Report and Financial Statements 31 March 2002
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Land Securities PLC
5 Strand
London
WC2N 5AF
Telephone: 020 7413 9000
e-mail:landsecurities@landsecurities.com
http://www.landsecurities.com
making property work . . .
Land Securities provides an integrated approach to the commercial
property and outsourcing needs of customers to create long-term
and sustainable returns for shareholders.
Investor information
balance sheets
31 March 2002
31 March 2002
Registrar
Enquiries concerning holdings of ordinary shares, debentures or loan stocks in
Land Securities PLC should be addressed to: Lloyds TSB Registrars,The Causeway,
Worthing, West Sussex BN99 6DA. Telephone: 0870 600 3972.
Corporate individual savings accounts (ISAs)
The company has arranged for a Corporate ISA to be managed by Lloyds TSB
Registrars, who can be contacted at The Causeway, Worthing, West Sussex BN99
6UY. Telephone: 0870 24 24 244.
The Registrars provide an on-line service, enabling shareholders to access details
of their Land Securities shareholdings. Shareholders wishing to view this
information, together with additional information such as indicative share
prices and information on recent dividends, should visit www.shareview.co.uk
Capital gains tax
For the purpose of capital gains tax, the price of the company’s ordinary shares
at 31 March 1982, adjusted for the capitalisation issue in November 1983, was
205p.
Holders of the company’s ordinary shares, debentures and loan stocks should
notify the Registrar promptly of any change of their address.
Low cost share dealing facility
The company operates with Cazenove & Co. Ltd a postal share dealing facility
which provides shareholders with a simple, low cost way of buying and selling
Land Securities PLC ordinary shares. For further information, or dealing forms,
contact: Cazenove & Co Ltd, 12 Tokenhouse Yard, London EC2R 7AN. Telephone:
020 7606 1768.
Dividend reinvestment plan (DRIP)
The company has introduced a DRIP to enable shareholders to use cash
dividends to purchase Land Securities shares in the market.
For further details, contact:
The Share Dividend Team, Lloyds TSB Registrars,The Causeway, Worthing,
West Sussex BN99 6DA. Telephone: 01903 502541.
Unclaimed Assets Register
The Company participates in the Unclaimed Assets Register, which provides a
search facility for financial assets which may have been forgotten. For further
information, contact: The Unclaimed Assets Register, Lloyds Chambers,
1 Portsoken Street, London E1 8DF – Telephone: 0870 241 171; website
www.uar.co.uk
Share price information
The latest information on the Land Securities PLC share price is available on the
Financial Times Cityline Service: telephone: 0906 8433133 (calls charged at
60p per minute). Share price information is also available on the company’s
website (www.landsecurities.com) under investor relations/share price.
ANALYSIS OF EQUITY SHAREHOLDINGS
at 31 March 2002
B Y S I Z E O F H O L D I N G
U P TO 5 0 0
5 0 1 TO 1 , 0 0 0
1 , 0 0 1 TO 5 , 0 0 0
5 , 0 0 1 TO 1 0 , 0 0 0
1 0 , 0 0 1 TO 5 0 , 0 0 0
5 0 , 0 0 1 TO 1 0 0 , 0 0 0
1 0 0 , 0 0 1 TO 5 0 0 , 0 0 0
5 0 0 , 0 0 1 TO 1 , 0 0 0 , 0 0 0
1 , 0 0 0 , 0 0 1 a n d a b ove
Number of
holdings
1 1 , 7 9 4
9 , 9 0 3
1 0 , 6 8 7
8 9 4
7 8 6
1 6 6
2 9 0
7 8
9 0
%
Balance at
31 March 02
3 4 . 0 0
2 8 . 5 5
3 0 . 8 1
2 . 5 8
2 . 2 6
0 . 4 8
0 . 8 4
0 . 2 2
0 . 2 6
3 , 4 0 2 , 0 8 1
7 , 5 3 7 , 1 0 9
2 1 , 6 1 9 , 8 8 8
6 , 3 1 1 , 5 0 4
1 7 , 2 1 0 , 8 0 8
1 1 , 6 8 0 , 9 6 6
6 6 , 4 9 6 , 2 4 4
5 7 , 4 8 9 , 3 0 2
3 3 2 , 5 9 7 , 1 4 3
%
0 . 6 5
1 . 4 4
4 . 1 2
1 . 2 0
3 . 2 9
2 . 2 3
1 2 . 6 8
1 0 . 9 6
6 3 . 4 3
3 4 , 6 8 8
1 0 0 . 0 0
5 2 4 , 3 4 5 , 0 4 5
1 0 0 . 0 0
Registered office
5 Strand, London WC2N 5AF
Registered in England and Wales
No. 551412
Offices
5 Strand, London WC2N 5AF
(Telephone: 020 7413 9000)
and at 140 London Wall EC2,
Glasgow and Leeds
Designed by SAS
Board Photography by Chris Moyse
Location Photography Marcus Lyon
Typeset by Asset Graphics
Printed by St Ives Westerham Press
This report is printed on paper that meets
international environmental standards, contains
elemental chlorine free (ECF) virgin pulp,
obtained from sustainably managed forests.
Financial Calendar
2002 22 May
Preliminary announcement
26 June
Ex-dividend date
28 June
Record date for final dividend
9 July
Annual general meeting
22 July
Final dividend payable
November
Announcement of interim results
(unaudited)
2003 January
Interim dividend payable
Contents
Corporate Statement
IFC
2
Financial Highlights
4 Chairman’s Statement
6 Corporate Review
Valuation
Portfolio Management
Development
Total Property Outsourcing
Financial Review
Property in Context –
Making property work
Environment, Health and Safety
Human Resources
Directors
Corporate Governance
Remuneration Committee
Directors’ Report
8
10
18
26
32
36
38
40
42
44
46
48
50
Directors’ Responsibilities and
Auditors’ Report
Consolidated Profit and Loss Account
Balance Sheets
Consolidated Cash Flow Statement
52
53
54
55 Other Primary Statements
56 Notes to the Financial Statements
77
Ten Year Record
Valuers’ report
78
79
Portfolio analysis
80 Major Property Holdings
Glossary of Terms
84
Investor Information
IBC
1 0 | 11 assets
1 2 | 13 space
1 4 | 15 acquisitions
1 6 | 17 resources
1 8 | 19 regeneration
2 0 | 21 innovation
2 2 | 23 projects
making property work
2 4 | 25 development
2 6 | 27 relationships
2 8 | 29 accommodation
3 0 | 31 outsourcing
3 6 | 37 property
3 8 | 39 sustainability
4 0 | 41 values
Land Securities
Highlights
• Adjusted earnings per share increased by 13.7% to 51.61p (2001 45.38p)
• Pre-tax profit up to £363.5m, an 11.9% increase (2001 £324.7m)
• Adjusted diluted net asset value steady at 1155p (2001 1152p)
• High level of activity demonstrated by:
– £0.5bn of property sales
– £0.5bn investment in development and investment property activities
– £146m investment in Telereal
– £70m investment in Kent Thameside
• Portfolio rationalisation substantially complete
• Development progressing well with 87,030m2 completed this year and 260,160m2 under
development
• Land Securities Trillium secured two major new contracts during the year
• Proposed £500m return of capital to shareholders
• 10m m2 of commercial property owned or under management.
financial highlights . . .
REVENUE PROFIT (PRE-TAX) £m
ADJUSTED EARNINGS PER SHARE (PENCE)
265.9
292.7
301.7
(restated) 323.4
364.8
1998
1999
2000
2001
2002
37.07
39.11
40.86
(restated) 45.38
51.61
1998
1999
2000
2001
2002
2 | 3
Gross property income
Operating profit
* Revenue profit (pre-tax)
Pre-tax profit
** Adjusted earnings per share (basic)
Earnings per share (basic)
Dividends per share
** Adjusted dividend cover (times)
Dividend cover (times)
† Interest cover (times)
# Adjusted diluted net assets per share
Diluted net assets per share
Book value of properties sold
Capital expenditure on properties,
developments and acquisitions
ø Valuation of investment properties
Net borrowings
Equity shareholders’ funds
† Gearing (net)
31 March 2002
31 March 2001
(restated)
Change %
+57.7
+14.7
+12.8
+11.9
+13.7
+12.0
+4.6
+0.3
+0.2
£1,025.6m
£516.8m
£364.8m
£363.5m
51.61p
50.27p
34.00p
1.52
1.48
2.98
1155p
1132p
£510.4m
£776.5m
£7,800.0m
£1,942.1m
£6,036.6m
32.2%
£650.4)m
£450.6m
£323.4)m
£324.7)m
45.38)p
44.87)p
32.50)p
1.39
1.38
3.03
1152)p
1130p
£424.9m
£758.3m
£7,899.1)m
£1,727.8)m
£6,017.8m
28.7)%
The comparative figures for the year ended 31 March 2001 have been restated to reflect the changes in accounting policies described on page 32 and in Note 1 to the financial statements.
Trillium was acquired in November 2000. Results for the year ended 31 March 2001 therefore include four months’ trading for that business.
* Excludes results of property sales and bid costs.
** Excludes results of property sales, bid costs and additional deferred tax arising on adoption of FRS19.
# Excludes the effects of additional deferred tax arising from adoption of FRS19.
ø After adjusting for the effect of adopting UITF28.
† See glossary (page 84).
DIVIDENDS PER SHARE (PENCE)
DILUTED NET ASSETS PER SHARE (PENCE)
1998
1999
2000
2001
2002
28.00
29.50
31.00
32.50
34.00
1998
1999
2000
2001
2002
910
975
1090
(restated) 1130
1132
Land Securities
Over two years ago we set out a clear strategy aimed at securing
enhanced returns from property. Since that time, the Group has made
significant progress towards implementing this strategy by refocusing the
investment portfolio, expanding the development programme and
winning new property outsourcing contracts.
The Group’s sound performance over a number of years is compelling
evidence of the value of a long-term approach to property. Our dividends
have grown by an average of 4.5% per annum since 1992, compared to
inflation of 2.6% per annum. Over the same period, our net assets per
share have increased by 7.6% per annum. These figures have underpinned
our average total shareholder return of 13.8% over this period.
Pe t e r G B i rc h
C h a i r m a n
chairman’s statement . . .
The recent fall-out from the technology sector and other high-profile corporate
failures has brought into sharp relief the benefits of concentrating on sustainable
growth over the long term. The Board has long recognised this and while
restructuring the business it has been mindful not to compromise the Group’s
reputation for dependability and its enviable financial position.
Nevertheless, the performance of asset-backed businesses like ours is
inextricably linked to the Group’s capital structure and we have been reviewing
this closely. Our starting point has been a belief that there are good business
reasons for retaining a strong balance sheet. As part of this review we have
concluded that around £500m of our capital is currently surplus to our
requirements and are therefore proposing to return this surplus to shareholders.
In assessing the appropriate amount, we have considered future capital
requirements of the individual business units.
We expect the return, which is likely to be on a structured pro rata basis to all
shareholders, to be achieved by the autumn. More details of the capital return
are contained in the Financial Review which follows.
Results
During the year revenue profit increased by £41.4m to £364.8m. The pre-tax
profit of £363.5m, an increase of 11.9%, was assisted by a full year’s
contribution from Land Securities Trillium. Adjusted earnings per share are up
13.7% to 51.61p per share (2001 45.38p per share). Adjusted diluted net assets
per share remained steady at 1155p per share.
The Group has been particularly active and has sold over £0.5bn of
properties, invested £0.5bn in its portfolio and development activities,
£146.4m in the Telereal joint venture and £70.0m in Kent Thameside.
The Board recommends a final dividend of 24.95p per share, making a total
distribution for the year of 34.0p, an increase of 4.6%. The dividends paid
and proposed will be covered 1.52 times after excluding the effect of property
sales, bid costs and additional deferred tax arising on adoption of FRS19.
The dividend will be paid on 22 July 2002 to shareholders on the register on
28 June 2002.
Valuation
Since September 2001 there has been considerable uncertainty and a degree of
instability in global economies and financial markets. Against this background
we are pleased that the valuation of our portfolio has exhibited relative stability
despite being adversely impacted by the decrease in value of our Central London
development projects.
Board and Senior Executive Group changes
In order to ensure the effective delivery of our strategy we have made changes
to the Board and Senior Executive Group. We believe that we now have one of
the strongest senior management teams in the sector, with substantial financial,
property and management expertise. Succession planning at all levels within the
organisation also remains firmly on the Board’s agenda.
In October 2001, Andrew Macfarlane was appointed to the Board as group
finance director, joining from Six Continents PLC. In January this year,
Peter Freeman, non-executive director of Argent Group plc and chairman of
4 | 5
Freeman Publishing plc, was appointed a non-executive director. In April 2002,
David Rough, previously Group Director (Investments) of Legal & General Plc,
also joined as a non-executive director.
After a successful 20-year career at Land Securities Jim Murray retired in June.
We would also like to pass on our thanks to Peter Walicknowski and Manish
Chande who resigned during the year.
Ian Ellis, chief executive, and David Godden, chief operating officer, of our total
property outsourcing business, joined the Senior Executive Group in January.
Ian and David joined Land Securities when we acquired Trillium in November
2000 and have been instrumental in the development of this business.
Following the year-end, in April, we announced that, after a successful
29-year career at Land Securities, Mike Griffiths would be stepping down.
Francis Salway will move to the development business unit as chief executive
and we have recruited Mark Collins from GE Capital Real Estate as chief
executive of portfolio management and a member of the Senior Executive
Group. After ten years as a non-executive director Peter Hardy has also
indicated that he will be stepping down prior to this year’s AGM. I would
like to thank both Mike and Peter for their valued contribution to the Group.
I welcome the staff who transferred to the Group when we concluded the BBC
and BT transactions. We have all been through a period of substantial change
and I am impressed by the enthusiasm demonstrated by our employees, both
old and new, and the positive way in which they are approaching new challenges.
I should like to thank them for all they have achieved over the past year.
Outlook
The recovery of global economies following the events of 11 September
remains fragile: there is still a risk of further instability in the international
markets and the uncertainty over oil prices remains. However, the UK economy
remains relatively robust and consumer confidence appears undiminished
following the tax increases outlined in the recent Budget. With our focus on the
UK property markets, we have good reason to be positive about the future
prospects for the Group.
The advantage of property as an investment is highlighted by the fact that UK
direct commercial property returns continue to exceed those of the equity
market. Over a five-year period the FTSE-All Share has produced average annual
total returns of 6.7%, compared with 11.9% for property. Over a ten-year
period the returns have been broadly similar at 11.9% for the FTSE All-Share
and 10.6% for property. Demand for UK commercial property will, we believe,
continue to increase as pension funds switch from equities to less risky
investments in order to meet future funding requirements.
We will continue to pursue our core principles of acquiring and owning real
estate and optimising returns. Land Securities has a unique portfolio and has put
in place a compelling strategy, the right team and the right structure for the
future. The new generation of management relishes the challenge of building on
our long-term record and continuing to generate value for shareholders.
Land Securities
Last year we described how we had set the company on course to become
the provider of choice of real estate and associated occupational services.
Over the past 12 months we have made substantial progress towards
achieving that aim. Driving this new strategy were fundamental shifts in
our macro- and micro-economic environment, which required us to evolve
our business activities to take maximum advantage of the opportunities
that we saw in this new era. These drivers continue to influence the way
we develop our business.
I a n J H e n d e rs o n
C h i e f E xe c u t i ve
corporate review . . .
Our new corporate structure is working well and each of the three business
units has made good progress in achieving the objectives set for them last year.
We have virtually completed the rationalisation of the investment portfolio
while, at the same time, investing in buildings which will form the future
development programme. We have also been looking for the most advantageous
way of creating a partnership or joint venture in which to hold our Victoria
properties, a topic which is expanded on in the portfolio management review.
We have advanced the development pipeline and including our share of joint
developments we now have 260,160m2 of new developments in progress,
a further 212,900m2 with planning permission or minded to grant and more
than 249,960m2 at the pre-planning stage. We have also confirmed our position
as one of the leaders in total property outsourcing through winning two major
contracts with the BBC and BT.
The level of activity over the past 12 months demonstrates our focus on the
delivery of our strategy and increasing the returns we generate for shareholders.
We are pleased that Land Securities Trillium has exceeded our expectations
for performance. Our discussions with occupiers lead us to believe that there
is good demand for property outsourcing and we are prepared to invest
significantly in this business. Our ambition is to grow both the total property
outsourcing and the development business units over the next five years until
each of these contribute approximately 25% of our total operating profit.
We believe that this will provide a balance between the strong and secure
performance of the investment portfolio and the higher rewards from our
development and outsourcing activities.
In this context we have reviewed our capital requirements for the medium term
and, as reported in the Chairman’s Statement and Financial Review, have
concluded that we have surplus capital which we will be returning to
shareholders later this year.
Performance benchmarking
During 2001 we subscribed to the Investment Property Databank (IPD)
property performance benchmarking service both for internal management
purposes and also to ensure transparency of performance for the benefit of our
shareholders.We consider the most appropriate measure of our performance is
total return in the form of NAV growth and dividends. Total property return,
on an ungeared basis, in the form of the income yield and capital growth on
properties, is an important ingredient of this wider measure.
While we believe that benchmarking is a strong management tool, there are
reasons why a comparison to IPD does not provide the definitive measure of our
performance. For example, it is important to take into account the impact of
gearing, the chosen sectors of focus of the Group, and the constraints of capital
gains tax on portfolio rotation when compared with typical institutional investors.
I am pleased to report that the comparison to IPD shows that over the long term
we have delivered significant value through our performance. Over the 19-year
period covered by IPD, we are in the top quartile of contributing portfolios in
terms of ungeared total return. Further details of our comparative performance
over the last year are given in the portfolio management review.
Responding to the challenges set by Government
In April the Government launched a New Code of Practice for Commercial
Leases. It has been seen by some as an attack on the traditional leasing structure
in the UK. We would see it rather as a call for building owners to offer occupiers
6 | 7
an alternative to traditional lease forms. I am delighted that we have anticipated
the Government’s initiative in this area by responding to businesses’ desire for
new forms of occupational contracts both through the acquisition of Trillium
and also through initiating the development of our LandFlex product.
The Government continues to be challenged by the renewal of the country’s
infrastructure and the regeneration of inner urban areas. We have consistently
highlighted the threat to the UK and, in particular, to London of neglecting
these issues. Urgent priority needs to be given to emulating the success of
Government strategies where deregulation and tax incentives have contributed
to the successful implementation of urban renewal and infrastructure projects.
Property investment can act as a catalyst for renewal in this way. However, it
requires significant equity investment from specialist companies with deep
pools of development expertise. Financial institutions tend not to have sufficient
skilled personnel for large-scale development, and private property companies
financed by high levels of debt do not have the necessary equity available.
A quoted property company can deliver urban renewal, but the tax regime for
such a company put it at a disadvantage as compared to other property vehicles.
The Government needs to recognise and address this impediment to the quoted
property sector’s potential contribution to urban renewal.
The Government’s plans for reform of the planning system should assist in the
process of regeneration. We generally welcome these proposals, but we would
ask that the Government listens to the representations of the property industry
to ensure that there is a simple and consistent process and one which does not,
by virtue of an effective development land tax, bias property owners towards
retention of existing buildings which may be functionally obsolete.
Through regeneration and the delivery of attractive and environmentally
sustainable buildings, property companies can improve our daily lives and make
businesses more efficient. We are involved in major regeneration programmes in
Birmingham, Bristol, Cardiff and Kent Thameside and wish to continue this
significant work to improve the fabric of those cities and other potential areas
where we might get involved. We therefore need the Government to provide
other developers and ourselves with a platform that encourages, rather than
discourages, our potential contribution.
Group objectives
Over the next year we shall seek to expand on the initial success of property
outsourcing by developing partnerships with businesses that wish to rationalise
their property holdings, releasing value to our respective shareholders’ mutual
advantage. The development unit will press on vigorously with the plans
outlined in this report to ensure that we are well placed to secure lettings as the
market improves, while portfolio management will continue to drive the
returns from the investment assets.
Businesses face the constant challenge of generating ever-increasing returns.
Although, proportionally, property costs have fallen as compared to other costs,
more efficient management of property can assist in improving profits. We are
ideally positioned to deliver the accommodation and property services required
to fulfil this need.
Land Securities
The investment portfolio was valued by Knight Frank at approximately £7.81bn
at 31 March 2002. After adjusting for sales, acquisitions and expenditure the value
reduced by 1.3% as compared to 31 March 2001.
However, if development properties are excluded, the portfolio value measured
on a similar basis with adjustment for sales, acquisitions and expenditure
decreased by only 0.5%. A positive contribution from retail warehouse and
industrial developments was more than offset by the negative impact of the
revaluation of our office development projects which are currently in progress.
This reflects a slight reduction in office rental values owing to current market
conditions and the increased risk premium applied to speculative development
at this stage in the cycle. However, most of the office developments are not due
to be delivered until mid-2003 or later when we expect market conditions and
rental values to have improved.
Retail warehousing has shown the strongest capital growth over the last
12 months, and has been strongly favoured by UK institutions. The industrial
sector has been broadly flat with positive rental growth being largely offset by
adverse yield movement.
Occupational markets have, with the exception of retail, weakened over the last
year. However, capital values have generally been supported by high levels of
investor interest in property, the attraction being the high yield on property
relative to the cost of borrowing and also relative to the income yields available
from other asset classes.
In the first half of the Company’s financial year, the period to 30 September
2001, capital values for both London office and town centre retail properties
weakened due to adverse yield movement. In the second half of our financial
year, capital values for town centre retail properties increased with clear
evidence that investors are being attracted back to the sector. For London offices,
the second half of the year saw continuing small decreases in capital values and
sharper falls in rental values. The fact that capital values for London offices
decreased by less than rental values is attributable, in part, to the protection
offered to investors by long leases and also to the continuing attraction of the
yield levels which, for London offices, are high by historic standards.
After excluding development properties which were producing less than half
of their anticipated income at 31 March 2002, together with other vacant pre-
development holdings, the value of the portfolio at 31 March 2002 was £7.0bn.
At the same date, the annual rent roll, net of ground rents and excluding the
same properties, was £484.1m, 6.9% of this figure.
Detailed breakdowns by sector, including comprehensive analyses of the
Group’s valuation, rental income and yield profiles, are shown below and on
pages 15 and 79.
valuation . . .
% YIELD ON PRESENT INCOME
By sector at 31 March 2002
% YIELD ON PRESENT INCOME
At 31 March
Offices
Shopping centres and shops
Retail warehouses
Industrial premises and warehouses
Hotels, leisure, residential and other
Investment portfolio
This analysis excludes trading properties and all properties
owned by Land Securities Trillium and Telereal.
7.3
6.8
6.2
7.7
5.6
6.9
%
3
9
.
9
9
.
2
8
.
1
8
.
3
8
.
8
7
.
8
6
.
6
6
.
5
6
.
7
6
.
9
6
.
year
92
93
94
95
96
97
98
99
00
01
02
8 | 9
Investment Properties
PORTFOLIO VALUATION
at 31 March 2002
Offices
West End
City
Midtown
Inner London
Rest of the United Kingdom
Shopping centres and shops
Shopping centres
Central London shops
Other in town shops
Retail warehouses
Parks
Other (including food superstores)
Industrial premises and warehouses
Hotels, leisure, residential and other
Total valuation
£m
1,454.1
1,157.5
590.7
254.9
95.7
1,278.6
683.5
566.1
822.3
173.0
375.4
359.2
Total
%
18.6
14.8
7.6
3.3
1.2
16.4
8.8
7.2
10.5
2.2
4.8
4.6
7,811.0
100.0
Analysis of
valuation
surplus/(deficit)
%
(4.3)
(2.5)
(6.2)
(3.8)
1.5
0.0
(0.5)
(0.2)
3.0
4.7
0.6
3.3
(1.3)
The portfolio valuation figures given above relate to the investment portfolio business comprising investment and development properties. The figures
exclude properties owned by Land Securities Trillium and Telereal.
The portfolio valuation figures include a one-third apportionment of the valuation attributed to properties owned by the Birmingham Alliance Limited
Partnerships and a one-half apportionment in relation to property owned by the Gunwharf Quays Limited Partnership and the Ebbsfleet Limited
Partnership.
% RENTAL VALUE GROWTH
By sector for 12 months to 31 March 2002
PORTFOLIO BY VALUE
At 31 March 2002
Offices
Shopping centres and shops
Retail warehouses
Industrial premises and warehouses
Hotels, leisure, residential and other
Investment portfolio
This analysis excludes trading properties and all properties
owned by Land Securities Trillium and Telereal.
(2.2)
2.2
3.1
3.1
2.8
0.2
%
Number of
properties
61.75
50
19.60
12.97
5.68
£50m
£25m
£10m
44
65
110
Land Securities
making assets work . . .
1 0 | 1 1
Portfolio Management
Over the last 12 months we have completed most of the rationalisation of our
investment portfolio to focus primarily on four core sectors of the market:
Central London offices and shops, shopping centres, retail warehouses, and
south-east industrial premises. These are the sectors that we consider will
deliver superior rental growth over the medium and long-term as a result
of constraints on the supply of land.
The nature of most of our individual holdings is such as to enable us to
apply our asset management skills to generate growth in earnings.
Fra n c i s S a l way
Below
Retailer relationship management meeting.
Opposite top
Portman House, an 11,070m2 development in
Oxford Street, London W1.
Opposite bottom
A new format Comet Superstore at Aintree
Retail Park.
Empress State Building
Following receipt of planning
permission last year, Land Securities
Development is now progressing
work on the flagship building for
LandFlex, Empress State Building in
Earls Court, SW6. Representing a
dramatic element of West London’s
skyline the 43,000m2 building is
being extensively refurbished and
extended and will be surrounded by
landscaping incorporating a new
piazza. The entire building is being
reclad and the existing floor plates
extended five metres on one elevation
to increase floor plates to 1,400m2.
On the top of the building three glass-
clad storeys are being added, creating
spectacular penthouse offices and
accommodation for exhibition, office
and corporate functions. Above this a
circular revolving top floor will house
a bar with panoramic views across
London for the use of the occupants.
making space work . . .
Land Securities’ product development team.
LandFlex™
During the last 12 months we have
been advancing our proposals for a
new leasing product for London
offices, which we have called
LandFlex. The LandFlex product is
designed to meet occupiers’ desire for
certainty of cost and flexibility in
terms of lease length. The product
anticipated the recently introduced
Code of Practice on Commercial
Leases.
From the occupier’s point of view,
LandFlex offers: a range of lease
lengths with the possibility of options
to break or options to renew on pre-
determined terms; rent reviews on the
basis of RPI rather than conventional
market rent reviews; and a rent that is
inclusive of normal landlord’s
services, repairs and liability for
dilapidations upon lease termination.
From Land Securities’ perspective,
LandFlex will offer enhanced earnings
through premium rents and the
ability to extract and share in any
procurement benefits arising from
the scale of our operations and
buying power.
The LandFlex product will not be
rolled out across all our existing
London portfolio, but only on
buildings specifically refurbished for
this purpose. In late 2001, Land
Securities Development placed
contracts for the refurbishment and
extension of two such buildings.
The first is Empress State Building, a
43,000m2 31-storey tower building in
Earls Court, SW6. This building is due
for completion in summer 2003.
The second building is 7 Soho Square,
W1, which is also being refurbished
and extended to provide approximately
5,700m2 of offices with completion
in December 2002. As these buildings
are let we plan to expand the LandFlex
offer to around 140,000m2 of offices
within the next three to five years.
1 2 | 1 3
Portfolio Management
Almondvale shopping centre
Our retail space in Livingston, which includes the
Almondvale Centre, approaches 100,000m2
equivalent to a regional shopping centre.
The lights at Piccadilly Circus
Land Securities owns the building upon which
the Piccadilly lights are located which generate
in excess of £2.5m of income per annum.
Eastbourne Terrace
In 2000 we acquired an office
building at 10-30 Eastbourne Terrace
and last year purchased the adjacent
building, 40-50 Eastbourne Terrace.
This 13,310m2 office building
with four retail units provides a
development opportunity with the
potential to increase its floor area
once the current leases expire in June
2003. Together the buildings give us
a frontage in excess of 300 metres
opposite Paddington Station.
Portfolio Management
Each of our core areas of focus have
dedicated portfolio management
teams who are responsible for
managing the investment portfolio
with the objective of maximising
returns by creating additional value, as
well as looking for new opportunities.
St David’s Centre, Cardiff
Ongoing property management at the
St David’s Centre, Cardiff, is focused
on enhancing the existing retail offer
while we continue to develop our
plans for a significant extension in
partnership with Capital Shopping
Centres. During the year we acquired
the Bhs store in Queen Street, Cardiff,
which backs on to the principal mall.
As well as having a rear frontage into
the mall, the store occupies a 100%
prime frontage on to Queen Street
and consolidates our holdings at the
front of the Centre. It was acquired for
a little under £25m to show a yield
of 6.25%.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
INVESTMENT PORTFOLIO
PERFORMANCE RELATIVE TO IPD
UNGEARED TOTAL RETURNS – LONG TERM (Table 1)
Periods to 31 March 2002
Land Securities
IPD*
IPD* Upper quartile
10 years
%
19 years
%
12.3
10.8
11.4
11.4
10.2
11.0
*IPD All Fund Universe March 2002 (unfrozen)
Source: IPD
UNGEARED TOTAL RETURNS – ONE YEAR (Table 2)
12 months to 31 March 2002
Land Securities
%
2.8
7.6
7.7
9.0
5.4
IPD*
%
6.1
6.9
7.9
8.1
6.8
Offices
Retail
Industrial
Other commercial
PORTFOLIO
*IPD All Fund Universe March 2002 (unfrozen)
Source: IPD
INVESTMENT PORTFOLIO
NET ANNUAL RENT ROLL
Year ended 31 March 2002
Offices – Central and Inner London
£221.8m | 45.8%
Offices – elsewhere in the UK
£8.3m | 1.7%
Central and Inner London shops
£41.6m | 8.6%
Other in town shops
£37.3m | 7.7%
Shopping centres
£78.9m | 16.3%
Retail warehouses and food superstores
£56.1m | 11.6%
Industrial premises and warehouses
£23.9m | 4.9%
Hotels, Leisure and Residential
£16.2m | 3.4%
*The figures in the chart exclude developments which
are producing less than 50% of their anticipated
income
Total £484.1m*
making acquisitions work . . .
Review of activity
Performance benchmarking
Table 1 above compares Land Securities’ ungeared total property return over the
last ten-year and 19-year periods to 31 March 2002 to the IPD All Fund
Universe March 2002, which comprises the same portfolios that contributed to
the IPD All Fund Universe in December 2001 (many of these funds are now
valued quarterly by IPD, while the others were extrapolated forward). It can be
seen that Land Securities’ portfolio has out-performed and produced a return
which places it in the top quartile of contributing portfolios over these two time
periods. The 19-year period has been selected as the longest time period over
which IPD provide comparative performance figures.
Table 2 above compares the performance of the Group’s portfolio to that of IPD
on a similar basis at both sector and total portfolio levels over the 12-month
period to 31 March 2002. Our sector focus means that the structure of the
portfolio will impact adversely in some individual years, and this has been the
case with our high exposure to offices over the last 12 months. It is also the case
that our London office portfolio has under-performed, largely because of
development schemes and other properties with short income profiles.We believe
that in the medium and long term our chosen areas of sector focus will deliver
superior performance and that our development activity will also boost returns.
The generation of rental income growth
Over the last 12 months growth in annual rents payable has been 5.6% on a
like-for-like basis. Rent reviews have been settled at an average of 10% above
our valuers’ assessment of ERV. This highly satisfactory result is, at least in part,
attributable to our active management of multi-tenanted holdings which has
driven rental values forward.
Investment activity – purchases
The level of investment portfolio purchases over the last 12 months was modest as
we implemented our strategy of increasing the proportion of capital invested in our
development activities and in Land Securities Trillium.We acquired seven investment
properties for £144.6m. Five of these properties adjoin properties we already
own and offer varying degrees of potential synergies with the existing holdings.
The average yield on these purchase outlays (including the cost of stamp duty
and acquisition fees) was 7.0%.
Investment activity – sales
Over the last 12 months, we sold 44 investment properties for £508.9m (net of
sale costs). This is the highest value of sales undertaken by Land Securities in a
single year and reflects the extent of the portfolio rationalisation which has
been undertaken. The average yield on the properties sold was 8.0%. The FRS3
profit on investment property sales was £10.1m.
The most significant sale, and the Company’s largest-ever single investment
property transaction, was the disposal of six shopping centres in Ballymena,
Newtownards, Irvine, Keighley, Walsall and Bootle, virtually completing our
disinvestment from shopping centres in smaller towns. Only five of these have
been recorded as a sale during our 2001/2002 financial year as the sale of the
shopping centre in Bootle is conditional upon obtaining freeholder’s consent.
1 4 | 1 5
Portfolio Management – Review of Activity
INVESTMENT PORTFOLIO
VALUATION BY TYPE
At 31 March 2002
Offices – Central and Inner London
£3,457.2m | 44.3%
Offices – rest of UK
£95.7m | 1.2%
Central and Inner London shops
£683.5m | 8.8%
Other in town shops
£566.1m | 7.2%
Shopping centres
£1,278.6m | 16.4%
Total £7.81bn
Total £7.81bn
Retail warehouses and food superstores
£995.3m | 12.7%
Industrial premises and warehouses
£375.4m | 4.8%
Hotels, leisure and residential
£359.2m | 4.6%
INVESTMENT PORTFOLIO
VALUE BY LOCATION
At 31 March 2002
% figures calculated by reference to a total
portfolio value of £7.81bn
Central and Inner London
£4,380.3m | 56.2%
Rest of South East and Eastern
£999.0m | 12.7%
Midlands
£479.7m | 6.1%
Wales and South West
£459.2m | 5.8%
North, North West, Yorkshire and Humberside
£955.9m | 12.3%
Scotland and Northern Ireland
£536.9m | 6.9%
We also disposed of 17 high street shops for total net proceeds of £60.6m. The
town centre retail portfolio outside London is now almost wholly focused upon
shopping centres in larger towns or cities, which we anticipate will make a
stronger contribution to earnings growth in the future.
During the year, we also sold £106.9m of Central London offices comprising
eight smaller or more secondary properties. We also sold our largest office
holding outside London, a building in Uxbridge, for just under £50m; the sale
was completed in April 2001 before demand for Thames Valley offices
weakened.
From our out-of-town retail portfolio we sold three supermarket investments
and a stand-alone retail warehouse for £60m.We also sold eight industrial
properties for £31.9m, all except three of which were located outside the
south-east. We now have only four industrial property holdings located outside
the south-east.
As a result of the sales programme undertaken over the last few years, non-core
holdings of offices outside London and industrial properties outside the
south-east and eastern regions account for less than 2% of total portfolio value.
London offices and retail
The London office market experienced a sharp reduction in the take-up of
accommodation by occupiers during the second half of 2001, a trend which
was already evident before 11 September. Reduced demand has been
accompanied by an increase in the amount of space being marketed by
occupiers which now accounts for over half of the total vacant office
accommodation in Central London.
Although the weakness of the occupier market has increased availability levels,
the pipeline of speculative development in the West End continues to be small.
In the City, however, it is slightly higher. Our own portfolio void levels for
London offices are 0.7% across the investment portfolio and 2.6% overall,
including the development and refurbishment schemes either recently
completed or due for completion in 2002. These void levels are low both from
an historical perspective and as compared to current average void levels in this
market, which are generally considered to be between 6% to 8%.
During the year we acquired a recently refurbished property in Wood Street,
EC2 for just over £30m, providing an initial yield of 7.72% and a reversionary
yield in excess of 8.0%, and a 7,770m2 property at 190 High Holborn, WC1 for
approximately £30m. The latter was subject to a short leaseback to the vendor
and is now being refurbished. Two further purchases made during the year offer
significant development opportunities in the medium term. The first was a
mixed office and industrial holding at Bankside in Southwark SE1, which is
adjacent to our existing holding and proposed development at St Christopher
House; the second a 13,310m2 building, 40-50 Eastbourne Terrace, Paddington
W2, which is adjacent to our existing holding at 10-30 Eastbourne Terrace.
The most significant rent review settlement over the last 12 months was on
Eland House SW1, where the increase in rent is in excess of £5m per annum.
We have also established significantly higher rental values on our retail holdings
in Victoria Street SW1, through negotiating surrenders and relettings, moving
retail rental values ahead by over 25%.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
making resources work . . .
During the year we started to examine the feasibility of introducing external
investors into a fund or limited partnership comprising the major part of our
holdings in Victoria. The properties provide an ‘estate’ of 5.2 hectares, which
can be managed as an estate in a unified way that will support ongoing rental
growth. We are exploring ways of matching our desire for long-term ownership
and extensive redevelopment with the aspirations of third-party investors.
The level of our investment in Victoria is likely to remain broadly constant, with
our future expenditure on the Stag Place development being balanced by the
introduction of new capital through the partnership.
Shopping centres and shops
The UK retail sector has had a buoyant year with strong growth in retail sales
volumes and, in general, increasing levels of profitability for retailers. Rental
growth across the sector was modest which, in our opinion, has resulted in a
much lower proportion of retailers being stretched by prevailing rental levels.
We view this as creating a good platform for ongoing rental growth.
Our retail portfolio has been significantly repositioned as a result of the sales
undertaken over the last year, which are described on page 14. Subject to a small
number of exceptions, which are not material in terms of value, the portfolio
is now concentrated on larger conurbations, and predominantly on shopping
centres as opposed to individual high street shops. Shopping centres offer
excellent opportunities for active management to enhance both value and the
retail environment for shoppers.
We acquired properties within or adjacent to our existing retail holdings in
Cardiff, Sunderland, Aberdeen and Exeter for a total of £37m.
In terms of asset management, we have had an extremely active year across the
retail portfolio. This is exemplified by initiatives at The Bridges shopping centre
in Sunderland. Following the extension to the scheme, which was completed
and let in 2000, we have taken advantage of the increased critical mass of the
centre to drive performance within the original phase I of the scheme. Over the
last 12 months, we have negotiated the surrender of six leases, granted ten new
leases and introduced five new retailers to the centre that were not previously
represented in the city. We have also facilitated new shop fits in 14 units and
introduced leases with a turnover element to eight of the units in phase I on
a basis consistent with the leases granted on phase II. In addition, we have
introduced a system to record retail sales which will both deepen our
relationship with retailers by the sharing of daily turnover information and
assist in focusing the promotional activity at the centre. The result of these
various initiatives has been to increase footfall by 12% and top rents in phase I
of the scheme by 12.5%.
Retail warehouses
Retail warehousing has enjoyed some of the highest levels of rental growth
within our portfolio. It has also benefited from strong demand from institutional
investors, particularly since the start of the current calendar year.
We purchased the Nene Valley Retail Park in Northampton for just over £30m to
show an initial yield of 7.0% and a nominal equivalent yield of 7.5%. The park
provides 13,700m2 arranged in ten units and benefits from a planning consent
for open A1 use. It forms part of the town’s largest area of out-of-town retailing
comprising some 40,000m2. Since completing the acquisition at the beginning
of the calendar year, we have let the one vacant unit at a rent in excess of 10%
above the rental value estimated at the time of purchase.
1 6 | 1 7
Portfolio Management – Review of Activity
Racecourse Retail Park, Aintree
Horizon Point, Hemel Hempstead
Team Valley, Gateshead
Industrial premises and warehouses
Despite the severe decline in manufacturing output over the last 12 months,
warehouse and industrial rental values have remained stable. This is consistent
with the fact that the majority of investment grade property in this sector
represents warehousing rather than manufacturing activity and, particularly
in the south-east, is more closely aligned with distribution rather than
manufacturing. With our sales programme continuing to focus on the disposal
of properties outside the south-east, we now have just under 90% of our
industrial and warehouse portfolio located in our core area of focus.
Our strategy for increasing our industrial and warehouse holdings in the
south-east is primarily via the acquisition of sites for development. This is
covered in the Development Review.
Our asset management activities were effective in generating additional rental
income and minimising void levels which were kept down to 1.3% on the
investment portfolio.
Similarly, at the Almondvale Retail Park in Livingston, which we acquired in the
first quarter of 2001, we have now taken a surrender of the lease of a unit and
relet it at £172 per m2, thereby moving rental values on the park some 20%
ahead of the level estimated at the time of purchase. This also benefits our other
two retail park holdings in Livingston.
We are continuing to introduce new retailers to Retail World, Team Valley in
Gateshead. We have agreed terms whereby MFI downsize their unit from
5,100m2 to 2,050m2 and have prelet the majority of the surplus space to Courts
at £237 per m2. Other lettings on the park have continued to push rental values
ahead to £242 per m2 for smaller sized units.
In addition to the larger scale development activity covered in the Development
section of this report, we are undertaking smaller scale development or partial
redevelopment schemes within a number of our retail parks. For example, we
have recently obtained planning consent, on appeal, for a 3,110m2 extension to
our retail park in Bexhill. At Chesterfield we are also constructing a 1,400m2
unit for PC World as an extension to our existing retail park.
The asset management activity is not limited to our retail parks. Over the last
year, we have particularly focused on the potential for asset management
opportunities on stand-alone units. During the year, we concluded an agreement
for a 1,400m2 extension to a J Sainsbury supermarket in Hull. We also
negotiated surrenders on two stand-alone retail warehouse units in Sheffield
and Hendon in North London. In both instances we plan to refurbish the units
substantially and are currently negotiating relettings at higher rents.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
making regeneration work . . .
1 8 | 1 9
Development
Land Securities Development has one of the most extensive development
programmes in the UK. We are one of the few organisations with the
financial strength and human resource expertise to undertake a
programme of this scale. This competitive advantage has been recognised
by local authorities and, more recently, the BBC, where our combined
outsourcing and development offer provided a compelling one-stop-
shop solution.
The programme reflects the focus of our investment portfolio but we also
seek to enter into other opportunities where we can see the potential to
create higher returns for shareholders. This is demonstrated by our activity
in Kent Thameside where we are master-planning the development of one
of Europe’s largest regeneration schemes.
M i ke G ri ffi t h s
Below
Kent Thameside project control group.
Opposite top
Portman House interior, Oxford Street, London W1.
Opposite bottom
Soho Square, London W1.
Exeter development team
making innovation work . . .
leading national and international
centre not only for business and
commerce, but also for culture,
sport and recreation.
We intend to make a planning
application during the autumn.
As part of this process we have
recently commenced a major public
consultation exercise involving the
wider community to ensure our
proposals fulfil the needs of both
our occupiers and their customers.
St David’s Centre, Cardiff
We believe that partnerships, where
we work together with others to
deliver a shared vision, can create
added value for the benefit of all
stakeholders. Working in partnership
helps us to participate in larger city
centre schemes, bringing together a
diverse but complementary range
of mixed uses and releasing latent
value. At the same time we are also
spreading our exposure to risk.
The principles and benefits of
partnership are well illustrated in
Cardiff where we are working with
both the County Council and adjacent
property owners. Last November, in
partnership with Capital Shopping
Centres, we were invited by the
Council to progress proposals for a
retail-led mixed use extension
of up to 70,000m2 to our existing
St David’s Centre. This is an exciting
opportunity to build upon and
consolidate Cardiff’s potential as a
2 0 | 2 1
Exeter (see left)
We now find ourselves in an era
where mixed-use urban regeneration
is being actively encouraged in city
centres to promote 24-hour living.
Our objective in Princesshay, Exeter is
to lead the way by adopting a fresh
and innovative approach to urban
design and architecture.
Following our decision to withdraw
from the November 2000 planning
inquiry, we embarked upon a
complete overhaul of our previous
proposals and, in March 2002, we
submitted a detailed planning
application for a new 37,520m2 mixed
use scheme. The proposals have been
drawn up by three leading UK
architectural practices and an urban
landscape design practice. The
development will incorporate a
department store, 55 large, medium
and standard retail and catering units,
104 residential units, basement
heritage centre, tourist information
BBC White City
In partnership with the BBC we are
developing a major new facility at
White City. The first phase,
comprising 50,400m2 of office and
technical space, is now under
construction with overall completion
expected in May 2004. We are
refining the master-plan for the site
with the BBC and developing
proposals for further mixed use.
Facilities management will also be
provided, the cost of which will be
included as a part of the overall
unitary charge.
Development
Our plans were submitted after an
extensive period of consultation with
the local residential and business
communities. We believe that our
investment in the redevelopment of
St Christopher House will contribute
to the emerging local tourist and
business economy.
centre and a 300-space multi-storey
car park.
Essential characteristics in promoting
a successful planning application have
been teamwork and the consultation
process, which go hand in hand.
The former has been critical in
uniting all stakeholders to achieve a
common objective within a specified
programme. The latter has enabled
early and regular contact to be made
with English Heritage, CABE, local
amenity groups and the public to
ensure that our vision conforms as far
as possible to local and national
aspirations for good quality designs
and architecture.
St Christopher House
Our commitment to ensuring long-
term sustainability of our
developments can be seen through
our proposals for St Christopher
House. These aim to maximise the
potential of Bankside’s heritage and
integrate the new development both
physically and economically within
its environment. The infrastructure
improvements in the vicinity such
as the Jubilee Line extension are
creating a location that will help
deliver further regeneration and
vitality in Bankside.
The proposed scheme will replace the
existing 1960s 13-storey office blocks
and adjoining Tabard House, which,
together, act as a barrier to the Tate
Modern and have restricted the
momentum of regeneration to this
key area.Vibrant public spaces are
proposed as well as new links
between Southwark Street and Tate
Modern to the Thames.
The Gate, Newcastle
The Gate demonstrates the positive
economic impact of our activities in
the rejuvenation of cities in the UK.
Adjacent to the Grainger Town area of
Newcastle, our 17,770m2 city centre
leisure scheme is already acting as a
catalyst for new investment and has
attracted major leisure operators such
as Tiger Tiger and Odeon Cinemas.
The development has created more
than 450 construction jobs and when
open in late November 2002 will
provide full- and part-time employment
for more than 300 people.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
Development schedule
During the year under review we completed some 87,030m2 of the
development programme. The most significant projects were Portman House
W1, which is now 70% let and Martineau Place, Birmingham, which is 97% let.
Completed developments have produced a total surplus of £28m, over the
period of development, which is mostly attributable to the aforementioned
schemes. However, the overall contribution to the valuation results for the year
from the development programme was negative, primarily as a result of a
reduction in values on our ongoing London office development projects.
Last year we reported a development programme with an estimated capital
expenditure of £2bn exclusive of interest and the book values of those
properties in our portfolio prior to assembling the programme. This included
£49m in respect of projects completed in the year ended 31 March 2001 and
now removed from the programme. After excluding trading properties, the
White City development for the BBC and the Eastern Quarry and Ebbsfleet
holdings in Kent Thameside, the estimated equivalent capital cost of the
programme set out in the schedules below is approximately £2.2bn, which
includes capital both expended and to be expended. Of this figure £149m
relates to the completed projects listed in each of the first sections of the
schedules and £745m to those projects in progress listed in the second sections.
The balance of £1.3bn relates to expenditure on the proposed developments.
The outstanding expenditure of some £1.6bn required to complete the
programme will be spread over a number of years.
Including our share of joint ventures, the programme set out in the following
schedules would provide approximately 829,210m2, of which 260,160m2 is in
progress and 462,860m2 is proposed. The sector split of these schemes is:
240,290m2 of new shopping development
300,380m2 of Central London offices
49,570m2of regional offices
24,790m2 of leisure
62,600m2 of retail warehouses
151,580m2 of industrial premises and warehouses.
making projects work . . .
CENTRAL LONDON
Property
Developments completed
Portman House, W1
Developments in progress
30 Gresham Street, EC2
Empress State Building, SW6
7 Soho Square, W1
190 High Holborn, WC1
Proposed developments
New Fetter Lane, EC4
St Christopher House, Bankside, SE1
Stag Place, SW1
40–50 Eastbourne Terrace, W2
RETAIL
Developments completed
Designer Outlet Shopping Centre, Livingston
Joint ownership with BAA McArthur Glen
Martineau Place, Birmingham
The Birmingham Alliance – a limited
partnership with Hammerson plc and
Henderson Global Investors
6/16 Market Square, Sunderland Phase II
Developments in progress
New Bull Ring, Birmingham
The Birmingham Alliance – a limited
partnership with Hammerson plc and
Henderson Global Investors
Whitefriars, Canterbury
2 2 | 2 3
Description
Size
Planning status
Estimated/actual
completion date
Offices
Retail
Offices
Retail
Offices
Retail/Leisure
Offices
Offices
Offices
Retail/Leisure
Offices
Retail/Leisure
Offices
Retail
Offices
Retail
Leisure
Retail
Retail
Retail
9,330m2
1,740m2
36,330m2
1,300m2
40,210m2
2,770m2
5,720m2
7,630m2
56,410m2
6,410m2
69,580m2
7,170m2
50,170m2
7,800m2
25,000m2
18,910m2
7,880m2
17,420m2
1,840m2
110,000m2
Permission received
Application submitted
Minded to grant
Oct 2001
Dec 2003
June 2003
Dec 2002
Sept 2002
2006
2006
2005
2005
Oct 2000
Dec 2001
Dec 2001
Sept 2003
Retail
+ Residential
37,220m2
Aug 2005
Cost
£m
44
208
99
7
41
36
15
3
141
98
(cid:2)
(cid:2)
(cid:2)
(cid:3)
RETAIL (continued)
Property
Proposed developments
Caxtongate Phase III, New Street, Birmingham
Broadmead, Bristol
The Bristol Alliance – a limited partnership
with Hammerson plc, Henderson Global
Investors and Morley Fund Management
Princesshay, Exeter
Plymouth
Coppergate Centre, York, Phase II
St David’s, Cardiff –
A partnership with Capital Shopping Centres
RETAIL WAREHOUSE
Developments completed
Aintree Racecourse Retail Park, Liverpool
Phase I
Phase II
Developments in progress
Kingsway Retail Park, Dundee, Phase I
(cid:3) Almondvale Retail Park, Livingston, Phase I
(cid:3) Cheetham Hill, Manchester
Lakeside Retail Park, Thurrock
Proposed developments
Kingsway Retail Park, Dundee, Phase II
Almondvale Retail Park, Livingston, Phase II
INDUSTRIAL
Property
Developments completed
Neptune Point, Ocean Park, Cardiff
Juniper Phase I, Basildon
Refurbishment
Horizon Point, Hemel Hempstead Phase I
Developments in progress
Zenith, Basildon
Cobbett Park, Guildford
Welwyn Garden City, Site B
Proposed developments
Hemel Hempstead, Phase II
(cid:2) Commerce Way, Croydon
Juniper Phase II, Basildon
OTHER
Developments in progress
The Gate, Newcastle upon Tyne
TRADING STOCK
Developments completed
Crossways Business Park
Developments in progress
Coldhams Lane, Cambridge
Proposed developments
(cid:2) Crossways Business Park
£m refers to estimated capital expenditure excluding finance costs.
Fully let or agreed to be let.
Part let or agreed to be let.
Added or significantly changed during 2001/2002.
Development
Description
Size
Planning status
Estimated/actual
completion date
Cost
£m
Retail
Retail
Leisure
Offices
+ Residential
Retail
+ Residential
Retail
Retail
Leisure
Offices
+ Residential
Retail/Leisure
Offices
+ Residential
Minded to grant
2,490m2
79,160m2
3,670m2
13,750m2
37,520m2
Application submitted
Minded to grant
Planning inquiry
3,040m2
24,260m2
2,160m2
1,100m2
Up to 70,000m2
Retail
Warehousing
Retail warehousing
Retail warehousing
Retail warehousing
Retail warehousing
Retail warehousing
Retail warehousing
9,650m2
2,790m2
9,760m2
8,360m2
9,280m2
4,090m2
9,290m2
9,380m2
Minded to grant
Permission received
2003
2007
2007
2004
2006
2008
Sept 2001
Mar 2002
Mar 2003
July 2002
June 2002
Aug 2002
2003
2003
11
34
14
7
7
Description
Size
Planning status
Estimated/actual
completion date
Cost
£m
Industrial
Industrial
Offices
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
5,760m2
21,820m2
3,660m2
10,380m2
15,150m2
11,410m2
3,820m2
13,010m2
12,870m2
11,150m2
Permission received
Application submitted
Sept 2000
Nov 2001
Mar 2002
May 2002
June 2002
May 2002
2003
2003
2003
Leisure
17,770m2
Nov 2002
Offices
Industrial
Industrial
Offices
Industrial
5,070m2
14,940m2
12,670m2
36,300m2
18,600m2
Outline permission
received
Dec 2001
Mar 2002
June 2002
2003-2008
2003-2004
4
20
16
12
12
2
63
13
11
7
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
CENTRAL LONDON OFFICE/SHOPS
Maturity of development costs
SHOPPING CENTRES
Maturity of development costs
£m
500
450
400
350
300
250
200
150
100
50
0
Empress
State
Gresham St
St
Christopher
Hse
New Fetter
Lane
Stag
Place
Eastbourne
Terrace
Portman
Hse
190 High
Holborn
Soho Square
£m
500
450
400
350
300
250
200
150
100
50
0
York
Bristol
Cardiff
Canterbury
Exeter
Caxtongate III
New
Bull Ring
Sunderland
Martineau Place
Plymouth
2001/2
2002/3
2003/4
2004/5
2005/6
2006/7
or later
Years
2001/2
2002/3
2003/4
2004/5
2005/6
2006/7
or later
Years
These charts show development costs, excluding finance charges, in the year of anticipated practical completion
making development work . . .
Review of activity
We have included on pages 22 and 23 full details of the projects included in our
development programme. In this review we set out highlights of the substantial
progress we have made to implement this programme during the year. Through
each of the stages of site assembly, planning, negotiating agreements, placing
building contracts, implementation and letting, we seek to minimise the risks
involved and increase the returns generated by this activity.
Central London
Of our development programme, 56% is in Central London where we are
developing or proposing to develop a total of 291,050m2 of office
accommodation and 25,450m2 retail/leisure space. A large proportion of
this comprises substantial office buildings with associated ground floor retail.
In the year under review we achieved planning or minded to grant consents
for a total of 163,770m2 of office, retail and leisure space at Empress State
Building, New Fetter Lane and Stag Place,Victoria. We have a total of 93,960m2
of development in progress. We also applied for planning permission for a
76,750m2 scheme at St Christopher House, Southwark (page 21). During the
year we completed 11,070m2 of new development and refurbishment and
agreed lettings of £4.3m.
Many of the buildings we are developing have floor plates in excess of 4,500m2
which we believe match the demands of the modern occupier, whose
accommodation requirements are being driven by continual advances in
technology. With little speculative development underway in Central London,
we can use our financial strength to progress our development programme so
that we have high-quality buildings ready for occupation when new supply is
limited. However, it is unlikely that we would progress schemes such as New
2 4 | 2 5
Fetter Lane or St Christopher House without having significant pre-lettings in
place. We are also creating space to incorporate Portfolio Management’s LandFlex
product, in two properties, Soho Square and Empress State Building, as well as
starting a major development at White City for the BBC (page 21).
Retail
We continue to make good progress with our urban regeneration programme.
Working in close collaboration with local authorities and communities we are
committed to creating vibrant metropolitan centres. We are focusing our efforts
on dominant locations that we believe will offer opportunities for providing the
best returns.
We have completed a total of 19,260m2 of new retail space in Sunderland and at
Martineau Place, Birmingham and secured a total of £6.7m of rental income.
We have a further 147,220m2 in progress in Canterbury and at the Bull Ring,
Birmingham. We have 40% of the anticipated income at the Bull Ring secured or
in solicitors’ hands. Martineau Place and the Bull Ring comprise part of our
holdings in the Birmingham Alliance limited partnership.
We are also in the early stages of planning a further 166,580m2 of urban
regeneration in Cardiff and Bristol. At the former, we were pleased to be
selected, in partnership with Capital Shopping Centres, as partners with Cardiff
County Council on this major retail-led project (page 20). At Bristol, we have
now concluded our negotiations with the City Council and are progressing our
plans in partnership with Morley Fund Management, Hammerson and
Henderson Global Investors.
We are making excellent progress at Canterbury where the early phases of
archaeology and development have been completed. We also recently unveiled
Development – Review of Activity
our new plans for Exeter, which have been well received (page 21), and we
expect the planning application to be resolved in late July 2002. While we are
disappointed that the public inquiry at York continues, this delay is mitigated by
the high income yield from our holdings on the site.
Retail warehouses
During the year we completed 12,440m2 of retail warehouse development
which were entirely prelet. We have also started work on a further 31,490m2
and have planning or minded to grant consent for 18,670m2 of additional
development. We have a total of £7.5m of income secured or in solicitors’
hands. We started on site on phase I at Dundee and at West Thurrock, Livingston
and Cheetham Hill in Manchester. All of the units under development have been
prelet or terms have been agreed and are in solicitors’ hands.
Leisure
We are making good progress at ‘The Gate’ in Newcastle upon Tyne. Our
17,770m2 city centre leisure scheme is expected to open on schedule. Our
preletting to Odeon Cinemas and other lettings total 9,320m2, together with a
further 890m2 in solicitor’s hands, these account for 52% of the anticipated
income.
Industrial premises and warehouses
We continue to refocus the industrial portfolio on the south-east and increase
our exposure to this market with a development programme of over
100,000m2. We completed 35,860m2 at our schemes in Basildon and Hemel
Hempstead, started on site on 30,380m2 at Basildon, Guildford and Welwyn
Garden City, and have a further 37,030m2 in the pipeline. We have a total of
£2.5m of income secured or in solicitors’ hands.
Kent Thameside
Following completion of the acquisition of Whitecliff in April 2001 we have
purchased a 50% interest in a further 153 hectares of land adjoining the
proposed Channel Tunnel Rail Link station at Ebbsfleet from Lafarge SA for
£13.2m. This site immediately adjoins our landholdings of 245 hectares in
Eastern Quarry and will enable us to optimise the master-planning of both sites.
It is anticipated that an outline planning application for Eastern Quarry will be
submitted by the end of 2002 and this, combined with Ebbsfleet, will give a
total development potential of up to 10,000 residential units and over
700,000m2 of employment, retail, leisure and other community uses. At
Stonecastle the first phase of residential development, in partnership with
Copthorn Homes, comprising 201 residential units has commenced. Sales are
progressing well and achieving values in excess of £2,152 per m2. Work on the
master-planning of the second phase of development is in hand. At Swanscombe
Peninsula, a development agreement has been entered into with Lafarge SA in
respect of their 154 hectares landholding. We have commenced initial master-
planning studies, which will lead to an application for planning in early 2003.
We continue to realise value from Crossways Business Park. A speculative
development of 14,940m2 of industrial/warehouse space, presold to the
Railways Pension Fund, was completed in March. Two units totalling 6,500m2
are either let or under offer at record rents of £83.40 per m2. During the year
we also sold 1.35 hectares of land to the O’Rourke Group.
At Coldhams Lane, Cambridge, construction of three industrial/warehouse units
will be completed during the summer and have been presold to the Railways
Pension Fund. A further part of the site has been sold for a leisure centre
and a car showroom. We have obtained planning consent on the balance for
an 80-bed hotel and expect to sell this later this year.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
making relationships work . . .
2 6 | 2 7
In November 2000 total property outsourcing became an integral part
of the Land Securities offer. The business case for a one-stop-shop
approach for the provision of property accommodation and related
services is compelling. Business and public sector organisations are
increasingly seeking ways to release capital, achieve flexibility in their
property commitments, reduce costs and focus on their core activities.
We offer alternative structures to the traditional landlord and tenant
relationship. Our confidence in this market has been endorsed by the
two contracts we won last year. We believe that our market leadership
position leaves us well placed to win further business as occupiers
increasingly recognise the benefits of such arrangements.
I a n E l l i s
Total Property Outsourcing
Below
Land Securities Trillium new business team.
Opposite top
Faraday Building, Queen Victoria Street, London
– a Telereal owned property.
Opposite bottom
Land Securities Trillium’s new reception at its
140 London Wall headquarters.
OVERVIEW BY CONTRACT SCOPE AND KEY FEATURES
Prime
BBC
Estates strategy
Asset management
Development
Management of facilities management services (FM)
Provision of FM Services
Management of capital works
Provision of capital works
Flexible occupation
Unavailability and performance penalties
Price predictability
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
BT
X
X
X
X
X
X
X
Property outsourcing
We provide total property outsourcing
to public and private organisations
to enable them to procure
accommodation in the same way
that they purchase other goods and
services. This enables organisations
to focus on their core activities
while leaving the delivery of
accommodation and associated
services in our hands. The need for
greater flexibility to meet changing
accommodation needs as well as
the desire for certainty of costs make
this a viable alternative for businesses
who are seeking alternative ways of
fulfilling their requirements.
As a market leader in property
outsourcing, we have developed the
capabilities to enable us to deliver
a first class solution for customers,
from the development of long-term
strategic solutions to the delivery of
service through our customer service
centres and our network of service
providers.
We work closely with our clients
to identify their requirements and
then to provide the solution. The
range of service we offer combines
the ownership and maintenance
of property, together with the
management of services provided by
service partners in the areas of
catering, cleaning and security.
We are also able to harness extensive
development expertise from within
the Group to design and build
accommodation where new facilities
are required by our customers.
Our approach to property outsourcing
is based upon achieving the highest
possible standards of service. Over the
last four years, Land Securities Trillium
has invested over £30m in developing
best-in-class customer service
capabilities that deliver 24-hour support.
Jobcentre Plus site at Chancel House, Neasden.
making accommodation work . . .
Facilities and business services managers meeting
in the North East region with a representative
from Service Partner, Eurest Sutcliffe.
2 8 | 2 9
Total Property Outsourcing
to ensure that, over time, the
relationship can be extended right
across the BBC’s portfolio. Already the
property partnership owns the
existing BBC site at White City, and
through Land Securities Development
is responsible for developing BBC
facilities at the six hectare site (see
page 21).
In addition, some 330 employees have
transferred from the BBC to provide
facilities management services across
the entire BBC estates in London and
Scotland, together with assuming
responsibility for construction and
capital projects works at BBC locations
across the UK.
The BBC Property Partnership
In 1998 the BBC outlined its future
property strategy which described
its vision to deliver a working
environment to attract and retain the
best people, support the business at an
affordable cost and be flexible as its
needs change. In order to deliver this
vision, and to fund the significantly
increased investment in property that
this strategy required, the BBC sought
to develop a property partnership
with the private sector. Following
an extensive bidding and evaluation
process, Land Securities Trillium was
chosen as the BBC’s partner and we
have entered into an agreement to
provide accommodation and services
to the BBC for a 30-year period.
The partnership with the BBC is
expected to grow and develop over
the years. While, at the outset, the
partnership has a clearly defined
scope of operation, its financial and
operating model has been developed
Edinburgh regional office provides an integrated property management service
for the PRIME and BBC contracts.
DWP modernisation project
One of our key tasks is to identify and
deliver a solution to each client’s
changing accommodation
requirements. Over the past year, we
have been working closely with the
Department of Work and Pensions
(DWP) to do just this. The DWP
established a new Pension Service and
formed Jobcentre Plus, and we have
been actively working to identify new
properties to enable these organisations
to meet their business needs.
For The Pension Service we delivered
in three months some 12,750m2 of
space to accommodate approximately
1,500 new staff. The fit out of the
properties included new open plan
office space, training rooms and a
new staff café facility. As part of a
second stage exercise we are also
locating and acquiring another six
new properties to house a further
2,500 staff. These amount to some
22,000m2 of office space and will be
ready for occupation between June
and September 2002.
In March 2001, we also became
involved in the DWP’s new business
concept, named Jobcentre Plus, to
deliver benefit and work interviews
in a combined location. This new
business model introduced a need
to offer an improved environment in
which to conduct interviews and
receive members of the public. We
were responsible for implementing
the design, delivery and management
of this project while at the same time
the DWP continued to deliver its
services to the public. Projects to the
value of approximately £16m were
delivered on schedule to allow the
opening of these new offices to the
public.
Building on the success of these pilot
sites, the DWP is now planning the
conversion of a further 1,000
properties around the country, and we
have been appointed to manage the
strategy for implementation of the
roll-out across the DWP portfolio over
the next four years.
Telereal
With BT’s decision to outsource its
property portfolio came the
announcement that 350 employees
from the BT property team were to be
transferred to the successful bidder.
When in March 2001 Telereal, the
joint venture partnership between
Land Securities Trillium and the Pears
Group, was selected, BT’s focus on the
reputation of the selected bidders as
an employer as well as the obvious
commercial imperatives of the deal
had a strong positive impact on the
people involved in this transfer.
A customer service representative at the
Customer Service Centre in Leeds, where customers
from BT and O2 call to report building faults and
to book conference rooms, touch-down desks
and car parking.
The employees would be moving
from a major corporate where property
was generally viewed as a distraction,
often diverting both capital and
management away from its core
business areas, to a business where
property is its core activity. While BT
Property enjoyed an excellent reputation
within the external property world, the
team had spent substantial management
time ‘proving’ its value internally.
For BT’s property team, the transaction
has presented an opportunity and they
are now part of a company where
there are improved career and personal
development opportunities.The benefits
for Telereal were that it gained a team
of property professionals with a wide
range of skills and in-depth knowledge
of the BT portfolio and business
which will prove critical in offering
a high quality service back to BT.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
LAND SECURITIES TRILLIUM
Employee Analysis
Asset Management
173
Call Centre
152
Capital Projects
305
Number of people
1,330
Quality Assurance
45
Facilities Management
478
HR/Finance/Information
Systems/Business Dev.
177
Northern Ireland
Telereal 130
Total 130
North England
PRIME 625
Telereal 1,072
Total 1,697
Midlands
PRIME 190
Telereal 767
Total 957
Total 7,564m2
LAND SECURITIES TRILLIUM
Regional Breakdown by Contract
000,m2
London and South East
BBC 338
PRIME 403
Telereal 2,385
Total 3,126
Scotland
BBC 32
PRIME 219
Telereal 496
Total 747
Wales and West
PRIME 214
Telereal 693
Total 907
BBC (cid:4)
PRIME (cid:4)
Telereal
making outsourcing work . . .
Review of activity
The year was one of significant activity and success for Land Securities Trillium.
Two major new contracts, with the BBC and BT, were won and mobilised.
This success has generated further interest in total property outsourcing from
all sectors of the economy.
We entered into our partnership with the BBC in September 2001, which
included the transfer of some 330 BBC employees into the Group, and are
now managing and servicing 320,000m2 of accommodation in Scotland and
London. As part of the transaction, the existing White City property and land
assets have been transferred to the partnership property vehicle which we have
consolidated in these financial statements. This has generated cash for the BBC to
invest in its core business of programme making. We are making good progress
on the White City development (page 21).
We continue to work with the BBC to develop further the scope of this contract
and have prepared business cases for additional buildings on the White City site.
We have also submitted our views on the Broadcasting House scheme in London
and the proposed new Scottish Headquarters in Glasgow for consideration.
In December we announced that Telereal, a 50:50 joint venture with the Pears
Group, had completed its agreement with BT for the £2.38bn acquisition of the
majority of the BT property estate. The transaction was financed by a £1.8bn
asset-backed securitisation, £400m of bank debt and £146m of equity from
each of the joint venture partners. The estate comprises 6,700 properties with a
total floor space of 5.5m m2, 90% of which is freehold or valuable leasehold,
with 10% short leasehold. Under the terms of the 30-year agreement, Telereal is
responsible for providing accommodation and estates management services to BT.
3 0 | 3 1
Early this year the BT in-house corporate property team transferred to Land
Securities Trillium Telecom Services Limited. These employees are now dedicated
to delivering Telereal’s service to BT under the terms of the contract with all
costs borne by the joint venture company.
We have also formed a second joint venture with the Pears Group,Telereal
Ventures, and entered into a contract with O2, formerly BTCellnet, to provide
strategic outsourcing services across the O2 (UK) property estate. The O2 (UK)
estate totals some 8,000 properties comprising offices, call centres, telecom
switches and cell sites, and warehousing. At this stage,Telereal Venture’s contract
with O2 (UK) does not include the acquisition of assets and is for an initial
period of 18 months. It is expected that the contract will generate income of
around £1.5m over its term.
We have made good progress in our objective of growing the business. At the
beginning of the year we were a single contract operation with some 600 staff
and we now have 1,330 staff operating across the entire country. The breadth of
skills and expertise within our business unit as set out in the chart above (left)
enables us to provide the complete accommodation solution to clients, and
together with our specialist service partners we are able to deliver service and
offer advice across the full spectrum of property issues.
This growth in our contract base has also seen the number of properties under
management increase to over 7,400 premises, amounting to 7.56m m2 in total.
In the chart above (right) we show the location of these properties broken
down by individual contract, demonstrating the national nature of our business.
(cid:4)
Total Property Outsourcing – review of activity
The mobilisation activity involved in the establishment of the Telereal and BBC
operations has required involvement from all aspects of our support
infrastructure. New employing companies are being created, trade union
relationships have been implemented and developed, reward and remuneration
schemes have been established, roadshows and training schemes have been held
for transferring staff, and new service partner relationships have been put in
place. At the same time, information systems have been implemented to ensure
that all aspects of our property outsourcing operation are able to communicate
with each other speedily, while at the same time ensuring that a consistently
high level of service is delivered to all our customers and clients across the
country.
Business and product development
Our existing property outsourcing contracts with the Department for Work and
Pensions (DWP), BBC and, through Telereal, with BT are performing well which
provides a sound platform for the development of further business with these
customers. Particular opportunities include the potential outsourcing of the
Employment Services estate and contract extensions with the BBC such as life
cycle works, facilities management for the remainder of the estate and new
developments at Broadcasting House and Pacific Quay.
The last year has seen a considerable increase in the level of interest in
outsourced property solutions as businesses seek to improve balance sheet
efficiency and returns to shareholders, achieve operating cost reduction, sustain
cash flow, streamline property-related head-count costs and achieve flexibility in
their property portfolios.
This has created new opportunities for Land Securities Trillium and we have
strengthened our new business team and marketing activities accordingly.
Particular focus has been given to targeting companies with the right mix of
characteristics to enable significant value to be created for both the company
and us. These characteristics include portfolio size, which allows economies of
scale to be created through integration with our operating cost infrastructure;
covenant strength combined with underlying property value; and dynamic
business change against which value can be derived from our flexible property
outsourcing model and estate management expertise.
Specific focus has been given to those sectors, which we see as being potentially
receptive to property outsourcing solutions. Our negotiations on deals with
several organisations within these sectors are developing well.
Within the public sector, we are looking to build on the success of the DWP
PRIME contract, which continues to perform very well. The Government’s public
private partnership programme and ‘best value initiatives’, which apply to all
local authority accommodation and property services, has created additional
opportunities.
Since each client’s requirements are different, and the property outsourcing
market continues to develop, we are constantly looking at new ways of
developing innovative solutions in property. To meet this need we have a
product development team that is currently working with our portfolio
management team on LandFlex. This team also works closely with our new
business team on specific projects for new clients to enable continuing
innovation to be made in our property outsourcing deals.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
Profit before interest and tax for the year to 31 March 2002 was £530.2m
(2001 £456.9m). This represents a 16% increase over last year and was driven
by four main factors:
• Rental income from the investment portfolio increased by 4.8% to £525.9m.
• We recorded a full year’s contribution from Land Securities Trillium, which
was owned for only four months in 2001.
• A £19.3m contribution to operating profits from Telereal which is our share
of its operating profits for the period since formation in December 2001.
(Telereal is a 50:50 joint venture with the Pears Group as described in the
Total Property Outsourcing Review).
• Profits of £4.3m from the sale of trading properties. This is a new activity
for us, following the acquisition of Whitecliff in April last year.
A n d rew M a c fa r l a n e
financial review . . .
At the pre-tax level, profits increased by 11.9% from £324.7m to £363.5m.
After capitalisation of interest on developments, total interest charges were some
£31.9m higher than last year, of which £24.6m is Land Securities’ notional
share of Telereal’s financing costs. Telereal’s debt of £2.2bn is non-recourse to
the Group. The underlying increase in interest reflects the cost of funding the
Group’s continuing investment programme. The Group’s gross interest payable,
excluding Telereal, was covered 2.98 times by operating profits compared with
3.03 times in the prior year and we remain in a strong financial position.
During the year, we sold investment and operating properties with a book value
of £510.4m (2001 £424.9m) generating an FRS3 profit of £13.4m compared
with £6.3m last year. Property disposals this year also crystallised revaluation
surpluses earned in prior years of £237.8m.
Profits after tax were £263.6m (2001 £234.6m), equivalent to a 12% increase
in basic earnings per share. The directors recommend a total dividend for the
year of 34.0p per share (2001 32.5p), a 4.6% increase. If approved, this will
result in a final dividend of 24.95p per share (2001 23.85p). At this level the
adjusted dividend cover is 1.52 times (2001 1.39 times).
The year-end portfolio valuation was some £100m lower, which represents an
overall reduction of 1.3% on the value of investment properties at 31 March
2001. This revaluation deficit has, however, been offset by £85.2m of retained
earnings and our share of revaluation surpluses in Telereal, resulting in an
adjusted diluted net asset value per share of 1155p compared with 1152p at
31 March 2001.
In terms of cash flow, the Group realised £549.2m (2001 £491.3m) from the
sale of properties.These funds have been reinvested and the Group spent £306.1m
on property acquisitions, £256.4m on development expenditure and invested
£146.4m in Telereal. Overall, there was a net cash outflow of £219.2m during
the year (2001 £95.4m) and net indebtedness at the year-end rose to £1,942.1m
(2001 £1,727.8m).Year-end gearing increased from 28.7% to 32.2%.
Over the last year, the Group’s pre-tax total return (that is the percentage
increase in pre-tax net asset value per share, adding back dividends) was 5.0%
compared with our estimated weighted-average cost of capital of 8.4%.
The shortfall was attributable to generally flat asset values as a result of market
conditions over the last year.
Accounting policies
This year’s accounts have been affected by a number of changes to accounting
policies and presentation.
In the accounts for the six months to 30 September 2001, two accounting
policies were changed to adopt Urgent Issues Task Force Abstract 28 (UITF28)
‘Operating Lease Incentives’ and FRS19 ‘Deferred Tax’. UITF28 requires lease
incentives (such as rent-free periods or contributions to fitting-out expenses) to
be treated as revenue costs. These are deducted from the contracted rent and the
resulting net income is then spread evenly over the lease term (or the period to
the first rent review if that is shorter). Previously, rent was only recognised from
the conclusion of any rent-free period and the cost of other incentives was
capitalised. The impact of this change is to increase gross property income in the
current and prior years by £3.5m and £3.2m respectively.
3 2 | 3 3
PERFORMANCE MEASURES
for the four years ended 31 March 2002
RENTAL INCOME ANALYSIS
14
12
10
8
6
4
2
0
%
1 year
2 years
3 years
4 years
Investment property
return
WACC
2000/01
(restated) 2001/02
£m
Increase
Properties owned throughout period
422.6
464.6
42.0
Sales (2000/01 and 2001/02)
Acquisitions (2000/01 and 2001/02)
67.8
11.2
27.7
33.6
501.6
525.9
Increase/(decrease)
Reviews and renewals
First lettings
Net relettings of voids
22.5
10.7
6.5
Average: For year Over 2 yrs Over 3 yrs Over 4 yrs
Total investment property return 5.1% 7.8% 9.7% 10.3%
Pre-tax weighted average cost
of capital 8.4% 8.6% 8.8% 9.1%
Voids for redevelopment
(2.5)
Other
4.8
42.0
FRS19 requires that deferred tax should be provided for, in-full, on all timing
differences that are not permanent. The FRS does not require (or indeed permit)
deferred tax to be recognised on the revaluation surplus. The Group’s previous
accounting policy had been to recognise deferred tax only to the extent that
liabilities or assets were expected to crystallise. The Group’s policy now is to
make full provision for timing differences, which arise primarily from capital
allowances. The effect of FRS19 is to increase the tax charge for the current and
prior years by £5.9m and £4.8m respectively. The provision for deferred
taxation at 31 March 2001 has been restated and increased by £121.7m.
Experience shows that FRS19 liabilities on the investment portfolio are unlikely
to crystallise in practice and these are excluded when calculating adjusted
earnings and adjusted net assets per share. FRS19 has no impact on the actual
taxes that we pay.
In May 2002, the Urgent Issues Task Force issued Abstract 34 (UITF 34)
‘Pre-contract costs’. This Abstract specifies the accounting treatment for the costs
of bidding for PFI-type contracts and is relevant to Land Securities Trillium.
UITF34 requires all contract costs which are not specifically dealt with by other
accounting standards and which are incurred before it is ‘virtually certain’ that
a contract will proceed, to be expensed as incurred. The Group’s policy used to
be to capitalise costs if it had been appointed as preferred bidder at the end of
a reporting period. As a result £14.7m of costs associated with the BBC and
Telereal contracts have been written off this year which would previously have
been capitalised. A corresponding prior year adjustment has also been made.
Finally, we have changed the Group’s accounting policy for interest charges and
the cost of financing some elements of development expenditure is now
capitalised. This brings the Group into line with its peers and, given the
increasing scale of the development programme, will give a better reflection of
our costs and surpluses from that activity. The Group’s policy is only to capitalise
interest associated with expenditure on development or redevelopment projects
from the start on site to practical completion. Details of the policy are set out in
Note 1 to the Financial Statements. It will be applied to all development
schemes, including Land Securities Trillium’s White City development for the
BBC, and the construction of trading properties. The effect of this change is to
increase reported pre-tax profits for the year to 31 March 2002 and 31 March
2001 by £21.1m and £11.3m respectively.
Further details of the effect of these various changes in accounting policy are set
out in Note 3 to the Financial Statements. The combined impact has been to
increase reported profits after tax for the year to 31 March 2001 by £1.5m and
to reduce net assets at the end of that year by £133.1m.
The Group has a defined benefit pension scheme. The scheme, which had gross
assets of some £77.6m as at 31 March 2002, is now closed to new entrants.
We will adopt FRS17 in full in 2004. New schemes will be set up to meet
obligations to employees transferring to the Group under property outsourcing
contracts.
In addition to these changes in policy, there are a number of changes to the
presentation of our financial statements. Our 50% investment in Telereal is
treated for accounting purposes as a ‘joint venture’. As a result, our share of
Telereal is included on the face of the Group’s profit and loss account, as a
separate column. In the balance sheet, our share of Telereal’s gross assets and
gross liabilities is shown as an expansion of the ‘investment in joint venture’
line. In addition, in Note 4 to the Financial Statements, we have expanded
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
INVESTMENT PROPERTY INFORMATION
at 31 March 2002
INVESTMENT PORTFOLIO ACTIVITY
Year to 31 March 2002
Shops and
shopping
Retail
centres warehouses
1.14
8.6
2.96
9.4
Offices
0.56
10.8
% rent roll
Industrial
1.28
5.5
Total
1.0
9.6
7.5
9.75
17.75
8.25
8.75
Voids by rental value
Net reversionary
Average unexpired
lease term (years)
Reversionary potential
Ignoring additional income from the letting of voids
Gross reversions
31 March
2001
31 March
2002
% of rent roll % of rent roll
17.1
11.5
Over-rented (2.5) (1.9)
Net reversionary
14.6
9.6
Retail/leisure
Offices
Acquisitions/
developments
Sales
269.7
319.4
201.8
157.5
Warehouses and Industrial
34.1
32.0
£m
FRS3
profit/
(loss)
4.3
2.9
2.9
505.6
508.9
10.1
financial review . . .
the segmental reporting to align more closely with our internal business unit
structure. Operating profits have been analysed between property investment,
total property services and property trading. Further information about the
value of assets in the development programme is provided in Note 14 to the
Financial Statements.
During the year we sold investment properties with a book value of £498.1m
(2001 £424.9m), at an average rental yield of 8.0%, and we have identified a
further £150m of assets as potential sales in the short-term, given acceptable
pricing. Thereafter, we expect annual investment acquisitions and disposals to
be broadly equal.
Portfolio management
Rental income increased by 4.8% from £501.6m to £525.9m, which has been
achieved despite the continuing rationalisation of the portfolio. Adjusting for
the effects of property acquisitions and disposals, rental income on properties
owned throughout the last two years increased by £42.0m. The main
contributors to this increase were £22.5m from reviews and renewals and
£10.7m from the letting of new developments. Some £40.1m of rental income
was lost on disposals offset by £22.3m from property acquisitions. The net
effect of reletting vacant space added a further £6.5m, which was partly offset
by a loss of £2.5m due to the emptying of buildings for redevelopment.
The cost of bad and doubtful debts was some £1.5m, which was less than
0.25% of the rent roll (2001 0.26%).
During the last 12 months, the net reversionary potential of the portfolio,
excluding voids, has reduced to 9.6% at 31 March 2002, compared with 14.6%
a year ago. This is largely the result of reversions secured during the year
through the settlement of reviews and renewals. There is now little significant
over-renting in the portfolio, and within the next five years the potential
shortfall is less than £3.1m of rental income in relation to renewals or options
to break in over-rented property. The average unexpired lease term over the
portfolio as a whole is 8.75 years (2001 10.25 years).
Development
The projects that comprise the current development programme are set out in
the development review. To be included in the programme a project must have,
or be close to obtaining, final approval to proceed (although that approval may
be conditional on the receipt of planning consent or obtaining an appropriate
level of prelets). Projects remain in the programme until they are 95% let.
The carrying value of development programme assets (excluding the
development for the BBC at White City and trading properties) was £1,050.1m
at 31 March 2002 (2001 £904.5m). During the year, we spent £325.4m on
development and capitalised associated finance costs of £19.9m. We added
schemes principally at Soho Square, High Holborn, Eastbourne Terrace and
Cardiff to the programme. Six projects with a book value of £137.6m were
completed during the year. We have temporarily removed the Martineau
Galleries scheme from the programme while we reappraise our plans for
this site.
The estimated future cash spend required to complete the current development
programme, excluding interest, the White City development for the BBC and the
project at Kent Thameside, will be some £1.6bn.
3 4 | 3 5
Land Securities Trillium
We reflected our first full year’s profit contribution from Land Securities
Trillium in 2002. This year, Land Securities Trillium (including our share of
Telereal) generated some 40% of the Group’s gross property income, and 12%
of our profit before interest and tax.
Revenue and profits from the PRIME contract have grown in line with
expectations and we carried out significant extra work at the request of our
customer which generated additional fees. On the BBC contract, won during the
year, we spent £50m on the construction of the White City 2 building with an
estimated £215m (excluding interest) to be spent over the next three years.
As anticipated, we have incurred a small operating loss on this contract, but
expect it to become profitable when the new building is occupied by the BBC.
In the year to 31 March 2002, Telereal has made a positive contribution to
earnings (before bid costs), and we expect its contribution to build over the
next few years. At 31 March, Telereal revalued its portfolio of investment
properties, as a result of which we have recognised a valuation surplus of
£46.8m, being our share of the uplift.
Taxation
The cash tax charge, equivalent to 26.4% (2001 26.9%) of revenue profit,
reflects the benefit of capital allowances from developments, refurbishments
and acquisitions. The requirement in FRS19 to make full provision for timing
differences means that in profit and loss account terms, our reported tax rate
is 27.2% (2001 27.7%). Telereal has a higher effective tax rate reflecting the
particular terms of the transaction with BT.
Following the latest property valuation, the Group has an estimated potential
capital gains tax liability in the region of £535m (31 March 2001 £540m),
were all its properties to be sold at the revalued amounts without any tax
mitigation. This is equivalent to a 96p (2001 97p) reduction in diluted net
assets per share.
Cash flow and treasury
Land Securities operates a central treasury, whose activities are carried out in
accordance with Board approved policies. The Group maintains treasury control
systems and procedures to monitor interest rate, liquidity, credit and other
financial risks. The treasury does not operate as a profit centre. Land Securities
uses a variety of financial instruments, including derivatives, to finance its
operations and to manage market risks from those operations. Derivative
instruments, exclusively interest rate swaps, are used by treasury to swap
borrowings from floating to fixed rate and to fix future borrowings.
Due to the long-term nature of property investment, the Group’s external
borrowings are also primarily long term. To provide flexibility the Group has a
£600m syndicated bank facility, which is used for short-term requirements. During
the year, the average borrowing on our syndicated facility was £283.0m, at a cost
of 5.6%. The overall weighted average cost of funding was 8.4% (2001 8.8%).
The Group had a net cash outflow before the use of liquid resources and
financing of £219.2m for the year (2001 £95.4m), primarily attributable to its
capital expenditure and investment activities. The Group has funded this net
outflow by drawing against its £600m syndicated bank facility. During the year,
an additional £300m of interest rate swaps were executed to take advantage of
the current low levels of interest rates and to hedge the cost of future
borrowings. This was done because the Group’s gearing is expected to rise
as the development programme gathers pace.
At the year end, the fair values of the Group’s financial liabilities exceeded
book value by £474.9m (2001 £507.3m), reflecting the reduction in
long-term interest rates since the Group’s fixed rate borrowings were originally
taken out. After tax, the implied adjustment to the Group’s net asset value would
be to reduce reported diluted adjusted net assets per share by 60p (2001 64p).
Insurance
In common with other property owners, our insurers are applying terrorism
exclusions to our policies as they become due for renewal in 2002. The Group
continues to buy the most comprehensive terrorism insurance cover available
from the Government-backed Pool Reinsurance Company Limited.
Capital structure
The Board has recently undertaken a review of the Group’s capital structure and
medium-term financing requirements. We have concluded that, notwithstanding
the future capital required to fund the development programme, and a desire to
invest significant further sums in Land Securities Trillium, the Group has more
capital than it currently requires. We have reached this conclusion after taking
into account our aim to maintain a target credit rating in the A range. We believe
that the Group’s financial strength will be an important factor in its ability to
win property outsourcing contracts in the future.
We therefore intend to return approximately £500m to shareholders, on
a pro rata basis, this year. The Board has not taken a final decision on the
method to be used to return the capital, but it is likely to involve a structured
transaction. If this is the case, shareholder approval may be required. On a pro
forma basis, the return represents an increase in gearing at 31 March 2002 from
32.2% to 44.1%.
In addition, redemption notices are being issued to the holders of our
convertible bonds. Both the 2007 and 2008 series of bonds are convertible into
shares at prices that are below current market value and it is therefore expected
that these bonds will convert shortly. If conversions occur, it will reduce our
outstanding debt, and increase our equity, so reducing gearing. In this case, we
will increase the amount of money returned to shareholders to offset the bond
conversions. As an alternative to conversion, the Company may purchase bonds
in the marketplace, if these are offered at attractive prices.
We have put in place an additional £1.5bn syndicated loan facility to finance the
proposed return. This will also provide additional working capital to fund our
medium-term business plans, including the development programme and the
expansion of Land Securities Trillium.
Going concern
After reviewing detailed profit and cash flow projections, and taking account
of available bank facilities and making such further enquiries as they consider
appropriate, the directors are satisfied that the Company and the Group have
adequate resources to continue to operate for the foreseeable future. For this
reason, we have continued to adopt the going concern basis when preparing
the financial statements.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
Property in context
At Land Securities, as a result of the scale of our
operations, we have long held the view that
many of our properties have an environmental
and social impact which extends beyond the
physical and financial investment we make in
them. This is particularly evident across our
shopping centres and our development projects
and we work hard to integrate our activities into
local communities.
We are conscious that by recognising
Our strategy for corporate social
the views of a wider pool of stakeholders
responsibility (CSR) continues to evolve.
and closely aligning our interests, we
While we have always aimed to take an
enhance the sustainability and long-
active and responsible approach to the
term financial performance of our
delivery of our business activities, as the
business. At the same time we minimise
examples on these pages demonstrate,
the risks and maximise the benefits to
we continue to seek to improve across
our customers, local communities,
all areas of our business.
employees and shareholders.
making property work . . .
Enhancing retail
Our retail portfolio comprises shopping centres, retail warehouse parks and
Central London retail. A thriving retail environment plays an important role in
enhancing the community within which it is located and our activities are
focused on providing services and facilities to ensure the shopping environment
has a positive impact. We aim to provide a safe, clean, pleasant and accessible
environment for our visitors and create strong links with local communities.
Across the UK our shopping centres are involved in many charitable,
educational and community initiatives.
We participate in nine Town Centre Management schemes and are involved in
some 20 CCTV schemes. All our CCTV schemes are independently audited
annually to check operational procedures and compliance with the Data
Protection Act. In London we are founder members of the New West End
Company, which will, over the next few months, launch initiatives aimed at
enhancing the shopping experience in the West End. All of our activities in this
area are designed to improve the retail environment and shopping experience.
This not only benefits our shoppers but also improves the trading performance
of our retailers, which will, over time, enhance the returns for our shareholders.
We are also involved in four of the five Central London Circle Initiatives which
are private sector led partnerships responsible for improving and helping to
manage Central London areas. These are in Bankside, Coventry Street, Holborn
and Paddington.
Addressing corporate social
responsibility
Last year we formed a CSR
Committee. This comprises senior
representatives from each of the
business units as well as the Group
HR director and head of corporate
communication and is chaired by the
group chief executive. Over the next
12 months the objectives of the
Committee will be to review our
performance, set objectives and
targets for the Group and
communicate more clearly our
activities under corporate social
responsibility.
In the meantime, we are delighted
that our commitment to
environmental initiatives and
community involvement has been
recognised by the inclusion of the
Company within the FTSE 4 Good
Index, which is intended as a guide
for those committed to Socially
Responsible Investment.
3 6 | 3 7
Property in context
Helping others
In addition to our charitable
donations, in Central London we help
a number of organisations that
provide facilities and support to the
homeless and elderly. These include
the Cecil and Central Housing Trust
where we helped to raise funds for a
new hostel in Waterloo Road to
provide accommodation, training,
counselling and other services for
women. We are participating in the
LWT ‘Whose London’ project with the
St Giles Trust in Southwark and are
involved in the Appeal Committee
for the refurbishment of the social
care unit of St Martin-in-the-Fields.
Progressing education
At the White Rose shopping centre we
have been working with the Leeds
Local Education Authority and ten
local teachers to develop a Key Stage 3
numeracy pack which has been
introduced across the Leeds area. This
pack is designed to help local children
improve their numeracy skills by
using information from the shopping
environment in examples and
activities, which makes the learning
experience more familiar and relevant.
A similar initiative is also underway in
Canterbury and we are examining
ways of launching this scheme across
our other centres.
Improving access
Improving access to our centres is a
constant challenge, not just for visitors
with disabilities but also for parents
and their children. Where we own the
car parks we provide parent and child
parking spaces at our centres.We also
provide ‘kiddie carts’ and crèches
in many of these. Over the past
six months we have introduced
‘Shopmobility’ at East Kilbride,
Livingston and Sunderland. This
service enables shoppers to access
centres easily and to benefit from the
free provision of either a powered
scooter or wheelchair for the duration
of their visit to the centre or the city
centre area.At Sunderland approximately
600 shoppers have already registered
for the service since its introduction.
In addition, at the White Rose centre
we have established a group made up
of disabled shoppers and centre staff.
The group meets quarterly to discuss
current issues and provide feedback,
which is used to trial new initiatives.
improved transport infrastructure
and community facilities. While these
often result from our responsibilities
under Section 106 agreements we
also provide additional facilities.
For example, in Canterbury we have
funded an on-site employment centre
and community liaison officer as well
as providing a local community
information website and newsletter.
Under our development
responsibilities we also fund major
archaeological excavations, an
example of which is at Gresham Street
where a £1m nine-month
archaeological dig was undertaken.
Working with the Museum of
London, the dig uncovered finds of
great historical value from Roman
times. Such was the importance of
these finds that a temporary exhibit
was established at the museum, which
we funded, to enable the finds to be
displayed. At the same time we
sponsored an interactive exhibit to
enable schoolchildren to experience
an ‘archaeological dig’ first hand.
Implementing regeneration
Land Securities’ extensive
development and refurbishment
programme aims to regenerate town
and city centres across the UK,
providing benefits for the local
community by upgrading facilities
and creating new public spaces.
Our approach to regeneration seeks
to engage with our local stakeholders
and provide vibrant and economically
sustainable schemes.
As part of this approach we deliver
benefits to the community such as
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
Environment, health and safety
Over the last year we have taken further steps
to integrate environmental and health and
safety considerations into the daily activities of
our various teams. Overall responsibility for both
environmental and health and safety matters
rests with Francis Salway at Board level, and he
has strengthened the specialist team covering
these areas by the recruitment of a group health
and safety manager.
To establish a culture of continuous
improvement in the areas of environment,
health and safety, we have set up separate
panels covering these two areas across each of
our business units. We have also set specific
targets by which we can measure our progress.
making sustainability work . . .
Carbon emissions trading scheme
Early in 2002 we subscribed to the Government’s Carbon Emissions Trading
Scheme, which is designed to assist companies in the reduction of carbon
emissions by establishing financial rewards and penalties for meeting target
reductions in carbon emissions. Current proposals are that a scheme of this
nature will become compulsory within the EU by 2008, and a voluntary scheme
has been set up in advance in the UK by the Government to assist companies
to operate in the new environment. We are one of only two companies in
the property sector to have elected to participate in the voluntary scheme.
We believe that it will assist us in the meeting of carbon emission reduction
targets and, if we are successful in meeting these targets, it may also generate
a small financial profit.
We are delighted to have met ten
of these targets and are close to
completing the other three. We have
set 18 new targets for the current
financial year. A number of the
achievements which flowed from the
setting of targets for the last year are
described over these pages.
Environmental reporting
In 2001, we became the first company
in the property sector to publish a
stand-alone environment report. We
have also developed an environmental
section on our Corporate Website.
Our achievements in this area were
recognised during the year by our
being accredited with Green Apple
Gold Award for Best Practice in
Environmental Management.
In our Environmental Report, we set
out 13 specific targets for the
Company’s 2001/2 financial year.
3 8 | 3 9
Environmental Management
Systems (EMS)
Land Securities Trillium developed an
Environmental Management System
tailored to meet the needs of the
PRIME contract and has recently
submitted an application for ISO
14001 certification. Land Securities
Trillium now has 15 members of staff
trained as Environmental Auditors.
Health and safety
Within the last 12 months, in
accordance with the requirements of
corporate governance, we have
introduced a new health and safety
policy which clarifies responsibilities
for health and safety matters across
the Group. We have also introduced
health and safety panels within each
of our business units.
The health and safety risk profile of
the Company is low. Our hazards and
risks vary on a business unit basis,
ranging from trips and falls within
Portfolio Management, the building
owners Construction Design and
Management (CDM) risks within
Development and a range of generally
low risk office-based hazards within
our total property outsourcing
business. No enforcement notices
have been served on the Company
by the Health and Safety Executive
during the period under review.
Environment, health and safety
The requirements of risk assessment
based legislation and the need for a
robust risk management strategy
continue to be of high importance.
Significant resource has and will
continue to be provided into the
identification and management of
workplace hazards and risk.
During the current financial year, we
will be introducing a number of
quantitative measures of performance
within the health and safety area.
We will also be seeking to integrate
health and safety considerations into
our staff’s daily activities. This will be
done through a combination of
having a higher proportion of our
health and safety audit activity
undertaken by in-house staff and also
continuing the training programmes
we have instituted. Within the last
12 months, we have had over 250
members of staff attending various
health and safety training courses.
Much of this has been externally
accredited training through IOSH and
NEBOSH.
We have in place strict risk
management controls and are
introducing systematic record-keeping
systems which will serve to minimise
exposure under public liability claims.
These will be the focus of all property
management, insurance and health
and safety teams in future, adding to
our ethos of continual improvement.
Sustainable development
We have assessed the environmental
impact of all our major office
refurbishments and developments
using BREEAM for a number of years.
During the last 12 months, we
submitted a warehouse development
for the BREEAM assessment for the
first time and were encouraged to
receive a rating of ‘Very Good’ for our
new warehouse development at
Horizon Point in Hemel Hempstead.
We will now be submitting all future
warehouse developments for BREEAM
assessment. We are also working with
the Building Research Establishment
to develop an environmental
assessment method for retail
developments.
Working with the Property
Environment Group, we ran a seminar
on sustainability for our Development
team. Over the course of the next two
years, we are planning more extensive
training on environmental issues,
working in conjunction with
specialist consultants, WSP, who will
be producing a structured and
targeted programme of training across
the Group.
During the year, we moved to
purchasing electricity for our own
offices at 5 Strand and 140 London
Wall in London from renewable
sources, bought on ‘Eco-tariffs’.
Environment day
In January 2002, we held the
Company’s first Environment Day,
the purpose of which was to raise
awareness of environmental issues
among our staff and also the
wider public. We liaised with the
Environment Agency and a number
of other local environmental
organisations in planning the various
initiatives and training sessions.
Events were held both at our London
offices and, more importantly, in
malls at most of our shopping centres.
The involvement of local community
initiatives at a number of shopping
centres was particularly successful.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
Human Resources
Over the last 12 months our employees have
gone through a period of significant change due
to changes in management, reorganisation and
diversification of activities.
The challenges for HR are to ensure that
employee relations and internal
the business units have the capability to
communication processes to be
achieve growth targets and to support
strengthened.The organisation structure
our employees in making the necessary
has become flatter, less hierarchical with
performance improvements. It is
more decision making and authority
important to ensure that synergies
being delegated.
between business units can be
maximised, new business initiatives are
The integration of acquisitions, new
nurtured and integration, where
total property outsourcing contracts and
appropriate, is managed smoothly and
development of new business will
achieves the desired results. With the
continue to require a significant amount
addition of new total property
of flexibility and adaptability. This, and
outsourcing contracts the overall
other factors, has focused attention on
number of employees has grown
training, employee development and
substantially and this will require
reward programmes.
making values work . . .
Across the Group, customer service
will be promoted and developed.
This will enhance our relationships
with occupiers, service partners and
contractors and support our new
business. We have run a number of
customer service programmes across
our property outsourcing teams and
within shopping centres, which will
be continued during 2002.
During this period of growth we have
continued to ensure our internal
communication processes are fully
effective by introducing regular
briefings, team away days,
management conferences, a corporate
intranet accessible by all staff and an
integrated induction programme.
Training and development
To further enhance performance in all
aspects of the business, the Company
is investing strongly in training and
development of employees.
A group training and development
manager has been appointed to
provide a consistent and focused
approach across the Group. The key
aim for 2002 is to equip the
organisation to respond quickly
and effectively to change by
demonstrating that Land Securities’
managers add value to the assets of
the Group.
With the introduction of a process
that links performance to bonus, all
managers and employees have been
trained in their role in performance
management. During 2001, we
successfully delivered a wide range of
training as part of the mobilisation
programme for our new total
property outsourcing contracts.
4 0 | 4 1
HR policy
The employment policies of the Company maintain its commitment to equal
opportunities. The criteria for selection and promotion are the individual’s
suitability for the position of employment offered and his or her skills and
abilities. We maintain our policy of giving full and fair consideration to the
employment of applicants who are disabled and for incorporating the needs of
people who may become disabled during the course of their employment with
the Company.
Our business ethics policy is circulated to all staff and provided to all new
employees in their induction pack. All staff are required to abide by its provisions.
Copies of our employment and business ethics policies are available on our website.
Our core values
We have revisited our core values for the 21st century and reworded these as:
• Integrity
• Respect for the individual
• Innovation
• Customer service
• Excellence.
A series of workshops have been run throughout the Group in which employees
have had the opportunity to input into how our values can be integrated into
business. These values are the foundation to the way that we operate our
business and will continue to underpin our culture in future.
These core values are the foundation for building on our business success and
reputation. By following our core values, we will continue to build a culture
where each employee feels valued and is able to contribute to the ongoing
success of the Land Securities Group. We will build a business that our
occupiers, customers and service partners are keen to work with and thus
ensure our competitive edge.
Values into action
The demonstration of these core values in the workplace will build our
reputation in the marketplace and to this end, a Values into Action Award is in
place that rewards those individuals that actively demonstrate the core values in
the workplace. All training and development and HR policies support the core
values and we aim to work with contractors and service partners who
demonstrate a clear commitment to these values.
Rewards and recognition
The Company has conducted a full
review of its rewards policy to ensure
each employee has clear and
measurable targets, so performance
and contribution to the Company’s
objectives is recognised and rewarded
accordingly. Where appropriate, these
measures are made against external
benchmarks to ensure Land Securities
is striving to lead and exceed market
performance in all its business areas.
To further align rewards with
shareholder interests a proportion of
the new management bonus plan is
awarded in deferred shares.
Land Securities is committed to
maximising the performance and
potential of all our people and the
Company is establishing succession
plans for all key positions.
We are creating an environment
where innovation and creativity are
rewarded, as well as a strong
collaborative spirit across the Group.
A company that provides people with
clear direction and opportunity to
grow, helps to attract and retain the
highest calibre employees.
Human Resources
Broadening horizons
We are keen to encourage our
employees to become involved in
activities outside of their normal work
experience. For example, we have
a project in place with St Anne’s
RC Primary School in Whitechapel,
London as part of our association
with Tower Hamlet’s Education
Business Partnerships.Volunteers visit
the school on a weekly basis to help
children aged 10 and 11 improve
their reading skills. This education
scheme benefits all participants.
Our employees have the opportunity
to broaden personal experiences and
develop interpersonal skills while,
most importantly, the children gain
from one-to-one tuition.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
Executive Directors
Ian Henderson
Michael Griffiths
Andrew Macfarlane
Francis Salway
directors ...
Ian J Henderson CBE 58
Joined the Group in 1971. Appointed
to the Board in 1987 and chief
executive in December 1997.
President of the British Property
Federation,Vice-Chairman of the
Board of Management of Central and
Cecil Housing Trust and Chairman of
the New West End Company.
Andrew E Macfarlane 45
Joined the Board as finance director in
October 2001. Formerly partner in
Ernst & Young and, prior to joining
Land Securities, Chief Financial
Officer of Bass (now Six Continents)
Hotels and Resorts division.
Michael R Griffiths 57
Joined the Group in 1973. Appointed
a director of Land Securities Properties
Limited in 1986 and to the Board
in 1990.
Francis W Salway 44
Joined the Group in October 2000.
Previously an investment director at
Standard Life Investments. He is chief
executive of the Group’s Development
business unit and was appointed to
the Board in April 2001.
Board of Directors
Peter G Birch CBE
Ian J Henderson CBE
Michael R Griffiths
Peter B Hardy
Sir Winfried Bischoff
Giles I Henderson CBE
Francis W Salway
Andrew E Macfarlane
Peter G Freeman
David Rough
4 2 | 4 3
Non Executive Directors
Peter Birch
Sir Winfried Bischoff
Peter Freeman
Peter Hardy
Giles Henderson
David Rough
Peter G Birch CBE 64
Appointed a director in 1997 and
chairman in July 1998. Chief
executive of Abbey National plc
until March 1998. Chairman of the
Legal Services Commission and
Kensington Group plc. Director of
NM Rothschild & Sons Limited, Dah
Sing Financial Holdings Limited and
Travellers Exchange Corporation Ltd.
Peter B Hardy 63
Appointed to the Board in 1992.
Managing director, Investment
Banking with SG Warburg Group plc
until 1992. Director of Foreign &
Colonial PEP & ISA Investment Trust
plc, Howard de Walden Estates
Limited and Barnardos.
Sir Winfried Bischoff 60
Appointed to the Board in 1999.
Chairman of Citigroup Europe,
deputy chairman of Cable and
Wireless plc and a director of the
McGraw-Hill Companies, USA, Eli
Lilly & Company, USA, Ifil-Finanziaria
di Partecipazioni SpA Italy and
Siemens Holdings Plc.
Giles I Henderson CBE 60
Joined the Board as a non-executive
director in October 2000. Senior
partner of Slaughter and May until
April 2001. Member of the Hampel
Committee on Corporate Governance
and previously a member of the
Financial Reporting Council and
chairman of the Law Committee of
the UK/China Forum. Non-executive
director of Standard Life Assurance
Company. Master of Pembroke
College, Oxford, since July 2001.
Peter G Freeman 46
Joined the Board as a non-executive
director in January 2002. Non-
executive director of the Argent Group
PLC and chairman of Freeman
Publishing plc.
David Rough 51
Joined the Board as a non-executive
director in April 2002. Group Director
(Investments) of Legal and General
Group PLC until December 2001.
A Director of Legal and General Select
Investment Trust PLC, BBA Group PLC,
EMAP Group PLC and Xstrata Group
PLC.
O p e r a t i n g a n d F i n a n c i a l R e v i e w | Land Securities
appropriate, approve funding
proposals taking into account key
financial drivers, sensitivities, and
project risk assessment. All directors
have access to the company secretary
who is responsible for ensuring that
Board procedures are complied with
and who advises the Board on
corporate governance and compliance
matters. The Board has resolved that
directors may seek independent
professional advice at the Group’s
expense in the furtherance of their
duties as directors.
The roles of chairman and chief
executive are split and there exists a
strong non-executive element on the
Board which currently consists of
four executive and six non-executive
directors. The Board considers that
all the non-executive directors should
be regarded as being independent.
The Company does not currently have
a senior independent non-executive
director. The Board believes that the
present balance and composition of
the Board is appropriate in the light
of prevailing circumstances.
The Board is supplied with
comprehensive management
information on a regular and timely
basis, principally by means of
monthly Board reports and detailed
reviews of rental income and financial
projections every six months.
The Group’s cash management and
treasury activities are reviewed at
each Board meeting.
The Board does not consider it
appropriate to establish a Nomination
Committee; instead the entire Board
acts as a Nomination Committee
and is responsible for the selection
and approval of candidates for
appointment to the Board.
In accordance with the Companies
Acts and the Articles of Association
of the Company, all directors are
required to submit themselves to
shareholders for re-election to the
Board at the first Annual General
Meeting following their appointment
and at regular intervals thereafter.
A resolution was passed at the 1999
Annual General Meeting to amend the
Company’s Articles of Association so
that every director is required to stand
for re-election every three years. Non-
executive directors are appointed for
an initial period of three years which
is extendable upon mutual agreement.
Directors are provided with training
and induction into the responsibilities
of a director prior to, or immediately
following, their appointment to the
Board, if that appointment is the
first occasion that they have been
appointed to the board of a listed
company. The training needs of
directors are reviewed periodically
to ensure that they are kept up to
date on relevant new legislation and
changing commercial risks.
Directors’ remuneration
The report of the Company’s
Remuneration Committee is on pages
46 and 47.
Relations with shareholders
The Company values dialogue with
institutional and private shareholders,
and the chief executive together with
the finance director hold regular
meetings with institutional shareholders
to discuss strategic and other issues
within the constraints imposed to
ensure the protection of price
sensitive information which has not
already been made available generally
to the Company’s shareholders.
The Board welcomes moves towards
a more constructive use of Annual
General Meetings and regards the
Annual General Meeting as the
principal opportunity to meet private
shareholders. Details of proxy voting
are disclosed on each resolution after
it has been dealt with by a show
of hands.
The chairmen of the Audit and
Remuneration Committees normally
attend each Annual General Meeting
in order to answer any questions
relating to the activities of these
committees.
The Company supports the concept
of individual resolutions on each
substantially separate issue at General
Meetings and will continue to
propose a separate resolution relating
to the Report and Financial
Statements.
The Company arranges for the Report
and Financial Statements and related
papers to be posted to shareholders so
as to allow at least 20 working days
for consideration prior to the Annual
General Meeting.
Corporate governance
The Combined Code – Principles
of Good Governance and Code
of Best Practice (derived from
the Cadbury, Greenbury and
Hampel Committee Reports)
The policy of the Board is to manage
the affairs of the Company in
accordance with the Principles of
Good Governance and Code of Best
Practice as set out in Section 1 of the
Combined Code annexed to the
Listing Rules of the Financial Services
Authority. The Company has complied
with Section 1 with the exception of
the matters set out below. While
strongly endorsing the importance of
accountability, the Board supports the
view expressed in the final report
issued by the Hampel Committee that
‘the board’s first responsibility is
to enhance the prosperity of the
business over time’. It is the Board’s
responsibility to ensure good
governance but this process cannot
be an end in itself.
Directors
The Board meets at least six times a
year. Its principal task is to formulate
strategy and to monitor and control
operating and financial performance
in pursuit of the Group’s strategic
objectives. It operates in accordance
with a formal schedule of matters
reserved to the Board for decision.
These matters include property
developments, refurbishments,
acquisitions and disposals in excess
of £50m, fund raising, loan
repayments and treasury policy. They
also include the appointment or
removal of directors and the company
secretary and the introduction of any
significant changes to employee share
or pension schemes. In addition, the
Group has established an Investment
Committee to appraise and, where
4 4 | 4 5
Accountability and Audit
Financial reporting
The Board seeks to present a balanced
and understandable assessment of the
Group’s position and prospects, and
details are given in the Chairman’s
Statement and the Operating and
Financial Review.
Internal control
The Board is responsible for the
Group’s system of internal control
and for reviewing its effectiveness.
Such a system is designed to manage
rather than eliminate the risk of
failure to meet business objectives and
can provide only reasonable and not
absolute assurance against material
misstatement or loss.
The key features of our system of
internal control include:
(a) Strategic planning; each business
unit must produce and agree a
business plan each year, against
which the performance of the
business is regularly monitored;
(b) Investment appraisal; capital
projects, major contracts and
business and property
acquisitions are reviewed in detail
and approved by the Investment
Committee and/or the Board;
(c) Financial monitoring; cash flow
and capital expenditure are closely
monitored and key financial
information is reported to the
Board on a monthly basis;
(d) Systems of control procedures
and delegated authorities; there
are clearly defined guidelines and
approval limits for capital
expenditure and disposals,
detailed appraisal and
authorisation procedures and
defined, activity-based expenditure
authorisation guidelines;
(e) Risk management; through an
ongoing process of identifying,
evaluating and managing the
significant risks faced by the
company. The Board confirms that
this process has been in place for
the year under review and up to
the date of approval of the Report
and Financial Accounts. This
process is regularly reviewed by
the Board and accords with the
Turnbull guidance; and;
(f) Annual assessments; an annual
assessment based upon a
compliance questionnaire
completed and signed off by
senior managers, providing
assurances that controls are both
embedded and effective within
the business;
(g) An internal audit function;
responsible for reviewing the
business processes and controls.
The findings are reported directly
to the Audit Committee.
In addition, the Audit Committee
receives:
(a) Reports from the head of Risk
Management and Internal Audit
on the work carried out during
the year, including an annual
summary on the operation of the
system of internal control to
support the Board’s annual
statement; and
(b) Reports from the external auditor.
For the purposes of applying the
Turnbull guidance we have not
included material joint ventures and
associates as part of the Land
Securities Group. We do not have
management control of any of these
joint ventures or associates, but do
ensure that appropriate Corporate
Governance procedures are in place as
part of the operating arrangements.
Audit Committee
The Audit Committee consists solely
of the non-executive directors, is
chaired by Peter Hardy and operates
in accordance with written terms of
reference. Upon the retirement of
Peter Hardy, David Rough will assume
the chair.
At its regular meetings the committee
seeks to ensure that appropriate
accounting systems and financial
controls are in operation and that the
Group’s financial statements comply
with statutory and other requirements.
The committee receives reports from
and consults with the internal and
external auditors. It reviews the
interim and annual results and
considers any matters raised by the
internal and external auditors. It also
monitors the scope, cost effectiveness,
independence and objectivity of the
external audit.
Auditors
The Directors of Land Securities, and
our external auditors,
PricewaterhouseCoopers, have for
many years had safeguards in place to
maintain the independence and
objectivity of the audit. We have
recently reviewed our procedures in
the area of the provision of services
by our external auditors and, subject
to the results of the DTI review
expected later this year, have adopted
the following interim policy:
Audit related services: We will
normally retain our auditors to
provide “audit related services”. This
is work which, by the nature of the
services required, the external
auditors are best placed to provide,
either because they are required to do
so for regulatory purposes, they have
a significant depth of knowledge of
the particular area of the business or
issue, or because the work has a
strong relationship to the audit itself.
It is likely that support for Land
Securities Trillium’s bid activities and
the work involved in the acquisition
of new contracts would fall within
this category.
– Tax consulting services: the tax
consulting practice of our external
auditor has a long association with
Land Securities and has built up a
significant knowledge of our affairs.
This makes them best placed to
undertake the majority of Land
Securities tax work, for which we
will continue to retain them. Any
significant pieces of tax consulting
work which we consider the
external auditors are not best placed
to conduct will be put out to tender.
– General consulting work: significant
general consulting work will
normally be put out to tender. With
effect from the Annual General
Meeting we will not, except under
exceptional circumstances, invite
the external auditor to tender for
such work. The auditors may
participate in such tenders with the
Audit Committee’s prior approval.
– Approval procedures: the Senior
Executive Group has reviewed and
adapted its authorisation procedures
which now require approval in
advance of significant work to be
undertaken by the external auditors.
Such approvals will be reported
periodically to the Audit Committee.
Valuations
The Group has for many years given
the valuers and auditors access to each
other. These advisers have a dialogue
and exchange of information which is
entirely independent of the Group.
Non-executive directors
Remuneration for the chairman and
non-executive directors is determined
by the Board within the levels set in
the Articles of Association. They do
not participate in any of the
Company’s share incentive, bonus or
pension schemes. The chairman and
non-executive directors are currently
appointed for an initial period of
three years subject to renewal for
further periods and to the rotation
provisions under the Articles of
Association. They do not have service
agreements with the Company.
Land Securities
Remuneration committee
Report for the year ended 31 March 2002
Directors’ remuneration
The Company complies with the
requirements of the Combined Code
in relation to directors’ remuneration.
The Board has established a
Remuneration Committee which
operates within written terms of
reference. The chief executive makes
recommendations to the committee
on the Company’s framework for, and
cost of, executive remuneration and
the committee then reviews these
recommendations. No director is
involved in deciding his own
remuneration.
1 Composition of the committee
The committee consists solely of the
non-executive directors and is chaired
by Sir Winfried Bischoff.
2 Function of the committee
The function of the committee is to
review and determine annually within
the context of the Board’s remuneration
policy the individual salaries and other
terms and conditions of employment
of the executive directors, together
with any incentive or bonus scheme
in which the executive directors
and other senior executives may be
invited to participate.The committee
also reviews the chief executive’s
remuneration proposals for the
Group’s staff other than the executive
directors.The committee consults the
chief executive in relation to proposals
for the remuneration of the other
executive directors and the committee
has access to professional advice where
this is considered appropriate. A full
review with advice from external
consultants including the Monks
partnership and William M Mercer has
been carried out into the remuneration
and incentives for all staff and the
main recommendations implemented
in the year under review.This has
increased the proportion of total
remuneration which is performance
related.
4 6 | 4 7
3 Remuneration policy
The objective of the Group’s
remuneration policy is to provide
remuneration in a form and amount
to attract, retain and motivate high
quality management. The levels
of remuneration are set to ensure
comparability across a broad spectrum
of UK based companies of similar size
from all sectors, but with particular
emphasis on the property industry.
In deciding on the appropriate level of
remuneration, the Board is mindful of
the long-term nature of the business
and the importance of aligning any
performance awards with returns to
shareholders. It attempts to achieve
this balance through a base annual
salary and cash and share bonuses
which are geared to the achievement
of short-term objectives while
providing an incentive to achieve
longer term success through the
Group’s Share Option Schemes.
Each executive director receives
a salary which reflects his
responsibilities, experience and
performance. Salary is reviewed
annually and the review process
includes using comparator
information and reports from
specialist consultants. However, the
committee is mindful of the need to
treat such comparisons with caution
so that they do not result in an
upward ratchet of remuneration levels
with no corresponding improvement
in performance and it takes account
of pay and employment conditions
elsewhere in the Group, especially
when determining annual salary
increases. The performance related
elements of directors’ remuneration
are designed to form an important
part of their total remuneration
package, to align their interests with
those of shareholders.
Details of each director’s emoluments
and share options are shown in Note 8
on pages 63 and 64.
4 Remuneration of
non-executive directors
The annual remuneration of the
chairman of the Board, Peter Birch, is
determined by the committee having
regard to independent advice. The
other non-executive directors each
receive a fee agreed by the Board
following a review of fees paid by
comparable organisations. Neither the
chairman nor the other non-executive
directors receive any pension benefits
from the Company, nor do they
participate in any bonus or incentive
schemes.
5 Emoluments and share options
Executive directors’ emoluments
consist of salary, car benefit, pension
contribution, medical and life
insurance, together with participation
in savings related share option and
annual bonus schemes which are also
open to all employees. The annual
bonus scheme has used adjusted
earnings per share data as its key
measure of performance. To make the
transition from a calendar year basis
for the previous bonus plan, a final
payment of 3/12 of the calculation was
made in November 2001 amounting
to 3.5% of base salary.
At the 2001 AGM, shareholders
approved a revised bonus scheme for
executive directors and senior
management. The revised scheme
replaced both the previous annual
bonus scheme and the senior
management bonus scheme.
Participants will have the opportunity
to receive an on target bonus of up to
30% for meeting rigorous targets,
with the opportunity to receive up to
a maximum of 60% for exceptional
results. A proportion (ranging from
one-third to one-half) of this bonus
will be paid in shares on a deferred
basis. The key performance criteria
are reviewed annually to ensure that
targets are set in line with prevailing
business circumstances. Current
criteria cover such areas of the
business as progress with the
development programme, property
disposal programme, portfolio
performance measured against the
IPD index, and success in winning
and delivering returns under Total
Property Services contracts. For the
financial year ended 31 March 2002,
the executive directors’ individual
bonus payments range from 34% to
52% of salary. These will be paid in
cash and deferred shares in June
2002.
The 1984 Executive Share Option
Scheme expired in April 1995. As a
result, no options have been granted
under the scheme since July 1994.
A long-term incentive plan was
introduced to replace the 1984
Executive Share Option Scheme and
awards under the plan depend on the
Group’s total shareholder return
achieved over a series of five-year
performance periods as compared
with the total shareholder returns
achieved by a selected peer group of
companies carrying on comparable
businesses. No award will be paid in
respect of any particular period unless
the Group is ranked in the first four
of the eight companies in the peer
group in that period. Awards for
ranking positions in the first four of
the group range from 25% for fourth
position to a maximum of 55% of
salary for first position. Half of any
award will be payable in cash and half
in shares, such shares to be released
to the beneficiary on the second
anniversary of the award.
There are currently 19 participants
in the plan, consisting of senior
executives and management who
were in office prior to the closure of
the plan. Following the expiry of the
five year performance period ending
on 31 March 2002, the Group
achieved a ranking of sixth position
within the peer group, which resulted
in no award being made in respect of
that period. The plan closed to new
entrants on 31 March 2000 and
current performance periods will
expire on 31 March 2005.
The interests of the participating
executive directors at 31 March 2002
under the plan could amount to a
maximum of 55% of their basic
salaries for the three outstanding
performance periods if a ranking
position of first is achieved for each
period. Existing participation in
the plan will continue until the
current performance periods have
expired.
At the Annual General Meeting held
on 11 July 2000, shareholders
approved the introduction of the Land
Securities PLC 2000 Executive Share
Option Scheme. During the year
options were granted under the
scheme to the executive directors and
also to a number of employees of the
Group. The options granted to
executive directors are shown in Note
8 on page 64. All options granted
under the scheme during the year
were subject to a performance test
under which the exercise of options is
dependent on the growth in the
Company’s normalised adjusted
earnings per share over a period of
three financial years exceeding the
growth in the retail price index over
the corresponding period by at least
2.5% per annum.
The committee believes that it is
important for a significant part of
the compensation of each executive
director to be tied to ownership of
the Company’s shares so that each
executive’s interest in the growth
and performance of the Company is
closely aligned with the interests of
our shareowners. The committee
has established share ownership
guidelines for the Company’s
executive directors, requiring each
executive to own shares with a value
equal to a multiple of one times base
salary. An executive director must
satisfy the guidelines within five years
of their first grant after appointment
to qualify for future grants of equity-
based compensation.
to the pension scheme of £675,663
as J I K Murray started to draw
his pension before his assumed
retirement age of 60.
With effect from 1 January 1999 a
contributory Money Purchase Pension
Scheme was introduced for all staff
joining the Group from that date.
Directors may participate in the
scheme subject to Inland Revenue
regulations. The following table
summarises pension allowances
received by directors during
the year.
M J Chande
A E Macfarlane
F W Salway
P Walicknowski
£
105,126
34,375
59,124
83,756
7 Service agreements
I J Henderson and M R Griffiths have
service agreements with a notice
period of one year. F W Salway has a
service agreement under which he is
employed initially on a two-year fixed
term contract then subject to one
year’s rolling notice by either party,
such notice not to be given to take
effect before the second anniversary
of this commencement date of
9 October 2000. Details of the service
agreements of A E Macfarlane are
set out in the Directors’ Report on
page 48. The chairman and the other
non-executive directors do not have
service agreements with the Company.
Sir Winfried Bischoff
Chairman of the Committee
for and on behalf of the Board
6 Pensions
Ian J Henderson and Michael
R Griffiths participate in a non-
contributory defined benefit pension
scheme which was open to property
management and administrative staff
until 31 December 1998. This scheme
provides them, at normal retirement
age and subject to length of service,
with a pension of up to two-thirds of
final salary, subject to Inland Revenue
limits and other statutory rules.
The scheme also provides lump sum
death-in-service benefits of four times
pensionable salary and pension
provision for dependants of members.
Only basic salary is treated as
pensionable pay. The following table
shows the executive directors’ accrued
pension entitlements as at 31 March
2002. The increase in accrued pension
during the year excludes any increase
for inflation. The transfer values have
been calculated on the basis of
actuarial advice in accordance with
Actuarial Guidance Note GN11.
The values represent a liability on the
Group’s pension scheme and not a
sum payable to individual directors.
Accrued pensions
year ended 31 March 2002
Accrued at
Increase
31.3.2002
during
Transfer
value of
the year
increase
£
£
£
I J Henderson 294,719
67,759 1,025,000
M R Griffiths
156,718
19,091
258,000
J I K Murray
163,996
10,924
167,000
J I K Murray resigned as a director
on 28 June 2001, retiring on
pension with effect from that date.
In accordance with his options under
the scheme, he has elected to receive
an immediate undiscounted early
retirement pension. The Company has
been required to make a payment
Land Securities
Directors’ report
for the year ended 31 March 2002
The directors submit their report with
the financial statements for the year to
31 March 2002. A review of the
Group’s business and results for the
year is contained in the Chairman’s
Statement and the Operating and
Financial Review, which should be
read in conjunction with this report.
4 8 | 4 9
1 Business of the Group
During the year the Group has
continued its business of property
development and portfolio
management of offices, shops, retail
warehouses, food superstores, leisure,
warehouse and industrial premises
throughout the UK together with
total property outsourcing. The Group
now consists of three main business
units, Land Securities Development,
Land Securities Portfolio Management
and Land Securities Trillium.
2 Results for the year and
dividends
The results are set out in the
consolidated profit and loss account
on page 52.
An interim dividend of 9.05p per
share was paid on 7 January 2002 and
the directors now recommend the
payment of a final dividend of 24.95p
per share making a total of 34.00p
per share for the year ended 31 March
2002, an increase of 4.6% over that
for the previous year.
Subject to authorisation at the Annual
General Meeting to be held on 9 July
2002, the final dividend will be paid
on 22 July 2002 to shareholders
registered on 28 June 2002. The
shares are expected to be quoted
ex-dividend from 26 June 2002.
*
*
*
*
*
*
4 Directors
The directors who held office during
the year were:
P G Birch CBE
I J Henderson CBE
M R Griffiths
J I K Murray (retired 28.6.01)
P B Hardy
Sir Winfried Bischoff
P Walicknowski (resigned 19.12.01)
G I Henderson CBE
M J Chande (resigned 28.2.02)
F W Salway (appointed 2.4.01)
A E Macfarlane (appointed 1.10.01)
P G Freeman (appointed 1.1.02)
Non-executive and member of the
Remuneration and Audit Committees.
In addition, D Rough was appointed a
director on 2.4.02.
Biographical details of the directors
appear on pages 42 and 43.
Since A E Macfarlane, P G Freeman
and D Rough were appointed
subsequent to the last Annual General
Meeting, they will retire from the
Board and, being eligible, offer
themselves for reappointment.
P G Freeman and D Rough do not have
service agreements with the Group.
The service agreement of A E
Macfarlane provides for one year’s
rolling notice by the Company and six
months’ notice by A E Macfarlane.
P B Hardy and M R Griffiths informed
the Company that they do not wish to
stand for re-election at this year’s
Annual General Meeting. P G Birch
and Sir Winfried Bischoff retire
from the Board by rotation and,
3 Valuation and net assets
(i) Valuation
In accordance with their report
reproduced on page 78, Knight Frank
valued the Group’s investment
properties at £7,598.6m as at
31 March 2002. Taken with the
Group’s one-third holding in the
Birmingham Alliance and the one-half
holdings in the Gunwharf Quays
Limited Partnership and the Ebbsfleet
limited partnership, the portfolio had
a value of £7,811.0m. This is a
decrease of £94.9m over that at the
previous year end. Taking into account
total expenditure on investment
properties of £505.6m and the
aggregate book value of properties
sold during the year of £498.1m, the
deficit on valuation was £105.5m
after adjusting for UITF28.
(ii) Net assets
The investment portfolio valuation
has been included in the financial
statements for the year ended
31 March 2002 and the net assets of
the Group at that date amounted to
£6,036.6m. Without adjusting for any
taxation which would become
payable in the event of properties
being sold, the net assets attributable
to each share in issue on that date
were 1151p. Taking into account
shares reserved for issue under the
terms of the Group’s convertible
bonds and employee share schemes,
the diluted net asset value per share
was 1132p.
The amount of tax on capital gains,
which would become payable in the
event of sales of the properties at the
amounts at which they are included
in the financial statements, is given in
Note 25 on page 71. The amount, in
the region of £535m (2001 £540m),
represents approximately 96p per
share on a fully diluted basis.
being eligible, offer themselves for
re-election; neither has a service
agreement with the Company.
Particulars of the interests of each
director in the shares and debentures
of the Company, as shown by the
register of directors’ share and
debenture interests, and of their
holdings of options over ordinary
shares, are set out in Note 8 on page 64.
Apart from share options, no contract
subsisted during or at the end of the
financial year in which a director
of the Company is or was materially
interested and which is or was
significant in relation to the
Group’s business.
5 Share capital
The Company was authorised at the
Annual General Meeting held on
10 July 2001 to purchase in the
market ordinary shares representing
up to approximately 14.9% of the
issued share capital at that time with
such authority to expire at the 2002
Annual General Meeting. However, no
shares were purchased in the year to
31 March 2002. A resolution to renew
this authority will be proposed at the
Annual General Meeting.
6 Substantial shareholders
At 13 May 2002 the following
interests in issued share capital had
been notified to the Company under
Part VI of the Companies Act 1985.
AXA S.A.
Barclays PLC
Number of
shares
%
16,274,283
3.10
18,066,280
3.44
Legal & General
Investment Management 18,058,106
3.43
M&G Investment
Management Ltd
17,748,762
3.38
Merrill Lynch
55,430,328 10.57
7 Staff
Details of the Group’s policies on
employment and on employee
development are given on page 40.
The effect of the Group’s payment
policy is that its trade creditors at the
financial year end represented 23.1
days’ purchases.
11 Annual General Meeting
Accompanying this report is the
Notice of the Annual General Meeting
which sets out the resolutions for
the meeting. These are explained in a
letter from the chairman which
accompanies the Notice.
12 Auditors
A resolution to reappoint
PricewaterhouseCoopers as auditors
to the Company will be proposed at
the Annual General Meeting.
By order of the Board
P M Dudgeon
Secretary
22 May 2002.
The Group is committed to achieving
a high standard of health and safety
and continually reviews its policies
and practices to ensure that those
standards are maintained. Further
details are given on pages 38 and 39.
8 Donations
During the year ended 31 March
2002 charitable donations amounted
to £1,086,000. This amount included
£722,000 paid to charitable trusts
investigating sites of considerable
archaeological importance. There
were no contributions of a political
nature during the year.
9 Environment
The Group’s environmental policy is
published on the Company’s website
www.landsecurities.com
10 Payment policy
The Group is a registered supporter of
the CBI’s Better Payment Practice Code
to which it subscribes when dealing
with all of its suppliers.
The code requires a clear and
consistent policy that payments are
made in accordance with contract or
as required by law; that payment
terms are agreed at the outset of a
transaction and adhered to; that no
amendments to payment terms are
made without the prior agreement of
suppliers and that there is a system
which deals quickly with complaints
and disputes to ensure that suppliers
are advised accordingly without delay
when invoices or parts thereof are
contested.
Land Securities
sufficient evidence to give reasonable
assurance that the financial statements
are free from material misstatement,
whether caused by fraud or other
irregularity or error. In forming
our opinion we also evaluated the
overall adequacy of the presentation
of information in the financial
statements.
Opinion
In our opinion the financial
statements give a true and fair view
of the state of affairs of the Company
and the Group at 31 March 2002 and
of the profit and cash flows of the
group for the year then ended and
have been properly prepared in
accordance with the Companies Act
1985.
PricewaterhouseCoopers
Chartered Accountants and
Registered Auditors
London
22 May 2002
Directors’ responsibilities & auditors’ report
31 March 2002
Directors’ responsibilities
The directors are required by
company law to prepare financial
statements for each financial year
which give a true and fair view of the
state of affairs of the Company and
of the Group as at the end of the
financial year and of their profit or
loss for that period and comply with
the Companies Act 1985.
The directors are responsible for
ensuring that applicable accounting
standards have been followed and
that suitable accounting policies,
consistently applied and supported by
reasonable and prudent judgements
and estimates, have been used in the
preparation of the financial
statements.
It is also the responsibility of the
directors to prepare the financial
statements on the going concern basis
unless it is inappropriate to presume
that the Company and the Group
will continue in business.
The directors are also responsible
for maintaining proper accounting
records so as to enable them to
comply with company law. The
directors have general responsibilities
for safeguarding the assets of the
Company and of the Group and for
taking reasonable steps for the
prevention and detection of fraud and
other irregularities.
The maintenance and integrity of the
Land Securities PLC website is the
responsibility of the Company; the
work carried out by the auditors does
not involve consideration of these
matters and, accordingly, the auditors
accept no responsibility for any
changes that may have occurred to the
financial statements since they were
initially presented on the website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
received all the information and
explanations we require for our audit,
or if information specified by law of
the Listing Rules regarding directors’
remuneration and transactions is not
disclosed.
Independent Auditors’ Report
to the members of
Land Securities PLC
We have audited the financial
statements on pages 52 to 76 which
have been prepared under the
historical cost convention (as
modified by the revaluation of certain
fixed assets) and the accounting
policies set out on pages 56 and 57.
Respective responsibilities of
directors and auditors
The directors’ responsibilities for
preparing the annual report and the
financial statements in accordance
with applicable United Kingdom
law and accounting standards are set
out in the statement of directors’
responsibilities on this page.
Our responsibility is to audit the
financial statements in accordance
with relevant legal and regulatory
requirements, United Kingdom
Auditing Standards issued by the
Auditing Practices Board and the
Listing Rules of the Financial Services
Authority.
We report to you our opinion as to
whether the financial statements give
a true and fair view and are properly
prepared in accordance with the
Companies Act 1985. We also report
to you if, in our opinion, the
directors’ report is not consistent with
the financial statements, if the
company has not kept proper
accounting records, if we have not
We read the other information
contained in the annual report and
consider the implications for our
report if we become aware of any
apparent misstatements or material
inconsistencies with the financial
statements.
We review whether the corporate
governance statement on pages 44
and 45 reflects the company’s
compliance with the seven provisions
of the Combined Code specified for
our review by the Listing Rules, and
we report if it does not. We are not
required to consider whether the
board’s statements on internal control
cover all risks and controls, or to
form an opinion on the effectiveness
of the group’s corporate governance
procedures or its risk and control
procedures.
Basis of audit opinion
We conducted our audit in
accordance with auditing standards
issued by the Auditing Practices
Board. An audit includes examination,
on a test basis, of evidence relevant
to the amounts and disclosures in
the financial statements, and of
whether the accounting policies are
appropriate to the company’s
circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit
so as to obtain all the information and
explanations which we considered
necessary in order to provide us with
5 0 | 5 1
making finance work . . .
Consolidated profit and loss account
for the year ended 31 March 2002
GROSS PROPERTY INCOME
OPERATING PROFIT
Profit on sales of properties
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST AND TAXATION
Interest receivable and similar income
Interest payable and similar charges – gross
– interest capitalised
Revenue profit
Profit/(loss) on sales of properties and bid costs
Share of loss before taxation of joint venture
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Taxation on:
Revenue profit
Property sales and bid costs
Taxation
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION
Dividends
RETAINED PROFIT FOR THE FINANCIAL YEAR
EARNINGS PER SHARE
ADJUSTED EARNINGS PER SHARE
DIVIDENDS PER SHARE
Interest
in joint
venture
£m
Total
2002
£m
48.5
1,025.6
19.3
–
19.3
.8
516.8
13.4
530.2
5.0
2001
(restated)
£m
650.4
450.6
6.3
456.9
7.6
Group
£m
977.1
497.5
13.4
510.9
4.2
(168.2)
(24.6)
(192.8)
(151.1)
21.1
–
21.1
11.3
(147.1)
(24.6)
(171.7)
(139.8)
361.3
6.7
364.8
(1.3)
3.5
(8.0)
(4.5)
323.4
1.3
–
368.0
(4.5)
363.5
324.7
(100.0)
.1
(99.9)
263.6
(178.4)
85.2
(91.0)
.9
(90.1)
234.6
(170.1)
64.5
2001
(restated)
Basic
44.87p
45.38p
2002
34.0p
Diluted
44.41p
44.89p
2001
32.5p
2002
Basic
Diluted
50.27p
51.61p
49.54p
50.81p
Notes
4
4
4
5
5
5
33
9
10
27
11
11
10
All income was derived from within the United Kingdom from continuing operations. No operations were discontinued during the year.
The comparative figures for the year ended 31 March 2001 have been restated to reflect the changes in accounting policies described on page 32 and in Note 1.
Trillium was acquired in November 2000. Results for the year ended 31 March 2001 therefore include four months’ trading for that business.
The interest in the joint venture was acquired on 13 December 2001. Results for the year ended 31 March 2002 therefore include just over three months’ of the group’s share of the
trading results of that business.
The notes on pages 56 to 76 form an integral part of these financial statements.
5 2 | 5 3
Balance sheets
31 March 2002
FIXED ASSETS
Intangible assets
Goodwill
Tangible assets
Investment properties
Operating properties
Properties
Other tangible assets
Investment in joint venture
Share of gross assets of joint venture
Share of gross liabilities of joint venture
Investments in group undertakings
CURRENT ASSETS
Trading properties
Debtors falling due within one year
Debtors falling due after more than one year
Investments: short term deposits
Cash at bank and in hand
CREDITORS falling due within one year
NET CURRENT LIABILITIES
TOTAL ASSETS LESS CURRENT LIABILITIES
CREDITORS falling due after more than one year
Debentures, bonds and loans
Convertible bonds
Other creditors
PROVISIONS FOR LIABILITIES AND CHARGES
CAPITAL AND RESERVES
Called up share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Other reserves
Profit and loss account
EQUITY SHAREHOLDERS’ FUNDS
NET ASSETS PER SHARE
DILUTED NET ASSETS PER SHARE
ADJUSTED NET ASSETS PER SHARE
ADJUSTED DILUTED NET ASSETS PER SHARE
I J Henderson A E Macfarlane
Directors
The financial statements on pages 52 to 76 were approved by the directors on 22 May 2002.
Group
Company
2002
£m
2001
(restated)
£m
2002
£m
2001
(restated)
£m
Notes
13
14
15
16
18
33
33
19
20
20
21
22
23
24
25
26
27
27
27
27
27
12
12
12
12
38.9
41.2
–
–
7,800.0
7,899.1
2,505.5
2,664.5
428.9
323.1
–
–
8,228.9
8,222.2
2,505.5
2,664.5
45.3
34.1
1,297.8
(1,109.0)
188.8
–
–
–
–
–
8,501.9
8,297.5
5,099.0
7,604.5
4,866.5
7,531.0
36.9
254.8
5.5
60.9
7.5
365.6
(690.9)
(325.3)
–
176.0
1.3
22.0
7.3
206.6
(594.6)
(388.0)
–
65.8
.2
.1
–
66.1
(285.8)
(219.7)
–
60.3
.2
9.1
–
69.6
(246.6)
(177.0)
8,176.6
7,909.5
7,384.8
7,354.0
(1,744.0)
(1,480.4)
(1,267.0)
(1,267.0)
(243.3)
(22.8)
(129.9)
(246.1)
(31.8)
(133.4)
(36.0)
(11.7)
(44.1)
(39.3)
(12.1)
(39.1)
6,036.6
6,017.8
6,026.0
5,996.5
524.3
314.9
36.0
523.6
312.0
36.0
524.3
314.9
36.0
523.6
312.0
36.0
3,376.9
3,673.4
3,820.0
3,959.0
550.4
1,234.1
6,036.6
324.6
1,148.2
6,017.8
160.5
1,170.3
6,026.0
.1
1,165.8
5,996.5
1151p
1132p
1176p
1155p
1149p
1130p
1172p
1152p
Land Securities
Consolidated cash flow statement
for the year ended 31 March 2002
NET CASH INFLOW FROM OPERATING ACTIVITIES
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received
Interest paid
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
TAXATION – Corporation tax paid
NET CASH INFLOW FROM OPERATING ACTIVITIES AND INVESTMENTS
AFTER FINANCE CHARGES AND TAXATION
CAPITAL EXPENDITURE
Development expenditure
Acquisitions and other capital expenditure
Additions to properties
Sales of properties
Investing in properties
Increase in other tangible assets
Notes
28
£m
2002
£m
406.2
(162.3)
(111.3)
132.6
4.2
(166.5)
(256.4)
(306.1)
(562.5)
549.2
(13.3)
(19.6)
2001
(restated)
£m
462.0
(94.0)
(87.5)
280.5
£m
9.8
(103.8)
(161.9)
(419.5)
(581.4)
491.3
(90.1)
(7.5)
NET CASH OUTFLOW ON CAPITAL EXPENDITURE
(32.9)
(97.6)
ACQUISITIONS
Acquisition of group undertaking
Investment in joint venture
EQUITY DIVIDENDS PAID
CASH OUTFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING
MANAGEMENT OF LIQUID RESOURCES
FINANCING
Issues of shares
Purchase and cancellation of own shares
Increase/(decrease) in debt
NET CASH INFLOW/(OUTFLOW) FROM FINANCING
(DECREASE)/INCREASE IN CASH IN YEAR
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
(Decrease)/increase in cash in year
Cash inflow from increase/(decrease) in liquid resources
Cash (inflow)/outflow from (increase)/decrease in debt
Change in net debt resulting from cash flow
Non-cash changes in debt
Loans acquired with new group undertaking
Movement in net debt in year
Net debt at 1 April
Net debt at 31 March
5 4 | 5 5
–
33
(146.4)
(114.2)
–
(146.4)
(172.5)
(219.2)
(38.9)
240.7
(17.4)
(17.4)
38.9
(239.6)
(218.1)
3.8
–
(214.3)
(1,727.8)
(1,942.1)
29(a)
26
1.1
–
29(b)
239.6
29(a)
29(b)
30
30
30
30
1.2
(6.0)
(14.1)
(114.2)
(164.1)
(95.4)
118.1
(18.9)
3.8
3.8
(118.1)
14.1
(100.2)
1.4
(212.8)
(311.6)
(1,416.2)
(1,727.8)
Other primary statements
for the year ended 31 March 2002
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Profit on ordinary activities after taxation (page 52)
Unrealised (deficit)/surplus on revaluation of investment properties
Share of unrealised surplus on revaluation of investment properties held in joint venture
Taxation on revaluation surpluses realised on sales of investment properties
Total gains and losses relating to the financial year
Prior year adjustment
Total gains and losses recognised since last financial statements
NOTE OF HISTORICAL COST PROFITS AND LOSSES
Profit on ordinary activities before taxation (page 52)
Revaluation surplus arising in previous years now realised on sales of investment properties
Taxation on revaluation surpluses realised on sales of investment properties
Historical cost profit on ordinary activities before taxation
Taxation
Historical cost profit on ordinary activities after taxation
Dividends
Retained historical cost profit for the year
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS’ FUNDS
Profit on ordinary activities after taxation (page 52)
Dividends
Retained profit for the financial year (page 52)
Unrealised (deficit)/surplus on revaluation of investment properties
Share of unrealised surplus on revaluation of investment properties held in joint venture
Taxation on revaluation surpluses realised on sales of investment properties
Issues of shares
Premium arising on issues of shares
Purchase and cancellation of own shares
Net change in shareholders’ funds
Opening equity shareholders’ funds:
As previously reported
Prior year adjustment
As restated
Closing equity shareholders’ funds
Notes
27
27
27
3
Notes
27
27
9
10
Notes
10
27
27
27
26
27
2002
£m
263.6
(105.5)
46.8
(12.0)
192.9
(133.1)
59.8
2002
£m
363.5
237.8
(12.0)
589.3
(99.9)
489.4
(178.4)
311.0
2002
£m
263.6
(178.4)
85.2
(105.5)
46.8
(12.0)
.7
3.6
–
2001
(restated)
£m
234.6
284.8
–
(1.8)
517.6
–
517.6
2001
(restated)
£m
324.7
185.3
(1.8)
508.2
(90.1)
418.1
(170.1)
248.0
2001
(restated)
£m
234.6
(170.1)
64.5
284.8
–
(1.8)
1.2
7.5
(.1)
18.8
356.1
6,150.9
5,781.8
3
(133.1)
(120.1)
6,017.8
6,036.6
5,661.7
6,017.8
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
1
Accounting Policies
The financial statements have been
prepared in accordance with
applicable accounting standards under
the historical cost convention
modified by the revaluation of
investment properties and, in the case
of the holding company, investments
in group undertakings. Compliance
with SSAP 19 “Accounting for
Investment Properties” requires a
departure from the requirements of
the Companies Act 1985 relating to
depreciation and amortisation and an
explanation of this departure is given
in (h) (iii) below.
The significant accounting policies
adopted by the group are set out below.
(a) Consolidation
The consolidated financial statements
of the group include the audited
financial statements of the company
and group undertakings, all of which
were for the year ended 31 March
2002. Group undertakings and
interests in joint ventures acquired
during the year are accounted for
from the date of acquisition.
Joint ventures are included under the
gross equity method in accordance
with FRS9 ‘Associates and Joint
Ventures’.This requires the group’s
share of the joint venture’s profit and
loss account to be shown separately in
the income statement, and the group’s
share of the joint venture’s gross
assets and liabilities to be shown
on the face of the balance sheet.
The group has interests in various
partnerships.The group’s share of the
assets, liabilities, income and
expenditure are included in the
relevant sections of the consolidated
profit and loss account and balance
sheet as required by FRS9.
5 6 | 5 7
(b) Consolidated Profit and Loss
Account and Other Primary
Statements
The profit on ordinary activities
before taxation is arrived at after
taking into account income and
outgoings on all properties, including
those under development. In
accordance with FRS3 “Reporting
Financial Performance”, profits and
losses on properties sold during the
year are calculated by comparing net
sales proceeds with book values.
Realised surpluses and deficits relating
to previous years on properties sold
during the year are taken to other
reserves, net of attributable taxation.
They are not included in the profit
and loss account.
Unrealised capital surpluses and
deficits, including those arising on
valuation of properties, are taken
to revaluation reserve.
(c) Gross Property Income
The group’s gross property income
comprises rental income, service
charges and other recoveries from
tenants of its investment properties,
property services income earned by
its total property outsourcing business
and proceeds of sales of trading
properties.
The Accounting Standards Board’s
Urgent Issues Task Force Abstract 28
‘Operating Lease Incentives’ (UITF28)
requires property companies to treat
any incentive for lessees to enter into
lease agreements as a revenue cost
and also to account for rental income
from the commencement and not, as
was the group’s prior practice, the
expiry date, of any rent-free period.
The group has, therefore, changed
its accounting policy for leases
commencing on or after 1 April
2000.The cost of all lease incentives
(such as rent-free periods or
contributions to fitting out costs) is
now offset against the total rent due
and the net rental income is then
spread evenly over the shorter of the
period from the rent-free or rent
commencement date, as appropriate, to
the date of the next rent review or the
lease end date.
which they are carried in the financial
statements. However an estimate of
the potential liability is shown in
Note 25.
(d) Bid Costs
The Accounting Standards Board’s
Urgent Issues Task Force Abstract 34
‘Pre-Contract Costs’ (UITF34)
requires bid costs which do not
comprise incidental costs associated
with the acquisition of fixed assets or
finance costs to be expensed until the
group is virtually certain of entering
into a contract.The group has,
therefore, changed its accounting
policy for these bid costs and will
now expense costs incurred prior to
exchange of contract. Previously the
group capitalised bid costs where it
was known that preferred bidder
status had been achieved.
(e) Pensions
Contributions to defined benefit
pension schemes, which are based on
independent actuarial advice, are
charged to the profit and loss account
on a basis that spreads the expected
cost of benefits over the employees’
working lives with the group.
Variations from regular costs are spread
over the anticipated remaining working
lives of employees in the schemes.
The group has applied the transitional
provisions of FRS17 “Retirement
Benefits” and appropriate additional
disclosures have been included in
Note 6.The group will fully adopt
FRS17 in its financial statements for
the year ending 31 March 2004.
(f) Taxation
In accordance with FRS 16 “Current
Taxation”, taxation arising on the sale
of properties is charged to the profit
and loss account and to the statement
of total recognised gains and losses
as appropriate.
No provision is made for the taxation
which would become payable under
present legislation if the group’s
properties were sold at the amounts at
FRS19 ‘Deferred Tax’ requires that
deferred tax is recognised in full in
respect of transactions or events that
have taken place by the balance sheet
date and which could give the group
an obligation to pay more or less
tax in the future. However, FRS19
requires that deferred tax is not
recognised on revaluation gains and
losses where these are not taken to the
profit and loss account.The group’s
accounting policy had been to account
for deferred tax to the extent that
liabilities or assets were expected to be
payable or receivable in the foreseeable
future. In accordance with FRS19,
the group has now changed its policy
to make full provision for timing
differences which, in the group’s
case, arise primarily from capital
allowances and industrial building
allowances. Following the sale or
demolition of a property, any deferred
tax provisions not required will be
released to the profit and loss account.
(g) Goodwill
Goodwill arising on the acquisition
of Trillium, calculated as the excess
of cost over the fair value of net assets
acquired, was capitalised in the year
in which it arose and amortised over
the remaining life of the PRIME
contract.
(h) Investment Properties
(i) Valuation
Investment properties, including
those that comprise part of the
development programme, are carried
in the financial statements at open
market values based on the latest
professional valuation. A valuation
was carried out by Knight Frank as at
31 March 2002 and a copy of their
report is set out on page 78.The
valuation treats properties as acquired
when the group enters into an
unconditional purchase contract and
as sold when subject to an
Notes to the financial statements
for the year ended 31 March 2002
unconditional contract for sale.
Additions to properties consist of
costs of a capital nature and, in the
case of investment properties under
development, certain capitalised
interest (see note h(ii) below). Other
costs in respect of developments and
refurbishments are treated as revenue
expenditure and written off as incurred.
(ii) Capitalisation of interest
Interest associated with direct
expenditure on properties under
development is capitalised.The rate
used is the group’s pre-tax weighted
average cost of borrowings or, if
appropriate, the rate on specific
associated borrowings. Interest is
capitalised as from the
commencement of the development
work until the date of practical
completion.The capitalisation of
finance costs is suspended, however, if
there are prolonged periods when
development activity is interrupted.
Interest is also capitalised on the
purchase cost of a site or property if it
was acquired specifically for
redevelopment in the short term.
Interest is not capitalised on the
acquisition cost of properties
previously held as investments, or on
refurbishment projects.
The above represents a change in
accounting policy from previous years
when all interest costs were expensed
as incurred. Financing costs are
potentially a material element of the
total costs of development projects. As
the group’s development programme
gathers momentum, the inclusion of
interest in development costs will give
a better view of the expenditure on
developments and the surpluses
created by this activity.
(iii) Depreciation and amortisation
In accordance with SSAP 19,
depreciation is not provided on
investment properties that are held as
freeholds or on leases having more
than 20 years unexpired.This is a
departure from the Companies Act
1985 which requires all tangible
assets to be depreciated. In the
opinion of the directors, this
departure is necessary for the financial
statements to give a true and fair view
and comply with applicable accounting
standards which require properties to
be included in the financial
statements at open market value.
The effect of depreciation on the
value is already reflected in the
valuation of investment properties,
and the amount attributable to this
factor cannot reasonably be separately
identified or quantified by the valuers.
Had the provisions of the Act been
followed, net assets would not have
been affected but revenue profits
would have been reduced for this
and earlier years and revaluation
surpluses/deficits would have
been correspondingly increased/
decreased.
(i) Operating Properties
These are properties owned and
managed by LS Trillium, the group’s
total property outsourcing business
unit, and which typically do not satisfy
the definition of “investment properties”.
Operating properties are carried at
depreciated cost and not revalued.
Freehold land is carried at historical
cost and is not depreciated.
Freehold buildings are depreciated
in equal annual instalments over
50 years. Any premiums paid to
acquire leaseholds are amortised over
their unexpired lease terms.
Expenditure which enhances the
economic benefits of a building is
capitalised and depreciated over the
shorter of its useful life and the
remaining life of the building up
to a maximum of 50 years. Repair
and maintenance expenditure is
written off to the profit and loss
account as incurred.
(j) Other Tangible Assets
These comprise computers, motor
vehicles, furniture, fixtures and fittings
and improvements to group offices
and are depreciated on a straight-line
basis over their estimated useful lives
of between two to ten years.
(k) Investments in Group
Undertakings
(i) Valuation
The company’s investments in the
shares of group undertakings are
stated at directors’ valuation on a
basis which takes account of the net
assets of the group undertakings at
31 March 2002 which will include,
where applicable, the professional
valuation of properties. Surpluses
and deficits arising from the
directors’ valuation are taken to
revaluation reserve.
(ii) Acquisitions
Assets and liabilities of acquired
entities are brought into consolidation
at fair value as at the date of
acquisition. Where the cost of
acquisition exceeds the fair values
attributable to the net assets acquired,
the difference is treated as goodwill
and capitalised in the group’s balance
sheet in the year of acquisition.
Goodwill is amortised to the profit
and loss account over 20 years or its
useful life whichever is the shorter.
The results and cashflows of acquired
group undertakings are included in
the consolidated profit and loss
account and the consolidated cash
flow statement from the date of
acquisition.
(l) Trading Properties
Trading properties are carried at the
lower of cost and net realisable value.
(m) Provisions for Liabilities and
Charges
A provision is recognised where there
is a present obligation, whether legal
or constructive, as a result of a past
event for which it is probable that a
transfer of economic benefits will be
required to settle the obligation and
a reasonable estimate can be made
of the amount of the obligation.
(n) Financial Instruments
The group uses interest rate swaps to
help manage its interest rate risk.
Where interest rate swaps have
commenced the differences between
the rates payable by the group and the
rates payable by the counterparties are
dealt with on an accruals basis.
2
Comparatives
The consolidated profit and loss
account, consolidated cash flow
statement and other primary
statements for the year ended
31 March 2001 together with the
balance sheets at that date have been
restated for the effects of adopting
UITF28 and FRS19 as explained in
Notes 1(c) and 1(f ) respectively,
UITF34 relating to pre-contract costs
in Note 1(d) and the change in
accounting policy relating to the
capitalisation of interest in Note 1h(ii).
Trillium, the group’s total property
outsourcing business, was acquired in
November 2000. Its results are
included in the prior year for the four
months to 31 March 2001.
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
Year ended 31 March 2002
Year ended 31 March 2001
Effects of changes in accounting policies
Effects of changes in accounting policies
Without
changes in
accounting
Capital- Adoption
of
isation
UITF28
policies of interest
£m
£m
£m
Adoption
of
FRS19
£m
Adoption
of
UITF34
£m
As
reported
£m
As
previously
reported
£m
Capital-
isation
of interest
£m
Adoption
of
UITF28
£m
Adoption
of
FRS19
£m
Adoption
of
UITF34
£m
As
restated
£m
1,022.1
528.0
541.4
(192.8)
340.2
353.6
(88.2)
265.4
50.59
49.89
39.6
7,810.9
36.5
263.0
(691.0)
9.9
3,424.1
1,346.0
6,195.7
1178
1158
3.5
3.5
3.5
3.5
3.5
(1.3)
2.2
.42
.40
(10.9)
10.9
(2.4)
(6.7)
(5.9)
(5.9)
(1.1)
(1.1)
(.7)
(127.6)
1,025.6
516.8
530.2
(14.7)
(14.7)
647.2
451.8
458.1
(171.7)
(151.1)
364.8
363.5
(14.7)
1.8
(99.9)
(12.9)
263.6
308.9
314.6
(81.5)
233.1
(2.46)
(2.32)
50.27
49.54
44.57
44.14
38.9
41.9
7,800.0
7,905.9
36.9
–
(19.1)
254.8
173.6
2.5
(690.9)
(594.2)
(129.9)
(5.8)
3,376.9
3,696.4
4.3
(128.3)
(16.6)
1,234.1
1,258.3
(2.4)
(128.3)
(16.6)
6,036.6
6.150.9
1
1
(24)
(23)
(3)
(3)
1151
1132
1175
1154
21.1
21.1
21.1
(6.3)
14.8
2.82
2.67
.4
(12.2)
(40.5)
28.7
(11.8)
(1)
(1)
11.3
11.3
11.3
(3.4)
7.9
1.51
1.43
(5.9)
(19.8)
13.9
(5.9)
(1)
(1)
3.2
3.2
3.2
3.2
3.2
(1.1)
2.1
.41
.38
(6.8)
6.8
(1.1)
(3.2)
2.1
(4.8)
(4.8)
(.92)
(.87)
(.7)
(121.7)
(122.4)
(1.1)
(122.4)
(24)
(23)
650.4
450.6
456.9
(139.8)
323.4
324.7
(90.1)
(4.4)
(4.4)
(4.4)
.7
(3.7)
234.6
(.7)
(.67)
44.87
44.41
41.2
7,899.1
–
(4.4)
176.0
.7
(3.7)
(3.7)
(1)
(594.6)
(133.4)
3,673.4
1,148.2
6,017.8
1149
1130
3
Restatement of Comparatives
The effects of adopting UITF28,
FRS19, UITF34 and capitalisation of
interest for the current and comparative
prior years are as follows:
(i) PROFIT AND LOSS ACCOUNT
Gross property income
Operating profit
Profit before interest and taxation
Interest payable and similar charges
Revenue profit before taxation
Profit before taxation
Taxation
Profit after taxation
EARNINGS PER SHARE
– basic (pence)
– diluted (pence)
(ii) BALANCE SHEET
Goodwill
Investment properties
Trading properties
Debtors falling due within one year
Creditors falling due within one year
Provisions for liabilities and charges
Revaluation reserve
Profit and loss account
Equity shareholders’ funds
NET ASSETS PER SHARE
– basic (pence)
– diluted (pence)
5 8 | 5 9
Notes to the financial statements
balance sheets
for the year ended 31 March 2002
4
Segmental Information
(i) PROFIT AND LOSS ACCOUNT
Rental income (c)
Service charges and other recoveries
Property services income
Proceeds of sales of trading properties
GROSS PROPERTY INCOME (page 52)
Rents payable
Other direct property or contract expenditure (d)
Indirect property or contract expenditure (e)
Bid costs
Costs of sales of trading properties
Depreciation
Amortisation of goodwill
Profit on sales of properties
SEGMENT PROFIT
Less: Common costs (f )
OPERATING PROFIT (page 52)
Profit on sales of properties (page 52)
PROFIT ON ORDINARY ACTIVITIES BEFORE
INTEREST AND TAXATION (page 52)
(ii) NET ASSETS
Properties in development programme
Other investment properties
Operating properties
Other fixed assets
FIXED ASSETS
INVESTMENT IN JOINT VENTURE
NET CURRENT (LIABILITIES)/ASSETS
LONG TERM LIABILITIES AND PROVISIONS
NET ASSETS
(308.0)
(333.4)
2002
2001 (restated)
Property Land Securities
Trillium
£m
Total Property Outsourcing
Joint
Venture
£m
Investment
£m
Property
Trading
£m
(Note (a))
(Note (b))
(Note (b))
(Note (b))
Total
£m
Property Total Property
Outsourcing
£m
Investment
£m
(Note (a))
(Note (b))
357.7
48.5
525.9
53.1
579.0
(17.4)
(62.0)
(33.2)
–
357.7
(92.7)
(187.9)
(16.7)
(6.7)
(95.2)
(211.3)
466.4
(.2)
466.2
10.1
476.3
53.7
(10.9)
(2.3)
40.5
3.3
43.8
48.5
–
(14.4)
(3.0)
(8.0)
(25.4)
23.1
(3.8)
–
19.3
–
19.3
40.4
40.4
–
–
(1.5)
–
(1.5)
(34.6)
4.3
–
–
4.3
–
4.3
2002
Property
Total
Property
Investment Outsourcing
£m
£m
1,050.1
6,749.9
–
17.7
7,817.7
–
(346.8)
7,470.9
–
–
428.9
66.5
495.4
188.8
(22.2)
662.0
Group
£m
525.9
53.1
357.7
40.4
977.1
(110.1)
(249.9)
(51.4)
(6.7)
(34.6)
524.4
(11.1)
(2.3)
511.0
13.4
524.4
Property
Trading
£m
–
–
–
–
–
–
43.7
43.7
501.6
51.5
553.1
(17.5)
(57.4)
(25.3)
–
(82.7)
452.9
(0.2)
452.7
6.3
459.0
97.3
97.3
(30.2)
(41.5)
(8.7)
(5.0)
(55.2)
11.9
(3.9)
(0.8)
7.2
–
7.2
2001 (restated)
(Note (b))
Property Total Property
Investment Outsourcing
£m
£m
525.9
53.1
406.2
40.4
1,025.6
(110.1)
(264.3)
(54.4)
(14.7)
(34.6)
547.5
(14.9)
(2.3)
530.3
13.4
543.7
(13.5)
516.8
13.4
530.2
Total
£m
1,050.1
6,749.9
428.9
84.2
904.5
6,994.6
15.7
8,313.1
7,914.8
–
(382.9)
7,531.9
188.8
(325.3)
8,176.6
(2,140.0)
6,036.6
–
–
323.1
59.6
382.7
–
(5.1)
377.6
Total
£m
501.6
51.5
97.3
–
650.4
(47.7)
(98.9)
(34.0)
(5.0)
(137.9)
–
464.8
(4.1)
(0.8)
459.9
6.3
466.2
(9.3)
450.6
6.3
456.9
Total
£m
904.5
6,994.6
323.1
75.3
8,297.5
–
(388.0)
7,909.5
(1,891.7)
6,017.8
Notes:
(a) Includes the results of investment properties under development and the group’s share of the results of its partnerships (Note 34).
(b) No comparatives exist for the joint venture and property trading segments, as these activities commenced in the year ended 31 March 2002. Also, as Trillium was acquired in
November 2000, the results for the year ended 31 March 2001 include only four months’ trading for that business.
(c) As a consequence of adopting UITF28, rental income includes £3.5m (2001 £3.2m) of rent receivable allocated to rent free periods falling in the respective financial years.
(d) Other direct property or contract expenditure, previously described as other property outgoings, are costs incurred in the direct maintenance and upkeep of properties and in
providing services in compliance with outsourcing contracts. Void costs, which include those relating to empty properties pending redevelopment and refurbishment costs, and costs
of investigating potential development schemes which are not proceeded with are also included.
(e) Indirect property or contract expenditure are indirect costs of managing the portfolio. It includes the costs of staff involved in development projects, together with the costs of rent
reviews and renewals, relettings of properties and all office administration and operating costs other than common costs.
(f) Common costs, comprise all costs, including premises costs, associated with the Senior Executive Team, company secretarial and non-executive directors and non-segment related
depreciation charges.
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
4
Segmental Information (continued)
The group total of indirect property or contract expenditure, depreciation and common costs includes:
Auditors’ remuneration:
Audit fees (Company: £72,000; 2001 £70,000)
Non-audit fees for:
Bids – Trillium
Acquisitions
Taxation and other advice
Directors’ remuneration
Depreciation
In addition, the auditors also received non-audit fees of £2.6m (2001 £Nil) from Telereal as part of Telereal’s bid costs.
5
Interest
RECEIVABLE:
Short term deposits and corporate bonds
Other interest receivable
PAYABLE:
Borrowings not wholly repayable within five years
Borrowings wholly repayable within five years
Other interest payable
Less: Capitalised as costs of properties under development
2002
£m
2001
£m
.3
.2
.1
1.0
1.3
4.2
16.0
Total
2002
£m
4.1
.9
5.0
152.6
36.3
3.9
192.8
(21.1)
171.7
.3
.7
.6
1.0
2.3
2.8
7.8
2001
(restated)
£m
6.9
.7
7.6
140.5
8.2
2.4
151.1
(11.3)
139.8
Group
£m
Telereal
£m
3.3
.9
4.2
132.6
32.6
3.0
168.2
(21.1)
147.1
.8
–
.8
20.0
3.7
.9
24.6
–
24.6
Interest payable includes £16.0m (2001 £4.5m) in respect of bank borrowings.
Interest has been capitalised at the group’s pre-tax weighted average borrowing rate for the year of 8.5% (2001 9%), as explained in Note 1(h)(ii).
6
Staff and Pensions
EMPLOYEES
The average number of employees during the year, excluding
directors, and the corresponding aggregate staff costs were:
Indirect property or contract and administration
Direct property or contract services:
Full time
Part time
STAFF COSTS
Salaries
Social Security
Other pension
Incentive schemes
2002
No.
2001
No.*
2002
£m
2001
£m*
329
431
22.9
1,026
56
1,411
615
50
1,096
32.8
.6
56.3
40.1
4.7
4.9
6.6
56.3
20.8
6.6
.3
27.7
21.1
2.3
3.1
1.2
27.7
In addition to the above, on 1 February 2002, 338 staff transferred from BT, in accordance with TUPE regulations, to Land Securities Trillium Telecom Services Limited, a wholly owned
subsidiary of Land Securities PLC, formed for the purpose. These staff are made available to Telereal Services Limited to deliver services to BT. All related staff costs are reimbursed by
*includes Land Securities Trillium for the period 29 November 2000 to 31 March 2001 only
Telereal Services Limited.
6 0 | 61
Notes to the financial statements
for the year ended March 2002
PENSIONS
The charge to the profit and loss account for pension costs during the year is made up as follows:
Regular pension cost
Variations from regular cost
Other schemes
Net pension cost
2002
£m
3.1
1.0
2.6
6.7
2001
£m
2.8
.6
.9
4.3
The amount under other schemes includes the actual contributions paid to the group’s defined contribution schemes and sums paid to the BBC and BT schemes, as
required under the terms of the participation agreements in those schemes, explained below.
DEFINED BENEFIT SCHEME
The Pension & Assurance Scheme of the Land Securities Group of Companies (“the Scheme”) is the only material defined benefit pension scheme of the group.
The Scheme, which is closed to new entrants and which is non-contributory for employees, provides defined benefits based on final pensionable salary.The assets
of the Scheme are held in a self-administered trust fund which is separate from the group’s assets.
Contributions to the Scheme are determined by a qualified independent actuary on the basis of triennial valuations using the projected unit method.
As the Scheme is closed to new members, the current service cost will be expected to increase as a percentage of salary, under the projected unit method, as
members approach retirement.
The last formal actuarial valuation, undertaken for the purposes of setting the ongoing contribution rate, was carried out as at 6 April 2001.The valuation showed
that there was a deficit of £1.2m.
The actuary recommended that the employer contribution rate be increased from 25% to 30% of pensionable salaries with effect from April 2001. Employer
contributions were paid at this rate during the year to 31 March 2002.
Employer contributions will continue at 30% of pensionable salaries until completion of the next formal valuation to be carried out no later than as at 6 April 2004.
Interim valuations will, however, be undertaken to monitor the adequacy of the contribution rate.
The market value of the Scheme’s invested assets (excluding the value of annuities purchased to provide certain pensions in payment) as at 6 April 2001 was
£60.8m.The actuarial value of these assets represented 99% of the value of the Scheme’s liabilities at that date.
The key assumptions adopted for this valuation were as follows:
Rate of increase in pensionable salaries
Rate of increase in pensions in payment
Discount rate
– prior to retirement
– in retirement
Inflation assumption
Actuarial value of assets (% of market value)
At valuation
6 April 2001
%
5.00
2.75
6.50
5.50
2.75
106.00
CONTRIBUTORY MONEY PURCHASE SCHEME
A contributory money purchase scheme was introduced on 1 January 1999 for all new administrative and senior property based staff, subject to eligibility, together
with a separate similar scheme, effective 1 April 1998, for other property based staff. A separate similar scheme, previously set up by Trillium, is also in operation for
Land Securities Trillium staff. In addition, as part of the PRIME Agreement, the group is obliged to provide pension benefits under a now closed funded defined
benefit scheme applicable to less than 20 employees.
OTHER SCHEMES
During the year the group participated in the BBC and BT pension schemes in respect of employees who were transferred from those businesses to the group as part
of Land Securities Trillium’s outsourcing contracts with those entities. Separate pension arrangements will be set up for these employees in due course. Land
Securities Trillium Telecom Services Limited has put in place a defined benefit scheme with the same terms and conditions as the BT scheme. Staff who transferred
from BT on 1 February 2002 can transfer to this new scheme from 1 May 2002. All relevant pension costs are recharged to Telereal Services Limited.
There are also certain historic unfunded pensions being paid to three former directors or their dependants in accordance with their service contracts.
All death-in-service and benefits for incapacity arising during employment provided by the group are wholly insured.
No post-retirement benefits other than pensions are made available to employees of the group.
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
6
Staff and Pensions (continued)
ADDITIONAL DISCLOSURES UNDER FRS17 ‘RETIREMENT BENEFITS’
As noted above, a full actuarial valuation was undertaken on 6 April 2001.This valuation was updated to 31 March 2002 by a qualified actuary for the purposes of the
following additional disclosures required by the transitional provisions of FRS17. The major assumptions used by the actuary in this valuation were (in nominal terms):
Rate of increase in pensionable salaries
Rate of increase in pensions in payment
Discount rate
Inflation assumption
2002
%
5.00
2.75
6.00
2.75
The market value of the assets in the scheme (including the value of annuities purchased to provide certain pensions in payment) and the expected rate of return (net of
investment management expenses) were:
Equities
Bonds and insurance contracts
Other
Total market value of assets
Actuarial value of scheme liabilities
Deficit in the scheme
Related deferred tax asset
Net pension liability
Expected rate
of return
%
Fair Value
£m
7.5
6.0
46.2
12.9
18.5
77.6
(87.5)
(9.9)
3.0
(6.9)
7
Executive and Savings Related Share Option Schemes
No. of Options
At 1 April 2001
Granted
Exercised (Note 26)
Lapsed
At 31 March 2002
Option
price
713p
869p
813p
2000
Executive
Share Option
Scheme
1984
1983 & 1993
Executive Savings Related
Share Option
Schemes
Share Option
Scheme
1,176,562
295,250
399,655
232,003
1,601,000
122,000
–
(89,500)
(81,835)
(216,000)
–
(29,923)
2,683,562
205,750
519,900
The options outstanding under the 2000 scheme are exercisable at prices between 801p and 869p up to 2012, provided the associated performance conditions are met, and those
under the 1984 executive share option scheme at 618.6p up to July 2004. The options outstanding under the savings related share option schemes are exercisable at prices between
487p and 736p, after three, five or seven years from the date of grant.
6 2 | 6 3
Notes to the financial statements
for the year ended 31 March 2002
8 Directors’ Emoluments, Share Options and Interests in Ordinary Shares
EMOLUMENTS
The emoluments of the directors, including pension contributions and the value of shares in the company awarded under the company’s long-term incentive plan (‘LTIP’), of £Nil (2001 £190,800 at 880p per
share), amounted to £4,050,000 (2001 £3,580,000).
£’000
Basic
Salary
Profit
Sharing
& Bonuses
LTIP
Shares
Benefits
Car &
Medical
Total emoluments
excluding pensions
Pension
contributions
Fees
2002
2001
2002
2001
480
EXECUTIVE:
I J Henderson
M R Griffiths
K Redshaw (retired 20.3.2001)
J I K Murray (retired 28.6.2001)
P Walicknowski (resigned 19.12.2001)
309
M J Chande (appointed 29.11.2000; resigned 28.2.2002) 310
F W Salway (appointed 2.4.2001)
A E Macfarlane (appointed 1.10.2001)
200
260
137
75
–
NON-EXECUTIVE:
P G Birch (Chairman)
P B Hardy
Sir Alistair Grant (to 22.1.2001)
Sir Winfried Bischoff
G I Henderson (appointed 2.10.2000)
P G Freeman (appointed 1.1.2002)
Total 2002
Total 2001
–
–
–
–
–
–
1,771
1,514
130
37
–
52
198
200
42
–
–
–
–
–
–
–
659
611
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
191
9
14
–
3
10
26
6
9
–
–
–
–
–
–
77
60
–
–
–
–
–
–
–
–
619
311
–
130
517
536
248
146
143
143
33
–
32
27
7
33
–
32
27
7
242
232
573
350
350
533
446
124
–
–
138
31
21
29
13
213
104
–
702
84
105
59
34
–
–
–
–
–
–
151
81
620
87
8
25
–
–
–
–
–
–
–
–
2,749
1,301
2,608
972
Benefits include all taxable benefits arising from employment within the group comprising: the provision of a company car, private medical facilities, the value of shares allocated
under the 1989 and 1999 profit sharing schemes and a bonus of 18 per cent of salary payable under the senior executive annual bonus scheme apportioned equally in cash and shares.
Bonuses received by I J Henderson include £69,000 in recognition of 30 years service to the group.
In addition to the emoluments set out above, the following compensations for loss of office were also paid:
J I K Murray
P Walicknowski
£452,708 (plus a benefit of £10,500 on his purchase of his company car)
£125,000
In addition, J I K Murray received £16,500 for consultancy services during the year after his retirement. The company was required to make a payment of £676,000 towards J I K Murray’s
pension scheme funds as he commenced drawing his undiscounted pension before his normal retirement date.
The total emoluments of the highest paid director, including £Nil (2001 £43,900) received in shares under the long term incentive plan and gains before tax of £5,800 (2001 £Nil) made
on the exercise of share options during the year but excluding pension contributions, amounted to £624,900 (2001 £588,700). The accrued pension as at 31 March 2002 for the
highest paid director was £294,700 (2001 £153,100).
Pensions of £166,000 (2001 £175,000) were paid to former directors or their dependants.
A brief explanation of pension arrangements for directors, including a table of accrued pension entitlements as at 31 March 2002, and details of amounts receivable under the LTIP are
provided on pages 46 and 47.
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
8 Directors’ Emoluments, Share Options and Interests in Ordinary Shares (continued)
OPTIONS OVER ORDINARY SHARES
No. of
options
at 1 April
2001
(1) 27,000
(2) 174,562
(2)
(3)
4,310
(1) 33,500
(2) 50,000
(2)
(3)
3,539
(2) 35,000
(2)
(2)
(1) 12,500
(3)
3,481
(2) 200,000
(2) 150,000
Granted during year
Grant
price
(pence)
No.
Exercised/Lapsed (L) during year
Market
price on
exercise
(pence)
Exercise
price
(pence)
No.
27,500
869
(1,601)
487
850
41,000
271
40,000
75,000
869
713
869
813
(800)
487
851
(12,500)
618.6
(823)
(2,104)
(L) (337)
(L) (217)
672
504
672
504
863
771
884
(L) (200,000)
No.
27,000
174,562
27,500
2,709
33,500
50,000
41,000
3,010
35,000
40,000
75,000
–
–
–
Exercise
price
(pence)
618.6
820
869
680.9*
618.6
820
869
646.1*
801
869
813
–
Options at 31 March 2002
Exercisable dates
7/1997 – 7/2004
9/2003 – 9/2010
7/2004 – 7/2011
7/2001 – 7/2004
7/1997 – 7/2004
9/2003 – 9/2010
7/2004 – 7/2011
7/2001 – 7/2005
11/2003 – 11/2010
7/2004 – 7/2011
11/2004 – 11/2011
150,000
824
05/2004
I J Henderson
M R Griffiths
F W Salway
A E Macfarlane
J I K Murray
P Walicknowski
M J Chande
(1) 1984 Executive Share Option Scheme (2) 2000 Executive Share Option Scheme (3) 1983 & 1993 Savings Related Share Option Schemes
*weighted average exercise price
The range of the closing middle market prices for Land Securities shares during the year was 762p to 929.5p. The middle market price at 31 March 2002 was 893p.
The aggregate of gains before tax made by directors on exercise of share options during the year amounted to £48,100 (2001 £58,000).
The 1984 Executive Share Option Scheme was approved by the Inland Revenue on 24 April 1985 and permitted the Remuneration Committee to grant options to directors and key
executives for a consideration of £1 for each grant. The Scheme, which expired on 24 April 1995, complied with best practice at the time of its introduction and included such standard
terms as a limitation on the aggregate value of grants to each selected executive of four times that individual’s annual remuneration and a bar on the exercise of options within three
years of their issue.
The Land Securities PLC 2000 Executive Share Option Scheme was introduced in July 2000 and a summary of this scheme is set out in the Remuneration Committee Report on pages
46 and 47. The remainder of the options granted to directors under the savings related schemes are exercisable at prices between 504p and 736p per share after five or seven years
from date of grant.
Non-executive directors do not participate in, and hence do not hold any options under, the group’s share option schemes.
INTERESTS IN ORDINARY SHARES
The beneficial interests of the directors in the ordinary shares of the company as at 31 March were:
P G Birch
I J Henderson
M R Griffiths
F W Salway
A E Macfarlane
P B Hardy
Sir Winfried Bischoff
G I Henderson
P G Freeman
No. of shares
2001
22,864
82,433
30,771
2,273*
1,000*
19,200
10,000
3,000
5,000*
2002
22,864
89,440
34,931
8,108
1,000
19,200
10,000
3,000
5,000
*at date of appointment
There have been no changes in the beneficial and non-beneficial shareholdings of the directors between the end of the financial year and 22 May 2002.
No director had any other interests in the securities of Land Securities PLC or any of its subsidiary undertakings during the year.
The registers of directors’ share and debenture interests and holdings of options, which are open to inspection at the company’s registered office, contain full details of directors’ interests.
6 4 | 6 5
Notes to the financial statements
for the year ended 31 March 2002
9
Taxation
Current tax
Corporation tax on revenue profit for the year at 30% (2001 30%):
Adjustments in respect of previous years
Deferred taxation on revenue profit (Note 25)
Release of deferred taxation (Note 25)
On joint venture’s revenue profit
On property sales and bid costs
Current taxation
Joint venture
Factors affecting the tax charge for the year
The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 30% (2001 30%).
The differences are explained below:
Profit on ordinary activities before taxation (page 52)
Profit on ordinary activities multiplied by the standard rate
of corporation tax at 30%
Expenses disallowed
Reduced tax on property sales
Deferred tax – principally capital allowances
Other items
Current tax including current tax on property sales and bid costs
(Less)/add: Current taxation (charge)/credit on property sales and bid costs
Current taxation on revenue profit
10
Equity Dividends
Interim paid
Proposed final
11
Earnings per Share
EARNINGS PER SHARE
Earnings per share
Effect of dilutive securities:
Convertible bonds
Share options
Diluted earnings per share
2002
pence
per share
9.05
24.95
34.00
2001
pence
per share
8.65
23.85
32.50
Weighted average
no. of shares
2002
m
524.2
29.7
.2
554.1
2001
m
523.0
30.2
.2
553.4
Profit after taxation
2002
£m
263.6
2001
(restated)
£m
234.6
10.9
11.1
274.5
245.7
2002
£m
2001
(restated)
£m
91.6
.2
91.8
17.6
(10.7)
1.3
100.0
1.2
(1.3)
99.9
86.8
(.6)
86.2
12.2
(7.4)
–
91.0
(.9)
–
90.1
363.5
324.7
109.1
2.9
(2.3)
(17.6)
.9
93.0
(1.2)
91.8
2002
£m
47.5
130.9
178.4
97.4
2.4
(2.1)
(12.2)
(.2)
85.3
.9
86.2
2001
£m
45.2
124.9
170.1
Earnings per share
2002
pence
50.27
2001
(restated)
pence
44.87
49.54
44.41
ADJUSTED EARNINGS PER SHARE
Earnings per share
Effect of results of property sales and bid costs after taxation
Effect of additional deferred tax arising on the adoption of FRS19
Adjusted earnings per share
Diluted earnings per share
Effect of results of property sales and bid costs after taxation
Effect of additional deferred tax arising on the adoption of FRS19
Adjusted diluted earnings per share
263.6
1.2
5.9
270.7
274.5
1.2
5.9
281.6
234.6
(2.2)
4.8
237.2
245.7
(2.2)
4.8
248.3
524.2
523.0
524.2
523.0
554.1
553.4
554.1
553.4
50.27
.24
1.10
51.61
49.54
.23
1.04
50.81
44.87
(.41)
.92
45.38
44.41
(.39)
.87
44.89
Profits on the sales of properties and bid costs are excluded from adjusted earnings as these are potentially non-recurring items. The additional deferred tax arising from the adoption
of FRS19 is also excluded as the group’s experience is that it is very unusual for plant allowances to be claimed back through balancing charges on the disposal of a property. Adjusted
earnings and adjusted diluted earnings per share have been disclosed, therefore, to show measures of earnings that better reflect the principal operating activities of the group.
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
12
Net Assets per Share
Net assets
Number of shares
Net assets per share
Net assets per share
Effect of additional deferred tax arising on the adoption of FRS 19
Adjusted net assets per share
Net assets per share
Adjustments for: convertible bonds
Exercise of oustanding share options
Diluted net assets per share
Diluted net assets per share
Effect of additional deferred tax arising on the adoption of FRS 19
Adjusted diluted net assets per share
2002
£m
6,036.6
128.3
6,164.9
6,036.6
243.3
27.6
6,307.5
6,307.5
128.3
6,435.8
2001
(restated)
£m
6,017.8
122.4
6,140.2
6,017.8
246.1
14.0
6,277.9
6,277.9
122.4
6,400.3
2002
m
524.3
2001
m
523.6
524.3
523.6
524.3
29.7
3.4
557.4
523.6
30.2
1.9
555.7
557.4
555.7
557.4
555.7
2002
pence
1151
25
1176
2001
(restated)
pence
1149
23
1172
1151
1149
1132
1130
1132
23
1155
1130
22
1152
The additional deferred tax liability arising on the adoption of FRS19 has been excluded from the calculations of the adjusted values as the group’s experience is that deferred tax on capital
allowances in relation to properties is unlikely to crystallise in practice.
13
14
Goodwill
At 1 April 2001
Prior year adjustment
At 1 April 2001 as restated
Amortisation for the year
At 31 March 2002
£m
42.7
(.7)
42.0
Cost Amortisation
£m
(.8)
–
(.8)
(2.3)
42.0
(3.1)
Net
£m
41.9
(.7)
41.2
(2.3)
38.9
Goodwill, which arose on the group’s acquisition of Trillium Investments GP Limited (‘Trillium’) in November 2000, has been restated for the effects of pre-acquisition deferred tax resulting
from the adoption of FRS19 by Trillium. The prior year adjustment has no material effect on amortisation.
Leasehold
Investment Properties
(a) GROUP
At 1 April 2001: at valuation
Prior year UITF28 adjustment
At 1 April 2001 as restated: Net book amount
Additions
Sales
Depreciation
Unrealised deficit on revaluation (Note 27(a))
At 31 March 2002: Net book amount
Amount included in prepayments under UITF28
Open market value (page 78)
Freehold
£m
Over 50
years to run
£m
Under 50
years to run
£m
5,842.5
(3.1)
5,839.4
345.0
(395.1)
5,789.3
–
(74.0)
5,715.3
5.4
5,720.7
1,993.4
(3.6)
1,989.8
160.3
(99.3)
2,050.8
–
(29.9)
2,020.9
5.4
2,026.3
70.0
(.1)
69.9
.3
(3.7)
66.5
(1.1)
(1.6)
63.8
.1
63.9
The movement on investment properties forming part of the group’s development programme, excluding the BBC development and the
trading properties, included above are as follows:
At 1 April 2001: at open market value
Properties transferred into the development pipeline during the year (at cost or at 1 April 2001 valuation)
Expenditure during the year including development property acquisitions
Capitalised interest
Deficit on valuation
Developments completed, let and transferred out of development pipeline during the year
Developments removed from the development programme
At 31 March 2002: at open market value
Total
£m
7,905.9
(6.8)
7,899.1
505.6
(498.1)
7,906.6
(1.1)
(105.5)
7,800.0
10.9
7,810.9
£m
904.5
29.2
325.4
19.9
(70.3)
1,208.7
(137.6)
(21.0)
1,050.1
The current schemes in the development programme are set out on pages 22 and 23. The new schemes added during the year, including acquisitions, are 7 Soho Square, W1, 190 High
Holborn, WC1, 40/50 Eastbourne Terrace, W2, Commerce Way, Croydon and St. David’s Centre, Cardiff. Developments are taken out of the development programme when physically
completed and 95% let. Schemes completed during the year comprise Martineau Place, Birmingham, 6/16 Market Square, Sunderland, Racecourse Retail Park, Liverpool and Industrial units
at Juniper Phase I, Basildon, and Horizon Point Phase I, Hemel Hempstead.
6 6 | 6 7
balance sheets
Notes to the financial statements
for the year ended 31 March 2002
(b) COMPANY
At 1 April 2001: at valuation
Prior year UITF28 adjustment
At 1 April 2001 as restated: Net book amount
Additions
Transfer to group undertaking
Sales
Depreciation
Unrealised deficit on revaluation (Note 27(b))
At 31 March 2002: Net book amount
Amount included in prepayments under UITF28
Open market value
Leasehold
Freehold
£m
Over 50
years to run
£m
Under 50
years to run
£m
Total
£m
2,316.0
335.7
13.2
2,664.9
(.4)
2,315.6
91.9
(146.0)
(3.1)
2,258.4
–
(89.4)
2,169.0
.7
2,169.7
–
335.7
26.3
–
(22.6)
339.4
–
(12.0)
327.4
.1
327.5
–
(.4)
13.2
2,664.5
.2
–
(3.7)
9.7
(.5)
(.1)
9.1
.1
9.2
118.4
(146.0)
(29.4)
2,607.5
(.5)
(101.5)
2,505.5
.9
2,506.4
At 31 March 2002, the cumulative interest capitalised in investment properties under development are: group £39.7m (2001 – restated £19.8m); company £2.7m (2001 – restated £1.3m).
In respect of the group: freeholds include £366.1m (2001 £376.7m) of leaseholds with unexpired terms exceeding 900 years; leaseholds under 50 years to run include £10.3m (2001 £10.9m)
with unexpired terms of 20 years or less.
The historical cost of investment properties are: group £4,261.4m (2001 – restated £4,016.1m); company £1,016.3m (2001 £913.8m).
15
Operating Properties
COST
At 1 April 2001
Additions
Sales
At 31 March 2002
ACCUMULATED DEPRECIATION
At 1 April 2001
Depreciation for the year
Sales
At 31 March 2002
NET BOOK AMOUNT
At 31 March 2002
At 31 March 2001
Freehold
land and
buildings
£m
Leasehold buildings
Over 50
years to run
£m
Under 50
years to run
£m
257.6
96.3
(12.3)
341.6
(1.3)
(4.7)
.1
(5.9)
34.2
11.1
–
45.3
(.2)
(.9)
–
(1.1)
32.9
17.1
–
50.0
(.1)
(.9)
–
(1.0)
Total
£m
324.7
124.5
(12.3)
436.9
(1.6)
(6.5)
.1
(8.0)
335.7
256.3
44.2
34.0
49.0
32.8
428.9
323.1
Certain of the assets acquired under the PRIME Agreement are subject to a first charge granted to the DWP (formerly known as the DSS). The amount of this charge at 31 March 2002
is £13m (2001 £26m) which reduces to nil on a straight line basis after a further year. The charge secures amounts which would become payable to the DWP on early termination of
the PRIME Agreement in the relevant year.
At 31 March 2002, the cumulative interest capitalised in operating properties under development amounts to £0.8m (2001 £Nil).
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
16
Properties
BOOK AMOUNT/COST
At 1 April 2001
Prior year UITF28 adjustment
At 1 April 2001 as restated
Additions
Sales
Unrealised deficit on revaluation
At 31 March 2002
ACCUMULATED DEPRECIATION
At 1 April 2001
Depreciation for the year
Sales
At 31 March 2002
NET BOOK AMOUNT
At 31 March 2002
At 31 March 2001
Leasehold
Freehold
£m
Over 50
years to run
£m
Under 50
years to run
£m
Investment
Properties
(Note 14(a))
£m
Operating
Properties
(Note 15)
£m
Total
£m
6,100.1
2,027.6
102.9
8,230.6
7,905.9
324.7
(3.1)
(3.6)
(.1)
(6.8)
(6.8)
6,097.0
2,024.0
102.8
8,223.8
7,899.1
441.3
(407.4)
171.4
(99.3)
17.4
(3.7)
630.1
505.6
(510.4)
(498.1)
6,130.9
2,096.1
116.5
8,343.5
7,906.6
(74.0)
(29.9)
(1.6)
(105.5)
(105.5)
–
324.7
124.5
(12.3)
436.9
–
6,056.9
2,066.2
114.9
8,238.0
7,801.1
436.9
(1.3)
(4.7)
.1
(5.9)
(.2)
(.9)
–
(1.1)
(.1)
(2.0)
–
(2.1)
(1.6)
(7.6)
.1
(9.1)
–
(1.1)
–
(1.1)
(1.6)
(6.5 )
.1
(8.0)
6,051.0
6,095.7
2,065.1
2,023.8
112.8
102.7
8,228.9
8,222.2
7,800.0
7,899.1
428.9
323.1
At 31 March 2002, the cumulative capitalised interest in properties amounts to £40.5m (2001 – restated £19.8m).
17
Commitments for Future Expenditure on Properties
Under contract
Board authorisations not contracted
Contracted and authorised commitments
Group
Company
2002
£m
574.1
312.1
886.2
2001
£m
254.8
293.2
548.0
2002
£m
36.8
221.6
258.4
2001
£m
12.6
7.9
20.5
Less: Commitments outside the development programme
Estimated additional expenditure on the development programme (excluding future interest)
Capital creditors (included in Note 21) relating to the development programme
Total outstanding costs of the development programme (including the BBC development)
(70.3)
(135.4)
918.2
86.9
1,141.3
26.0
1,821.0
1,579.9
18
Other Tangible Assets
At 1 April 2001
Additions during the year
Disposals
Depreciation for the year
At 31 March 2002
Other tangible assets include computers, motor vehicles, furniture, fixtures and fittings and improvements to group offices.
Cost Depreciation
£m
£m
54.0
19.8
(1.8)
72.0
(19.9)
1.6
(8.4)
(26.7)
Net
£m
34.1
19.8
(.2)
(8.4)
45.3
6 8 | 6 9
Notes to the financial statements
for the year ended 31 March 2002
19
Investments in Group Undertakings
At 1 April 2001
Prior year adjustment
At 1 April 2001 as restated
Increase during the year
Unrealised revaluation surplus (Note 27(b))
At 31 March 2002
Shares
£m
4,564.6
(93.3)
4,471.3
14.0
122.0
Loans
£m
395.2
–
395.2
96.5
Total
£m
4,959.8
(93.3)
4,866.5
110.5
122.0
4,607.3
491.7
5,099.0
The prior year adjustment is a consequence of the group undertakings adopting FRS19, UITF28, UITF34 and the deferred tax effect of capitalising interest in their financial statements.
Shares comprise ordinary shares of group undertakings and are stated in accordance with the accounting policy explained in Note 1(k).
Shares at 1 April 2001 included revaluation surpluses of £2,496.1m. Loans to group undertakings have no fixed repayment dates.
The principal group undertakings, all of which are wholly owned, incorporated and operating in the United Kingdom, are noted in Note 32. As permitted by Section 231 Companies Act
1985, a complete listing of all of the group undertakings has not been provided on the grounds that the information would be of an unduly excessive length. A complete list of group
undertakings will, however, be filed with the Annual Return.
20
Debtors
Falling due within one year:
Trade debtors
Property sales debtors
Other debtors
Prepayments and accrued income
Taxation recoverable
Falling due after more than one year:
Other debtors
21
Creditors falling due within one year
Debentures and loans (Note 22)
Overdraft
Trade creditors
Taxation and Social Security
Proposed final dividend
Capital creditors
Other creditors
Accruals and deferred income
Group
Company
2002
£m
96.1
27.9
49.6
81.2
–
2001
(restated)
£m
33.4
52.1
29.4
61.1
–
254.8
176.0
5.5
5.5
1.3
1.3
2002
£m
8.4
–
4.3
6.2
46.9
65.8
.2
.2
2001
(restated)
£m
9.5
–
4.6
11.7
34.5
60.3
.2
.2
Group
Company
2002
£m
1.4
21.8
28.9
68.4
130.8
108.3
29.6
301.7
690.9
2001
(restated)
£m
26.4
4.2
15.5
61.5
124.9
59.5
29.2
273.4
594.6
2002
£m
.3
–
–
–
2001
(restated)
£m
.3
–
–
–
130.8
124.9
51.8
6.7
96.2
12.4
9.1
99.9
285.8
246.6
Capital creditors represent amounts due under contracts to purchase properties, which were unconditionally exchanged at the year end, and for work completed on investment
properties but not paid for at the financial year end.
Debentures and loans include £0.4m (2001 £0.4m) and £0.3m (2001 £0.3m) of instalments of borrowings, repayable by the group and company respectively, that mature after more
than one year.
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
22
Debentures, Bonds and Loans
UNSECURED
103⁄4 per cent Exchange Bonds due 2004
91⁄ 2 per cent Bonds due 2007
£200m 9 per cent Bonds due 2020
Bank borrowings
SECURED
61⁄4 per cent Mortgage Debenture 2000/05
61⁄ 2 per cent Mortgages 2000/05
73⁄4 per cent Mortgage 2008
63⁄ 8 per cent First Mortgage Debenture Stock 2008/13
10 per cent First Mortgage Debenture Stock 2025
10 per cent First Mortgage Debenture Stock 2027
10 per cent First Mortgage Debenture Stock 2030
Bank loan
Falling due within one year (Note 21)
Falling due after more than one year
Group
Company
2001
£m
21.2
200.0
196.4
25.0
442.6
8.7
8.7
5.6
32.3
400.0
200.0
200.0
208.9
2002
£m
21.2
200.0
196.6
–
417.8
8.6
8.6
–
32.3
400.0
200.0
200.0
–
2001
£m
21.2
200.0
196.4
–
417.6
8.7
8.7
–
32.3
400.0
200.0
200.0
–
2002
£m
21.2
200.0
196.6
265.0
682.8
8.6
8.6
5.5
32.3
400.0
200.0
200.0
207.6
1,745.4
1,506.8
1,267.3
1,267.3
(1.4)
(26.4)
(.3)
(.3)
1,744.0
1,480.4
1,267.0
1,267.0
The interest rate on the secured bank loan, which is variable and includes a margin which varies according to the group’s credit rating, has been swapped to an effective rate of 6.8%.
Secured loans are charged on properties of the company and its group undertakings. The bank loan is guaranteed by the holding company, Land Securities PLC, and secured on the
unitary charge receivable from the DWP under the PRIME Agreement and also on most properties held by Land Securities Trillium. From time to time, short term deposits are charged
as temporary security until substitutions have been agreed for properties taken out of charge. At 31 March 2002, short term deposits of the group £Nil (2001 £9.1m) and of the
company £Nil (2001 £9.1m) were charged as temporary security for borrowings until substitutions have been agreed for properties taken out of charge.
Borrowings of group undertakings of £5.5m (2001 £5.6m) are secured by charges on properties of the company and its group undertakings.
23
Convertible Bonds
£210m 6 per cent Guaranteed Convertible Bonds due 2007
7 per cent Convertible Bonds due 2008
Group
Company
2002
£m
207.3
36.0
243.3
2001
£m
206.8
39.3
246.1
2002
£m
–
36.0
36.0
2001
£m
–
39.3
39.3
In accordance with the terms of their relevant Trust Deeds:
1) The 6 per cent Guaranteed Convertible Bonds, issued by Land Securities Finance (Jersey) Limited and guaranteed by the company, (i), at the holder’s option may be converted, up to
and including 22 March 2007, into 21⁄2 per cent Exchangeable Redeemable Preference Shares in the issuer which are exchangeable for up to a maximum of 24,027,345 ordinary shares
of £1 each in Land Securities PLC at 874p per share or (ii), at the option of the issuer may be redeemed at par.
2) The 7 per cent Convertible Bonds (i), at the holders’ option may be converted, up to and including 23 September 2008, into a maximum of 5,620,937 fully paid shares of £1 each
at a conversion price of 640p per share or (ii), at the option of the company, may be redeemed at par. During the year, £3,310,000 of the bonds were converted into 517,186 fully
paid shares of £1 each.
On 22 May 2002 redemption notices were issued on the 2007 and 2008 bonds.
24
Other Creditors falling due after more than one year
Deferred income
Other creditors
Group
Company
2002
£m
16.7
6.1
22.8
2001
£m
20.4
11.4
31.8
2002
£m
6.6
5.1
11.7
2001
£m
7.1
5.0
12.1
7 0 | 71
Notes to the financial statements
for the year ended 31 March 2002
25
Provisions for Liabilities and Charges
At 1 April 2001
Prior year adjustment (Note 3)
At 1 April 2001 as restated
Net charge for the year
Released in respect of property disposals during the year
Other movements
At 31 March 2002
Dilapidations
£m
Deferred
taxation
£m
4.7
–
4.7
.6
5.3
1.1
127.6
128.7
17.6
(10.7)
(11.0)
124.6
Group
Company
Total
£m
5.8
127.6
133.4
18.2
(10.7)
(11.0)
129.9
Deferred
taxation
£m
–
39.1
39.1
5.3
(.3)
–
44.1
The amount of tax on capital gains which would become payable in the event of sales of the investment properties at the amounts at which they are stated in Note 14 is in the region of
£535m (2001 £540m) for the group and £170m (2001 £230m) for the company.
The deferred taxation which would be released in such circumstances, on the assumption that no balancing charge would be incurred, is £130.6m (2001 £122.3m).
26
Called up Share Capital
Ordinary shares of £1 each:
Authorised
Allotted and fully paid
The movements in share capital during the year were:
Allotted:
On the exercise of options granted under:
1983 and 1993 Savings Related Share Option Schemes (Note 7)
1984 Executive Share Option Scheme (Note 7)
On conversion of 7 per cent Convertible Bonds due 2008 (Note 23)
2002
£m
720.0
524.3
2001
£m
720.0
523.6
Cash consideration received
£m No. of shares
.5
.6
1.1
81,835
89,500
517,186
688,521
The exercise of all options outstanding at 31 March 2002, granted under the savings related and executive share option schemes, would result in the issue of a further 3,409,212
ordinary shares.
27
Reserves
Capital
Share premium redemption
reserve
£m
account
£m
Revaluation
reserve
£m
Other
reserves
£m
Profit and
loss account
£m
Total
£m
(a) GROUP
At 1 April 2001
Prior year adjustment (Note 3)
At 1 April 2001 as restated
Premium arising on issues of shares
Unrealised deficit on revaluation of investment properties (Note 14(a))
Share of unrealised surplus on revaluation of properties held in joint venture (Note 33)
Realised on sales of investment properties
Taxation on revaluation surpluses realised on sales of properties
Retained profit for the year (page 52)
Amortised discount and issue expenses of bonds
At 31 March 2002
312.0
–
312.0
3.6
(.7)
314.9
36.0
3,696.4
324.6
1,258.3
5,627.3
–
(23.0)
–
(110.1)
(133.1)
36.0
3,673.4
324.6
1,148.2
5,494.2
(105.5)
46.8
(237.8)
237.8
(12.0)
3.6
(105.5)
46.8
(12.0)
85.2
85.2
.7
36.0
3,376.9
550.4
1,234.1
5,512.3
Land Securities
Notes to the financial statements
for the year ended 31 March 2002
27
Reserves (continued)
(b) COMPANY
At 1 April 2001
Prior year adjustment (Note 3)
At 1 April 2001 as restated
Premium arising on issues of shares
Unrealised deficit on revaluation of investment properties (Note 14(b))
Realised on sales of properties
Revaluation of shares in group undertakings (Note 19)
Taxation on revaluation surpluses realised on sales of properties
Retained profit for the year
Amortised discount and issue expenses of bonds
Capital
Share premium redemption
reserve
£m
account
£m
Revaluation
reserve
£m
Other
reserves
£m
Profit and
loss account
£m
Total
£m
312.0
–
312.0
3.6
(.7)
36.0
4,058.9
–
(99.9)
36.0
3,959.0
.1
–
.1
1,198.4
5,605.4
(32.6)
(132.5)
1,165.8
5,472.9
(101.5)
(159.5)
122.0
159.5
.9
3.6
(101.5)
122.0
.9
3.8
3.8
.7
At 31 March 2002
314.9
36.0
3,820.0
160.5
1,170.3
5,501.7
Land Securities PLC has not presented its own profit and loss account, as permitted by Section 230(1)(b) Companies Act 1985. The retained profit for the year of the company, dealt
with in its financial statements, was £3.8m (2001 – restated £56.4m).
28
Reconciliation of Group Operating Profit to Net Cash Inflow from Operating Activities
Operating profit (group) (page 52)
Depreciation and amortisation
Increase in trading properties
(Increase)/decrease in debtors
Increase/(decrease) in creditors
Net cash inflow from operating activities
29
Analysis of Net Cash Flows
(a) MANAGEMENT OF LIQUID RESOURCES
Net (increase)/decrease in short term deposits
Net cash (outflow)/inflow from management of liquid resources
Liquid resources comprise short term deposits which are readily realisable within one year.
(b) CASH MOVEMENT IN DEBT
Debt due within one year – Repayment of secured debt
– Repayment of unsecured debt
– Unsecured bank loan
Debt due after one year – Unsecured bank loan
Repayment of secured debt
Increase/(decrease) in debt
30
Analysis of Net Debt
Net bank balance/(overdraft)
Liquid resources
Debt due within one year
Debt due after one year
Net debt
7 2 | 7 3
2002
£m
497.5
18.3
(36.9)
(107.9)
35.2
406.2
2002
£m
(38.9)
(38.9)
2002
£m
(.4)
–
(25.0)
(25.4)
265.0
–
265.0
239.6
1 April
2001
£m
3.1
22.0
(26.4)
(1,726.5)
(1,727.8)
Movements during year
Cash Flow
£m
Non-Cash
£m
(17.4)
38.9
25.4
(265.0)
(218.1)
(.4)
4.2
3.8
2001
(restated)
£m
450.6
8.6
–
14.1
(11.3)
462.0
2001
£m
118.1
118.1
2001
£m
(.4)
(28.7)
25.0
(4.1)
–
(10.0)
(10.0)
(14.1)
31 March
2002
£m
(14.3)
60.9
(1.4)
(1,987.3)
(1,942.1)
Notes to the financial statements
for the year ended 31 March 2002
31
Financial Assets and Liabilities
This note should be read in conjunction with the comments set out in the Financial Review on page 32.
The group has defined financial assets and liabilities as those assets and liabilities of a financial nature, namely cash, investments, borrowings and interest rate swaps.
Short term debtors/creditors, capital debtors/creditors, taxation and prepayments and accruals have been excluded.
All of the group’s financial assets and liabilities are sterling based and, with the exception of the committed bank facility, at fixed rates.
The group’s financial assets and liabilities and their fair values are:
FINANCIAL ASSETS
Short term investments and cash
FINANCIAL LIABILITIES
Debentures, bonds, other loans and overdraft
Convertible bonds
FINANCIAL INSTRUMENTS
Interest rate swaps
Weighted average period of fixed interest rates
Weighted average interest rate
Book value
Fair value
Excess of fair value
over book value
2002
£m
2001
£m
2002
£m
2001
£m
2002
£m
2001
£m
72.3
31.8
72.3
31.8
–
–
(1,767.2)
(1,511.0)
(2,205.6)
(1,964.5)
(243.3)
(246.1)
(274.9)
(287.7)
–
–
(4.9)
(12.2)
(438.4)
(31.6)
(4.9)
(474.9)
(453.5)
(41.6)
(12.2)
(507.3)
Financial assets
Financial liabilities
3 days
3.0%
35 days
14.1 years
17.1 years
5.3%
8.3%
8.8%
Fair value has been calculated by taking the mid-market value, where one is available, or using a discounted cash flow approach for those financial assets and liabilities that do not
have a published market value. The difference between book value and fair value will not result in any change to the cash outflows of the group unless, at some stage in the future,
borrowings are purchased in the market, or repaid, at a price different to the nominal value.
The group has entered into the following interest rate swaps:
Each for
£m
Start date
100
100
100
100
100
100
100
29 September 2000
29 September 2000
28 June 2002
30 June 2002
31 March 2002
31 March 2002
31 March 2002
Receives
Pays
6-month LIBOR
5.59%
6-month LIBOR
5.58%
6-month LIBOR
5.00%
6-month LIBOR
5.00%
6-month LIBOR
5.46%
6-month LIBOR
5.45%
6-month LIBOR
5.28%
Duration
(years)
30*
30*
20*
20*
10
10
18
*The counterparties have the right to terminate the swaps mid-way through the life of the swaps.
As the intention of these swaps is to fix the interest rate on existing and new borrowings, the value of the swaps have not been incorporated into the financial statements. Once they
have commenced operating, interest receipts and payments on swaps are dealt with on an accruals basis.
In addition there is a further swap which was taken out by Trillium to hedge the secured bank loan included in Note 22. This swap has a maximum life of 16 years and mirrors the
repayment schedule for that bank loan. As part of the fair value accounting for the acquisition of Trillium, this swap was marked to market at a cost of £14.9m. The cost, which is
included in the bank loan, is being amortised over the life of the swap as a credit to interest payable.
Land Securities
Financial assets
Financial liabilities
Borrowing facilities
2002
£m
72.3
–
–
–
2001
£m
29.8
2.0
–
–
72.3
31.8
2002
£m
23.2
6.7
537.6
1,443.0
2,010.5
2001
£m
30.6
1.4
62.3
1,662.8
1,757.1
2002
£m
250
–
335
–
585
2002
£m
.3
.3
37.8
1,264.9
1,303.3
2001
£m
50.0
–
–
600.0
650.0
Company
2001
£m
.3
.3
38.1
1,267.9
1,306.6
Notes to the financial statements
consolidated profit and loss account
for the year ended 31 March 2002
31 Financial Assets and Liabilities (continued)
The maturity and repayment profiles of the group’s financial
assets and liabilities and the expiry periods of its undrawn
committed borrowing facilities are:
One year or less, or on demand
More than one year but no more than two years
More than two years but no more than five years
More than five years
The amount of debt that is repayable by instalments, where any of the instalments fall due after more than five years, is not material.
The repayment profile of the company’s financial liabilities is:
Repayable in:
One year or less, or on demand
More than one year but no more than two years
More than two years but no more than five years
More than five years
32
Principal Group and Associated Undertakings
The principal group undertakings of Land Securities PLC, all of which are wholly owned, and its associated undertakings are:
GROUP UNDERTAKINGS
GROUP OPERATIONS
Land Securities Properties Limited
INVESTMENT PROPERTY BUSINESS
Ravenseft Properties Limited
The City of London Real Property Company Limited
Ravenside Investments Limited
Ravenseft Industrial Estates Limited
TOTAL PROPERTY OUTSOURCING
Land Securities Trillium Limited
ASSOCIATED UNDERTAKINGS
The principal associated undertakings, all of which are 50% owned, are:
Telereal Services Limited
Telereal Trading Property Limited
Telereal Securitised Property Limited Partnership
Telereal General Property Limited Partnership
7 4 | 7 5
Notes to the financial statements
for the year ended 31 March 2002
33
Joint Venture
The group has a 50% interest in the Telereal group of companies (“Telereal”), which draws up accounts to 31 March.Telereal, a 50:50 joint venture between
Land Securities Trillium and The William Pears Group, acquired the majority of the properties of British Telecommunications (“BT”) on 13 December 2001.Telereal is
responsible for providing accommodation and estate management services to BT in return for a total availability and service charge under a 30-year contract. Telereal
was funded with £2.5bn to meet the consideration of £2.4bn due to BT and the other costs of £112m associated with bidding for and mobilising the contract.
The funding was provided externally by way of securitisation of £1.8bn and bank debt of £400m, both secured on Telereal’s properties without any recourse to the
shareholders of Telereal, and equity investment by the shareholders of £292.8m shared equally.The property portfolio has been financed according to the different
occupational needs within the BT portfolio.
The “specialised estate” consists primarily of telephone exchanges and associated property and is characterised by a long term commitment for occupation by BT.
The purchase of these assets was funded through a securitisation.
The “general purpose estate” consists of properties, such as offices and vehicle depots, where the occupational requirements are more normal.The purchase of this
part of the estate was primarily funded through bank debt to reflect the need for greater flexibility in the management of these assets.
SUMMARY FINANCIAL INFORMATION OF TELEREAL
Turnover
Operating profit
Depreciation
Bid costs written off
Finance costs (net)
Loss before tax
Loss after tax
Distributions to shareholders
Fixed assets – properties
Current assets
Securitisation
Bank debt
Other liabilities
Net assets
Financed by:
Shareholders’ equity
Reserves
13 December 2001 to 31 March 2002
Group’s share
Telereal
50%
100%
£m
£m
97.0
38.6
(8.2)
(16.0)
(47.6)
(9.0)
(9.0)
–
Telereal
100%
£m
2,386.8
208.8
2,595.6
(1,760.0)
(391.2)
(66.8)
(2,218.0)
377.6
292.8
84.8
377.6
48.5
19.3
(4.1)
(8.0)
(23.8)
(4.5)
(4.5)
–
At 31 March 2002
Group’s share
50%
£m
1,193.4
104.4
1,297.8
(880.0)
(195.6)
(33.4)
(1,109.0)
188.8
146.4
42.4
188.8
The majority of properties held by Telereal are part of a 30-year contract with BT and will be held at cost to the group. The accounting policy adopted for dealing with the properties in
Telereal’s financial statements is:
Freehold land is stated at historical cost and is not depreciated. Freehold buildings are depreciated in equal annual instalments over 50 years.
Expenditure which enhances the value of a building is capitalised and depreciated over the remaining life of the building up a maximum of 50 years or, if appropriate, its expected life.
Repair and maintenance expenditure is written off to the profit and loss account as incurred.
Six properties are held outside the 30-year contract and are treated as investment properties. These properties are included in the financial statements at open market values based on
the latest professional valuation. At 31 March 2002 valuations were carried out by GVA Grimley and The Wheelan Partnership.
The group’s 50% share of the fair value of Telereal’s financial liabilities as at 31 March 2002 is £1,042.8m.
The group’s 50% share of reserves includes £46.8m of valuation surplus arising from the revaluation of Telereal’s investment properties.
The Telereal entities include two partnerships, Telereal Securitised Property Limited Partnership and Telereal General Property Limited Partnership, which are registered in England and
whose accounts, drawn up to 31 March 2002, are dealt with in the group financial statements by way of gross equity accounting and are consolidated in the group’s financial
information set out above. Advantage has been taken of the exemption conferred by Regulation 7 of The Partnership and Unlimited Companies (Accounts) Regulations 1993 in not
delivering the financial statements of the partnerships to the Registrar of Companies.
Land Securities
Notes to the financial statements
for the year ended March 2002
34
Membership of Certain Undertakings
During the year, the group has been a member of the following limited partnerships, all of which are registered in England, and whose accounts, drawn up to
31 December or 31 March (as indicated below) are dealt with in the group’s financial statements as joint arrangements:
Partnership
Martineau Limited Partnership (31 December)
Martineau Galleries Limited Partnership (31 December)
Bull Ring Limited Partnership (31 December)
Gunwharf Quays Limited Partnership (31 March)
Ebbsfleet Limited Partnership (31 March)
Group
share
%
331⁄3
331⁄3
331⁄3
50
50
At 31 March 2002
Year ended 31 March 2002
Gross
assets
£m
125.0
114.8
235.9
117.0
26.5
619.2
Gross
liabilities
£m
(4.8)
(1.7)
(85.9)
(2.5)
(13.4)
Gross
property
income
£m
Profit/(loss)
before tax
£m
4.4
6.5
.2
5.6
–
3.9
5.1
(.3)
5.2
–
(108.3)
16.7
13.9
Advantage has been taken of the exemption conferred by Regulation 7 of The Partnerships and Unlimited Companies (Accounts) Regulations 1993 in not
delivering the financial statements of the partnerships to the Registrar of Companies:
35
Related Party Transactions
The group has a 50% interest in the Telereal group of companies (“Telereal”).The group, principally through Land Securities Trillium Telecom Services Limited,
provides staff to Telereal to deliver services to BT, for which it received £2.5m in the year ended 31 March 2002.
As at 31 March 2002, the group was owed £151.7m by Telereal.This comprised a subordinated loan from the group of £149.4m, including accrued interest, and an
amount rechargeable to Telereal of £2.3m in respect of services provided by the group.
36
Contingent Liabilities
The group has a contingent liability arising from a performance guarantee that Land Securities PLC, as the parent company of Land Securities Trillium Limited, has
given, severally with its Telereal joint venture partner, for the performance by Telereal Services Limited of its service obligations to BT together with a guarantee
related to transaction issues associated with the BT outsourcing contract.The group’s maximum liability under the guarantee is £50m plus a further amount which
is capped by reference to amounts either distributed or available for distribution to each shareholder by certain of the Telereal companies up to a further £50.7m.
The transaction element of the guarantee is capped at £10m.The maximum potential liability which the company could be exposed to under such arrangements is
capped at £110.7m.The total maximum liability of £110.7m will, however, amortise over time in accordance with a contractual formula included and defined in the
agreement with BT. At 31 March 2002, the estimated amount of the group’s exposure to the guarantee was approximately £52.6m.
37
Post Balance Sheet Events
On 22 May 2002 the group issued redemption notices in respect of its 6% 2007 and 7% 2008 convertible bonds. As an alternative to conversion, the company may
purchase bonds in the market place, if these are offered at attractive prices. On the same date, the company announced its intention to return approximately £500m
to shareholders. It is also intended that this sum will be increased, pound for pound, to the extent that the bonds convert into issued share capital.These transactions
are being funded by additional bank facilities put in place for the purpose.
7 6 | 77
–
5,265.7
–
4.8
–
335.2
–
89.8
5,695.5
510.2
3,014.3
3,524.5
1,767.2
403.8
5,695.5
199.0
(53.3)
–
462.2
400.6
238.7
(1.1)
237.6
171.9
39.3
–
5,169.6
–
4.9
–
209.6
–
97.6
5,481.7
510.0
3,023.8
3,533.8
1,572.6
375.3
5,481.7
190.9
(81.0)
–
460.4
400.0
241.3
3.4
244.7
179.7
52.2
–
5,032.4
–
4.3
–
241.5
–
94.4
5,372.6
509.8
2,943.3
3,453.1
1,573.3
346.2
5,372.6
–
4,098.6
–
4.8
–
234.2
–
88.5
4,426.1
504.8
2,039.5
2,544.3
1,515.6
366.2
4,426.1
150.6
(40.8)
–
237.1
(132.0)
–
448.9
389.4
234.8
2.3
237.1
180.6
58.4
436.9
380.7
233.4
(4.3)
229.1
165.7
50.4
Ten year record
for the year ended March 2002
2002
£m
2001
(restated)
£m
2000
£m
1999
£m
1998
£m
1997
£m
1996
£m
1995
£m
1994
£m
1993
£m
ASSETS EMPLOYED
Goodwill
Investment properties
Operating properties
Other tangible fixed assets
Investment in joint venture
Short term deposits, corporate bonds and cash
Trading properties
Other assets
FINANCED BY
Share capital
Reserves
EQUITY SHAREHOLDERS’ FUNDS
Borrowings
Other liabilities
38.9
7,800.0
428.9
45.3
188.8
68.4
36.9
260.3
8,867.5
524.3
5,512.3
6,036.6
2,010.5
820.4
8,867.5
41.2
7,899.1
323.1
34.1
–
29.3
–
177.3
8,504.1
523.6
5,494.2
6,017.8
1,757.1
729.2
8,504.1
–
7,453.7
–
14.7
–
140.1
–
182.6
7,791.1
522.4
5,259.4
5,781.8
1,556.3
453.0
7,791.1
–
6,910.5
–
13.1
–
486.6
–
72.5
7,482.7
554.3
4,916.1
5,470.4
1,569.3
443.0
7,482.7
–
6,435.7
–
9.7
–
547.4
–
98.0
7,090.8
541.1
4,460.4
5,001.5
1,652.3
437.0
7,090.8
–
5,760.0
–
7.5
–
486.7
–
84.1
6,338.3
515.5
3,521.7
4,037.2
1,849.4
451.7
6,338.3
PROPERTY MOVEMENTS AND ACQUISITIONS (book value)
Property additions
Property sales
Acquisitions
630.1
(510.4)
146.4
588.8
(424.9)
169.5
403.5
(314.3)
–
267.3
(125.4)
–
189.6
(246.9)
–
261.9
(206.1)
–
REVENUE
Gross property income
Net property income
Revenue profit
Profit/(loss) on sales of properties/bid costs
Pre-tax profit
Profit attributable to shareholders
Retained profit for the year
CASH FLOWS
Operating activities
Operating activities and investments less
finance charges and taxation
Free cash flow (post dividend) for investing
Net cash (outflow)/inflow (excludes liquid
resources and financing)
EARNINGS PER SHARE (pence)
*ADJUSTED EARNINGS PER SHARE (pence)
DILUTED EARNINGS PER SHARE (pence)
*ADJUSTED DILUTED EARNINGS PER SHARE (pence)
DIVIDENDS PER SHARE (pence)
DIVIDEND COVER (times)
*ADJUSTED DIVIDEND COVER (times)
NET ASSETS PER SHARE (pence)
*ADJUSTED NET ASSETS PER SHARE (pence)
DILUTED NET ASSETS PER SHARE (pence)
*ADJUSTED DILUTED NET ASSETS PER SHARE (pence)
1,025.6
606.0
364.8
(1.3)
363.5
263.6
85.2
650.4
499.7
323.4
1.3
324.7
234.6
64.5
528.2
457.2
301.7
26.0
327.7
252.0
86.3
500.2
427.5
292.7
.6
293.3
216.4
51.2
484.0
414.1
265.9
.1
266.0
196.7
45.1
471.0
405.1
235.7
8.1
243.8
178.4
39.3
406.2
462.0
432.2
409.9
399.5
366.8
389.0
374.6
375.9
373.8
132.6
(39.9)
280.5
116.4
246.5
79.7
229.1
73.5
(219.2)
(95.4)
(114.9)
(61.9)
50.27
51.61
49.54
50.81
34.00
1.48
1.52
1151
1176
1132
1155
44.87
45.38
44.41
44.89
32.50
1.38
1.39
1149
1172
1130
1152
45.44
40.86
44.97
40.63
31.00
1.52
1.37
1107
–
1090
–
39.21
39.11
38.95
38.86
29.50
1.31
1.31
987
–
975
–
168.2
25.7
72.3
36.84
37.07
36.55
36.77
28.00
1.30
1.31
924
–
910
–
194.7
60.5
34.6
34.85
33.17
34.50
32.92
27.00
1.28
1.22
783
–
774
–
773
183.4
54.6
196.2
72.6
184.7
67.7
175.4
64.1
(69.9)
(32.4)
(76.8)
(73.0)
33.69
33.92
33.46
33.67
26.00
1.30
1.30
691
–
688
–
626
35.23
34.56
34.91
34.28
25.00
1.41
1.38
693
–
691
–
594
35.66
35.20
35.30
34.87
24.00
1.48
1.46
677
–
676
–
628
32.83
33.68
32.76
33.59
22.85
1.44
1.47
504
–
504
–
526
MARKET PRICE PER SHARE AT 31 MARCH (pence)
893
880
749
820
1058
*These figures exclude the results of property sales after tax and after deducting (i) in 1997, the cost of terminating interest rate swaps and (ii) in 2001 and 2002, as appropriate, bid
costs and the effects of adopting FRS19.
Properties, reserves and net assets per share reflect valuations of investment properties made by Knight Frank at each year end. In 2002, however, reserves and net assets also include
the group’s 50% share of Telereal’s revaluation surplus arising on the revaluation of its investment properties.
With the introduction of FRS3 effective for the year ended 31 March 1994, comparatives, where appropriate, have been restated. 2001 has been restated, as appropriate, for prior year
adjustments arising from the adoption of FRS19 and UITF28 which became effective for the year ended 31 March 2002 and the change in accounting policy to capitalise interest
effective from 1 April 2000. 2001 and 2002 also reflect the change in accounting policy introduced in 2002 in response to the treatment of bid costs under UITF34 which will become
effective in 2003. However, figures for 2000 and prior years have not been restated to reflect changes in accounting policies made in 2002.
Land Securities
Valuers’ report
for the year ended 31 March 2002
The Directors,
Land Securities PLC,
5 Strand,
London WC2N 5AF.
24 April 2002
Dear Sirs,
In accordance with your instructions
to prepare a valuation for financial
reporting purposes we have made all
relevant enquiries, and obtained such
further information as necessary to
provide you with our opinion of the
current Open Market Values of all the
freehold and leasehold investment
properties owned by your Company
and its subsidiaries or held by way of
Limited Partnership arrangements
(excluding Telereal) as at 31st March
2002, with the exception of short
leasehold accommodation occupied
by the Company for the purposes of
its business. As is your customary
practice, all properties for which
there was an unconditional contract
to purchase at the valuation date have
been included in the valuation and
those for which there was an
unconditional contract for sale have
been excluded.
The properties have been valued
individually on the basis of “Open
Market Value” in accordance with the
Appraisal and Valuation Manual
published by the Royal Institution
of Chartered Surveyors and the
valuation has been undertaken by
us as External Valuers. Open Market
Value is defined as:-
“an opinion of the best price at which the sale
of an interest in property would have been
completed unconditionally for cash consideration
on the date of valuation, assuming:
a) a willing seller;
b) that, prior to the date of valuation, there
had been a reasonable period (having regard
to the nature of the property and the state
of the market) for the proper marketing of
the interest, for the agreement of the price
and terms and for the completion of the sale;
c) that the state of the market, level of values
and other circumstances were, on any earlier
assumed date of exchange of contracts, the
same as on the date of valuation;
d) that no account is taken of any additional
bid by a prospective purchaser with a special
interest; and
7 8 | 7 9
e) that both parties to the transaction had
acted knowledgeably, prudently and without
compulsion”.
No allowance has been made for
expenses of realisation or for any
taxation which might arise and our
valuations are expressed exclusive of
any Value Added Tax that may become
chargeable. As in previous years,
investment properties held for, or
in the course of, development are
included at Open Market Value.
Our valuations reflect usual
deductions in respect of Purchaser’s
costs and, in particular, full liability
for UK Stamp Duty.
Our valuations assume that the
properties have good and marketable
titles and are free of any undisclosed
onerous burdens, outgoings or
restrictions. We have not seen planning
consents and, except where advised
to the contrary, have assumed that the
properties have been erected and are
being occupied and used in accordance
with all requisite consents and that there
are no outstanding statutory notices.
We have not read documents of title
or leases and, for the purpose of our
valuations, have accepted the details
of tenure, tenancies and all other
relevant information with which we
have been supplied by your Company.
When considering the covenant
strength of individual tenants we have
not carried out credit enquiries but
have reflected in our valuations our
general understanding of purchasers’
likely perceptions of tenants’ financial
status. We have, in addition, discussed
with the Company any bad debts or
material arrears of rent such as might
reflect on covenant.
We last reported upon the value of
the properties as at 30th September
2001. We have not re-inspected all
properties for the purpose of this
re-valuation but can confirm that
the properties have been inspected
within the last twelve months.
We were not instructed to carry out
structural surveys of the properties,
nor to test the services, but have
reflected in our valuations, where
necessary, any defects, items of
disrepair or outstanding works of
alteration or improvement which we
noticed during the course of our
inspections or of which you have
advised us. Our valuations assume
the buildings contain no deleterious
materials and that the sites are
unaffected by adverse soil conditions
except where we have been notified
to the contrary.
We have not carried out any scientific
investigations of the sites or any
of the properties to establish the
existence or otherwise of any
environmental contamination. The
Company has established procedures
for identifying and investigating
environmental matters and we have
been provided with reports for
certain properties which we have
discussed with the Company. The
environmental reviews which have
been carried out by or on behalf
of the Company have not, we
understand, led the Directors to
believe that there are any significant
potential environmental problems
within the Group’s portfolio. In
accordance with our enquiries of the
Company, and the contents of the
above mentioned reports, we have
assumed that the land and buildings,
the subject of our valuations, do
not suffer from any significant
environmental problems.
Having regard to the foregoing we
are of the opinion that the values
of those properties held by the
Company and its subsidiaries as at
31st March 2002 totalled
£7,598,646,000 (Seven Thousand,
Five Hundred and Ninety Eight
Million, Six Hundred and Forty Six
Thousand Pounds).
In addition, we have undertaken
valuations of those properties held by
way of Limited Partnership interests.
These comprise the Birmingham
Alliance Limited Partnership, in
which the Company holds a one
third share, and the Ebbsfleet Limited
Partnership and Gunwharf Quays
Limited Partnership, in each of which
the Company holds a one half share.
In respect of the Gunwharf Quays
Limited Partnership, the Company has
acquired its interest subject to an
agreement under which part only of
the total purchase consideration has
been paid and which provides for the
balance, to be determined in relation
to performance criteria, to be paid
at specified future dates. For the
avoidance of doubt, our valuation
reflects the obligation to meet these
payments when due.
We are of the opinion that the
aggregate values of the interests
in land held by the Limited
Partnerships in which the Company
held an interest as at 31st March
2002 totalled £564,945,000
(Five Hundred and Sixty Four
Million, Nine Hundred and Forty
Five Thousand Pounds). For the
avoidance of doubt, we confirm that
this valuation is of the total assets
held by the Limited Partnerships and
is not a valuation of the Company’s
shareholdings therein.
We understand that the tables which
accompany this valuation, giving a
breakdown of the portfolio by tenure,
property types and regional distribution,
are to be reproduced elsewhere in the
Company’s Report and Financial
Statements as will a listing of the
majority of properties by value.
Within the following tables our
valuation of the Company’s interests
in land held by Limited Partnerships
is included as a mathematical share
(The Birmingham Alliance Limited
Partnership at one third; Gunwharf
Quays Limited Partnership and
Ebbsfleet Limited Partnership each
at one half) of the value reported
above, thus producing a total as at
31st March 2002 of £7,810,961,000.
We must emphasise that the
apportioned figures do not represent
a valuation of the Company’s shares
in those Limited Partnerships.
Our valuation is for the use only of
the party to whom it is addressed and
no responsibility is accepted to any
third party for the whole or any part
of its contents. If our opinion of
value is disclosed to persons other
than the addressees of this report, the
basis of valuation should be stated.
If it is proposed to publish the figure,
the form and context in which the
figure is to appear should be
approved by us beforehand.
Yours faithfully,
Knight Frank
Portfolio analysis
This analysis excludes trading properties and all properties owned through Land Securities Trillium’s property outsourcing business.
ANALYSIS OF REVERSIONS, VOIDS AND LEASE DURATIONS
Excludes developments
NUMBER OF PROPERTIES BY SECTOR
Net rental
income (1)
£m
Net ERV
(2)
£m
Voids
£m
Vacancy
rates
(3)
%
Average
unexpired
lease term
Years (4)
Offices
West End
Mid-town
City
Inner London
Rest of UK
Retail
Shopping Centres
Central London Shops
Shops elsewhere in the UK
Retail Warehouses and Food Superstores
Parks
Other
Industrial premises and warehouses
South East and Eastern
Rest of UK
Hotels, Leisure, Residential and Other
83.0
40.3
83.7
14.8
8.2
78.9
41.6
37.3
42.9
13.2
20.2
3.8
16.2
100.4
47.7
84.9
17.1
8.1
84.3
45.5
38.9
47.1
14.4
21.3
3.9
18.0
Total
484.1
531.6
0.5
–
0.3
0.1
0.5
1.0
0.1
1.0
1.1
0.8
0.3
0.1
–
5.8
0.5
–
0.3
0.6
6.1
1.1
0.1
2.4
2.4
4.9
1.3
1.1
–
1.0
8.50
8.00
4.75
3.00
3.50
11.50
8.75
9.50
16.25
18.75
8.25
8.00
N/A
8.75
Turnover rents total £3.1m and represent 0.6% of the total net rental income figure given above.
Notes:
1. ’Net Rental Income’ is annual rents passing at 31 March 2002 after deduction of ground rents.
2. ’Estimated Rental Value’ includes vacant space and is calculated after deducting current ground rents.
3. Calculated by ERV.
4. The figures in this column show the number of years until half of the income has been subject to a lease expiry or tenant or mutual break clause.
London – Office and Retail
City
West End
Mid-town
Inner London
Offices – Rest of UK
Shopping Centres and Shops
Shopping Centres
Shops
Retail Warehouses
Retail Parks
Other Retail Warehouses
Food Superstores
Industrial premises and warehouses
London, South East and Eastern
Rest of UK
Number of
properties
26
38
13
9
4
18
27
19
31
2
4
62
Hotels, Leisure, Residential and Other
16
Total
269
PORTFOLIO VALUE BY LOCATION
% figures calculated by reference to a portfolio value of £7.81bn
AVERAGE RENTS
Excludes developments and voids
Shopping
centres
Retail premises and
warehouses
%
Industrial Hotel, Leisure
Residential
and Other
%
and shops Warehouses
%
%
Central and Inner London
Rest of South East and Eastern
Midlands
Wales and South West
North, North West, Yorkshire
and Humberside
Scotland and Northern Ireland
Offices
%
44.3
0.6
0.2
0.1
0.1
0.2
8.8
3.3
3.6
4.6
7.0
5.1
–
3.7
2.1
1.0
4.4
1.5
Total
%
56.2
12.7
6.1
5.8
Offices
Central and Inner London
Rest of UK
Retail
Shopping Centres
Shops
3.0
1.0
–
–
0.5
12.3
Retail Warehouses
(including Supermarkets)
0.1
4.1
0.2
0.1
0.3
–
0.1
6.9
Industrial premises and warehouses
London, South East and Eastern
Rest of UK
Hotels, Leisure, Residential and Other
Average
Rent
£/m2
Average
ERV
£/m2
330
76
N/A
N/A
131
57
23
N/A
388
74
N/A
N/A
151
62
24
N/A
Total
45.5
32.4
12.7
4.8
4.6
100.0
Note:
Average rents and ERVs have not been provided where it is considered that the figures
would be potentially misleading (ie, where there is a combination of analysis of rents on
an overall and Zone A basis in the retail sector and where there is a combination of uses).
PORTFOLIO TENANT DIVERSIFICATION
As the company’s investment portfolio covers four principal sectors of the UK property market, it
benefits from inherent diversification in terms of both tenant credit and business sector risk.
The investment portfolio comprises over 4,000 tenancies and over 2,000 tenants.The ten largest tenants
account for 26.4% of current rents and are: Central Government (9.8%), Allen & Overy (2.4%),
J Sainsbury(2.3%), Dresdner Bank (2.2%), Dixons Group (2.0%), Kingfisher (1.9%), Enterprise Oil (1.6%),
Ladbroke Group (1.5%), CMS Cameron McKenna (1.4%), and The Boots Company (1.3%).
Land Securities
Major property holdings
at 31 March 2002
At 31 March 2002 there were 269 properties within the
portfolio. In the lists which follow, the valuation level for
inclusion is £10m and certain of these properties have
been combined for ease of description. Properties have
been split into values of over £50m, £25m to £50m and
£10m to £25m.
Office areas are approximate net areas and generally
exclude basements, storage and car parking spaces.
Dates indicate initial construction or later refurbishment (R).
FREEHOLD†
PART FREEHOLD, PART LEASEHOLD
AIR CONDITIONED
IN COURSE OF DEVELOPMENT OR REFURBISHMENT
SHOPPING CENTRE
† Properties shown as freeholds include properties held on leases
for 900 years or more.
West End, Mid-town, City and Inner London properties:
£50m and above
EC1 Mitre House
160 Aldersgate Street: 17,510m2
offices, 20 flats and car park, 1990.
Fleetbank House
Salisbury Square: 11,370m2 offices,
1974.
EC2 30 Gresham Street
36,330m2 offices and 1,300m2 retail.
8 Salisbury Square
10,700m2 offices, 1989.
Dashwood House
69 Old Broad Street:10,550m2
offices, 1975 and reinstatement after
bomb damage, 1995.
WC1 Warner House
Theobald’s Road: 11,820m2 offices,
1999.
EC3 13/23 Fenchurch Street
15,620m2 offices and major retail
unit, 1968 and 1984 (R).
Lacon House
Theobald’s Road: 19,580m2 offices
and restaurant/leisure, 1999.
WC2 40 Strand
Devonshire House
Piccadilly: 14,190m2 offices and
9 showrooms and shops,1983 (R),
part 1994 (R) and part 1996/97(R).
Piccadilly Circus
44/48 Regent Street, 1/17
Shaftesbury Avenue, Denman Street,
Sherwood Street and Glasshouse
Street: 2 major retail trading units,
10 shops, kiosk, public house,
3 restaurants, 1,460m2 offices and
670m2 of illuminated advertising,
part 1977 (R), part 1979
(redevelopment) and part 1985 (R).
49 Leadenhall Street
12,230m2 offices and leisure, 1975.
8,570m2 offices and 8 shops, 1997 (R).
W2 10/20/30 Eastbourne Terrace
16,780m2 offices, 1957/58.
EC4 1 New Change
32,650m2 offices, 13 shops
1986/1990 (R).
Cannon Street House and
Martin House
8,100m2 offices, 1996 (R).
Regis House
King William Street: 8,140m2
offices, public house and 530m2
retail, 1998.
50 Ludgate Hill
11,040m2 offices, 12 shops, 2 public
houses and 4 restaurants, 1985 (R).
Grand Buildings
Trafalgar Square: 14,860m2 offices
and 3,220m2 shops, 1991.
W1 475/497 Oxford Street and
Park House
Park Street: 6,980m2 offices and
9 shops, 1963.
Portman House
9,330m2 offices and 1,740m2 retail,
2001.
London Hilton on
Park Lane
500 rooms, casino and numerous
restaurants, 1963.
SW1 Bowater House
Knightsbridge: 24,720m2 offices,
1958.
Haymarket House
Haymarket: 7,520m2 offices and
3,410m2 of restaurants, 1955, part
1992 (R) and part 1997/98 (R).
Part air conditioned.
10 Broadway
New Scotland Yard: 35,670m2
offices, banking space and
restaurant, 1966.
£25m to £50m
EC2 Moorgate Hall
143/171 Moorgate: 6,090m2 offices
and 1,450m2 store, 1990.
130 Wood Street
5,380m2 offices and bar/restaurant
1999 (R).
6/12 Fenchurch Street and
1 Philpot Lane
4,780m2 offices and shop, 1985.
109/114 Fenchurch Street
6,610m2 offices and banking space
and 2 shops, 1976, part 1991(R) and
part 1993/94/95 (R).
Gracechurch House
55 Gracechurch Street: 5,790m2
offices and 930m2 health club, 1993.
37/39 and 40 Lime Street
and 4 Fenchurch Avenue
9,380m2 offices, 1971/72 (R) part
1988/1990 (R), part 1992/94 (R)
and part 1998 (R).
8 0 | 81
New London House
6 London Street: 6,180m2 offices,
2 shops, 2 restaurants and public
house, 1993 (R).
SW1 49/75 Buckingham Palace Road
and 29 Bressenden Place
5,150m2 offices, 136 bedroom
hotel, 30 flats and 7 shops, 1964,
offices 1994 (R).
EC4 26 Old Bailey
6,030m2 offices, 1984 (R).
190 High Holborn
7,770m2 offices, 2002 (R).
W1 6/17 Tottenham Court Road
5,710m2 retail and 210m2 offices, 1999.
12/24 Oxford Street and
2/5 Tottenham Court Road
1 store 8,360m2 and 3 shops 490m2
pre-war, part 1995 (R) and part
1998.
Oxford House
70/88 Oxford Street: 5,680m2
offices and 5 shops. Part 1994 (R).
455/473 Oxford Street
4 shops and restaurant, 1963.
Wellington House
Buckingham Gate: 4,970m2 offices,
1978.
Glen House
Stag Place: 9,030m2 offices and
16 shops, 1962, part 1983/84 and
1994 (R).
Selborne House
Victoria Street: 10,360m2 offices,
1966.
Westminster City Hall
Victoria Street: 15,750m2 office and
bank, 1965.
Allington House
50 Victoria Street: 3,600m2 offices
and 930m2 retail, 1997.
The Home Office
50 Queen Anne’s Gate: 28,310m2
offices, 1977.
Portland House
Stag Place: 27,610m2 offices and
1,510m2 basement restaurant, 1959,
part 1986/87(R), part 1992/95 (R)
and part 1996/99 (R). Part air
conditioned.
Eland House
Stag Place: 23,170m2 offices, 1995.
Kingsgate House
Victoria Street: 14,160m2 offices
and 18 shops, 1987 (R).
Esso House
Victoria Street: 20,060m2 offices,
2 banks, 14 shops and restaurant,
1963 and part 1991 (R).
SE1 The IBM Building
74-78 Upper Ground: 20,160m2
offices, 1982.
W11 Notting Hill Gate
8,680m2 offices, 52 shops, 2 stores
and cinema 1958.
St Albans House
Haymarket: 4,270m2 offices and
2 restaurants, 1963 and part 1987
and 2000 (R).
W2 40/50 Eastbourne Terrace
13,310m2 offices and four ground
floor units, 1950s.
SE1 St Christopher House
80/112 Southwark Street, 55,420m2
offices, 8 shops, 1960.
SW6 Fulham
Empress State Building, Lillie Road:
40,210m2 offices and 2,770m2
retail/leisure.
West End, Mid-town, City and Inner London properties (continued):
£10m to £25m
Lintas House
New Fetter Lane: 8,180m2 offices,
1958 and 1999 (R).
1/11 Hay Hill
1,670m2 offices and 610m2
retail/showroom, 1987 (R).
21 New Fetter Lane
6,220m2 offices, 1978 (R), 1993 (R)
and 1998 (R).
SW1 Elliot House
Bressenden Place: 2,720m2 offices
and 710m2 retail, 1964.
EC3 23/39 Eastcheap
1,730m2 offices, 5 shops and
restaurant, part 1986 (R) and part
1988 (R). Part air conditioned.
14 Fenchurch Avenue
2,490m2 offices, 1940s and part
1993 (R).
34/36 Lime Street and
7/11 Cullum Street
3,340m2 offices and 6 shops, 1974.
14/15 Philpot Lane
3,010m2 offices, 1986.
2/4 Temple Avenue
2,540m2 offices and leisure unit,
1999 (R).
WC1 Turnstile House
High Holborn: 192 room aparthotel,
shop and 2 restaurants, 1997.
SE1 Bankside Industrial Estate
2,550m2 offices and 3,720m2
industrial space, 1980. Development
opportunity 2005.
The aggregate area of offices and
retail accommodation including
developments and refurbishments
owned in the City, Mid-town,West
End and Inner London, including the
properties listed in this section,
amounts to some 826,400m2 of
offices and approximately 93,300m2
of retail, banking and restaurants.
16 Palace Street
5,240m2 offices, 1960.
Roebuck House
116 flats and fitness centre, 1960.
1 Warwick Row
3,400m2 offices, 1995 (R).
Neville House
Page Street, 4,780m2 offices and a
public house, 1952.
Clive House
Petty France, 9,400m2 offices, 1950.
1 Seething Lane
4,250m2 offices and restaurant, 1977
(R) and part 1988 (R).
WC2 7/8 Essex Street
2,610m2 offices, 1998 (R).
Tower House
34/40 Trinity Square: 4,140m2
offices, 1979 (R).
W1 26/36 Oxford Street
Air conditioned bank, large shop,
kiosk, restaurant and 1,050m2
educational use, 1983 (R).
12/16 Gough Square
2,540m2 offices, 1992.
7 Soho Square
5,720m2 offices.
Towns and cities, outside Central London:
£50m and above
Aberdeen
Bon Accord Centre: 23,690m2
4 stores, 53 shops, food court,
4,650m2 leisure, 2,690m2 offices
and car park, 1990.
Birmingham
Caxtongate Phase I: 15 shops and
1,390m2 offices, 1997.
Birmingham
Martineau Place: 17,420m2 retail,
and 6,040m2 offices (one-third
interest), 2001.
Bull Ring: 110,000m2 retail
(one-third interest).
Martineau Galleries: up to
120,770m2 retail (one-third
interest).
Bristol
3 stores, 61 shops, 1957/1962/
2000/1(Penn Street).
Canterbury
Whitefriars: department store,
2 major stores, 37 shops, residential
and car park.
Cardiff
St David’s Centre 32,520m2 1 store
63 shops, 1981 and 1991 (R).
St David’s Link: 12 shops and
library, 1986.
East Kilbride
The Olympia 32,520m2 2 stores,
50 shops, ice rink, 9 screen
cinema, library, restaurant, public
house, night club, food court and
690m2 offices, 1989.
Note: ‘Shops’ in this section denotes number of current tenancies, rather than number
of units originally constructed. Stores, supermarkets, banks and combined units are each
shown as one tenancy.
Exeter
3 stores, 67 shops and 2,580m2
offices, residential and car park,
1952/1964 and 1971.
Leeds
White Rose Shopping Centre
60,390m2 2 anchor stores,
12 major space units, 73 shops,
restaurant and food court, 1997.
Liverpool
St Johns Centre 33,440m2 4 stores,
100 shops, 2 public houses, retail
market, food court, hotel, car park
and Beacon, 1989 (R).
Livingston
Almondvale Centre 48,310m2 Phases I
and II: 7 stores, 106 shops, public
house, mall café and car parks, Phase
I 1989 and 1996 (R), Phase II 1996.
Portsmouth
Designer Outlet Shopping and
Leisure Centre: 17,000m2 87 shops,
22,060m2 leisure and restaurants,
2,230m2 offices, 2001 (50%
interest).
Sunderland
The Bridges Phase I: 23,220m2
3 stores, 69 shops and mall café,
1969 and 1988 (R): Phase II
24,620m2 2 stores, 25 shops
and car park, 2000.
Land Securities
Major property holdings
at March 2002
Towns and cities, outside Central London:
£25m to £50m
Stratford E15
Stratford Centre: 27,870m2 6 stores,
57 shops and 2,580m2 of air
conditioned offices, 1976 and
1998 (R).
Belfast
9 shops, 1957, part 1984 and 1995.
Bootle
Strand Centre: 37,160m2 Phases I and
II: 3 stores, 130 shops, 2 public
houses and 690m2 offices, 1989 (R)
and 1998.
Coventry
45 shops, public house, 1,250m2
offices and hotel, 1955/1961 and
1991.
Ealing
Broadway Centre (part) 3,390m2
11 shops and 2,020m2 air
conditioned offices, 1984.
East Kilbride
Princes Mall 13,940m2 2 stores,
39 shops, public house and 950m2
offices,1994 (R).
Livingston
Designer Outlet Shopping and
Leisure Centre, 18,910m2 95 shops,
7,880m2 leisure and food court,
2000 (50% interest).
Plymouth
1 store, 35 shops, 1952/1965.
York
Coppergate Centre 14,860m2
3 stores, 18 shops, museum, 19 flats
and car park, 1984.
£10m to £25m
Basildon
39 shops, 1958/60, part 1985 (R) and
part 1988 (R).
Bath
7 shops, 1961.
Birmingham
Caxtongate Phase II: 6 shops and
residential, 2000.
Canterbury
Longmarket 4,650m2 16 shops,
conservatory restaurant and
museum, 1992.
Canterbury
Clocktower: 5 shops and 1,330m2
offices, 1993.
Canterbury
Marlowe Arcade and Graylaw House:
store, 14 shops and 710m2 offices,
1985.
Glasgow
Buchanan House 16,110m2 offices,
1960s.
Hull
34 shops and public house
1952/56.
Kilmarnock
Burns Centre: 2 Phases 17,000m2
3 stores, 27 shops, public house
and 1,760m2 offices, 1975/79
and 1991 (R).
Leeds
Briggate 2 shops, 1900s.
Liverpool
16 shops and 370m2 offices, 1950s
and 1999.
Nottingham
Alan House: 4 shops and 1,950m2
offices, 1985 (R).
Reading
Station Hill: 8,030m2 offices and
13 shops, 1966. Hogg Robinson
House: 3,720m2 offices, 1979.
Walsall
13 shops, 1970s and 1987.
Dartford
Ebbsfleet 50% ownership of 153
hectares of land with development
potential.
Newcastle upon Tyne
The Gate: 17,770m2 leisure complex
including multiplex cinema.
Completion November 2002.
Sunderland
Market Square 7 shops, 2001.
Retail warehouse and food superstore properties:
£50m and above
Liverpool
Racecourse Retail Park, Aintree:
27,100m2 11 retail warehouses and
fast food restaurant, 1986, 1988,
1990 and 2001.
Manchester
White City Retail Park: 17,830m2
11 retail warehouses, 2 restaurants
and ten pin bowling, 1990.
Slough Retail Park
Bath Road: 14,350m2 6 retail
warehouses, 1989 and 1998.
West Thurrock
Lakeside Retail Park: 28,860m2
17 retail warehouses and fast food
restaurant, 1988, 1989 and 1997.
4,090m2 extension under
construction.
Livingston
Almondvale West: 9,540m2 5 retail
warehouses, 1987.
Almondvale Retail Park 10,055m2
9 retail warehouses 1997.
Almondvale South: Phase 1,
8,360m2 under constuction, Phase II
planned.
Dartford
Eastern Quarry 245 hectares of land
with development potential.
Derby
Wyvern Centre: 11,290m2 6 retail
warehouses and fast food restaurant,
1990 and 1996.
Erdington
Ravenside Retail Park, Kingsbury
Road: 14,170m2 8 retail warehouses,
1987 and 1989.
Northampton
Nene Valley, 13,700m2 10 retail
warehouses 1988.
Dundee
Kingsway Retail Park: 17,350m2
7 retail warehouses and fast food
restaurant, 1985, 1987, 1988 and
1994. Major enlargement and
reconfiguration commenced.
Gateshead
Team Valley, Retail World Retail Park:
35,270m2 22 retail warehouses
and fast food restaurant,
1987/2000. Being upgraded.
Extension planned.
£25m to £50m
Bexhill-on-Sea
Ravenside Retail and Leisure Park:
20,650m2 9 retail warehouses,
food superstore, fast food restaurant,
ten pin bowling alley and
swimming pool, 1989. Extension
planned.
Blackpool Retail Park
11,270m2 9 retail warehouses, 1993,
1995 and 1996. Extension planned.
8 2 | 8 3
Retail warehouse and food superstore properties (continued):
£10m to £25m
Birmingham
Great Barr: 7,760m2
superstore,1998.
Bolton
Manchester Road: 7,630m2 6 retail
warehouses, 1985, 1989 and 1997.
Bristol
Longwell Green: 7,200m2 2 retail
warehouses, 1985/86.
Chadwell Heath
(Near Romford): 8,520m2 5 retail
warehouses, 1988 and 1999.
Chesterfield
Ravenside Retail Park, Markham
Road: 7,730m2 5 retail warehouses,
1982 and 1997. 1,390 m2 Extension
commenced.
Derby
Meteor Centre: 17,330m2 11 retail
warehouses fast food restaurant and
public house,1988 and 1994.
Edmonton
Ravenside Retail Park: 12,040m2
4 retail warehouses and fast food
restaurant, 1988.
Gloucester Retail Park
Eastern Avenue: 10,450m2 4 retail
warehouses, 1989.
Manchester – Cheetham Hill
9,280m2 retail warehouse under
construction.
Hatfield
Oldings Corner: 5,970m2 3 retail
warehouses, 1988.
High Wycombe
London Road: 4,370m2 2 retail
warehouses, 1988.
Hull
Priory Way: 10,250m2 food superstore
and retail warehouse, 1984 and 2002.
Plymouth
Friary Centre, Exeter Street: 7,310m2
2 retail warehouses, 1990.
Poole
Commerce Centre 6,580m2 4 retail
warehouses 1986 and 87.
Warehouse and industrial:
£25m to £50m
Hatfield
Welham Green: 31,310m2 1986 and
extended 1988.
£10m to £25m
Basildon
Juniper: 25,480m2 3 warehouses and
1 office building, 6.3 acres for
industrial development.
Zenith, 3,070m2 1unit 1986 and
15,150m2 under construction.
Blackpool
Squires Gate Industrial Estate.
107,200m2 1940s.
Heston
(Near Heathrow) Heston Centre and
Spitfire Trading Estate: 28,730m2
1977, 1982 and 1984.
Sunbury Cross
Hanworth Road (includes
Interchange West): 29,360m2 1970
and 1976.
Chandlers Ford
(Near Southampton) School Lane:
25,850m2 1985, 1988, 1989 and
2001.
Frimley
(Near Camberley): 21,600m2 on
Albany Park, 1982/84.
Guildford
Cobbett Park, 11,410m2 under
construction.
Hemel Hempstead
Horizon Point. 10,380m2 4 units
2002. Phase II 13,010m2 planned.
Heston
(Near Heathrow) The Harlequin
Business Centre: 6,280m2 two
storey offices, 1989.
Tamworth
Centurion Park: 24,420m2 high bay
warehousing 1996 and 1999.
Welwyn Garden City
Bridge Road: 17,070m2 1955, 1961
and 1976.
Centrapark, 12,920m2 unit 2001 and
3,820m2 under construction.
West Thurrock
Motherwell Way: 29,070m2 1973,
1975 and 1979 and trailer park of
0.5 hectares.
Outside Central London the Group has holdings which total 450,000m2 of retail space, 90,500m2 of office space, 512,170m2 of warehouse and industrial space and 439,340m2 of
out of town retail and food superstore space.
Land Securities
Total investment property return
Valuation surplus, profit on property
sales and net rental income in respect
of investment properties expressed as
a percentage of opening book value of
the investment property portfolio
Unitary charge
A payment under a PFI or property
partnership covering the costs of
using a property or facility
Weighted average cost of capital
(WACC)
Market cost of debt and cost of equity
capital (equity capital cost calculated
assuming equity risk premium of 4%
and using London Business School
beta factor, average for last year
0.43%) applied to fair value of debt
and equity market capitalisation and
then suitably weighted
Glossary of terms
Adjusted figures
Reported amount adjusted to exclude
the results of property sales, bid
costs and additional deferred tax
arising from the adoption of FRS19
‘Deferred Tax’
Gearing (net)
Total borrowings, including bank
overdraft, less short-term deposits,
corporate bonds and cash, at book
value, as a percentage of equity
shareholders’ funds
Average unexpired lease term
Excludes short-term lettings such as
car parks and advertising hoardings,
residential leases and long ground
leases
BREEAM
Building Research Establishment
Environmental Assessment Method
CPO
Compulsory Purchase Order
Development Programme
The group’s pipeline of major
developments comprising the
properties held under development
as scheduled in the Development
Section
Development surplus
Excess of latest valuation over the total
development cost
Diluted figures
Reported amount adjusted to include
the effects of potential shares issuable
under convertible bonds or employee
share schemes
Earnings per share
Profit after taxation divided by the
weighted average number of shares in
issue during the year
ERV
The estimated market rental value
of lettable space as determined
biannually by the company’s valuers
Forward dated swap
An agreement to pay a fixed rate of
interest for a period beginning at a
future date
IOSH
The Institute of Occupational Safety
and Health
Interest cover
Number of times gross interest
payable (i.e. pre interest
capitalisation) is covered by operating
profit and interest receivable but
excluding the activities of Telereal
Joint venture
An entity in which the group holds
an interest on a long term basis and is
jointly controlled by the group and
one or more venturers under a
contractual arrangement whereby
decisions on financial and operating
policies essential to the operation,
performance and financial position of
the venture require each venturer’s
consent
NEBOSH
The National Examining Board in
Occupational Safety and Health
Net assets per share
Equity shareholders’ funds divided by
the number of shares in issue at the
period end
Open A1 planning permission
Planning permission for the retail sale
of any goods other than food
Operating properties
Properties acquired and managed by
Land Securities Trillium as part of its
total property outsourcing contracts
with third parties
Over-rented
Space that is let at a rent above its ERV
Passing rent
The annual rental income receivable
which may be more or less than
the ERV (see over-rented and
reversionary)
PFI
Private Finance Initiative under which
a public sector (or in the case of
Corporate PFI the private sector)
passes the risks and responsibilities
associated with the ownership or
leasing of property to a third party
Prelet
A lease signed with a tenant prior to
completion of a development
Rental value growth
Increase in the current rental value, as
determined by the company’s valuers,
over the 12-month period on a like-
for-like basis
Retail park
A scheme of three or more retail
warehouse units aggregating over
4,650m2 with shared parking
Return on shareholders’ equity
Increase in diluted net asset value per
share plus dividends per share for the
year expressed as a percentage of
diluted net asset value per share at the
beginning of the year
Reversionary or under-rented
Space where the passing rent is below
the ERV
Total development cost
All capital expenditure on a project
including the opening book value of
the property on commencement of
development, together with all
finance costs
8 4 |
Land Securities provides an integrated approach to the commercial
property and outsourcing needs of customers to create long-term
and sustainable returns for shareholders.
Investor information
balance sheets
31 March 2002
31 March 2002
Registrar
Enquiries concerning holdings of ordinary shares, debentures or loan stocks in
Land Securities PLC should be addressed to: Lloyds TSB Registrars,The Causeway,
Worthing, West Sussex BN99 6DA. Telephone: 0870 600 3972.
Corporate individual savings accounts (ISAs)
The company has arranged for a Corporate ISA to be managed by Lloyds TSB
Registrars, who can be contacted at The Causeway, Worthing, West Sussex BN99
6UY. Telephone: 0870 24 24 244.
The Registrars provide an on-line service, enabling shareholders to access details
of their Land Securities shareholdings. Shareholders wishing to view this
information, together with additional information such as indicative share
prices and information on recent dividends, should visit www.shareview.co.uk
Capital gains tax
For the purpose of capital gains tax, the price of the company’s ordinary shares
at 31 March 1982, adjusted for the capitalisation issue in November 1983, was
205p.
Holders of the company’s ordinary shares, debentures and loan stocks should
notify the Registrar promptly of any change of their address.
Low cost share dealing facility
The company operates with Cazenove & Co. Ltd a postal share dealing facility
which provides shareholders with a simple, low cost way of buying and selling
Land Securities PLC ordinary shares. For further information, or dealing forms,
contact: Cazenove & Co Ltd, 12 Tokenhouse Yard, London EC2R 7AN. Telephone:
020 7606 1768.
Dividend reinvestment plan (DRIP)
The company has introduced a DRIP to enable shareholders to use cash
dividends to purchase Land Securities shares in the market.
For further details, contact:
The Share Dividend Team, Lloyds TSB Registrars,The Causeway, Worthing,
West Sussex BN99 6DA. Telephone: 01903 502541.
Unclaimed Assets Register
The Company participates in the Unclaimed Assets Register, which provides a
search facility for financial assets which may have been forgotten. For further
information, contact: The Unclaimed Assets Register, Lloyds Chambers,
1 Portsoken Street, London E1 8DF – Telephone: 0870 241 171; website
www.uar.co.uk
Share price information
The latest information on the Land Securities PLC share price is available on the
Financial Times Cityline Service: telephone: 0906 8433133 (calls charged at
60p per minute). Share price information is also available on the company’s
website (www.landsecurities.com) under investor relations/share price.
ANALYSIS OF EQUITY SHAREHOLDINGS
at 31 March 2002
B Y S I Z E O F H O L D I N G
U P TO 5 0 0
5 0 1 TO 1 , 0 0 0
1 , 0 0 1 TO 5 , 0 0 0
5 , 0 0 1 TO 1 0 , 0 0 0
1 0 , 0 0 1 TO 5 0 , 0 0 0
5 0 , 0 0 1 TO 1 0 0 , 0 0 0
1 0 0 , 0 0 1 TO 5 0 0 , 0 0 0
5 0 0 , 0 0 1 TO 1 , 0 0 0 , 0 0 0
1 , 0 0 0 , 0 0 1 a n d a b ove
Number of
holdings
1 1 , 7 9 4
9 , 9 0 3
1 0 , 6 8 7
8 9 4
7 8 6
1 6 6
2 9 0
7 8
9 0
%
Balance at
31 March 02
3 4 . 0 0
2 8 . 5 5
3 0 . 8 1
2 . 5 8
2 . 2 6
0 . 4 8
0 . 8 4
0 . 2 2
0 . 2 6
3 , 4 0 2 , 0 8 1
7 , 5 3 7 , 1 0 9
2 1 , 6 1 9 , 8 8 8
6 , 3 1 1 , 5 0 4
1 7 , 2 1 0 , 8 0 8
1 1 , 6 8 0 , 9 6 6
6 6 , 4 9 6 , 2 4 4
5 7 , 4 8 9 , 3 0 2
3 3 2 , 5 9 7 , 1 4 3
%
0 . 6 5
1 . 4 4
4 . 1 2
1 . 2 0
3 . 2 9
2 . 2 3
1 2 . 6 8
1 0 . 9 6
6 3 . 4 3
3 4 , 6 8 8
1 0 0 . 0 0
5 2 4 , 3 4 5 , 0 4 5
1 0 0 . 0 0
Registered office
5 Strand, London WC2N 5AF
Registered in England and Wales
No. 551412
Offices
5 Strand, London WC2N 5AF
(Telephone: 020 7413 9000)
and at 140 London Wall EC2,
Glasgow and Leeds
Designed by SAS
Board Photography by Chris Moyse
Location Photography Marcus Lyon
Typeset by Asset Graphics
Printed by St Ives Westerham Press
This report is printed on paper that meets
international environmental standards, contains
elemental chlorine free (ECF) virgin pulp,
obtained from sustainably managed forests.
Financial Calendar
2002 22 May
Preliminary announcement
26 June
Ex-dividend date
28 June
Record date for final dividend
9 July
Annual general meeting
22 July
Final dividend payable
November
Announcement of interim results
(unaudited)
2003 January
Interim dividend payable
Contents
Corporate Statement
IFC
2
Financial Highlights
4 Chairman’s Statement
6 Corporate Review
Valuation
Portfolio Management
Development
Total Property Outsourcing
Financial Review
Property in Context –
Making property work
Environment, Health and Safety
Human Resources
Directors
Corporate Governance
Remuneration Committee
Directors’ Report
8
10
18
26
32
36
38
40
42
44
46
48
50
Directors’ Responsibilities and
Auditors’ Report
Consolidated Profit and Loss Account
Balance Sheets
Consolidated Cash Flow Statement
52
53
54
55 Other Primary Statements
56 Notes to the Financial Statements
77
Ten Year Record
Valuers’ report
78
79
Portfolio analysis
80 Major Property Holdings
Glossary of Terms
84
Investor Information
IBC
Report and Financial Statements 31 March 2002
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Land Securities PLC
5 Strand
London
WC2N 5AF
Telephone: 020 7413 9000
e-mail:landsecurities@landsecurities.com
http://www.landsecurities.com
making property work . . .