Half Year 2012 Hammerson plc Earnings Conference Call

HMSO.L - Hammerson PLC
Half Year 2012 Hammerson plc Earnings Conference Call
Jul 23, 2012 / 08:30AM GMT 

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Corporate Participants
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   *  David Atkins
      Hammerson plc - CEO
   *  Timon Drakesmith
      Hammerson plc - CFO
   *  Peter Cole
      Hammerson plc - Chief Investment Officer

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Conference Call Participants
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   *  Chris Fremantle
      Morgan Stanley - Analyst
   *  Remco Simon
      Bank of America Merrill Lynch - Analyst
   *  Harm Meijer
      JPMorgan Cazenove - Analyst
   *  Alan Carter
      Investec Bank - Analyst
   *  Nick Webb
      Exane BNP Paribas - Analyst
   *  Hemant Kotak
      Green Street Advisors - Analyst
   *  Robbie Duncan
      Jefferies - Analyst
   *  Marc Mozzi
      Societe Generale - Analyst

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Presentation
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Operator   [1]
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 Good day, and welcome to the Hammerson 2012 half-year results conference call. At this time, I would like to turn the conference over to Mr. David Atkins, CEO. Please go ahead.

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 David Atkins,  Hammerson plc - CEO   [2]
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 Good morning, everyone, and welcome to our half-year results presentation. I have to say, I am absolutely delighted with the progress the Company's made in the first six months.

 There's been a real sense of purpose in the Company, with everyone getting behind the new strategy. As a result, we've delivered on our objective of becoming a retail-focused business and generated some excellent results, which further validate the changes we've made. And, to add to that momentum, we have some exciting news today, which gives me further confidence in the future.

 So, turning to today's proceedings, I'm going to give you an overview of the first six months and thoughts on where we'll deploy capital released from the offices disposal.

 We've reported some strong financial results today, which Timon will run through, as well as giving you detail on our future financial agenda.

 We've made good progress with extensions and developments, which Peter will update you on, before I wrap up and take questions from you.

 So let's, first, look at our headline results. I'm pleased to say that in a tough environment we've demonstrated a strong operating performance. Occupancy in the ongoing retail portfolio is high at 97.5%; remaining above our 97% target, and up since our IMS in March.

 Underlying net rental income is up an impressive 2.4%.

 And significantly, for future income, leasing deals in both countries have been struck above ERV.

 Turning to the financials themselves, earnings per share is strong at 10.2p; up 6%. And this has fed through, as we promised earlier in the year, to an increased dividend; up 5.5%.

 In February, I set out a revised vision, to be the best owner and developer of retail property in Europe, because I fundamentally believe that by doing this we can deliver consistent industry leading returns.

 By increasing the scale, we can leverage our platform to grow income and reduce costs. By further deepening our retail relationships, we can enhance our asset management programs. And as a specialist, we'll be better placed to capitalize on development and acquisition opportunities, creating the next generation of destination venues.

 So let's look at our key achievements in the first six months. Well, importantly, we've performed very well across all areas of the business. Looking at the blue box, the major transaction was, of course, the sale of the office portfolio above book value. But don't forget, we made a 75% profit on the sale of Faubourg Saint-Honore. And we've announced today that we've acquired a further significant stake in the Value Retail business.

 Turning to leasing and asset management in the green box, we've commenced our extension program and announced two significant leasing deals today; Printemps at Les Terrasses du Port in Marseille, and John Lewis at Eastgate Quarters in Leeds.

 Finally, looking at finance and operations in the yellow box, we have reduced operating and finance costs, both of which have enhanced the dividend payment.

 But, critically, there is more to come. We're making superb progress at Marseille, having enlarged the scheme for Printemps. We're still on track to open in spring 2014, and there is further profit to come. And, at both the asset management and financing level, we have initiatives in hand to further improve the income profile of the business.

 So, looking forward, following the sale of the offices, we're now a focused retail business. We have targeted the three successful segments of retail, which we believe will continue to prosper because they address the underlying structural demands of consumers and retailers, respectively.

 We have 19 prime shopping centers, providing experience for customers.

 We have 18 retail parks, which satisfy customers' desire for convenience.

 And with our enhanced stake in Value Retail, which operates nine premium outlets throughout Europe, we are able to capitalize on consumer desire for luxury and value.

 So how do we build on that presence? I am very confident that we'll be able to further increase scale across our three chosen sectors and continue to enhance returns.

 This slide shows the three ways we will invest in our markets. First, as I have previously mentioned, we're on site with some of our extensions, and Peter will give you more detail about how these attractive low risk projects offer good returns.

 Second, we're bringing forward some of our major developments, and will continue to do so in a phased controlled manner when they meet our hurdle rates, and you can see those on the right-hand side of the slide.

 Third, the state of the financial markets will continue to generate acquisition opportunities, which we will screen and selectively pursue.

 Furthermore, as we increase our scale in these areas, you should expect our UK French weighting to remain broadly as it is today.

 Now let me give you an example of that capital deployment in action. Value Retail is an excellent business. To give you an idea of the scale and reach, the nine villages have an asset value of over GBP2 billion, generating over GBP1 billion in tenant sales annually; a number which has grown consistently and strongly every year for the last five years. The best outlets have some of the highest retail sales densities in Europe.

 We said in February we'd look to increase our involvement in this highly successful business; a good example of us putting capital to work in thriving areas. So I am very pleased to announce today we've materially increased our investment in the Value Retail business.

 To explain their structure, broadly, half of each village is owned by the holding company and half by investors with direct stakes. Now we have interest in both the holding company and direct investments in the villages, the most material of which is Bicester.

 The pie chart on the left shows our total economic interest in Value Retail as at June 30 this year. You can see that the value of our investment was just over GBP300 million, with approximately 50% allocated to Bicester Village.

 Since then we've consolidated our investment by adding further stakes in the holding companies for a total of GBP72 million, and also by increasing our loan to Value Retail by GBP24 million. The net effect of these activities brings out total economic interest today to GBP407 million, as shown in the pie chart on the right.

 You will note that our direct investments in Bicester Village and the other European villages did not change during that period.

 As part of the increased investment and reflect our growing influence in this Company, we anticipate working even more collaboratively with the Value Retail management team in the future.

 Now, before I hand over to Timon, let me say a few words about our operating environment. First, the retail environment is tough, absolutely no question. You're seeing consumer weakness reflected in the tenant sales and footfall figures.

 Second, unsurprisingly, administrations have ticked up since Christmas. But as you can see, lost income from administrations has a minimal impact on our portfolio. We have seen no deterioration since March, and we've been very successful at assigning or re-letting units as they fall into administration. Now I think this shows, despite a tough backdrop, our portfolio is performing well against the general retail environment, where vacancy in the UK is in the order of 14%.

 You see the benefits of this at a leasing level as well. We are maintaining high occupancy due to the quality of our assets, and our active management is enabling us to continue to secure deals well above ERV in both the UK and France.

 Now there is, of course, a range in these rents but I'm pleased to say that 80% of our long-term leasing deals were at or above ERV. I should stress that throughout the period incentives have remained stable.

 Of course, I don't need to remind you that securing leases enhances the income in which a real estate business is founded, so this is absolutely paramount, and I'm delighted with these figures.

 With that, I'll hand over to Timon to talk through the financial results.

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 Timon Drakesmith,  Hammerson plc - CFO   [3]
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 Thank you, David. Good morning, everybody. In this section I'm going to set out our key priorities, describe the financial trends in the first half, and explain our future actions to generate income growth.

 First, I'd like to introduce Hammerson's finance agenda. This covers all main priority areas, set out in the left-hand column; drive top line growth, control costs, manage interest expense, and optimize our capital structure. These objectives support our strategic goals and, I believe, we've made fine progress in the last six months, as you can see from the right-hand column.

 NRI growth has been encouraging and future income will be augmented by new extensions and development schemes; specifics of these projects from Peter later.

 We've set out to trim costs and, compared to first half of 2011, operating costs are down 3%. The final UK headcount contributed to this result. Our cost reduction target of GBP3 million this year is within reach.

 The Group's interest costs has fallen by around GBP5 million year on year, and we've seen a reduction of 30 basis points in the weighted average interest rate.

 During the first half, we executed a successful bond buyback, switched GBP350 million of debt to floating rates, and enhanced cash management; all of these initiatives helped.

 Since last summer, Hammerson has sold GBP900 million of property, creating nearly GBP1 billion of future liquidity and reducing the loan-to-value ratio to a pro forma figure of 27%.

 These very strong numbers illustrate a highly defensive balance sheet, and provide an excellent platform for future investment.

 Overall, as you know, the plan is to generate a higher rate of sustainable dividend growth.

 David set out the main elements of the financial results, and here's a little more detail. Let's go around this table from the top. NRI, at GBP141.6 million, was up 2.4% on a like-for-like basis on the first half, mainly due to good underlying performance from UK shopping centers.

 Adjusted PBT is up on last year as growth from rental income was amplified by lower interest expenses. This translates into an EPS figure of 10.2p; a rise of 6.3% on the first half of last year. More discussion on the underlying drivers a bit later.

 Our interim dividend, at 7.7p, is up 5.5%; in line with the guidance we gave in February.

 Turning to the balance sheet, the property portfolio was valued at GBP5.6 billion at June, showing a very modest underlying decline of 0.1% over first half.

 NAV per share came out at 535p; up 1% on December 2011, boosted by retained earnings and value retail.

 Gearing declined since the end of last year to 50% as disposals outweighed development CapEx.

 Next, I'd like to examine the trends in rental income. Here, I've summarized changes in like-for-like rental income by sector. You can see UK shopping centers generated an uplift of 3.3%, with good contributions from Union Square, Oracle, and Brent Cross.

 UK retail parks had a stable first half as new leases were compensated by tenant incentives.

 French retail had a decent six months, up 1%, with indexation being partly offset by renovation costs.

 Other interests include our land holdings, and that grew 13% from a low base.

 Overall, we are pleased with the total 2.4% growth at the bottom.

 I'd like to talk you through this EPS walk, which explains year-on-year changes from last year's number of 9.6p, shown in the purple bar on the left.

 Moving across the chart, first, let's deal with acquisitions and disposals. As you can see, there is a slight reduction from net disposals of 0.1p per share.

 Developments impacted EPS by 0.1p, mainly due to the refurbishment at 99 Bishopsgate.

 Like-for-like rental income growth improved EPS by 0.5p.

 Interest expenses fell by the equivalent of 0.4p per share.

 There are a few small items totaling 0.1p a share, which takes us to the half-year figure of 10.2p per share; up 6.3% on last year.

 Now, here's some more color on the trends in our cost management. On the left, you can see bars which illustrate the decline in overhead costs of GBP1 million compared to the first half of 2011. This is mainly due to lower property expenses.

 The cost-to-income ratio, shown in the red dot, fell by 30 basis points to 25.6%, and we are focused on improving this figure.

 In the right-hand chart, you can see the year-on-year reduction in interest expense of GBP4.6 million. Again, the red dot illustrates a 30 basis point reduction in the weighted average interest rate to 5.1%. Good progress here, but more to come, as I'll explain later.

 Turning to the property valuation, we segmented the portfolio by sector so you can see the capital value movements over the last six months. The largest segment, UK shopping centers, is down 0.5% over the first six months.

 Retail parks saw a valuation of 2.5% down due to yield expansion.

 Other UK interests of GBP165 million include our land holdings, and this segment declined in value by 4.3%.

 Moving onto France, our retail portfolio was up 0.3% in the first half, driven by [Paranell] and [Vilabon].

 Developments were up 5.8% in the first half due to the uplift at Marseilles. It's valued at GBP175 million, including only a modest proportion of the potential profit from the scheme.

 You will notice we've introduced a new segment, discontinued operations, or London offices, which posted a 5% valuation gain in the first half, mainly due to the sale to Brookfield.

 Overall, the total portfolio value was GBP5.596 billion, which had a broadly stable capital return compared to around about 2% down for the UK IPD monthly index.

 Finally, I've split out our investment in value retail, worth GBP289 million at June 2012; up nearly 28% from the start of the year, driven by excellent growth in rental income.

 Let's look at NAV per share. In this walk, I illustrate the movement from the value of 530p per share at December 2011, shown on the left. The first bar shows 8p revaluation declines from the investment portfolio, coming mainly from marginal yield expansion in the UK retail portfolio.

 Development properties increased in value by 1p per share.

 The revaluation of discontinued operations, which relate to the sold office assets, added 4p per share.

 Our investment in value retail was up an equivalent of 9p per share, mainly due to the strong performance of Bicester Village.

 Adjusted profit contributed 10p per share.

 Dividends reduced NAV by 9p per share.

 Movements in foreign exchange and a variety of other items represented a decline of 2p per share. The FX impact was mitigated by our hedging program.

 So this takes us to an NAV per share number of 535p at June; up 5p per share on the first half of this year.

 Turning to the analysis of debt, we are in excellent shape. Running down the June 30, 2012, column, total net debt was GBP1.9 billion; down from the end of 2011, primarily due to net disposals.

 Gearing and LTV remained low at 50% and 34%, respectively.

 We have substantial liquidity of over GBP500 million at the end of June, although down on December, due to our bond buyback.

 Looking at the bottom row, 64% of our debt was fixed at June, giving the Group good exposure to low floating rates.

 We've also prepared a pro forma column to show the effect of the London office sale. As you can see, net debt falls to below GBP1.4 billion. Gearing and LTV dropped to 36% and 27%, respectively. And cash and undrawn credit lines rise to nearly GBP1 billion.

 I'm not sure the Group will hit these levels, as we will progress new development and investment projects, but it illustrates our very sturdy financing position.

 So next to the finance agenda. We continue to drive performance across our business, and here I'm giving you a preview of future actions. As before, there are four elements, and I'm going to start with the top line growth in blue.

 We will look to replace the rental income from the office disposals by capturing some of the reversion potential of around GBP14 million in our portfolio, combined with income growth via extensions and developments. Value retail will add more income, and we are also screening interesting add on acquisition opportunities. More on this topic in the next slide.

 Moving down to overhead costs, our Paris headquarters will move to cheaper premises in September. We anticipate that the sale of the office portfolio will save around GBP2 million per annum from next year. Overall, we are targeting a further reduction in operating costs, which will help us reach a lower cost-to-income ratio in the next few years.

 Looking at the yellow box, our intense management of interest expense will remain as the deleveraging from the office disposal repays cheap, short-term debt. This is likely to push up our weighted average interest rate. But by maintaining a reasonable exposure to low floating rates and using a variety of funding sources, we expect our benchmark rate of 5% to be regained by late 2013.

 Turning to the capital structure outlook in the bottom row, we anticipate debt levels will rise modestly with development CapEx and acquisitions. We will maintain prudent leverage, and overall our target LTV range is mid to high 30%.

 We aim to use our strong balance sheet and size as a competitive advantage.

 As you know, we are looking to grow our dividends, and this takes me on to the prognosis for enhancing rental income on the next slide.

 So I'd like to conclude by explaining the plan to grow our rental income. Let's start with the left bar in purple, which is the Group's current passing rent of GBP316 million. The London portfolio will reduce rent by GBP32 million, shown in the light blue.

 We will look to rebuild from here in steps over the period to 2015. First, organic rental growth from capturing reversions and leasing in line with current ERV; this could deliver us GBP14 million.

 Next, there are extensions and smaller development, which could provide an additional GBP21 million rental income.

 Then, there are our committed developments we expect to complete by 2015. These are at Marseilles, Cramlington, and Newcastle, which we reckon will add GBP29 million to income. Of this, over GBP20 million is already pre-let.

 Finally, value retail. With the further stake acquisition announced this morning and expected rental growth, this could provide an extra GBP15 million in net income by 2015.

 So adding all these illustrative steps give a total of GBP363 million; a rise of 15% from the current level. And this is before any further acquisitions. We believe these are realistic expectations and will drive shareholder value.

 On that positive note, I'll hand over to Peter.

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 Peter Cole,  Hammerson plc - Chief Investment Officer   [4]
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 Thank you, Timon. I will give you a summary of our London office disposal, and some more detail on the progress of our development program.

 First, our London office portfolio. I'm really proud of the way our team worked on this transaction; securing a transformational deal on the majority of our portfolio for GBP518 million, some 5% above book value.

 We agreed a phased completion with GBP330 million completing in September this year, and GBP190 million in June next year. That's for Leadenhall Court and 125 Old Broad Street. These assets have a combined income of GBP15 million per annum.

 So that structuring of the transaction enables us to obtain both best value and also to manage our earnings profile as we reinvest.

 We are also making good progress on our other assets for disposal. We've already sold Harbor Quay and Docklands for GBP10 million, against a book value of GBP5 million.

 And we plan to realize value from our two remaining assets at Stockley House and Victoria, and Gresham Street in the city, over the course of the next six months. These assets have a combined book value of around GBP100 million.

 A few assets will be retained, including development scheme at Goodsyard in Shoreditch. This project has the potential to generate significant value through creation of a large mixed use scheme with an important retail element.

 So, looking forward, as well as selective acquisitions, the two key areas we're redeploying capital are with our extension program and our major development projects.

 Looking at the market outlook for these, the chart on the left shows that future supply of new retail space in UK is forecast to be low. Over the next five years, it is estimated that there will be approximately 3.8 million square feet of floor space per annum delivered; that's around 40% of a long run average, and most of that is individual high street units.

 We see similarly low supply levels in France and, in practice, actual supply will be less than forecast due to shortage of both finance and experienced developers.

 However, many successful retailers, leisure, and catering operators continue to expand. That means, despite the weak backdrop, there is tenant for new retail space. It's selective and very much focused on the best schemes, where physical retail space still adds value. That's what we describe as a winning location; regional shopping centers, convenient retail parks, and premium designer outlets. We, therefore, believe as the economy recovers, retail development in the right locations will become increasingly attractive.

 Developments enable us to create assets which are not available in the market. It allows us to capitalize on expertise to create innovative and market-leading retail environments. They provide potential for enhanced financial returns, and support earnings growth.

 Let's look at our pipeline. We have a pipeline of attractive development projects that will enable us to capture this demand. This could provide over 500,000 square meters of retail floor space. And there's potential for us to invest up to GBP2 billion.

 What I want to show here is we have full range of opportunities in both the UK and France, which I believe we can progress in a phased manner, as we consider appropriate. Completion of these will enable us to continually introduce new income into the business over the next decade.

 The committed projects are highlighted here in red. Now, moving to the largest one of those, Terrasses du Port, today we have announced we've signed Printemps as a major anchor to this project. This is a significant deal, both for us and for Printemps.

 We have created an 8,500 square meter department store, and extended the size of the scheme to 61,000 square meters. It is Printemps' first new store since the relaunch of the Paris flagship and will focus on high end fashion accessories, providing a significant enhancement to the scheme center.

 The store will anchor the upper level of the scheme, alongside Apple and a restaurant terrace. That reinforces our confidence that Terrasses du Port will be the preferred location for quality retailers, and will become the prime shopping center for Marseille; France's second city.

 We have made good progress on the project generally.

 The Printemps deal has resulted in increased costs, but has also increased the rental, ensuring the scheme maintains overall profitability. This important deal takes the scheme to 72% pre-let by income, with virtually two years to go before completion. This project shows a very compelling yield on costs; around 7.5%.

 Construction continues to progress on program, and we remain on schedule to open in spring 2014.

 Whilst the scheme has made excellent progress, the value to date will only recognize some 40% of the profit, so there's plenty more to come.

 Now looking at the extensions and smaller projects, we are on site with a number of these extension projects that we identified earlier this year. At Cramlington, construction of the cinema and catering scheme has commenced and is due for completion at the end of this year.

 At Monument Mall, Newcastle, leasing's progressing well and this project is scheduled to complete early next year.

 As you can see, we also have planning and retail support for several other extensions. I am working to ensure that these projects start on site over the next 18 months.

 In aggregate, our pipeline of small extension and development projects have a cost of GBP410 million, and a forecast income of over GBP30 million, to give a yield on cost of over 7.5%.

 We will continue to operate -- to undertake these smaller projects as part of our overall capital allocation strategy.

 Now, looking at our future major projects, I'm pleased to announce we have just signed heads of terms for a [wide] scheme with John Lewis in Leeds.

 We now intend to bring this project forward in two phases, with the first phase anticipated to start on site in early 2014. That will contain a John Lewis store, and approximately 13,000 square meters of retail floor space, providing approximately 30 units. We are targeting higher end retailers and caterers; a market we believe is under represented in the city. Phase II would then follow, as market conditions improve.

 In Croydon, as you will have read, everybody wants to see regeneration of the town center. We're already owners in Croydon and have made good progress with a leisure extension to Centrale.

 We are working with controlling leaseholders of Whitgift Center and will submit our pre-application designs to Croydon later this week. Our master plan has been produced with Sir Terry Farrell, and brings together Centrale and a redeveloped Whitgift to provide a new regional center for South London.

 Finally, at Brent Cross, having agreed a phased approach with the council, we are working with the existing planning consent for a significant extension to the center. We apply to a revision to existing consent early next year.

 Brent Cross still has amongst the highest sales densities of any center in the UK, and we will build on the success the center has been to us over the last 35 years.

 Timon has shown the income of GBP50 million we expect to get from those projects to complete by 2015. Beyond this date, I believe there is more to go for; additional income, worth over GBP100 million, that will come from the other developments as they complete over the next decade.

 With that, I'll hand over to David to conclude.

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 David Atkins,  Hammerson plc - CEO   [5]
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 Thanks, Peter. So, to wrap up, the first half of 2012 has been a period of really intense activity and significant progress for the Company.

 We announced, and then implemented, the revised strategy, and through that transformational deal to sell London offices and create a focused retail business that we have today. That strategy is yielding results; we're securing successful retailers to our portfolio, we're letting space above ERV, and we are driving underlying net rental income growth.

 And we have a number of exciting new areas of progress. You've heard today about us increasing our investment in value retail and signing major new tenants at Les Terrasses du Port and Eastgate Quarters. And we'll continue to add to that performance through development and selective acquisitions.

 All of that will feed into sustained higher dividend growth, and gives me confidence to say that we will deliver industry leading returns to shareholders.

 With that, I'll be delighted to take your questions. Thank you.



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Questions and Answers
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 Chris Fremantle,  Morgan Stanley - Analyst   [1]
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 Chris Fremantle, Morgan Stanley. Just wondered if you could just comment a little bit further on value retail; what the implied valuation was that you increased your investment.

 And just on the uplift in the valuation that you've announced today, how much of that is driven by rental income growth? And how much of that is yield shift? I'm assuming some of that yield shift is related to the price at which you've increased your investment; just a bit more detail.

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 Peter Cole,  Hammerson plc - Chief Investment Officer   [2]
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 Thanks, Chris. I'll ask Timon, in a moment, to comment on the Value Retail deal; Timon's very heavily involved in the most recent acquisition. But on the movement in the results today, we've actually seen a slight softening of yields in one or two areas.

 So on retail parks, say, about 20/25 basis points softening on the big [box] units that are let to DIY, and the like; we've seen a slight weakening there. Elsewhere, generally flat yields; one or two centers where we've seen 5 or 10 basis point outward movement. But I think generally speaking, for large prime shopping centers we see good demand, lack of transactions, but we believe that the values are supported.

 So most of the growth that you've seen today is through income enhancement and cost reduction, and you see that our underlying net rental income growth is 2.4%, and ERP growth is actually still slightly positive.

 Value Retail, a great acquisition, great business, but, perhaps, ask Timon to say a bit more on the underlying valuation.

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 Timon Drakesmith,  Hammerson plc - CFO   [3]
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 Chris, if you look at note 10 in the statement, there's a fair amount of disclosure there. The first category is our ownership in Bicester Village through some limited partnerships. And you can do the calculations that our interest in Bicester have risen by 27% in the first half.

 Bicester is by far and away the biggest village within the Value Retail Group, and we have a direct ownership and an indirect ownership, so overall we have a 45% economic interest in Bicester. So think of it as an important shopping center in the context of the UK.

 Its growth in value has pretty much come from excellent underlying brand sales growth, which translates into rental sales growth.

 It's independently valued by Cushman & Wakefield. So the way we take it into our books is it's essentially to see through from a conventional property valuation through a limited partnership, and that's how we record it in our accounts.

 No cap rate change; you might think that's surprising. But I can't tell you what the cap rate is because it's a private company and there's only so much we can disclose, but there's no cap rate change for Bicester Village, or indeed any of the other large villages, in the first half.

 The reason why we're so excited about this is we see there is genuine synergy between what they do and what we do. And we're delighted to be exposed into what is one of the fastest-growing segments of any part of the property sector, let alone the retail property sector. We have a long relationship with them, and we really look forward to collaborating with them further in coming years.

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 Chris Fremantle,  Morgan Stanley - Analyst   [4]
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 Just one follow up, if I may. Should we expect any change in the valuation post balance sheet date as a result of the investment that you've made? Is there any implication of the --?

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 Timon Drakesmith,  Hammerson plc - CFO   [5]
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 I don't think you can look at any particular numbers, Chris. I think what you've got to do is, if you take the pro forma position in one of David's slides, the one with the pie charts, and you could apply a reasonable growth rate to that based on the first half.

 What's important in the context of NAV per share growth is our position in Value Retail helped a great deal, as you will have seen from my NAV walk. And we'd expect a similar performance second half.

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 Chris Fremantle,  Morgan Stanley - Analyst   [6]
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 Great. One more, just on the rental income growth that you talked about in your slide, you gave a waterfall slide. Can you just give an idea of how much CapEx is involved to generate that increase in rental income because there are some refurbishment spend, I think, you talk about?

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 Timon Drakesmith,  Hammerson plc - CFO   [7]
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 Are you talking about the like-for-like growth in rental income of 2.4%?

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 Chris Fremantle,  Morgan Stanley - Analyst   [8]
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 I'm talking about on slide -- the extra GBP70-odd-million of income in that slide, page 22.

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 Timon Drakesmith,  Hammerson plc - CFO   [9]
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 What's good about this slide, Chris, is it's balanced, in the sense that the capital we receive from selling all of the London offices, which is a bit more than GBP600 million, we estimate, which sits behind the GBP32 million of reduction in the light blue bar, is balanced by the CapEx we're likely to spend in order to generate that rental income.

 So, clearly, a big part of it is Marseille, where we've got another GBP200 million-and-odd to spend, but we've got extensions. And the value retail is underpinned by the GBP100 million of investment we announced this morning.

 So we generate a 15% growth in rental income, but we don't spend any more than what we receive from selling the offices.

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 Chris Fremantle,  Morgan Stanley - Analyst   [10]
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 Perfect, thank you.

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 Remco Simon,  Bank of America Merrill Lynch - Analyst   [11]
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 Remco Simon, Merrill Lynch. I'm starting with a question on France. The retail sales down 3.6%, is that a concern? We've seen a bit more weakness in retail sales over the last year or so, is there a level where you are getting concerned about potential further rent increases, where the rents are still affordable, etc.? Are tenants complaining? A bit more color on that?

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 David Atkins,  Hammerson plc - CEO   [12]
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 Yes, the sales figures in France, obviously, below the UK, which was generally flat. I think a number of reasons for that; slight uncertainty we've seen just prior to and since the elections in France, and uncertainty about household budgets. But added to that, Carrefour, who are a major anchor for a number of our schemes, had a particularly poor trading period, so that has depressed footfall, and that in itself has lead to sales.

 We've also seen some very negative numbers from one or two retailers, particularly in the electricals and media side of our business, and that has pulled those numbers down. If you strip those out, it's much more a flat figure.

 So of course it's of slight concern. But what we are doing as well, as we announced about a year ago, that we're spending significant capital, about GBP30 million, in our centers to ensure that they're absolutely as fresh as possible; introducing new formats to counter some of that depressed sales figures.

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 Remco Simon,  Bank of America Merrill Lynch - Analyst   [13]
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 Great. And, Timon, you were talking about your expectation of your average cost of debt going up slightly in the short term. Do you consider trying to manage that by buying back some more [expensive] bonds and maybe trade off a little bit of NAV with a bit of income?

------------------------------
 Timon Drakesmith,  Hammerson plc - CFO   [14]
------------------------------
 Yes, we do look at that. As I mentioned, we bought EUR220 million of our 2015 bond this first half. We're open minded. I don't think there's any immediate plans but we'll always look to maintain an optimum balance between maturity, the diversity of funding sources, and opportunities to optimize our debt capital structure. So no immediate plans, but we'll look at it.

------------------------------
 Remco Simon,  Bank of America Merrill Lynch - Analyst   [15]
------------------------------
 Whilst we're at it, may as well keep going. Is there any regional disparity in your French performance? Is Paris doing better than the rest of France?

------------------------------
 David Atkins,  Hammerson plc - CEO   [16]
------------------------------
 Well, most of our assets are in the Paris region. We have one or two assets outside. So, based on those numbers, there's not a great disparity. But also point to Marseille where from letting interest, 72% with around two years to go, just under, before opening, would suggest that retailers believe they can trade very successfully in the regions as well.

------------------------------
 Remco Simon,  Bank of America Merrill Lynch - Analyst   [17]
------------------------------
 Understood. Timon, the GBP3 million cost savings is an annual target for 2012. Do we have a target and a number for 2013 additional cost savings on top of that?

------------------------------
 Timon Drakesmith,  Hammerson plc - CFO   [18]
------------------------------
 Now, at the February full-year results you might recall that I talked of a GBP4.5 million, and I'm still content with that. So GBP3 million '12 versus '11; GBP4.5 million '13 versus '11.

------------------------------
 Remco Simon,  Bank of America Merrill Lynch - Analyst   [19]
------------------------------
 Okay, thank you.

------------------------------
 Harm Meijer,  JPMorgan Cazenove - Analyst   [20]
------------------------------
 Harm Meijer, JPMorgan Cazenove. Just a couple of questions, if I may. What kind of product is currently being offered to you to buy? And have you actually bid on something else in the first six months in the field? And are you currently actually bidding on something? And how does the pricing look of what's being offered to you?

------------------------------
 David Atkins,  Hammerson plc - CEO   [21]
------------------------------
 In terms of activity, it is quieter this year generally, and investment volumes, you've seen from data put out by agents, is lower than previous year. However, there are some interesting opportunities out there.

 We pretty much screen everything that has a retail sector bias. We have bids out on one or two opportunities at the moment, Harm, but very early days and one never knows whether we're going to be successful.

 But I think we are in the mindset we can -- we don't need to hurry this. We've got great opportunities within the portfolios we've seen; GBP400 million of investment -- development and refurbishments. So we take it one step at a time.

 We've got a phased sale on the offices, so we can manage that income and earnings as well.

 So I feel confident that the market is moving towards us with our strong liquidity, and continued constraints and difficulties in the finance markets will mean that there will be opportunities going forward.

------------------------------
 Harm Meijer,  JPMorgan Cazenove - Analyst   [22]
------------------------------
 And these one or two opportunities that you are bidding on, is it in the UK, or on the Continent?

------------------------------
 David Atkins,  Hammerson plc - CEO   [23]
------------------------------
 Those happen to be in the UK, but that's not because that's where we're focused; we'd like to buy in both. But I wouldn't get too hung up on this; Peter has bids out on things pretty much every week of the year, to be frank, and half of which he doesn't tell me about. But, no, we are continually having discussions with people, so that's the market we're in.

------------------------------
 Harm Meijer,  JPMorgan Cazenove - Analyst   [24]
------------------------------
 Okay. Then on Croydon, what do you think is your chance that you will do the project?

------------------------------
 David Atkins,  Hammerson plc - CEO   [25]
------------------------------
 Well, I think, for us, we feel we're in a very good position. We own the center down there already. We will announce our plans later this week. We are in partnership with the leaseholders, who own 75% of the Whitgift scheme, so it feels to us that we're in the driving seat down there.

 There will be a lot of press, a lot of dialog in coming months, no question. But we very much want to keep our heads down and design up a scheme that is right for Croydon and ultimately leads to its regeneration.

------------------------------
 Harm Meijer,  JPMorgan Cazenove - Analyst   [26]
------------------------------
 Okay. And just a last one, sorry to ask it but it is a theme. You've been mentioned as a takeover candidate, has anybody spoken to you, trying to approach you? And let's say if that were to happen one day, would you say, well, I am happy to be taken over? Or are you rather buying somebody else (laughter)?

------------------------------
 David Atkins,  Hammerson plc - CEO   [27]
------------------------------
 Well, I'll ignore the last bit. The only people who speak to us about this are journalists and analysts. Not one company has approached us or spoken to us.

------------------------------
 Harm Meijer,  JPMorgan Cazenove - Analyst   [28]
------------------------------
 Thank you.

------------------------------
 Alan Carter,  Investec Bank - Analyst   [29]
------------------------------
 Alan Carter, Investec. As always, you refer to a continual recycling of capital in the portfolio, which has always been a Hammerson mantra. Does that statement now just refer to the balance of the office portfolio? Or are we going to still be hearing in so many years' time, when you're a pure retail company, about the ongoing recycling of capital?

------------------------------
 David Atkins,  Hammerson plc - CEO   [30]
------------------------------
 No, I think it will continue because we are about enhancing returns for our business. So if you look at the retail parks business, GBP1.2 billion business, there's no reason that that shouldn't be recycled very actively.

 And even within our schemes, if we feel there is a point where a scheme reach maturity and we could drive better returns elsewhere then why not? And you've seen over the last couple of years we've sold stakes in one or two of our French schemes. So that is equally a way in which we can release capital out of the existing portfolio.

------------------------------
 Nick Webb,  Exane BNP Paribas - Analyst   [31]
------------------------------
 Nick Webb, Exane BNP Paribas. I just wanted to ask about your development targets in terms of the yield on cost. You highlight Marseille as a scheme which everyone's very happy with and profitable, and yet I notice your target yield on cost is 7.4% -- your expected yield on cost is 7.4%, is actually below your own target. Is there any reason for that?

 Or maybe to flip the question around, is it unrealistic to expect to be able to get 7.5% yield on costs for very prime, large retail schemes?

------------------------------
 David Atkins,  Hammerson plc - CEO   [32]
------------------------------
 Yes, I think we're splitting hairs a little bit, 7.4% versus 7.5%, to be frank, and I think one has to be pragmatic about these targets. What I'm setting out, that we're aiming to achieve an income return that is significantly above our cost of funds and that the yields that you can achieve from a standing investment.

 So I believe, in broad terms, it's very much possible that we can achieve that 7.5%, even if it is 10 basis points below or 10 basis above; it's that sort of range we're aiming for.

------------------------------
 Nick Webb,  Exane BNP Paribas - Analyst   [33]
------------------------------
 Thanks. And then just a follow-on question, just on Value Retail. Are you able to give us any idea of what the income from the investment looked like in the first half of this year?

------------------------------
 David Atkins,  Hammerson plc - CEO   [34]
------------------------------
 Timon?

------------------------------
 Timon Drakesmith,  Hammerson plc - CFO   [35]
------------------------------
 There's a disclosure, actually. We talk about the amount of our cash we receive in the body of the text but, broadly, we get around about 2.5% to 3% income yield on our investment. So that's a good modeling assumption, going forward, Nick.

------------------------------
 Hemant Kotak,  Green Street Advisors - Analyst   [36]
------------------------------
 Hemant Kotak, Green Street. Can you just comment, with regard to Croydon and your partnership with the leaseholders, what's the extent of that? And is that formalized in any way?

------------------------------
 David Atkins,  Hammerson plc - CEO   [37]
------------------------------
 We have agreement with the leaseholders in terms of our overall goals and objectives over the next few years. That reaches different levels of agreement that we hit as we go through different milestones. There is a formal agreement today.

 In terms of do we actually own an interest in Whitgift today, the answer is no. But we do have a firm agreement with those leaseholders. And, as you appreciate, it is a competitive situation so I wouldn't really want to comment much more than that, other than to say that we are very clear of our own position, as I said earlier.

------------------------------
 Hemant Kotak,  Green Street Advisors - Analyst   [38]
------------------------------
 And also, can you comment on how the discussions with the Whitgift Foundation are going? What is it about your proposal that you are pushing over and above, say, Westfield?

------------------------------
 David Atkins,  Hammerson plc - CEO   [39]
------------------------------
 Well, perhaps, Peter, would you like to cover that in terms of the combination of Centrale and Whitgift?

------------------------------
 Peter Cole,  Hammerson plc - Chief Investment Officer   [40]
------------------------------
 I think the -- well, clearly, we own Centrale; that includes two development stores, House of Fraser and Debenhams, plus 1,000 [car park] spaces. So that's a good place to start in Croydon. So we think the combination of Whitgift and Centrale is a right result for Croydon.

 Those who know this town know that it does need regenerating. It does need a big retail incentive to make it a dominant shopping center with redevelopment, and we can create that. So we're the only party who can bring that into the equation.

 Foundation are working with another party; minority stake in Whitgift, without management control. In due course, I'm sure it will result.

------------------------------
 Hemant Kotak,  Green Street Advisors - Analyst   [41]
------------------------------
 Okay. And then how does the Whitgift Foundation view this, in light of the Westfield proposal which it's favored?

------------------------------
 Peter Cole,  Hammerson plc - Chief Investment Officer   [42]
------------------------------
 I think we're going through discussions at the moment as to bring on board the project. We're happy with our position. In due course, all parties will need to get an agreement.

 I think the Whitgift Foundation are clearly are a long-term landowner there; they want to see the best for their charity, for their foundation, and we think we can provide that. I think in due course logic should prevail.

------------------------------
 Hemant Kotak,  Green Street Advisors - Analyst   [43]
------------------------------
 Okay, great. And then just one more follow-on question on Value Retail, please. Can you say what the amount that you've paid above what the last valuation was for that?

------------------------------
 Timon Drakesmith,  Hammerson plc - CFO   [44]
------------------------------
 Yes, I can tell you that our most recent acquisition of the Group holding companies is slightly above June NAV. I can't tell you much more than that.

------------------------------
 Hemant Kotak,  Green Street Advisors - Analyst   [45]
------------------------------
 That's great, thank you.

------------------------------
 David Atkins,  Hammerson plc - CEO   [46]
------------------------------
 What I would say, adding to that though, is that you've seen from the income numbers generally from Value Retail that this is growing very rapidly at a capital value level. So that wouldn't surprise me, nor the team, that we've paid slightly above that figure.

------------------------------
 Robbie Duncan,  Jefferies - Analyst   [47]
------------------------------
 Robbie Duncan, Jefferies. Just coming back to that point that you just made, does it -- can I read into this that in, say, five years' time you may well end up owning 100% of Value Retail? And if that's potentially the case, why wait, because clearly Value's are on a strongly upward trend? Aren't you just running the risk of overpaying?

------------------------------
 David Atkins,  Hammerson plc - CEO   [48]
------------------------------
 Well, we've been increasingly our investment in Value Retail. I'd like to think that we could carry on increasing our investment in Value Retail, but of course that does depend on the owners of the equity and direct interest in the villages themselves. So I think that, equally, they see the prospects for the business as well. So I think, like any deal, it involves two sides so I think we just have to work with people. And where we can, we would like to increase our investment.

------------------------------
 Robbie Duncan,  Jefferies - Analyst   [49]
------------------------------
 Okay. And then just on occupational trend, the last question, can you just run through whether there's any difference in occupational strength or weakness, say, South of England versus North East, North West, Scotland? Is there any patterns? Or is it not really enough at the moment?

------------------------------
 David Atkins,  Hammerson plc - CEO   [50]
------------------------------
 No, I think -- look, I'm sure if you look at high streets in general then I would be of the view that Northern England, certain areas in Scotland are going to be more challenging than, certainly, London and the South East. But what we're focused on is our own assets, and actually we see very little regional trends. And, in fact, Aberdeen is one of the best performing assets in our portfolio; Bull Ring, equally, very positive.

 So it isn't all about Brent Cross and London; we've seen good growth right across the portfolio.

------------------------------
 Marc Mozzi,  Societe Generale - Analyst   [51]
------------------------------
 Marc Mozzi, Societe Generale. On the retail side, sorry for coming back again on this topic, but can we have the idea of what sort of loan-to-value the vehicle is carrying? That's the first point.

 And the second point is what make you so positively buyer of every potentially available stakes for sale because I think there is competition to buy those stakes? What make Hammerson more attractive than the others?

------------------------------
 David Atkins,  Hammerson plc - CEO   [52]
------------------------------
 Sure. I'll take the last point, if Timon takes the first one. We have pre-emption rights on our investments, so that gives us more -- able to be more firm in our desire to increase and be successful increasing our stake in the business, is the first point.

 But on the debt side?

------------------------------
 Timon Drakesmith,  Hammerson plc - CFO   [53]
------------------------------
 Yes, it's a private company, Marc, so I can't give you much detail. But it's conservatively leveraged. It's a little bit higher than our LTV, but not significantly so.

------------------------------
 David Atkins,  Hammerson plc - CEO   [54]
------------------------------
 Any more questions from the floor? Otherwise, we'll take questions from over the wires? Any questions from people not in the room?

------------------------------
Operator   [55]
------------------------------
 We have --

------------------------------
 David Atkins,  Hammerson plc - CEO   [56]
------------------------------
 Go ahead. Any questions? I'll take that as a no. Right, well, thank you very much, all, for attending.

 Just before you go, you know we always like to show you a video to start your Monday off, start your week off with a bit of a bang. We have a very interesting fly through of Terrasses du Port in Marseille that we put together a few months ago. Since then, you've seen even better progress but it gives you an idea of the scheme. So we can roll that.

 (video playing)

 So there we have it. Thank you all very much for attending, and hope you have a good summer break. Thank you.




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