Hammerson France. Gérard Devaux. 19 October 2006

Transcription

1 Hammerson France Gérard Devaux 19 October

2 AGENDA Market practices Office market Retail market Investment market Hammerson portfolio in France This is the agenda I d like to cover. I ll start with a look at French market practices. Then provide some comments on our markets. Finally, I ll look more specifically at Hammerson and describe our portfolio, its evolution in recent years and our current and future developments. First though, I think that you ll all recognise that in France we play by somewhat different rules 2

3 MARKET PRACTICES Planning Co ownership The 3/6/9 year lease contract Indexation Security of tenure In France, we have a very restrictive planning environment, particularly for new retail space. To develop a shopping centre, or add space to an existing one, you require not only a planning consent but a CDEC approval. To obtain a CDEC, it is necessary to demonstrate that an anchor is in place and other space pre let. The CDEC is a local decision and requires a majority vote by the various parties. Much property in France is held in co ownership, with co owners voting on the principal decisions affecting the property in proportion to their percentage ownership interest. We are becoming very experienced in dealing with co ownerships and generally Hammerson is perceived as a positive voice in co ownership decision making. Leases in the retail sector are often for nine years with tenants breaks at years 3 and 6. In practice, retailers rarely exercise their breaks. For instance today, the vacancy rate in our retail portfolio is only 2.4%. Our office leases are generally for 10 years fixed with no break. Rents in France are subject to annual indexation. This is based on a cost of construction index. This year the level of indexation applicable is only 0.7%. However, it will increase to 7.1% in 1 January Finally, occupiers have security of tenure at the end of a lease with an automatic right to a new lease. However, in this instance, the rent applicable is based on the prevailing market level. Can I turn now to markets, starting with the French office market. 3

4 OFFICE STOCK million sqm Source: CBRE / Knight Frank March 2006 As you can see, French office stock is highly concentrated in the Paris Region and totals nearly 50 million sqm. Within the Paris region, the Central Business District and La Défense account for 25% of the total stock. There are some good buildings outside Paris, but the stock is generally characterized by smaller units. Rents outside Paris are, on average, only one third of those in the capital. 4

5 PARIS OFFICE MARKET At 30 June 2006 Stock (million sqm) Vacancy rate (%) Prime rental value ( /sqm) Total occupancy cost ( /sqm) Paris CBD La Défense Source: CBRE July 2006 Compared to other major European markets, the fundamentals in Ile de France are quite attractive. The overall vacancy rate is less than 5%, around three percentage points below that in London. This slide summarises the two key markets of the Paris CBD and La Defence. The main characteristic of the CBD is its structurally lower vacancy and cyclicality than La Défense. 5

6 PARIS CBD OFFICE MARKET Rent Vacancy rate % H Rents Vacancy Source: CBRE / JLL June 2006 This slide shows the vacancy rate and rents in the Paris CBD market. As you can see, the vacancy rate is decreasing. Rental values are recovering and have risen by perhaps 7% 8% since the bottom of the market two years ago. Our lettings at Vendôme Saint Honoré, at more than 700 / sqm, have set the new benchmark in this cycle. 6

7 PARIS OFFICE MARKET OUTLOOK Decrease in vacancy rates Continuing growth in prime rents Restrictive planning environment in the CBD Substantial potential new space at La Défense Looking ahead, we are confident that the recovery in the CBD office market will continue over the next couple of years for a number of reasons. Firstly demand. The appetite of occupiers for quality premises continues to improve. Demand should be fuelled by the forecast increase in service sector employment. It should also be driven by the growth in international mergers and acquisitions. Secondly, the supply of new space is falling and this reduction will be only partially compensated by a rise in the number of refurbished buildings coming back to the market. We expect to see a gradual reduction in the gap between headline and net effective rents, currently at around 15%, especially for large offices for which the immediate and future supply of new space is limited, due to tight planning. Turning to La Defense, planning is less restrictive and there is a substantial amount of new space either under construction or in the pipeline. So, I am much more cautious about the direction of rents in that market. 7

8 RETAIL MARKET TODAY Steady consumer spending Restrictive planning environment Challenge of cost of space versus quality Emergence of a retail park market A few words now on the French retail environment. Sales growth in France has been in the 2 4% range in recent years. Planning controls for shopping centres authorisations are very tight. In the coming years, the shopping centre development pipeline will mainly be based on the revitalisation of city centres. As in many other markets, retailers, developers and local authorities are all involved in the debate of how to reconcile the cost of accommodation with the desire to see a high quality environment. In future, I believe the majority of the shopping centres development programme will be schemes under 15,000 sqm. Investors are now looking at other types of retail investment such as retail parks, offering a higher yield than traditional shopping centres. We will look at the retail park market in more detail shortly. 8

9 SHOPPING CENTRES 30 June 2006 Gross Lettable Area Turnover 25% 41% Total : 13.4 million sqm 75% 59% Shopping Centres Regional Shopping Centres (more than 80 shops) Source: CNCC / June 2006 The French retail property market totals around 68 million sqm of which the 617 shopping centres account just over 13 million sqm or around 20%. You will see from the pie charts that large regional shopping centres attract a disproportionate 41% share of retail turnover. All Hammerson s shopping centres are in this category. 9

10 RETAIL PARKS MARKET Typical size 20,000 sqm Average rent 100/sqm Average value 40 million Developments located in medium sized cities Trend from big boxes to architect design Development pipeline of 1.4 million sqm Let me say a little more about the retail park market. The first three bullets describe a typical retail park. Retail parks authorizations are easier to obtain than those for shopping centres as city mayors consider that retail parks are not competing directly with their city centre retailers. I should add that the future retail park market is likely to be somewhat different from that we have seen in the past; retail park developments will be focused more on medium sized cities rather than large cities. Another change in the French retail park profile is architecture. The time when each retailer developed his unit independently along arterial routes is over. We are now seeing the emergence of retail boxes organised as homogeneous shopping complexes. These quality schemes are viewed by retailers as open air shopping centres. Compared to UK, Germany and Spain, the French retail parks market is relatively new. However, France is catching up. Some 100 projects are expected to be developed before That could represent some 1.4 million sqm to be sold by developers looking for investors. 10

11 INVESTMENT TRANSACTIONS H Value bn Logistics 1.0 bn 8% Retail 0.8 bn 6% Offices 10.9 bn 86% Total : 12.7 bn Source: CBRE July 2006 Let s now talk about the investment market. Investment in commercial real estate reached a record level of 16 billion in The market is still dominated by the offices sector, which accounted for 86% of transactions. The retail market remains constrained by limited supply. Investors demand continues to focus on the most secure assets: rented offices in the Paris CBD and well let shopping centres. Due to the scarcity of assets in these classes, investors are broadening their search to other products such as warehouses and hotels and towards other locations in the Paris suburbs and the provinces. As a result, these other markets have seen very strong yield compression over the last 18 months. 11

12 INVESTMENT YIELDS bn Yield % Investment Transactions (LHS) Spread (%): Yield (OAT Inflation) Prime Yield CBD Offices (%) Source: AtisReal Sept 2006 The structure of yields remains favorable for property investment in France, with the spread between prime property yields and interest rates remaining positive. The graph shows the strong, liquid market of recent years. 12

13 INVESTMENT MARKET SUMMARY Transactions at record levels Decrease in prime property investment yields Yield convergence Potential for further reduction in yields New investment products The abundance of capital coming from long term savings in Europe and the growing presence of open and closed ended funds should continue to boost trading volumes in property investment. Further yield compression is expected up to the end of 2006, although it is unlikely to be sustained at the current rate. One of the consequence of the appetite of foreign funds to invest in France is the progressive erosion of the yield differential between prime and secondary products. The quality of a building, its tenants and its location seem to be outweighed by the imperative to invest. A trap which we are very cautious to avoid here. So, that summarises the markets. Now I will say a few words about Hammerson s business in France, our existing portfolio and some of our future schemes. 13

14 HAMMERSON FRANCE 31 December 2005 Value Net Rental Income Offices 30% Offices 25% Shopping Centres 70% Total : 2.2 bn Shopping centres 75% Total : 92.4 m At 31 December 2005, our portfolio totalled around 2.2 billion. By value, 70% is in the retail sector broadly in line with the weighting in the group s portfolio overall. If Hammerson France were listed, it would be the sixth largest French real estate company. Now, let s take a quick look at Hammerson s expansion in recent years. 14

15 PORTFOLIO GROWTH Value ( bn) Dec 1986 Dec 1994 June 2006 Office Portfolio Retail Portfolio In 1986, Hammerson owned eight office properties, mostly small Haussmannian buildings, with a total value of 72 million. All these buildings had been sold by the end of During 1994, Hammerson started its French acquisition programme, acquiring Espace Saint Quentin and 54 boulevard Haussmann. By the end of that year the portfolio represented 12% of the group s total portfolio. By the end of 2005, our portfolio amounted to 2.2 billion, consisting of 12 assets and providing a total of 340,000 m² of space. Since 2000, we have sold six properties raising total proceeds of 780 million and generating a total profit on costs of 127 million. Today we have a staff of 100. Much of that growth has come since 1999, when we brought the retail management of our schemes in house. So, over 20 years, the size of our portfolio has increased 15 fold, the staff 13 fold and the value of the portfolio by 30 times. 15

16 PORTFOLIO GROWTH NRI ( m) Value ( m) Dec 2000 Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec Net rental income Portfolio value This next slide shows the growth in the portfolio over the past five years and the increase in net rental income. Over this period the value of the portfolio has risen by 66% to 2.2 billion, whilst net rental income has risen by 85% to 92 million. 16

17 PERFORMANCE TOTAL RETURNS % H Shopping Centres and Retail Parks Offices Hammerson Total France IPD Benchmark n/a This slide shows total returns over the past five years. The average total return has been 13.0%, compared with 10.5% for the IPD benchmark. As you might expect, returns from offices have shown greater volatility, reflecting the market conditions in 2002 and 2003 and the recent recovery. 17

18 RETAIL RENTAL GROWTH m Net Rental Income 2000 Net Rental Income Leasing 10.3 Indexation Acquisitions/ developments Disposals 0 This bar chart analyses growth in net rental income for the French retail portfolio since Retail net income totalled 32 million in 2000 and had increased to 69 million in New leases (shown in green) within the existing portfolio increased income by around 9 million. Indexation (in blue) added 10 million, whilst acquisitions and developments (in mauve) accounted for a further 26 million. That was partly offset by disposals, which reduced income by approximately 8 million. Now a few words about our development pipeline. 18

19 HAMMERSON RETAIL DEVELOPMENT PIPELINE Schemes Additional GLA (sqm) Additional NRI ( m) Development Cost ( m) Possible Timing Espace St Quentin 10, /2009 Villebon 2 (Two phases) 29, Parinor 19, Italie 2 (Two phases) 11, /2009 Les 3 Fontaines 18, /2012 This slide shows the major development schemes we are currently progressing. These all represent expansion and improvement programmes to our existing retail assets. In total they could add around 85,000 m² of additional gross lettable area to our portfolio. The estimated total cost of this programme is approximately 360 million, which could generate an additional income of the order of 25 million, an initial yield of perhaps 7%. 19

20 SUMMARY Market fundamentals in France remain attractive High quality retail investment portfolio offering growth potential Substantial development opportunities within existing portfolio Expansion of acquisitions team Hammerson France has excellent reputation in marketplace So in conclusion, the fundamentals in our principal markets, shopping centres, retail parks and Paris CBD offices remain attractive. We have a high quality reversionary retail investment portfolio and I am confident that we shall continue to drive the performance of these assets. Within that portfolio, there are some substantial development opportunities and we are pursuing these vigorously. Buoyancy in the investment markets means that it is challenging to acquire new assets or development opportunities. We are addressing this by expanding our acquisitions team. Finally, Hammerson France has a good reputation in the marketplace and we believe this will present further opportunities in the future. 20

21 ITALIE 2 Igor Aglat 19 October

22 CATCHMENT inhabitants This shows the location of Italie 2. It is in the south east of Paris, just within the Peripherique. Since we acquired the scheme in 1998, we have carried out a major refurbishment programme, the results of which will be seen during the visit. The refurbishment was just the first step. We also have plans for a major future expansion, which I will explain to you shortly. 22

23 THE SCHEME 56,600 sqm on three levels Opened in 1976 Acquired in 1998 Refurbished in tenants Three anchors: Printemps; FNAC; Champion Six MSUs 1,600 car parking spaces This is a view of the shopping centre from Place de l Italie. Italie 2 is the second largest shopping centres in central Paris, after Forum des Halles. It was built in 1976 as part of a mixed use development that includes a multi storey car park and high rise residential accommodation. The complex was extended in 1991 with cinemas, offices and a hotel. Italie 2 is predominantly a local shopping centre. More than 90% of its visitors come by foot or on public transport. Only 5% come by car. 23

24 HISTORY Printemps restructuring 2000 Replacement of poorly performing retailers Higher quality tenants Implementation of Esprit d accueil standards Today Hammerson acquired Italie 2 in 1998 and has adopted an active management approach. A major restructuring of the centre was carried out in The footprint of the Printemps department store was reduced by 5,800 sqm. One of three levels freed up was partly leased to FNAC (4,600 sqm) and part was devoted to the creation of 14 new shops (1,200 sqm) To bring the centre in line with other Hammerson French shopping centres, we have implemented The Esprit d accueil standards which I will explain during the tour. 24

25 ASSET PERFORMANCE Turnover Gross Income Cap. Rate Valuation Cumulative costs m 10.4 m 6.25% 154 m 143 m m 18.6 m 4.85% 352 m (1) 171 m (1) Valuation at 30 June 2006: 376 m Italie 2 is performing very well for retailers in the centre, particularly since the restructuring in It has shown the highest increase in turnover of all Hammerson French shopping centres in each of the last two years. As a result, the vacancy rate is extremely low at 1.8%. So, thanks to this performance, as well as very active tenant renewals and lease indexation, gross income has grown by nearly 80% since acquisition. At 30 June 2006, Italie 2 was valued off a cap rate of 4.85%. Given its quality and recent rental growth, we believe it might well justify a lower valuation yield. 25

26 VISION 2006 Improve retail mix Larger hypermarket Future extensions In the next three years, the catchment for Italie 2 will improve significantly with the development of Paris Rive Gauche. This year, we have embarked on a second step to create value. It will include: an improved retail mix; a bigger hypermarket; and two extension projects. 26

27 DEVELOPMENT SCHEME PHASE 1: GAUMONT CINEMA RESTRUCTURING 4,500 sqm GLA Two MSUs and two other retail units Lease agreement signed with Habitat Trading consent obtained June 2006 Building permit submission: June 2006 Start on site: Q Completion: Q Now, some comments on the next phase of our improvement programme. This will take place on a site currently owned by Gaumont. We have obtained a commitment from the owners to sell the site to Hammerson. This acquisition offers several opportunities: to introduce new brands such as Habitat and H&M, which are currently missing from our tenant mix; and to increase the visibility of Italie 2 on the Place d Italie. Trading consent was obtained in June and we are currently awaiting a building permit. We hope to be on site some time in the first quarter of 2007 with completion around 15 months later. 27

28 DEVELOPMENT SCHEME PHASE 2: AVENUE D ITALIE EXTENSION Expansion of 7,000 sqm FNAC extension Three MSUs Discussions with local authorities Q Planning consent and land acquisition Q Start on site: Q Completion: Q The second phase is what we know as the Avenue Italie Extension. It involves a 7,000 sqm expansion, the creation of three MSUs and an extension to the existing FNAC store. The project is an integral part of the district Mayor s aspirations for the area, so it should have political support through the land acquisition and planning process. It provides several benefits. Firstly, increasing the value of the unused public square located along the Avenue d Italie. Secondly, giving the Avenue d Italie façade a new architectural style. 28

29 FINANCIAL Estimated total costs Additional rent Yield on cost Gaumont Cinemas 22 m 1.42 m 6.3% Avenue d Italie 22 m 1.44 m 6.5% The total costs of each of these two schemes is around 44 million and we anticipate that this expenditure will give us a yield on cost of around 6.4%. As I mentioned earlier, the current cap rate is around 4.85%. So the schemes will be both income and NAV enhancing. 29

30 VENDÔME SAINT HONORE Jean Philippe Mouton / Olivier Marguin 19 October

31 HAMMERSON DEVELOPMENTS IN PARIS 40 rue de Courcelles 54 boulevard Haussmann 53 quai d Orsay 148 rue de l Université 14 boulevard Haussmann Hammerson has carried out many developments in central Paris, the most recent prior to Vendôme Saint Honoré being 14 boulevard Haussmann. These schemes have generally been in architecturally sensitive locations and with complex construction issues to overcome. Over the years, Hammerson has gained a reputation for delivering buildings which meet occupiers needs, and achieve record rents. It was this reputation which enabled us to form a joint venture with AXA and act as development manager on Vendôme Saint Honoré. Today, only 148 rue de l Université is part of our portfolio as the other assets have been sold as part of Hammerson s capital recycling strategy. 31

32 VENDÔME SAINT HONORE, PARIS 1er 50:50 JV with AXA Reim Acquired 2002 Works: January 2004 May ,200 sqm offices on six levels 5,500 sqm retail with eight stores 150 car parking spaces The very successful development of Vendôme Saint Honoré was carried out in a 50/50 joint venture with AXA REIM with Hammerson taking the role of development manager. At 27,700 m², this project was one of the largest developments in Paris in the current cycle. The development provides 22,200 sqm of offices on six levels and 5,500 sqm of retail accommodation on two trading levels. Six of the retail units are on rue Saint Honoré and two on place Vendôme. We started work on site in January 2004 and completed the scheme in May 2006, on time and budget. As you can see on this slide, our building is located in a unique and prestigious environment, between place Vendôme and rue Saint Honoré, close to la Concorde and Place de la Madeleine. 32

33 KEY FEATURES Prime location Highly sensitive environment Modern technical specification Anticipating tenants expectations We have been operating in a very sensitive environment due to the site s proximity to the Ministry of Justice and a primary school. One of the key elements in the success of this development has been the strong relationship we have maintained throughout with neighbouring occupiers and the City council. In Vendôme Saint Honoré Hammerson has created an efficient and flexible building to the high standards for which it is known in the marketplace. The retail space is ideally suited to the needs of retailers. This is virtually unique in this neighbourhood, where shop units are badly configured, due to the constraints imposed by historical buildings. 33

34 MARKETING STRATEGY Right product positioning Efficient lobbying High quality materials Targeted PR Control agents message A few words on marketing. Marketing is obviously crucial to the success of a scheme. At Hammerson we have an in house team, Marketing & Communication. This subsidiary defines the marketing strategy, including product positioning, which our competitors would traditionally outsource to letting agents. We believe we have some real strengths in the marketing area. 34

35 PRESTIGIOUS OCCUPIERS OFFICES Occupier Area (sqm) Rent ( /sqm) Date Clifford Chance (1) 14, June 2005 Proskauer Rose 3, Feb 2006 Swarovski 1, April 2006 Notes (1) Phased occupation (2) 90% let at 31 August 2006 We originally planned to complete the building in However, in the light of the weak market conditions in 2003 and forecasts for 2005, we decided to postpone start of works to benefit from the anticipated market recovery in Our tenants are mostly prestigious law firms and we have set the highest prime rents in Paris at Vendôme. 35

36 PRESTIGIOUS OCCUPIERS RETAIL In the past, the place to be for luxury goods was rue du Faubourg Saint Honore, which is one of the most prestigious retailing streets alongside Avenue Montaigne. Over the last four years, the rue Saint Honoré has competed with the Faubourg and has now become the most sought after street for fashionable designers. We offered high quality retail spaces, with modern technical specifications, which you could normally find in a shopping centre, but not in a high street retail unit. What is also important to outline is the dimension of these shells: even the smallest provides 400 sqm. This space has been in high demand. Note that four tenants have chosen our scheme for their first store in France: Senso Unico, a Japanese designer; Brooks Brothers; Tommy Hilfiger and Roger Dubuis. Leases are for 10 years with a tenant s break option after six years. We have only one vacant unit left, facing onto place Vendôme which is under negotiation. 36

37 FINANCIAL Acquisition price Development costs Valuation 30 June 2006 Estimated annual rental income 60.9 m 67.1m 234 m 10.9 m Note: Figures represent Hammerson s 50% interest Last but not least, the project is a financial success. Hammerson s share of the costs of the scheme amounted to 128 million. The capitalisation rate is 4.15%, giving a valuation of 234 million at 30 June That represents a capital uplift of 106 million. 37

38 CONCLUSION Vision The building The market Relationships AXA Reim Environment Tenants Performance Financial success Enhanced image In conclusion, this development is a perfect illustration of Hammerson s values: vision, relationships and performance. We picked up a high potential but complicated asset in a unique location and phased its development to benefit from the upward market trend. We focused on maintaining a harmonious and transparent relationship with our neighbours, our investment partner and, more recently, our tenants. As described earlier, this development is a financial success with a tight cost control, successful pre letting, record rental values and valuation. This programme has definitely allowed us to reinforce our reputation in the market. 38

39 VILLEBON 2 David Segard /Jean Louis Coquand 20 October

40 CATCHMENT inhabitants Cora Massy X % Factory outlet Carrefour Les Ulis Shopping Centre Carrefour La Ville du Bois Shopping Centre Villebon is located 25 km southwest of Paris and is very well served by motorways. The catchment area comprises 600,000 people with an average household income well above the national average. The main competitors are Les Ulis 2, Massy and La Ville du Bois (a factory outlet centre). 40

41 THE SCHEME 25 km south of Paris Opened in 1998 Total GLA 41,000 sqm 44 units 2,200 car parking spaces Sunday opening Acquired July 2005 for 150 m The park was acquired by Hammerson in July 2005 for 150 million. Unusually, for a French retail park, it trades seven days a week. 41

42 VILLEBON 2 Le Regard La Tournelle Villebon 2 is divided into two sections: La Tournelle and Le Regard. La Tournelle was the first phase of the park built in Tenants include national brands such as Aubert, Tati, Maxi Toys, La Halle and Heytens. However, there are also a number of less well known retailers, representing a clear opportunity to improve the tenant mix. On the other side of the road, Le Regard built in 1999 is anchored by leading retailers such as PC City, Gemo, Toys R Us, and Darty. An Auchan hypermarket of 10,000 m² with a small shopping gallery reinforces the offer. 42

43 CURRENT POSITION Strengths One of the largest retail parks in France Wealthy customer base Excellent potential and location Issues Strong competition Poor architecture Confusing signage Villebon faces a number of challenges, notably its physical appearance. However, it remains a retail park with tremendous potential, thanks to its size, the wealthy catchment area it serves and the several development opportunities it offers. 43

44 SCHEME PERFORMANCE 2005 Turnover 210 m GRI 7.9 m Average rent 190/sqm Service charges 21/sqm Total turnover at the scheme is estimated at 210 million. The average rent is around 190 / sqm. 44

45 ASSET MANAGEMENT Asset management by Marketing & Valorisation retail park manager rent collection letting Non rental income development by Marketing & Communication Following the acquisition, Hammerson s in house management organisation, Marketing & Valorisation, assumed responsibility for asset management of the property. Work has been carried out to create value, optimising the asset and reducing service charges. Marketing & Communication has begun to develop marketing tools for retailers and customers and to look at ways to generate non rental income. 45

46 OPPORTUNITIES TO CREATE VALUE Marketing communication environment Improve awareness of and customer loyalty to Villebon 2 Improve road access and facilitate pedestrian circulation Tenant mix Enhance retail offer with new anchors Reinforce fashion tenant mix on La Tournelle Provide a complementary food offer Encourage Hypermarket extension and remodelling Expansion Phase1: Auchan Link 5,600 sqm Phase 2: La Tournelle 8,000 sqm Further 2.5 hectares of land available We are focusing on three ways to add value to Villebon. The first is by raising consumer awareness. Our retail park manager, Christian Charre, who we are going to meet on site, will work to improve image and access. Secondly, in terms of the offer, several market surveys were carried out and came to the same conclusion: in order to create value, we must focus our tenant mix on clothing and fashion retailers. This will be the main purpose of the La Tournelle restructuring we shall talk about later on. Thirdly, there are several opportunities to extend the park. 46

47 PROPOSED DEVELOPMENTS 2 La Tournelle 1 Auchan Link 3 Land available We are currently building a 5,600 sqm extension known as Auchan link which will link the retail park to the anchor hypermarket. The second step relates to La Tournelle and involves restructuring the existing retail area and creating an 8,000 sqm extension. Thirdly, we have adjacent land available for development. 47

48 PHASE 1 AUCHAN LINK 5,600 sqm of new retail Creation of two MSUs 2,200 sqm pre let to C&A Opening August 2007 Estimated development cost 10 m As you can see from this slide, the Auchan hypermarket and our retail park are separated by a strip of car park, deterring customers from visiting both parts of the scheme in one trip. Our aim is to correct this, in order to better benefit from Auchan s anchor status. Works began in February and are progressing well with opening scheduled for August next year. We have already signed a lease with C&A for part of the new retail space. 48

49 PHASE 2 RESTRUCTURING LA TOURNELLE Total project 24,000 sqm 8,000 sqm expansion, including new anchor of 5,000 sqm 16,000 sqm restructuring the upper level Tenant mix refocused on attractive fashion offer Retail village atmosphere Estimated development cost 50 million The next step of the development is in respect of La Tournelle. There are two elements to these works. First an extension of 8,000 sqm including a new 5,000 sqm anchor store. Second, a restructuring of 16,000 sqm of the upper level. Our objective is to refocus the tenant mix to provide a fashion offer housed in a retail village : a more attractive shopping environment, which will drive value for Hammerson. Our estimated total development costs are around 50 million, and the projected income of around 3 million p.a. 49

50 UPPER LEVEL RESTRUCTURING LA TOURNELLE On this plan you can see that we intend to provide smaller sized units for fashion retailers. Because we are aiming to create an attractive environment, we will work on car access and internal circulation for both cars and pedestrians. The MSUs that will anchor this part of the retail park are shown in pink. The new fashion stores are shown in yellow and grey. Restaurants are shown in blue. Other tenants, specialising in household goods, are shown in green. 50

51 ENHANCED ENVIRONMENT This is an artist s impression of what the park might look like following the improvements, illustrating the retail village atmosphere. 51

52 PHASE 3 FUTURE OPPORTUNITY 25,000 sqm of land Potential development of 10,000 sqm Planning authorisations required Opportunity for either a stand alone major store or extension of Le Regard Envisaged timing: after 2010 As I mentioned previously, with the retail park Hammerson purchased a five acre site. This provides an opportunity for us to create about 10,000 sqm of retail space. However, current planning rules restrict new development. We will need to negotiate with the local authorities to allow us to create additional space. Realistically, this will not start until after

53 PARINOR Jean Philippe Mouton / Jean Louis Coquand 20 October

54 CATCHMENT Parinor is one of the top five shopping centres in Ile de France, 15 km to the north east of Paris. This gives it access to a large customer base, with 1.4 million inhabitants in the catchment area. 54

55 THE SCHEME Opened 1974 Acquired tenants 10 MSUs 4 screen cinema 12 restaurants 4,500 car park spaces The centre has a current GLA of 84,000 sqm and had a total turnover of 528 million in It is well anchored by one of the largest Carrefour hypermarkets in France. 55

56 KEY DATA Acquisition Date GLA (sqm) Cost ( m) Initial yield (%) Initial acquisition , % Klécar , % Castorama , To be developed Current centre 30 June ,200 Value: 282 Cap. rate: 4.75% Note: Figures represent Hammerson s interest Hammerson has gradually consolidated its ownership of Parinor. In March 2002, Hammerson purchased a 57.5% interest in the property from Werheldave for 139 million. We have since spent a further 26 million on acquiring the FNAC shell from Klépierre in 2004, and the Castorama unit in Hammerson now controls about 75% of the property, leaving Carrefour with a little more than 20%. The remainder is held by Redevco. At mid year 2006, the valuation was 282 million, a 70% uplift over the acquisition costs. 56

57 ACHIEVEMENTS SINCE ACQUISITION Esprit d accueil Customer services Loyalty programme Car park access improvements Enhanced customer satisfaction New non rental income Our first objective was to offer the same level of comfort and services to our customers and retailers as at other Hammerson centres. We have introduced the Esprit d accueil standards you saw at Italie 2 and implemented a marketing programme designed to increase customer satisfaction and loyalty. 57

58 ACHIEVEMENTS SINCE ACQUISITION Increase in GRI: 4.0 m 21 new retailers 36 units refurbished Opening of major brands: Zara / New Look / Orchestra Maintained high turnover density at 6,000/sqm (excluding the hypermarket) Major expansion potential identified There have been substantial improvements since acquisition, particularly to the tenant mix. One in eight retailers trading at the centre has arrived since Hammerson s acquistion, including exciting brands such as Zara and New Look. We have refurbished around 36 units. This has resulted in a rental uplift of 4 million. And we have identified opportunities to extend the scheme. 58

59 EXPANSION OPPORTUNITIES Acquisition in 2002 Expansion opportunity identified for the Castorama shell Strategic Plan 2003 Restructuring opportunity for the Castorama shell of 6,000 m² Current project Extension on Castorama site of 19,000 m² Our initial objective was to develop the Castorama shell to provide 6,000 sqm of reconfigured space. Two years ago we started to plan a major expansion of 19,000 sqm. Today we have advanced the scheme sufficiently to plan the complete project in one phase with the aim of transforming the size and the image of the shopping centre. 59

60 PROJECT OBJECTIVES Reinforce Parinor s dominance of its catchment area Increase market share from 9.3% to 10% Increase the ERV (current 385/sqm) Capture 16% reversion Overcome competition from Rosny 2 and Aéroville This substantial expansion will significantly enhance the attractions of Parinor, creating an impressive new offer in addition to the 160 existing shops. Loyal customers are keen to see this. Furthermore, Parinor seeks to retain and consolidate its leading position. Our objective is to gain new customers in the north part of our catchment zone. We can also create value by capturing the remaining 16% reversion. We are hoping to make a start next month, but sorting out one or two final agreements and consents from our retailers has been a bit slower than we would have wished. Negotiations are well advanced and it makes good sense for all parties to close a deal, but this is not a done deal and therefore any timetable or budget is only indicative/outline at this stage. Let s have a look at the plans. 60

61 THE CASTORAMA SCHEME Increase lettable area by 19,000 sqm Two new large units Anchor Planète Saturn (4,600 sqm) Relocation of Toys R Us (3,800 sqm) 8 MSUs 60 boutiques Additional 700 car park spaces When we visit the centre you will see Carrefour s 20,000 sqm of trading area. Our extension plan involves restructuring the Castorama shell at the other end of centre into retail units along a new mall, transferring Toys R Us from the lower level to the upper one and making way for Planet Saturn to provide a strong anchor on the lower level. Those two large stores will be supported by eight other mid sized units and supplemented with 60 additional shops. Outside, it is planned that the car park will be completely renewed and extended by 700 additional car park spaces located above the extension and directly accessible from the main road. At completion the number of retail units will reach 220, elevating Parinor to the third largest centre in the Paris Region. 61

62 FINANCIAL Forecast Estimated total development costs Increase in net rental income Yield on cost 107 m 7.7 m 7.2% Here are the summary financials relating to the project The estimated total cost is around 107 million and we expect to generate additional net rents of nearly 8 million. This does not include the benefit that should come over time from increased rental values in the existing centre. 62

63 OUTLINE TIMETABLE Demolition permit and CDEC Feb 2006 Building permit June 2006 Agreement with co owners July 2006 Possible start on site Nov 2006 Completion of MSUs Nov 2007 Opening of the extension April 2008 Opening of remaining 10 units Sept 2008 Car park completion Nov 2008 In terms of administrative authorisations, the major necessary agreement has been taken care of. We have been granted the CDEC by six unanimous votes. This confirms the strong political support for our scheme. The Building Permit is now secured. We have gained the agreement from the majority of the co owners. However, there are still one or two deals in advanced negotiations which we aim to close down shortly. We are currently focusing on the letting in order to secure a significant part of the 30% income before start on site. At this stage, the opening of the major part of the extension is planned for April 2008 with the last 10 units due to open six months later. So in conclusion, Parinor has shown strong performance since we acquired it four years ago and we have some exciting plans which will allow us to generate good returns in the future. 63