanding at 1 January 1,326,810 6.07 1,683,237 4.97 Granted during the year 177,922 12.40 381,506 8.62 Forfeited during the year (170,339) 6.80 (118,876) 6.37 Exercised during the year (183,680) 5.03 (619,057) 4.58

Outstanding at 31 December 1,150,713 7.11 1,326,810 6.07

Exercisable at 31 December 42,554 5.02 188,371 4.96

The weighted average share price at the date of exercise for share options exercised during the year was £12.23 (2005: £9.22). The options outstanding at 31 December 2006 had a weighted average remaining contractual life of 5.3 years (31 December 2005: 5.3 years). The number and weighted average exercise price of share options under the Company’s savings-related share option scheme is as follows:

2006 2005 weighted Weighted average average Number exercise price Number exercise price of options £ of options £

Outstanding at 1 January 84,483 5.28 103,634 4.08 Granted during the year 27,617 9.39 31,226 7.01 Forfeited during the year (10,122) 7.57 (8,554) 4.92 Exercised during the year (32,820) 3.78 (41,823) 3.67

Outstanding at 31 December 69,158 7.30 84,483 5.28

The weighted average share price at the date of exercise for share options exercised during the year was £11.66 (2005: £8.73). No options outstanding under the Company’s savings-related share option scheme were exercisable at the end of 2005 or 2006.



23. RESERvES Share Capital premium Translation Hedging redemption account reserve reserve reserve £m £m £m £m

Balance at 1 January 2006 659.5 (32.8) 32.9 7.2 Exchange adjustment – (30.1) – – Net gain on hedging activities – – 27.0 – Premium on issue of shares 1.0 – – –

Balance at 31 December 2006 660.5 (62.9) 59.9 7.2

Other Revaluation Retained reserves reserve earnings £m £m £m

Balance at 1 January 2006 6.7 221.8 2,163.7 Share-based employee remuneration 3.8 – – Cost of shares awarded to employees (1.4) – – Transfer on award of own shares to employees (0.2) – 0.2 Revaluation gains on development properties – 67.0 – Revaluation gains on owner-occupied property – 7.6 – Revaluation gains on investments – 14.4 – Transfer on completion of development properties – (202.1) 202.1 Transfer on sale of development and owner-occupied property – (26.2) 26.2 Acquisition of minority interest – – (2.2)Actuarial losses on pension schemes – – (0.9)Gain on award of own shares to employees – – 0.4Dividends paid – – (57.7)Deferred tax recognised directly in equity – (3.6) (0.4)Profit for the year attributable to equity shareholders – – 1,016.9

Balance at 31 December 2006 8.9 78.9 3,348.3

The revaluation reserve and £2,342 million of retained earnings represent unrealised revaluation gains and do not constitute distributable reserves.

24. INvESTMENT IN OwN SHARES 2006 2005At cost £m £m

Balance at 1 January 4.4 2.8 Purchase of own shares 4.0 2.3 Cost of shares awarded to employees (1.4) (0.7)

Balance at 31 December 7.0 4.4

The Trustees of the Hammerson Employee Share Ownership Plan acquire the Company’s own shares to award to participants in accordance with the terms of the Plan. The expense related to share-based employee remuneration is calculated in accordance with IFRS 2 and the terms of the Plan, and recognised in the income statement within administration expenses. The corresponding credit is included in other reserves. When the Company’s shares are awarded to employees as part of their remuneration, the cost of the shares is transferred to other reserves. Should this not equal the credit previously recorded against other reserves, the balance is adjusted against retained earnings.

The number of shares held as at 31 December 2006 was 735,137 (2005: 740,083) following awards to participants during the year of 304,946 shares (2005: 140,325) and the purchase of a further 300,000 shares.


25. ADJUSTMENTS FOR NON-CASH ITEMS IN THE CASH FLOw STATEMENT 2006 2005 £m £m

Depreciation 0.8 0.5 Share-based employee remuneration 3.8 2.1 Amortisation of lease inducements and other direct costs 1.2 4.4 Increase in accrued rents receivable (17.5) (5.6)Other items (1.0) 0.4

(12.7) 1.8

26. CONTINGENT LIABILITIESThere are contingent liabilities of £27.8 million (2005: £12.6 million) relating to guarantees given by the group and a further £14.0 million (2005: £10.1 million) relating to claims against the group arising in the normal course of business. Hammerson’s share of contingent liabilities arising within joint ventures, which is included in the figures shown above, is £2.9 million (2005: £6.9 million).

27. ACqUISITION

Name of business acquired LxB Holdings LimitedDate of acquisition 11 August 2006Proportion of shares acquired 100%

Book value Fair value £m £m

Investment properties 333.5 426.5 Intangible assets 0.2 – Current receivables 6.5 6.3 Cash and deposits 44.5 44.5 Current payables (10.5) (14.0)Non-current borrowings (248.8) (249.1)Non-current deferred tax – (23.6)

Net assets acquired 125.4 190.6

Goodwill on acquisition 12.6

Cost of acquisition 203.2

Satisfied by: Cash paid 173.3 Variable rate loan notes issued 26.0 Costs paid 3.9

203.2

Profit* since date of acquisition 6.5 Consolidated revenue** if LxB Holdings Limited had been acquired on 1 January 2006 287.7 Consolidated profit* if LxB Holdings Limited had been acquired on 1 January 2006 46.0

*Profit before tax excluding gains on investment properties.**Gross rental income.

LxB Holdings Limited is the parent company of a group involved in property investment and development. The fair values of investment properties, intangible assets and deferred tax liabilities were determined by the Directors. The goodwill arising on this acquisition is principally attributable to provisions made for deferred tax resulting from the difference between how deferred tax is calculated for accounting purposes and the way it is valued during purchase negotiations. In the opinion of the Directors, the carrying amount of this goodwill cannot be justified by future cashflows and consequently it has been impaired. The impairment has been included in the income statement (see note 2).



INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF HAMMERSON PLCWe have audited the parent company financial statements of Hammerson plc for the year ended 31 December 2006 which comprise the balance sheet and the related notes A to K. These parent company financial statements have been prepared under the accounting policies set out therein.

We have reported separately on the group financial statements of Hammerson plc for the year ended 31 December 2006 and on the information in the remuneration report that is described as having been audited.

This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIvE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe Directors’ responsibilities for preparing the Annual Report, the remuneration report and the parent company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of Directors’ responsibilities.

Our responsibility is to audit the parent company financial statements and the part of the remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the Directors’ report is consistent with the parent company financial statements.

In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and other transactions is not disclosed.

We read the other information contained in the Annual Report as described in the contents section and consider whether it is consistent with the audited parent company financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any further information outside the Annual Report.

BASIS OF AUDIT OPINIONWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the parent company financial statements.

OPINIONIn our opinion:

• the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company’s affairs as at 31 December 2006;

• the parent company financial statements have been properly prepared in accordance with the Companies Act 1985; and

• the information given in the Directors’ report is consistent with the parent company financial statements.

Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 9 March 2007

Independent auditors’ report on the parent company financial statements


[Section 07]

As at 31 December 2006 2006 2005* Notes £m £m

Non-current assets Investments in subsidiary companies C 5,359.2 4,763.4 Receivables D 4,053.0 3,509.1 Deferred tax – 13.0

9,412.2 8,285.5Current assets Receivables E 1.1 29.2 Cash and short-term deposits 0.3 7.0

1.4 36.2

Total assets 9,413.6 8,321.7

Current liabilities Borrowings F (210.2) – Payables G (2,904.3) (2,805.1)

(3,114.5) (2,805.1)Non-current liabilities Borrowings F (2,030.9) (2,025.2) Total liabilities (5,145.4) (4,830.3)

Net assets 4,268.2 3,491.4

Equity Called up share capital 22 71.3 71.2 Share premium account H 660.5 659.5 Capital redemption reserve H 7.2 7.2 Other reserves H 0.1 0.1 Revaluation reserve H 2,881.2 2,187.9Retained earnings H 654.9 569.9 Investment in own shares I (7.0) (4.4)

Equity shareholders’ funds 4,268.2 3,491.4

*Restated following change in accounting policy (see note A).

These financial statements were approved by the Board of Directors on 9 March 2007.

Signed on behalf of the Board

John Richards DirectorSimon Melliss Director

Company balance sheet


Notes to the Company accounts

A. ACCOUNTING POLICIESAlthough the consolidated group accounts are prepared under IFRS, the Hammerson plc company accounts presented in this section are prepared under UK GAAP. The accounting policies relevant to the Company are the same as those set out in the accounting policies for the group in note 1, except as set out below.

In 2006, the Company changed its accounting policy to include its investment in subsidiaries at valuation, rather than at cost less provision for impairment, to better reflect their underlying value. The Directors determine the valuations with reference to the underlying net assets of the subsidiaries. Provisions for impairment below cost are taken to the income statement. Surpluses arising on valuations above cost are included in the revaluation reserve. In accordance with UK GAAP, in calculating the underlying net asset values of the subsidiaries, no deduction is made for deferred tax relating to revaluation surpluses on investment properties.

Investments in subsidiaries had previously included loans to subsidiaries. These loans have now been reclassified as non-current asset receivables. The difference between the carrying value and the cost of investment in shares of subsidiaries as previously reported has been credited to the revaluation reserve.

A prior year adjustment has been made to increase equity shareholders’ funds as at 31 December 2005 by £2,187.9 million. There is no impact on the reported result for 2005 or 2006. The effects of these accounting changes are set out in notes C, D and H.

B. PROFIT FOR THE yEARAs permitted by section 230 of the Companies Act 1985, the income statement of the Company is not presented as part of these financial statements. The profit for the year attributable to equity shareholders dealt with in the financial statements of the Company was £142.7 million (2005: £201.8 million).

C. INvESTMENTS IN SUBSIDIARy COMPANIES Shares Loans Total £m £m £m

Balance at 1 January 2006 – as previously reported 2,575.5 3,509.1 6,084.6– effect of change in accounting policy (see note A) 2,187.9 (3,509.1) (1,321.2)

Balance at 1 January 2006 as restated 4,763.4 – 4,763.4Provision for impairment (97.5) – (97.5)Revaluation adjustment 693.3 – 693.3

Balance at 31 December 2006 5,359.2 – 5,359.2

Investments are stated at Directors’ valuation. The historical cost of investments in subsidiary companies is £2,478.0 million (2005: £2,575.5 million). A list of the principal subsidiary companies at the end of the year is included in note K.

D. NON-CURRENT ASSETS: RECEIvABLES 2006 2005* £m £m

Amounts owed by subsidiaries 4,042.2 3,509.1 Loans receivable (see note 15 to the consolidated accounts) 10.8 –

4,053.0 3,509.1

*Restated to reflect change in accounting policy (see note A). Amounts owed by subsidiaries at 31 December 2005 were previously included in investments in subsidiary companies.

Amounts owed by subsidiaries are unsecured and interest-bearing at variable rates based in LIBOR. These amounts are repayable on demand, however it is the Company’s current intention not to seek repayment before 31 December 2007.

E. CURRENT ASSETS: RECEIvABLES 2006 2005 £m £m

Loans receivable (see note 15 to the consolidated accounts) – 20.6 Other receivables 1.1 1.3Fair value of interest rate swaps – 7.3

1.1 29.2


[Section 07]

F. BORROwINGS Bank loans 2006 2005 and overdrafts Other loans Total Total £m £m £m £m

After five years (1.1) 1,611.1 1,610.0 936.3 From two to five years 84.7 – 84.7 883.3 From one to two years – 336.2 336.2 205.6

Due after more than one year 83.6 1,947.3 2,030.9 2,025.2 Due within one year 7.2 203.0 210.2 –

90.8 2,150.3 2,241.1 2,025.2

Details of the group’s borrowings are given in note 19 to the consolidated accounts. The Company’s borrowings are all unsecured and comprise sterling and euro denominated bonds, currency and interest rate swaps, bank loans and overdrafts.

G. PAyABLES 2006 2005 £m £m

Amounts owed to subsidiaries 2,825.8 2,747.3 Other payables and accruals 69.7 57.8 Fair value of interest rate swaps 8.8 –

2,904.3 2,805.1

The amounts owed to subsidiaries are unsecured, repayable on demand and interest bearing at variable rates based on LIBOR.

H. RESERvES Share Capital premium redemption Other Revaluation Retained account reserve reserves reserve earnings £m £m £m £m £m

Balance at 1 January– as previously reported 659.5 7.2 0.1 – 569.9– effect of change in accounting policy (see note A) – – – 2,187.9 –

Balance at 1 January as restated 659.5 7.2 0.1 2,187.9 569.9 Premium on issue of shares 1.0 – – – – Dividends paid – – – – (57.7)Revaluation gains on investment in subsidiaries – – – 693.3 –Profit for the year – – – – 142.7

Balance at 31 December 660.5 7.2 0.1 2,881.2 654.9

I. INvESTMENT IN OwN SHARES 2006 2005 £m £m

Balance at 1 January 4.4 2.8 Purchase of own shares 4.0 2.3 Transfer to employing subsidiary – cost of shares awarded to employees (1.4) (0.7)

Balance at 31 December 7.0 4.4

The Trustees of the Hammerson Employee Share Ownership Plan acquire the Company’s own shares to award to participants in accordance with the terms of the Plan.

The Company has no employees. When the Company’s own shares are awarded to group employees as part of their remuneration, the cost of the shares is transferred by the Company through an intercompany account to the employing subsidiary, Hammerson Group Management Limited (HGM), and shown as a debit in the other reserves of HGM. The expense related to share-based employee remuneration is calculated in accordance with FRS 20 and the terms of the Plan, and recognised in the income statement of HGM within administration expenses. The corresponding credit is included in HGM’s other reserves.

Further details of the number of shares held by the Company are set out in note 24 to the consolidated accounts.



Notes to the Company accounts continued

J. FAIR vALUE OF FINANCIAL LIABILITIES

2006 2005

Book value Fair value Book value Fair value £m £m £m £m

Current borrowings (209.4) (210.4) – – Non-current borrowings (2,049.8) (2,139.5) (2,042.1) (2,248.7)Unamortised borrowing costs 19.1 19.1 16.9 16.9 Currency swaps (1.0) (1.0) – –

Total borrowings (2,241.1) (2,331.8) (2,025.2) (2,231.8)

Interest rate swaps (8.8) (8.8) 7.3 7.3

K. PRINCIPAL SUBSIDIARy COMPANIESAll principal subsidiary companies are engaged in property investment, development, trading or investment holding. Unless otherwise stated, the companies are 100% owned subsidiaries. As permitted by section 231 of the Companies Act 1985, a complete listing of all the group’s undertakings has not been provided. A complete list of the group’s undertakings will be filed with the Annual Return.

Subsidiaries are incorporated/registered and operating in the following countries:

England FranceHammerson International Holdings Ltd Hammerson SASHammerson UK Properties plc Hammerson France SASGrantchester Holdings Ltd Hammerson Bercy SAS99 Bishopsgate Ltd* Hammerson Holding France SASHammerson (Brent Cross) Ltd Hammerson Centre Commercial Italie SASHammerson Bull Ring Ltd Hammerson Madeleine SASHammerson Group Management Ltd Hammerson Université SASHammerson Harbour Exchange Ltd Hammerson Villebon 1 SARLHammerson (Leicester) Ltd SCI SDPH (64.5%)Hammerson Management Services Ltd Marketing & Communication SASHammerson Moor House (LP) Ltd Marketing & Valorisation SASHammerson Oracle Investments Ltd Hammerson Property Ltd Hammerson (Cramlington) Ltd West Quay Shopping Centre Ltd

The Netherlands GermanyHammerson Europe BV Hammerson GmbH Forum Steglitz 2 GmbH

*Incorporated/registered in Vanuatu.


Weighted average Rent Average Property unexpired Vacancy passing rent net internal Number lease term rate p.a. passingProperty/address area/m² Key dates Tenure Principal occupiers of tenants years % £m** £ per m²†

UNITED KINGDOMRetailBullring, Birmingham 125,300 2003 developed Leasehold Debenhams, Selfridges, 166 10 1.4 15.1 460 (33% ownership) Gap, H&M, Next, Zara

Martineau Galleries, 52,800 1999 acquired Leasehold Argos, HSBC Bank, 70 11 12.5 1.7 100 Birmingham NCP, Next, Virgin (33% ownership)

*Cabot Circus, Bristol 92,000 2008 Leasehold House of Fraser, H&M, – – – – – (50% ownership) completion Harvey Nichols, New Look, Showcase Cinemas

Bristol Investment 32,800 2000-2006 Leasehold Bhs, Dixons, 67 11 0.6 3.6 230 Properties acquired Sports Soccer, Superdrug (50% ownership)

Brent Cross, 81,800 1976 developed Leasehold Fenwick, John Lewis, 115 10 0.3 17.1 1,070 London NW4 1995 refurbished Marks & Spencer, Boots, (41% ownership) Gap, H&M, W H Smith, Zara

Queensgate Shopping 81,400 2005 acquired Freehold Bhs, John Lewis, 135 11 0.3 9.0 350 Centre, Peterborough Marks & Spencer, Argos, (50% ownership) Boots, Next, Waitrose

WestQuay, 76,200 2000 developed Leasehold John Lewis, Marks & 95 10 2.0 24.9 590 Southampton Spencer, Gap, H&M, Next

The Oracle, Reading 71,200 1999 developed Leasehold Debenhams, 111 10 0.7 13.2 470 (50% ownership) House of Fraser, Boots, H&M, Vue, Zara

The Shires, Leicester 46,600 2002 acquired Freehold Debenhams, 77 12 0.1 7.9 470 (60% ownership) House of Fraser, Next, Virgin, Waterstones

*Highcross Quarter, 60,000 2008 Freehold John Lewis, Next, – – – – – Leicester completion River Island, Showcase (60% ownership) Cinemas, Zara

Sheffield Properties 22,900 2001-2006 Majority Halifax, Nottingham 42 7 5.9 1.4 60 acquired Freehold Building Society, Regal Hotels, Sheffield City Council

Leeds Properties 9,100 2000-2006 Freehold Secretary of State 18 1 3.5 1.5 110 acquired

Exeter Properties 8,600 1999 acquired Leasehold Iceland, MVC, 27 3 nil 1.1 140 Sofa Workshop

The Point, 7,500 2004 acquired Freehold City Centre Restaurants, 5 10 6.7 0.3 70 Milton Keynes Gala Leisure Ltd, United Cinemas

Kingston-upon- 4,400 2004-2006 Majority Barclays, NCP, Town & 5 5 nil 0.7 220 Thames Properties acquired Freehold City Parking

Notes

*Properties held in the course of development. Property net internal area is an estimation at completion. Principal occupiers are significant pre-lettings only. **Net of head and equity rents, post any rent-free periods. †Before deducting head and equity rents and excluding rents passing from anchor units and car parks.

Portfolio review



Retail parksWestmoreland Retail 52,200 2006 acquired Freehold Argos, Asda, 108 9 4.3 5.5 120 Park and Manor J Sainsbury, New Look, Next Walks, Cramlington

*Union Square, 49,000 2009 Freehold Cine UK, Next, H&M, – – – – – Aberdeen completion New Look

Central Retail 37,200 2002 acquired Leasehold Boots, Cineworld, Comet, 27 15 nil 1.3 170 Park, Falkirk 2003 extended Currys, Homebase, (25% ownership) Next, Tesco

Cleveland 24,500 2002 acquired Freehold B&Q, Currys, Matalan, 11 19 0.4 2.9 120 Retail Park, 2006 extended MFI, Wickes Middlesbrough

Cyfarthfa Retail Park, 23,700 2005 developed Freehold Argos, B&Q, Boots, 16 16 nil 4.0 170 Merthyr Tydfil Debenhams, Dixons, JJB, Next

Abbey Retail Park, 23,400 2006 acquired Leasehold B&Q, Carpetright, 6 21 2.3 3.4 150 Belfast Currys, Tesco

Westwood & East 23,200 2002 acquired Freehold Argos, Comet, Currys, 14 17 nil 3.8 170 Kent Retail Parks, 2006 extended Homebase, Matalan Thanet

St Oswald’s Retail 22,500 2005 developed Freehold B&Q, Comet, JJB, ScS 12 21 5.3 3.9 210 Park, Gloucester

Parc Tawe Retail 20,700 2006 acquired Leasehold Carpetright, Toys ‘ R’ Us, 16 5 3.1 1.1 110 Park, Swansea United Cinemas (50% ownership)

Drakehouse Retail 20,600 2003 acquired Freehold Carpetright, Comet, 18 15 nil 3.2 170 Park, Sheffield Co-op, Currys, Focus, JD Sports, JJB

Fife Central Retail 19,400 2005 acquired Freehold Boots, Homebase, 15 15 nil 3.4 180 Park, Kirkcaldy J Sainsbury, Next

Orchard Centre 17,200 2006 acquired Leasehold Argos, J Sainsbury, Next, 37 19 15.3 2.6 190 Retail Park, Didcot Woolworths

Victoria Retail Park, 15,500 2002 acquired Freehold Argos, B&Q, Focus, 6 17 nil 2.4 160 Nottingham 2004 redeveloped Halfords, Next

Battery Retail Park, 12,700 2002 acquired Leasehold B&Q, Comet, Currys, 7 7 nil 0.9 270 Selly Oak, Halfords, Homebase, Birmingham PC World (25% ownership)

Dallow Road, Luton 10,100 2002 acquired Freehold Aldi, B&Q 2 13 nil 1.1 110 2005 redeveloped

Seacourt Retail Park, 10,100 2006 acquired Leasehold Allied Carpets, Habitat, 5 7 nil 2.1 210 Oxford Homebase

Brent South 8,600 2004 developed Freehold Borders, DFS, Next, 9 15 nil 1.8 500 Shopping Park, TK Maxx, Arcadia London NW4 (41% ownership)

Pincents Lane Retail 7,900 2002 acquired Freehold Homebase 2 6 12.9 0.7 100 Park, Theale, Reading

Notes


Portfolio review continued



City officesBishops Square, 76,600 2005 Leasehold Allen & Overy 22 20 nil 25.6 470 London E1 developed (75% ownership)

99 Bishopsgate, 31,200 1995 Leasehold Charles River, Deutsche 7 6 8.1 11.0 580 London EC2 developed Bank, Latham & Watkins

Moorhouse, 30,000 2004 Leasehold HVB, Macquarie Bank, 7 10 5.7 9.5 550 London EC2 developed Pictet Asset Management (67% ownership)

*125 Old Broad 31,000 2007 Freehold – – – – – – Street, London EC2 completion (50% ownership)

*60 Threadneedle 20,400 2008 Freehold – – – – – – Street, London EC2 completion

One London Wall, 18,500 2003 Leasehold Dewey Ballantine, 8 9 nil 3.9 450 London EC2 developed DLA Piper, Rudnick, (50% ownership) Melli Bank, Osborne Clarke

1 Puddle Dock, 10,100 1995 acquired Leasehold KPMG 1 70 nil 0.4 40 London EC4

Other offices Exchange Tower, 44,900 1999 acquired Freehold Barclays, Centre File, 40 5 8.4 10.7 260 1 & 2 Harbour Platform Home Loans, Exchange Square, Sapient, Secretary of State London E14

10 Grosvenor Street, 6,300 2003 Leasehold Associated British Foods, 5 11 nil 2.0# 650 London W1 developed Hammerson, Tisettanta (50% ownership)

1 Harbour Quay, 2,400 2001 acquired Leasehold EDS, Medscreen 2 3 nil 0.2 120 London E14

Notes

*Properties held in the course of development. Property net internal area is an estimation at completion. Principal occupiers are significant pre-lettings only. **Net of head and equity rents, post any rent-free periods. †Before deducting head and equity rents and excluding rents passing from anchor units and car parks. #Includes Hammerson rent.



FRANCERetail Parinor, Aulnay- 66,500 2002 acquired Freehold Carrefour, C&A, Darty, 137 5 0.6 9.2 230 sous-Bois (company fnac, Grand Optical, H&M, ownership 32,600m²) MS Mode, Zara

*Parinor extension, 24,100 2008 Freehold Planète Saturn, Toys ‘ R’ Us – – – – – Aulnay-sous-Bois completion

Les 3 Fontaines, 58,900 1995 acquired Freehold Auchan, Darty, C&A, Etam, 80 5 1.1 7.8 350 Cergy Pontoise 1996 refurbished Grand Optical, H&M, (company ownership La Redoute, Mango 22,800m²)

Espace Saint Quentin, 58,700 1994 acquired Freehold Armand Thiery, Carrefour, 118 5 4.0 8.5 380 Saint Quentin-en- C&A, Darty, H&M, Yvelines (company L’Homme Moderne, Pizza Pino, ownership 25,700m²) Sephora, Société Générale

Italie 2, Paris 13ème 56,200 1998 acquired Freehold Alain Manoukian, 126 5 0.9 13.3 280 2001 refurbished Champion, Darty, Go Sport, Jennyfer, Printemps, Tati, Zara

Villebon 2, Villebon- 42,900 2005 acquired Freehold Darty, Gemo, Toys ‘ R’ Us, 40 6 5.0 5.1 130 Sur-Yvette PC City, Sport Leader, Vetland

Place des Halles, 41,400 1998 acquired Freehold Armand Thiery, BHV, C&A, 116 5 0.2 8.3 210 Strasbourg 2002 refurbished Galeries Gourmandes, (65% ownership Go Sport, H&M, Mango, of 39,500m²) Naf Naf, Sephora, Surcouf

Bercy 2, Charenton- 35,200 2000 acquired Freehold Carrefour, Darty, Esprit, 65 4 5.4 4.2 260 le-Pont (company Etam, Go Sport, H&M, ownership 20,000m²) La Grande Récré, Virgin

54-60 Faubourg, 7,000 2005 acquired Freehold Chloé, Comme des 17 4 8.9 2.2 370 Saint-Honoré, Garcons, Frank Namani, Paris 8ème Mont Blanc, Fratelli Rossetti

Offices Les Trois Quartiers, 29,700 2000 acquired Freehold Banque Robeco, Barclays, 25 5 12.9 10.5 400 21 boulevard de la Décathlon, Madelios, Madeleine, Paris 1er White & Case

9, place Vendôme, 27,700 2006 Freehold Brooks Brothers, Clifford 10 9 9.4 6.2 510 Paris 1er developed Chance, Proskauer Rose, (50% ownership) Senso Unico

148 rue de 10,300 2002 Freehold CDC Enterprises Capital, 6 6 nil 5.3 510 l’Université, Paris 7ème developed Japanese Delegation for UNESCO, LBO France, Microsoft

GERMANyRetailForum Steglitz, 32,200 2000 acquired Freehold Esprit, H&M, Karstadt, 47 8 26.4 3.0 180 Berlin 2006 refurbished Lidl

Notes


Portfolio review continued


IFRS UK GAAP

2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 £m £m £m £m £m £m £m £m £m £m

Income statementNet rental income 237.4 210.3 189.5 189.5 175.9 159.9 141.1 123.3 127.9 123.6

Operating profit before gains on investment properties 201.3 178.9 162.9 164.6 151.6 141.6 125.4 109.0 111.6 108.0 Gains on investment properties 748.0 607.6 330.2 (18.8) 5.3 (8.2) 17.2 21.3 20.1 (0.9)Cost of finance (net) (156.9) (87.9) (79.7) (78.7) (66.0) (64.3) (53.4) (35.8) (42.8) (45.4)

Profit before tax 792.4 698.6 413.4 67.1 90.9 69.1 89.2 94.5 88.9 61.7 Current tax (99.4) 1.0 (80.9) (1.7) (2.5) (7.9) (8.2) 0.1 (20.2) (14.9)Deferred tax 333.8 (133.9) 104.2 (13.1) (11.1) 15.9 32.5 – – – Equity minority interests (9.9) (11.3) (5.3) (2.0) (1.7) (0.9) (1.3) (6.1) (2.3) (1.8)

Profit for the year attributable to equity shareholders 1,016.9 554.4 431.4 50.3 75.6 76.2 112.2 88.5 66.4 45.0

Balance sheet Investment and development properties 6,716.0 5,731.7 4,603.0 3,997.5 3,948.2 3,517.2 3,352.4 2,702.1 2,206.2 1,981.4 Cash and short-term deposits 39.4 45.5 53.7 187.0 242.2 218.4 150.4 146.2 165.3 81.6 Borrowings (2,282.6) (2,094.8) (1,799.5) (1,772.2) (1,883.6) (1,552.9) (1,439.9) (1,004.7) (1,063.9) (662.4)Other assets 301.1 278.1 194.0 138.6 162.5 95.8 71.0 94.7 371.6 36.5 Other liabilities (448.9) (378.4) (385.9) (289.8) (356.2) (195.3) (165.0) (186.7) (177.4) (125.1)Net deferred tax provision (103.3) (406.4) (213.4) (54.8) (34.8) (7.6) (12.0) – – – Equity minority interests (56.6) (49.9) (41.7) (38.1) (40.1) (37.1) (33.0) (25.9) (60.8) (32.5)

Equity shareholders’ funds 4,165.1 3,125.8 2,410.2 2,168.2 2,038.2 2,038.7 1,923.9 1,725.7 1,441.0 1,279.5

Cash flow Operating cash flow after tax 5.5 44.9 60.5 68.4 57.6 54.1 90.7 12.2 36.6 48.0 Dividends (57.7) (51.0) (47.4) (44.4) (42.0) (39.7) (38.8) (49.0) (11.5) (26.6)Property and corporate acquisitions (219.5) (308.1) (320.8) (183.7) (461.8) (196.8) (353.5) (304.0) (193.0) (33.6)Developments and major refurbishments (250.5) (186.3) (203.3) (188.8) (161.8) (138.2) (137.0) (159.1) (155.6) (62.3)Other capital expenditure (29.6) (36.9) (20.2) (68.5) (43.9) (50.9) (20.7) (14.4) (45.4) (22.2)Disposals 628.0 224.4 398.7 556.2 519.6 313.0 74.6 510.9 52.6 112.6 Other cash flows (10.2) 17.7 5.6 – – – – – – –

Net cash flow before financing 66.0 (295.3) (126.9) 139.2 (132.3) (58.5) (384.7) (3.4) (316.3) 15.9

Per share data Basic earnings per share 357.5p 198.0p 156.2p 18.3p 27.1p 27.1p 39.1p 30.7p 23.1p 15.8pAdjusted earnings per share 32.8p 31.2p 28.7p 29.8p 29.2p 24.3p 22.0p 21.6p 21.1p 17.0pDividend per share 21.68p 19.71p 17.92p 16.83p 15.8p 14.84p 14.0p 13.3p 12.81p 11.9pNet asset value per share, diluted £14.61 £10.97 £8.69 £7.84 £7.38 £7.27 £6.63 £5.83 £4.94 £4.48Adjusted net asset value per share, EPRA basis £15.00 £12.37 £9.45 £8.03 £7.51 £7.30 £6.67 £5.83 £4.94 £4.47

Financial ratios Return on shareholders’ equity 25.3% 34.0% 21.7% 9.3% 4.3% 8.3% 16.3% 22.3% 14.5% 18.3%Gearing 54% 66% 72% 73% 81% 65% 67% 50% 62% 45%Interest cover 1.8x 1.9x 1.9x 1.8x 1.9x 1.9x 1.9x 2.3x 2.3x 2.6xDividend cover 1.5x 1.6x 1.6x 1.8x 1.9x 1.6x 1.6x 1.6x 1.6x 1.4x

The financial information shown above for the years 2004 to 2006 was prepared under IFRS. The information for prior years was prepared under UK GAAP. Consequently, certain data may not be directly comparable from one year to another.

Ten-year financial summary




FINANCIAL CALENDAR

Full-year results announced 26 February 2007Annual General Meeting 3 May 2007Recommended final dividend – Ex-dividend date 11 April 2007 – Record date 13 April 2007 – Payable on 14 May 2007Anticipated 2007 interim dividend October 2007

ANNUAL GENERAL MEETINGThe Annual General Meeting for 2007 will be held on 3 May 2007 at 10 Grosvenor Street, London W1K 4BJ. Details of the Meeting and the resolutions to be voted upon can be found in the Notice of Meeting sent to all shareholders.

TAxATIONFor the purposes of computing capital gains tax, the value of the Company’s shares on 31 March 1982, after adjustment for subsequent issues, was 290p for each ordinary share at that date and 315p for each share classified as ‘A’ ordinary (limited voting) at that date. The cost to be used by shareholders in computing the gain on any disposal of shares will, however, vary according to individual circumstances and shareholders should seek professional advice on the amount of tax that may arise.

REGISTRARIf you have any queries about the administration of shareholdings, such as lost share certificates, change of address, change of ownership or dividend payments please contact the Registrar:

Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

Tel: 0870 162 3100 or +44 (0) 20 8639 2157 email: [email protected] Website: www.capitaregistrars.com

Registering on the Registrar’s website enables you to view your shareholding in Hammerson plc including an indicative share price and valuation, a transaction audit trail and dividend payment history.

PAyMENT OF DIvIDENDS TO MANDATED ACCOUNTSShareholders who do not currently have their dividends paid direct to a bank or building society account and who wish to do so should complete a mandate instruction available from the Company’s Registrars on request or at www.capitaregistrars.com/shareholders/information. Under this arrangement, tax vouchers are sent to the shareholder’s registered address unless the shareholder requests otherwise.

MULTIPLE ACCOUNTSShareholders who receive more than one copy of this Report may have more than one account in their name on the Company’s register of members. Any shareholder wishing to amalgamate their holdings should write to the Company’s Registrars giving details of the accounts concerned and instructions on how they should be amalgamated.

CAPITA SHARE DEALING SERvICESAn online and telephone dealing facility is available providing Hammerson shareholders with an easy to access and simple to use service. There is no need to pre-register and there are no complicated forms to fill in. The online and telephone dealing service allows you to trade ‘real time’ at a known price which will be given to you at the time you give your instruction.

For further information on this service, or to buy and sell shares, please contact: 0870 458 4577 (telephone dealing) 8.00am- 4.30pm Monday to Friday or go to www.capitadeal.com (online dealing).

SHAREGIFTShareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating them to charity through ShareGift, a registered charity administered by the Orr Mackintosh Foundation. Further information about ShareGift is available at www.sharegift.org or by writing to ShareGift, The Orr Mackintosh Foundation, 46 Grosvenor Street, London, W1K 3HN. To donate shares please contact Capita Registrars via the details given above.



UNSOLICITED MAILHammerson is obliged by law to make its share register available on request to other organisations that may then use it as a mailing list. This may result in you receiving unsolicited mail. If you wish to limit the receipt of unsolicited mail you may do so by writing to the Mailing Preference Service, an independent organisation whose services are free to you. Once your name and address have been added to its records, it will advise the companies and other bodies that support the service that you no longer wish to receive unsolicited mail. If you would like more details you should write to:

The Mailing Preference ServiceFREEPOST 29LON 20771LondonW1E 0ZT

Or telephone their helpline on 0845 703 4599 or register on their website www.mpsonline.org.uk.

ELECTRONIC COMMUNICATION wITH SHAREHOLDERSFollowing the 2007 Annual General Meeting, the Company will be permitted to send documents, such as Notices of Meetings, Forms of Proxy and the Annual Report in electronic form via the internet, rather than in paper form through the post. Shareholders who accept this form of notification will receive a notification each time the Company publishes such a document on its website.

There are a number of advantages in the Company distributing information in this format, including: speedier delivery of documents; cost savings for the Company; and saving of environmental resources.

Instructions on how the Company will adopt electronic communication will be provided in future shareholder mailings.

wEBSITEThe 2006 Annual Report and other information is available on the Company’s website, www.hammerson.com. The Company operates a service whereby all registered users of the Company’s website can choose to receive, via e-mail, notice of all Company announcements which can be viewed on the website.

REGISTERED OFFICE10 Grosvenor Street, London W1K 4BJ Registered in England No. 360632

ADvISERSValuers Cushman & Wakefield Donaldsons DTZ Debenham Tie LeungAuditors Deloitte & Touche LLPSolicitors Herbert Smith LLPStockbrokers Citigroup Deutsche Bank AG

Principal group addressesUNITED KINGDOMHammerson plc, 10 Grosvenor Street, London W1K 4BJTel +44 (0) 20 7887 1000Fax +44 (0) 20 7887 1010

FRANCEHammerson SAS, Washington Plaza Immeuble Artois, 44 rue Washington, 75408 Paris CEDEX 08, FranceTel +33 (1) 56 69 30 00Fax +33 (1) 56 69 30 01


Adjusted figures (per share)

Reported amounts adjusted to exclude certain non-recurring items as set out in note 10 to the accounts.

Anchor store A major store, usually a department store or supermarket, occupying a large unit within a shopping centre or retail park, which serves as a draw to other retailers and consumers.

Average cost of borrowing

The cost of finance expressed as a percentage of the weighted average of borrowings during the period.

Capital return The change in value during the period for properties held at the balance sheet date, after taking account of capital expenditure and exchange translation movements, calculated on a monthly time weighted basis.

Dividend cover Adjusted earnings per share divided by dividend per share.

Earnings per share (EPS)

Profit for the period attributable to equity shareholders divided by the average number of shares in issue during the period.

EPRA European Public Real Estate Association. This organisation has issued recommended bases for the calculation of earnings per share and net asset value per share.

ERv The estimated market rental value of the total lettable space in a property, after deducting head and equity rents, calculated by the group’s valuers.

Gearing Net debt expressed as a percentage of equity shareholders’ funds.

IAS International Accounting Standards.

IFRS International Financial Reporting Standards.

IPD Investment Property Databank. An organisation supplying independent market indices and portfolio benchmarks to the property industry.

Initial yield Annual cash rents receivable, net of head and equity rents and the cost of vacancy, as a percentage of property value.

Interest cover Net rental income divided by net cost of finance before capitalised interest, the change in fair value of interest rate swaps and bond redemption costs.

Interest rate and currency swap

An agreement with another party to exchange an interest or currency rate obligation for a pre-determined period of time.

Like-for-like/underlying net rental income

The percentage change in rental income for completed investment properties owned throughout both current and prior periods, after taking account of exchange translation movements.

Loan to value ratio Borrowings and foreign currency swaps expressed as a percentage of the total value of investment and development properties.

Net asset value per share (NAv)

Equity shareholders’ funds divided by the number of shares in issue at the balance sheet date.

Over-rented The amount by which ERV falls short of rents passing, together with the estimated rental value of vacant space.

Pre-let A lease signed with a tenant prior to completion of a development.

REITs Real Estate Investment Trusts. A tax regime which in the UK exempts participants from corporation tax both on UK rental income and gains arising on UK investment property sales, subject to certain requirements.

Rents passing The annual rental income receivable from an investment, after any rent-free periods and after deducting head and equity rents. This may be more or less than the ERV (see over-rented and reversionary or under-rented).

Return on shareholders’ equity

Capital growth and profit for the year expressed as a percentage of shareholders’ funds at the beginning of the year, all excluding deferred tax.

Reversionary or under-rented

The amount by which the ERV exceeds the rents passing, together with the estimated rental value of vacant space.

SIIC Sociétés d’Investissements Immobiliers Côtées. A French tax-exempt regime available to property companies listed in France.

Total development cost All capital expenditure on a development project, including capitalised interest.

Total return Net rental income and capital return expressed as a percentage of the opening book value of property adjusted for capital expenditure and exchange translation movements, calculated on a monthly time weighted basis.

Total shareholder return

Dividends and capital growth in the share price, expressed as a percentage of the share price at the beginning of the year.

True equivalent yield The average income return, reflecting the timing of future rental increases, based on current ERV, resulting from lettings, lease renewals and rent reviews, assuming rents are received quarterly in advance.

Turnover rent Rental income which is related to an occupier’s turnover.

UK GAAP United Kingdom Generally Accepted Accounting Practice.

vacancy rate The ERV of the area in a property, or portfolio, excluding developments, which is currently available for letting, expressed as a percentage of the total ERV of the property or portfolio.

yield on cost Rents passing expressed as a percentage of the total development cost of a property.

Glossary of terms


Contents

Subject Page

9 place Vendôme – a case study 6Accounting policies 74, 102Acquisition 99Adjustment for non-cash items in the cash fl ow statement 99Administration expenses 46,79Analysis of movement in net debt 73Board of Directors 12Borrowings 47, 71, 75, 91, 95, 101, 103Business review 37Cash and deposits 71, 91Chairman’s statement 8Chief Executive’s statement 17Company balance sheet 101Consolidated balance sheet 71Consolidated cash fl ow statement 73Consolidated income statement 70Consolidated statement of recognised income and expense 72Contingent liabilities 99Corporate governance 52Corporate responsibility 49Development pipeline 43Directors’ remuneration 60, 80Directors’ report 57Directors’ responsibilities 56, 68, 100Dividends 57, 84Fair value of fi nancial instruments 95Financial highlights 2Financial review 44Glossary of terms 112Independent auditors’ report (group fi nancial statements) 68Independent auditors’ report (parent company fi nancial statements) 100Investment in own shares 71, 98, 101Investment in subsidiary companies 74, 101, 102Investment proposition 4Investments 71, 76, 90Joint ventures 74, 87Key Performance Indicators (KPIs) 19Markets 8, 10Net fi nance costs 46, 70, 75, 82Obligations under fi nance leases 71, 82, 95Operating profi t 70, 77Operational highlights 3

Subject Page

Other payables 71, 91, 103Our ten major investments 5Outlook 8, 11Payables – current liabilities 71, 91Pensions 66, 80Per share data 2, 84, 109Plant, equipment and owner-occupied property 71, 76, 86Portfolio review 105Principal group addresses 111Principal subsidiary companies 104Profi t for the year 44, 70, 102Receivables – current assets 71, 90, 101, 102Reconciliation of equity 72Real Estate Investment Trusts (REITs) 46, 82, 112Remuneration report 60Reserves 71, 98, 101, 103Returns 48Risk management 18Segmental analysis 78Senior management 14Share capital 57, 71, 96Shareholder information 110Strategy 17Tax 46, 82Ten-year fi nancial summary 109

Index

[ ]1 Who we are

2 Financial highlights

3 Operational highlights

4 Our investment proposition

5 Our ten major investments

6 9 place Vendôme... a case study

Hammerson’s portfolio of prime real estate assets was valued at £6.7 billion at 31 December 2006 and provides a secure and growing income stream that will be enhanced as we exploit our extensive development pipeline.

01 [ ]02 8 Chairman’s statement

12 Board of Directors

14 Senior management

We have achieved strong returns in recent years and this is demonstrated by our outperformance in the UK of the IPD index in nine out of the last ten years. [ ]

17 Chief Executive’s statement

18 Risk management

19 Key Performance Indicators

Our strategy is to invest in, develop and manage prime real estate assets in the retail and offi ce sectors in two key markets, the UK and France.

03

[ ] 21 Hammerson property portfolio

The group’s critical mass and track record in each of its sectors has earned it a reputation for the high quality of its developments and for innovative asset management.

04 [ ] 37 Business review

44 Financial review

49 Corporate Responsibility

Our property portfolio generated a capital return of 14.6%, with the investment and development portfolios showing capital returns of 13.5% and 31.5% respectively.

05 [ ] 52 Corporate governance

56 Directors’ responsibilities

57 Directors’ report

60 Remuneration report

The Board is committed to maintaining a high standard of corporate governance within the Company.

06 [ ]07 68 Independent auditors’ report on the group fi nancial statements

70 Consolidated income statement

71 Consolidated balance sheet

72 Consolidated statement of recognised income and expense

72 Reconciliation of equity

73 Consolidated cash fl ow statement

73 Analysis of movement in net debt

74 Notes to the accounts

100 Independent auditors’ report on the parent company fi nancial statements

101 Company balance sheet

102 Notes to the Company accounts

105 Portfolio review

109 Ten-year fi nancial summary

110 Shareholder information

111 Principal group addresses

112 Glossary of terms

113 Index

Financial statements

Portfolio review


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Front cover photograph: fi rst and second fl oor interior of 10 Grosvenor Street, London, W1

Back cover photograph: Bullring shopping centre, Birmingham

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ANNUAL REPORT2006

HAMMERSON PLC 10 GROSVENOR STREET, LONDON, W1K 4BJ www.hammerson.com [

ammerson plc a nnual r eport...

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