Our world is changing...
Annual Report 2008
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www.landsecurities.com/doing2008
Our approach to corporate responsibility
Our response to climate change
Corporate responsibility stakeholders
2007/08 activities and achievements
2008/09 targets
Future challenges
www.landsecurities.com
Our vision, strategy, objectives and values
Information on our Retail Portfolio,
London Portfolio and Trillium
Structure and Senior Management
at Land Securities
Latest information for investors
Corporate responsibility
Media centre
Working at Land Securities
Awards and memberships
Frequently asked questions
www.landsecurities.com/annualreport2008
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Words by Tim Rich
Illustrations by Marion Deuchars
Location photography by Matt Mawson
Portraits by Andy Lane
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Land Securities Group PLC
Copyright and trade mark notices
All rights reserved.
©Copyright 2008 Land Securities Group PLC.
Land Securities, LandSecurities (stylised),
the Cornerstones logo, Making Property Work,
and Landfl ex are trade marks of Land Securities
Group PLC.
All other trade marks and registered trade marks
are the property of their respective owners.
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At the end of our fi rst year of business, in 1944, we owned
three houses in Kensington. Today we are the largest
Real Estate Investment Trust in the UK.
While our markets have always gone up and down, one
thing has stayed the same – our long-term approach.
Year after year we’ve made Land Securities stronger by
looking ahead, taking bold decisions early, and responding
to people’s needs with a positive can-do spirit.
Report of the Directors
Report from the Directors on the key
strategic, fi nancial and operational
developments during the year.
Financial Statements
Statements presenting the
essential numbers, including
the independent auditors’ report.
Investor Information
Summaries, analysis and
information on properties,
contracts and related subjects
for shareholders.
Land Securities Annual Report 2008
4 All you need to know
6 Performance overview
8 Chairman’s statement
10 Chief Executive’s report
13
14 Financial review
20 Business review
22
Benefi ts of demerger
Our risks and how we
manage them
24 Retail Portfolio
34 London Portfolio
44 Trillium
52 Board of Directors
54 Corporate responsibility
62 Corporate governance
66 Directors’ remuneration report
78
79
80
80
Directors’ statements
of responsibilities
Independent auditors’ report
Income statement
Statement of recognised income
and expense
81 Balance sheets
82 Cashfl ow statements
83 Notes to the fi nancial statements
Investor information
120 Five year summary
121 Business analysis
129
130 Glossary
Index
131
132 Contact details
2
After another year of change and evolution,
our three businesses are in good shape.
In Retail our ability to means we can
deliver the right space in the right place at the right time
– for our customers and their customers.
In London our knowledge, understanding and scale enable
us to compete from a position of strength today while
innovating to for tomorrow.
And through Trillium we’re extending the range of our
partnerships to help organisations
and operate more effi ciently.
Our demerger plan is another example of evolution in
action. While remaining as one company would be a safe
choice, becoming three separate businesses will help us
maximise our long-term value.
This annual report looks at the many ways we’ve evolved
this year and shares our plans for the year ahead.
We started work in 1990,
completed a comprehensive
redevelopment in 1992 and
sold in 1996 for £128.3m.
This early 1990s development
provided new offi ce and retail
space and features polished and
fl ame textured granite on the
external elevations.
Built in the 1960s and fi rst let at
£2.70 per sq ft., we carried out
a major refurbishment in 1987.
Originally the Stag Brewery,
we acquired and developed most
of this site in the late 1950s and
have since transformed it into
Cardinal Place.
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This extraordinary planned
development includes a sky-high
garden, with planning consent
granted in 2007.
Redeveloped and opened in 2003,
this is now the third most popular
shopping destination in the UK.
We relocated Dresdner Kleinwort
Wasserstein from 20 Fenchurch
Street to this redeveloped site, then
sold the asset in 2005 for £274m.
4
All you need to know
Land Securities is a leading Real Estate Investment Trust.
Our national portfolio of commercial property includes
some of the UK’s best-known shopping centres and landmark
buildings in London.
We are at the forefront of urban renaissance through our
multi-billion pound development programme, transforming
regional city centres and key sites in Central London. We are
also one of the leading names in property outsourcing and
Public Private Partnership markets as well as being involved
in long-term, large-scale regeneration projects in the South-east.
Our values
There are certain core values
that form the foundation of Land
Securities. They embody the way
in which employees and service
partners work together to deliver
effective customer relationships.
The values are:
■ Customer service
■ Respect for the individual
■ Integrity
■ Excellence
■ Innovation
Our vision
Our vision is ‘bringing property
to life’. We will go beyond bricks
and mortar, through design,
community engagement and
customer service to create places
where people choose to shop, are
proud to work and want to live.
Our strategy
Our strategy is to invest in
commercial property in sectors
where we have expertise and
operational skills which provide
competitive advantage. In these
sectors we will apply our risk
management skills and we will
actively recycle capital with a
view to delivering total returns
in excess of our cost of equity.
Land Securities Annual Report 2008
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All you need to know continued
Three strong businesses...
This business unit includes
shopping centres, retail warehouses,
shops outside London, shops in
London held through the Metro
Shopping Fund LP and other
regional properties.
Key points
27 shopping centres and 27 retail parks
1.7 million m2 of retail accommodation
approximately 1,300 retailer occupiers
some 260 million shopper visits per year
This business unit includes all
London offi ces and London retail,
but excludes those assets held in
the Metro Shopping Fund LP.
Key points
1.1 million m2 of offi ce
and retail accommodation
more than 50,000 people work
in offi ces owned by us
provides accommodation for over
400 organisations
long-term community development
projects in London and the South-east
This business unit is engaged in
long-term property outsourcing
partnerships with public sector
organisations including DWP,
DVLA and Royal Mail and with
corporates including Norwich
Union, Barclays and Accor Hotels.
We have equity interests in or
manage 137 Public Private
Partnership (PPP) projects in areas
such as schools, hospitals, secure
accommodation and offi ces.
Key points
3.1 million m2 across 1,776 properties
in property outsourcing partnerships
1.7 million m2 of PPP project fl oorspace
long-term contracts with gross income
of £757.8m
Land Securities Annual Report 2008
6
Our performance
An overview of our key fi nancial
performance fi gures from this fi nancial year.
Pre-tax loss
£888.8m
Total dividend
64.0p
Revenue profi t
£379.1m
The loss refl ects the impact of this year’s valuation
defi cit, but we have only moved back to a fi gure
comparable to our cumulative surplus in 2006.
We increased the dividend again this year and have
now generated compound annual growth of 14.6%
since 2004.
Increased revenue profi t from London and Retail
was offset by the impact of the accounting treatment
for Trillium’s PPP assets.
Land Securities performance versus IPD
- ungeared total property return (%)
Dividends and adjusted diluted earnings per share (p)
Revenue profit (£m)
25
20
15
10
5
0
-5
-10
-15
.
3
3
2
.
7
0
2
.
2
6
1
.
9
5
1
.
7
7
1
.
5
6
1
.
8
2
1
.
4
2
1
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
.
0
3
1
.
7
0
1
.
2
1
1
.
5
0
1
.
1
9
-
.
2
3
-
1
7
1
8
.
0
0
4
6
.
7
4
0
7
.
0
2
0
7
.
7
8
6
6
.
0
0
3
5
.
0
7
6
4
.
0
8
7
4
.
5
2
3
4
.
0
1
7
3
.
04
05
06
07
08
5
years
10
years
04
05
06
07
08
Land Securities IPD Quarterly Universe
Dividends per share
Adjusted diluted earnings per share
400
380
360
340
320
300
280
.
3
1
9
3
.
2
2
9
3
.
1
9
7
3
.
8
1
6
3
.
9
1
0
3
04
05
06
07
08
Combined portfolio value (£bn)
Five year cumulative valuation surplus (£m)
Net assets per share (p)
Other
Retail Portfolio
0.1
6.2
London Portfolio
7.3
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
.
9
6
0
4
.
0
2
7
3
4
,
.
3
9
8
9
2
,
.
5
7
6
0
3
,
4
0
3
2
1
8
1
2
7
6
0
2
6
5
9
1
2
1
9
1
7
9
5
1
8
8
4
3 1
9
2
1
1
3
3
1
4
9
2
1
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
.
3
4
0
3
1
,
04
05
06
07
08
04
05
06
07
08
Basic Adjusted diluted*
*Calculated under UK GAAP in 2004; under IFRS thereafter.
Land Securities Annual Report 2008
Performance overview continued
Key performance indicators
Read more about why we launched the fund,
and which companies have invested in the fund,
on page 47.
Find out how our Retail Portfolio
managed to outperform IPD on
pages 25-33 and read about the
London Portfolio’s outperformance
on pages 34-43.
Objective
Metric
Progress
To create sustainable long-term
returns for shareholders
Sustained real growth in adjusted earnings per
share to be at least 3% per annum over rolling
three-year periods
Normalised adjusted earnings per share growth
over three years to 31 March 2008 exceeded
RPI by 7.7% per annum
Annual revenue profi t to exceed budget target
Achieved for this fi nancial year
To maximise the returns from
the investment portfolio
IPD outperformance in each core sector
and on an overall portfolio basis
To manage our balance sheet effectively
Sell £1.5bn of investment properties
Establish PPP fund to raise £0.80bn of capital
Outperformed IPD on an overall portfolio
basis by 6.5%
Outperformed IPD sector benchmarks by
4.7% for our London Portfolio and by 4.8%
for our Retail Portfolio
Sold £1.5bn of investment properties
PPP fund successfully launched, raising
£0.81bn of capital
To complete and let our
development programme
£47.3m of development lettings to be completed
Developments to be completed on budget
and on time
£58.5m of development lettings achieved
Development schemes completed on budget
and on time, subject to one project being
three weeks delayed. Projects at Princesshay,
Exeter; Willow Place, Corby; Christ’s Lane,
Cambridge; One Wood Street, EC2;
Bankside 2&3, SE1; and New Street Square,
EC4 completed.
To grow our Trillium business
by winning new contracts
Secure £150m of PPP contracts through
Secured more than £300m of PPP contracts
secondary market acquisitions
through secondary market acquisitions
Ensure high levels of customer satisfaction
Overall customer satisfaction in Retail
and London businesses to exceed targets
90% satisfaction ratings from our largest
outsourcing client
Targets exceeded for both shopping centres
and London offi ces
Achieved 94% satisfaction rating from our
largest outsourcing client
Attract, develop, retain and motivate
high-performance teams and individuals
Employee engagement to exceed
ETS industry benchmark
Exceeded with grand mean score of 3.03
(classifi ed as excellent by our external survey
provider) compared to benchmark fi gure of 2.99
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See how we defi ne and mitigate
our property development risks
on page 22 and 23 and see
a fi nancial summary of our
development pipeline on page 126.
Land Securities Annual Report 2008
We discuss our approach
to employee engagement
on page 21.
8
Our Chairman’s message
This year we saw a correction in the property
market, turbulence in the fi nancial markets
and uncertainty in the wider economy.
Our Chairman, Paul Myners, assesses
our response and discusses what changing
conditions mean for the Company.
Paul Myners
“Successful companies respond
early to change. The actions
we took this year demonstrate
strength. We will continue to
be decisive and to make the
most of our skills and
competitive advantages in the
current demanding conditions.”
Land Securities is a well-managed company that thrived during an
extended run of good market conditions. This year there was a market
correction. Property values have refl ected changes in interest rates and
risk premia margins. Our sector does not operate in isolation from the
credit market and the wider economy.
We anticipated these changing conditions and have been preparing the
Company accordingly. We limited acquisitions, accelerated sales, reduced
our exposure to development risk and planned our funding conservatively.
We keep an old fashioned focus on costs, spending only when necessary
and productive. Our three businesses are in good shape as a result.
Successful companies respond early to change. The actions we took
this year demonstrate strength. We will continue to be decisive and to
make the most of our skills and competitive advantages in the current
demanding conditions.
Land Securities has a long and proud history of managing itself well
through a range of market conditions. We always look to move forward,
even when progress demands bold decisions.
Back in the 1950s, under the leadership of Harold Samuel, we entered
into the property sector’s fi rst convertible debenture agreement. This was
criticised by some at the time but soon became common practice.
In the early 1970s we went against the prevailing trend in the sector
and limited our borrowing, a decision that enabled us to bounce back
from the property crash of 1974.
Looking at the Company in the early 1990s, we can see parallels
with today. Chairman Peter Hunt wrote at the time: “The fundamental
principles on which Land Securities has been built are helping us through
the most diffi cult period for the property industry that I can remember.”
Those principles still hold true. Once again we are being bold with our
plans for demerger. Our diversifi ed business model has served us well but
we believe specialisation will become increasingly appealing.
Land Securities Annual Report 2008
Chairman’s statement continued
Investors value specialisation – they want to be absolutely clear on the
specifi c risks and opportunities ahead. We believe that by demerging
our businesses we can provide greater clarity and greater value
through a step change in focus and fl exibility. To use the jargon
of professional investors, we will be more ambitious in our pursuit
of portfolio alpha.*
Throughout the demerger process we will work hard to minimise costs
and to communicate what we are doing and why. The Company strives
to set high standards of disclosure. We will report key decisions quickly
and clearly.
One principle will remain consistent throughout the process – we
will only move to demerge when the conditions are right. We have no
timetable to follow but our own.
During times of profound change you see the true calibre of a
company’s employees. I am impressed by what I have seen here this
year. The demerger has not distracted anyone or anything.
We recognise business conditions are placing great demands on our
people at the moment and we thank them for their terrifi c response.
Win Bischoff left our Board recently after more than eight years
of quite extraordinary service. He will be missed. We congratulate
him on his appointment as Chairman of Citigroup. Christopher Bland,
Rick Haythornthwaite and Kevin O’Byrne have been appointed to the
Board as Non-executive Directors. They will be offering themselves for
election by shareholders at our forthcoming Annual General Meeting.
I encourage you to support their election.
Regardless of the demerger process and demanding market
conditions, the Company continues to make corporate responsibility
a priority. Rightly so. We want to be a provider and partner of choice,
and our excellent track record across governance, sustainability and
community affairs plays a vital role in this. It’s quite simple – we want
to be the sort of company people prefer to work with.
The Board thanks our colleagues, customers and suppliers for their
tremendous support this year. With their help the Company remains
in excellent shape and we look ahead with confi dence to the next 12
months in Land Securities’ remarkable history.
Chart 1
Land Securities returns (%)
30
20
10
0
-10
06
07
08
3 year
average
Return on average capital employed
Return on average equity
Weighted average cost of capital
Source: Organisation
Table 2
Total shareholder returns
Land Securities
FTSE 100
FTSE 350 Real Estate
FTSE All Share Real Estate
Source: Datastream
% return
for year to
31/03/08
% return
for fi ve years
to 31/03/08
(25.9)
(6.3)
(32.2)
(33.3)
148.0
87.3
147.1
146.7
* Alpha is a measure of return on a portfolio generated
by management actions and not market trends.
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Paul Myners
Chairman
Land Securities Annual Report 2008
10
Our Chief Executive reports
High volume of sales, £1.56bn, in challenging market –
prices 5.3% above valuation
Highest ever level of development completions at 242,200m2 –
94% let by year end
Successful launch of £1.1bn fund in PPP sector
Business continued to perform well while making progress on demerger
Francis Salway
This year the Company anticipated
changing conditions, acted decisively
and achieved relative outperformance
as a result. Chief Executive Francis
Salway reports on our actions and
our outlook for the year ahead.
“I believe the key to our
performance this year can be
summed up in two words –
timing and execution...”
Land Securities Annual Report 2008
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Our timing and execution of development has been
good. We anticipated changing conditions, and timed
our future level of space with expected levels of demand.
Chart 3
1050
900
750
600
450
300
150
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-
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2008
2009
2010
2011
2012
2013+
Retail Portfolio – development completions
Retail Portfolio – development programme
Retail Portfolio – development pipeline
London Portfolio – development completions
London Portfolio – development programme
London Portfolio – development pipeline
Table 4
Total property returns (%)
Year to 31/03/08
Land
Securities
Total portfolio
(3.2)
Source: IPD
IPD
(9.1)
Relative
return
6.5
Chief Executive’s report continued
After a long run of good market conditions the property sector experienced a setback this year, with less
liquidity in the capital markets and some caution on likely demand from occupiers. Although we anticipated
this infl ection point some time ago, and started preparations for changed market dynamics, our portfolio
and our performance have not been immune to the general market trends.
Our key challenge this year was to keep evolving our businesses so they were fi t to compete and win
in the current demanding conditions, while laying the foundations for future growth. Our strategy delivered
a strong relative performance, with our portfolio outperforming the IPD Quarterly Universe by 6.5% in
relative terms. This outperformance represents some £800m of value preservation for our shareholders.
Timing and execution
I believe the key to our performance this year can be summed up in two words – timing and execution.
Take our sales programme. We made our last major retail acquisition in February 2006, while this year
we sold £835m of retail assets and achieved prices on average 3.1% above valuation.
As a result we have a high quality retail portfolio well suited to our customers’ needs and we have the
resources required to make acquisitions when the right opportunities appear. In London we have achieved
similar success, with £716m of sales made at 8.2% above average valuation, providing resources to address
future opportunities.
Our development programme was equally well timed and executed. This year we secured our highest
ever level of development completions at 242,200m2, and at year end these were 94% let. In London we
had expected employment growth in the fi nancial services sector to be weaker, so we will be completing
just 25,500m2 of offi ce developments over the next two fi nancial years, keeping our supply of high quality
space in line with expected levels of demand.
Three market leaders within one company
Our three businesses performed well throughout the year and demonstrated their market
leadership credentials.
In London we achieved the highest levels of offi ce development lettings of any company or organisation
this year. This included the leasing of Bankside 2&3, SE1 to Royal Bank of Scotland – the second largest
letting of the year in the sector. In July we won planning consent from the Secretary of State for
20 Fenchurch Street. This followed a high profi le media debate and public inquiry, and once again
we showed that taking a project of this scale from vision to approval requires both imagination and
determination – a rare blend.
Our Retail business capped a strong year with the completion and successful letting of Princesshay
in Exeter. I think this is one of the fi nest developments in our history and deserved its British Council of
Shopping Centres’ Supreme Gold Award – the third year in a row a Land Securities development has won
this accolade. I am also pleased by the launch and early progress of The Harvest Partnership, our joint
venture with Sainsbury’s.
Trillium produced another year of strong growth. Having integrated the Secondary Market Infrastructure
Fund business acquired in February 2007, we launched our PPP fund, Trillium Investment Partners, this year
and – despite less liquidity and increasing anxiety in the market – achieved a successful close of the fund
in March 2008. Trillium Investment Partners has been established with an initial capital of £1.136bn, of
which half is debt fi nanced and half equity. The quality of the investors in the fund speaks volumes for
Trillium’s reputation, while our success in winning the Kent Building Schools for the Future contract
confi rms both the strength of our offer and the scale of the opportunities ahead.
Meeting changing needs and expectations
Our businesses are increasingly adept at understanding and responding to our customers’ changing needs
and expectations. This often requires us to make key decisions early, from adjusting the volume and type
of space we are developing to incorporating innovative forms of public space into our projects.
Sustainability is of growing importance to many people and is one area where we have sought to
anticipate change and act early. For a decade we have focused on environmental issues and this was
recognised during the year when sustainablebusiness.com named us one of the World’s Top 20 Sustainable
Stocks, with Land Securities the only UK company included. I am also pleased that the Dow Jones
Land Securities Annual Report 2008
12
Chief Executive’s report continued
Sustainability Index named us a global leader in both the real estate and fi nance sectors.
Acting responsibly means addressing some big challenges, such as working to reuse or recycle at least
80% of the demolition waste created by a new development, or enabling customers to improve the energy
performance of a building. But it’s about smaller things too, like offering our employees up to two days
paid leave so they can help local community organisations. In our experience, both big and small acts help
to make us a better business.
The value of REIT status
We converted to REIT status on 1 January 2007 and so this year we enjoyed exemption from corporation
tax on qualifying rental income and on gains from investment property sales.
Although the conversion has coincided with the more challenging market conditions I outlined earlier,
our change in status has been and continues to be advantageous for shareholders. First, we now pay less
tax, which has increased earnings per share. Second, the representation of international shareholders on
our register has increased from 23% to 37% since March 2005 and this suggests REIT status has attracted
more international capital and potentially wider demand for shares – a clear benefi t.
Plans for demerger
Since 2004 we have structured the Company around three large and distinct business divisions. The Board
believes there is now potential to create greater value for shareholders by separating these businesses.
In our Interim Report in November 2007 we confi rmed our intention to demerge the Group into three
separately quoted entities and we set out our rationale for doing so.
This is not a reaction to short-term market trends. A demerger has been under careful consideration for
some time and, as with our conversion to REIT status, the Board’s proposal is made with long-term value
creation in mind. In the past few years we have run our three businesses with a high degree of autonomy
and the demerger process is a natural step in our Company’s evolution.
I am delighted to report that our planning for the demerger did not impact the activity levels or
performance of the Company nor did it affect the support we provide to customers. Indeed, our satisfaction
rating with our largest customer, the Department for Work and Pensions, was the highest ever at 94%,
up three percentage points on 2006.
Throughout the year the Non-executive Directors have provided invaluable guidance to the senior
management team. I would like to take this opportunity to thank them for their support.
Outlook
The market is certainly demanding but we have performed well in relative terms this year. As a result, we
are well placed in our London and Retail property investment businesses, with moderate gearing levels,
a well-timed development programme and strong portfolios well matched to occupiers’ needs. Trillium
is in excellent health with stable long-term cash fl ows and a robust pipeline of new opportunities across
a number of dynamic sectors. I am confi dent our businesses have the strength and scale to thrive.
How occupiers respond to current economic conditions will prove key over the next 12 months.
We are alive to the challenges involved and we will concentrate on competing hard in this environment
while preparing for the next set of opportunities. I have long believed the companies that thrive in our
industry do so because they maintain a clear long-term view of their markets and have the confi dence
to evolve their businesses well ahead of changing conditions – this is the approach Land Securities will
continue to take.
Chart 5
Property yield pricing relative to gilt yields (%)
2007
2008
6
4
2
0
1.64 1.81 1.94
2.16
1.26
0.42 0.53 0.69
A
S O N
JD
F M
0.35 0.14 -0.09 0.18
MA
J
J
Property equivalent yield
10-year gilt yield
Difference between above yields
Source: IPD
80%
We are working to reuse or recycle at least 80% of our
demolition waste on development projects.
Bankside 2&3, London
We increased the momentum of regeneration with
the successful completion of Bankside 2&3, now
let to RBS.
Francis Salway
Land Securities Annual Report 2008
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The benefi ts of demerger
In November 2007 we announced our intention to demerge into three
separate companies. Since then we have made progress on the extensive
preparatory work required to make this happen. The Board will make the
fi nal decision on the implementation of our plan when market conditions
are favourable and when it receives the mandate to do so from shareholders.
Here we discuss the rationale for demerger.
Why we are considering demerger now
As a property company we set out to take key investment decisions from a position of strength.
We restructured to create Retail, London and Outsourcing (now Trillium) in 2004 because it was right
for the Company. The three businesses have grown and now have the size and strength to stand alone.
The demerger plan recognises that these businesses have different fi nancial characteristics, and that
specialisation will help each business to raise capital. We also believe that greater recognition will be given
to major successes achieved within a specialised business, rather than within a more broadly based Group.
The history of the demerger process
The potential benefi ts of demerger were fi rst raised within the Company in autumn 2005 following the
successful creation of the three business units in 2004. The review process started long before current market
conditions were evident and we believe demerger will be delivering value for shareholders when the current
market conditions are regarded as history.
The Board has a strong track record on bold decisions. In recent years we acquired Trillium, exited the industrial
sector through the property swap with SEGRO and boosted our development pipeline ahead of the current cycle.
These decisive actions have proved successful. Demerger is the latest bold decision in the ongoing evolution of
the Company.
Businesses benefi t from specialisation
Historic data shows that in the UK and US specialist companies have produced higher shareholder returns over
the last 10 years. We believe a balance sheet tailored to the respective sector cycles has the potential to improve
return on shareholders’ equity by a material amount. With a bespoke fi nancial structure our London and Retail
portfolios could be valued more easily and could raise capital more easily. We believe they will also be better
positioned to access new fl ows of capital into the global listed property sector.
Our progress so far
Initial preparatory work for demerger is well advanced, and this includes the appointment of the leadership teams
for each business. In terms of Chief Executives, Francis Salway will run the Retail business, Mike Hussey will
continue to run London and Ian Ellis will continue to run Trillium.
Sir Christopher Bland has been appointed Chairman of Trillium in the run up to its demerger and subsequently.
His recent roles include Chairman of BT and Chairman of the Board of Governors at the BBC.
Rick Haythornthwaite has been appointed as Chairman of the Retail business following demerger. He is
currently Chairman of Mastercard Inc, Chairman of the Risk and Regulation Advisory Council and partner at
Star Capital Partners Ltd. His previous roles include Chief Executive of Blue Circle Industries and Invensys and
Non-executive Director of ICI. Paul Myners will assume the role of Chairman of the London business at demerger.
The cost of demerger
There will be the additional cost of running three corporate entities, including three boards, and our estimate is
that this will be around £15m per annum, with the businesses able to manage overall costs down once separated.
In addition, the cost of fi nance for the three businesses is expected to increase slightly, but we believe the
credit quality of the three individual portfolios will keep this increase to moderate levels. There will also be the
one-off costs of undertaking the transaction – including legal, accountancy and adviser fees – and we expect
these to be in line with similar transactions.
While we will keep costs under close scrutiny throughout the process, we believe the long-term benefi ts
for shareholders will signifi cantly outweigh the initial costs of demerger.
A clear step forward
Demerger represents a clear step forward for this Company and is in keeping with our heritage of taking key
decisions early. In our view, the independent London and Retail businesses will – along with Trillium – continue
to lead their markets, with their proven management teams supported by tailored fi nancial structures.
Land Securities Annual Report 2008
What you should know...
The businesses will be of the size
and strength to maintain market
leading positions
Retail Portfolio and London Portfolio
should each be of a size to be in the
FTSE100 while Trillium should
be of a size to be in the FTSE250
There will be a vote by shareholders
before any decision is fi nalised
No date confi rmed for demerger
The business leaders:
Retail Portfolio
Rick Haythornthwaite Chairman
Francis Salway CEO
London Portfolio
Paul Myners Chairman
Mike Hussey CEO
Trillium
Sir Christopher Bland Chairman
Ian Ellis CEO
14
Financial review
The Group’s loss before tax was £888.8m, compared to a profi t of £1,979.1m a year ago. The loss before
tax includes the revaluation defi cit on our investment properties of £1,304.5m (2007: £1,382.7m surplus).
Revenue profi t, our measure of underlying profi t before tax, decreased from £392.2m to £379.1m. Earnings per
share decreased from 753.59p last year to a loss per share of 188.80p, with adjusted diluted earnings per share
showing a 16.4% increase on last year to 81.71p (2007: 70.20p).
The combined investment portfolio decreased in value from £14.8bn to £13.6bn. This included a valuation
defi cit of £1,279.6m or 8.8%. Net assets per share decreased by 10.3% to 2067p from 2304p,
with adjusted diluted net assets per share decreasing by 10.3% to 1956p (2007: 2181p).
(Loss)/profi t before tax
The main drivers of our loss before tax are the change in value of our investment portfolio (including any profi ts
or losses on disposal of properties), our net rental income, the performance of our Trillium business, and the
amount of interest we paid. The degree to which movement on these and other items led to the reduction in
our profi t before tax from £1,979.1m last year to a loss of £888.8m this year, is explained in Table 6 below:
Martin Greenslade
Table 6
Principal changes in profi t before tax and revenue profi t
Year ended 31 March 2007
Valuation defi cit
Profi t on disposal of non-current properties
Profi t on sale of trading properties
Amortisation of bond derecognition1
Long-term development contract profi ts2
Net rental and service charge income3
Indirect costs
Trillium operating profi t (including joint ventures)4
Interest associated with PPP investments5
Other Trillium interest6
Other interest7
Demerger costs8
Debt restructuring charges
Joint venture tax adjustment
Interest rate swaps
Year ended 31 March 2008
“We are recommending a fi nal
dividend payment of 16.0p
per share. Our full year
dividend will be 64.0p per
share, a 20.8% increase
over last year.”
Profi t/(loss)
before tax
£m
Revenue
profi t
£m
1,979.1
(2,687.2)
(50.1)
(2.5)
9.5
(12.3)
7.9
1.5
34.6
(42.0)
(18.9)
3.8
(9.8)
17.3
(79.9)
(39.8)
(888.8)
392.2
–
–
–
–
–
7.9
1.5
34.6
(42.0)
(18.9)
3.8
–
–
–
–
379.1
1. The debt instruments issued as part of the refi nancing in November 2004 do not meet the requirements of IAS 39 as they are not deemed to be substantially
different from the debt they replaced. As a result, the book value of the new instruments is reduced to the book value of the debt it replaced and the difference
is amortised over the life of the new instruments. The decrease in amortisation over the comparable period is a refl ection of the maturity profi le of debt replaced.
2. 2007 benefi ted from the fi rst time recognition of profi ts on the BBC Broadcasting House contract.
3. Increased as a result of completed developments and like-for-like rental income growth, partially offset by properties sold.
4. Increase is mainly due to DWP contract and Accor hotels. See Table 42 on page 49 for details.
5. Interest cost associated with acquiring PPP investments on which no revenue is recognised.
6. Increased costs due to higher average capital employed, principally associated with Royal Mail and Accor.
7.
Relates to property investment business and Group. Lower interest costs due to net sales of investment properties, offset by interest on REIT entry charge
and movement to quarterly dividends.
8. All costs related to the proposed demerger were expensed during the year but do not form part of the calculation of revenue profi t.
Revenue profi t
Revenue profi t is our measure of the underlying pre-tax profi t of the Group, which we use internally to assess our
performance. It includes the pre-tax results of our joint ventures but excludes capital and other one-off items such
as the valuation (defi cit)/surplus, gains on disposals, trading profi ts and profi ts on long-term development contracts.
Revenue profi t for the year decreased by 3.3% from £392.2m to £379.1m. An increase in revenue profi t
from London and Retail on the back of higher net rental income was offset by a decline in Trillium for the
accounting reasons described below. Net rental income from our investment portfolio increased by £8.2m,
despite almost £800m of net investment property sales. This growth in rental income was driven by £17.4m of
like-for-like rental income increases and £31.7m of higher income from our completed developments, which
included Princesshay in Exeter and, in London, Cardinal Place, SW1 and Bankside 2&3, SE1. While net property
sales reduced rental income by £36.6m, this was more than offset by the associated interest savings.
While Trillium’s operating profi t is higher than last year (see Table 42 on page 49), at the revenue profi t level
there has been a decline of £26.3m, due to the accounting treatment of its PPP assets. Through the acquisition
of Secondary Market Infrastructure Fund in February 2007 and subsequent transactions, Trillium has purchased
a number of PPP assets. These assets were purchased with the intention from the outset that they would be
transferred to a fund, Trillium Investment Partners, in which Trillium would subsequently reduce its ownership.
As a result, we have accounted for all PPP investments which we are intending to transfer to Trillium Investment
Partners or sell to third parties, as a disposal group. The implications of this are that we do not consolidate the
Land Securities Annual Report 2008
Loss before tax was £888.8m,
compared with a profi t of
£1,979.1m a year ago
The ‘loss before tax’ includes the
revaluation defi cit on our investment
properties of £1,304.5m
Revenue profi t, our measure of
underlying profi t before tax, decreased
from £392.2m to £379.1m
Adjusted diluted earnings per share
showed a 16.4% increase on last
year to 81.71p (2007: 70.20p)
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Development lettings in year
Cardinal Place, SW1
Higher income from completed developments
such as Cardinal Place helped drive growth
in rents.
Financial review continued
individual assets and liabilities of the PPP investments. Instead, they are held at fair value less costs to
sell in the balance sheet and we do not recognise our share of the underlying net income of the PPP
investments, nor do we recognise in revenue profi t any profi ts on disposal of these PPP investments.
During the course of the year, we made £47.5m from the sale of Meterfi t and equity interests in Trillium
Investment Partners, the owner of the majority of Trillium’s PPP investments. We do, however, include in
revenue profi t the interest cost associated with acquiring and owning these PPP investments, which
amounted to £42m for the year. This imbalance in accounting for revenue profi t, whereby we recognise
interest cost but not revenues, has resulted in the decline in Trillium’s contribution to revenue profi t.
The net divestment of almost £800m of investment property sales reduced interest costs related to
London and Retail. This benefi t was largely offset by higher interest costs at Group level of £14.7m following
the payment in July 2007 of £316.2m as our REIT entry charge and our move to paying quarterly dividends.
An explanation of the year-on-year change in revenue profi t is given in Table 6, and a reconciliation
between the (loss)/profi t before tax and the revenue profi t is shown in Table 7.
Table 7
Reconciliation of (loss)/profi t before tax to revenue profi t
(Loss)/profi t before tax
Valuation defi cit/(surplus) – Group
– joint ventures
(Profi ts)/losses on non-current property disposals – Group
– joint ventures
Mark-to-market adjustment on interest rate swaps
Eliminate effect of bond exchange derecognition
Debt restructuring charges
Joint venture tax adjustment
Demerger costs
Profi t on sale of trading properties – Group
– joint ventures
Long-term development contract profi ts
Revenue profi t
Year ended
31 March 2008
£m
Year ended
31 March 2007
£m
(888.8)
1,170.3
134.2
(75.4)
7.1
22.4
7.6
1.9
3.1
9.8
(2.8)
(8.3)
(2.0)
379.1
1,979.1
(1,307.6)
(75.1)
(118.4)
–
(17.4)
17.1
19.2
(76.8)
–
(13.6)
–
(14.3)
392.2
(Loss)/earnings per share
The basic loss per share was 188.80p, compared to earnings per share of 753.59p in the prior year,
the change predominantly due to the revaluation defi cit on the investment property portfolio
(576.28p per share).
In the same way that we adjust profi t before tax to remove capital and one-off items to give revenue
profi t, we also report an adjusted earnings per share fi gure, although this includes some additional
adjustments to revenue profi t. The adjustments to earnings per share are set out in note 11 to the fi nancial
statements. They are based on the guidance given by European Public Real Estate Association (EPRA) with
a limited number of further adjustments to refl ect better our underlying earnings. Adjusted diluted earnings
per share increased from 70.20p per share in 2007 to 81.71p per share in 2008, a 16.4% increase. The
increase in adjusted earnings per share is largely attributable to a signifi cantly lower tax charge following
REIT conversion (last year only benefi ted for three months), partially offset by the interest costs associated
with the PPP investments in Trillium.
Total dividend
We are recommending a fi nal dividend payment of 16.0p per share. Taken together with the three quarterly
dividends of 16.0p, our full year dividend will be 64.0p per share (2007: 53.0p), a 20.8% increase over last
year. A large part of this substantial increase is attributable to the tax we have saved by being a REIT for the
full fi nancial year.
REIT conversion also impacts on the make-up of the Group’s dividend, which now consists of two
components: a property income distribution (PID) from the REIT qualifying activities and a dividend
distribution from the non-qualifying activities (non-PID). The aggregate of these two components will
continue to be referred to as our total dividend. We are obliged for certain shareholders to withhold tax,
currently at a rate of 20% (22% prior to 6 April 2008), from the PID element of the dividend. Our total
dividend is therefore a gross dividend. Table 8 sets out our quarterly dividends, the date on which they were
paid, and how much of each dividend was a PID, together with similar details for our proposed fi nal dividend.
A note on the tax consequences for shareholders and forms to enable certain classes of shareholder to
claim exemption from withholding tax are available on our website at www.landsecurities.com.
Land Securities Annual Report 2008
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Financial review continued
The total dividend for the year is covered 1.3 times by adjusted earnings (2007: 1.3 times). Subject to
approval by shareholders at the Annual General Meeting to be held on 17 July 2008, our fi nal dividend,
which is 100% PID will be paid on 28 July 2008 to shareholders on the Register at 20 June 2008.
For the next fi nancial year, our fi rst quarterly dividend will be 16.5p of which 90% will be a PID.
64p
This year’s dividend is up 20.8% on 2007
Table 8
Dividends
First quarterly dividend (paid on 26 October 2007)
Second quarterly dividend (paid on 7 January 2008)
Third quarterly dividend (paid on 25 April 2008)
Final dividend (payable on 28 July 2008)
Total
Property
income
distribution
(PID)
pence
Non-property
income
distribution
pence
12.8
12.8
12.8
16.0
54.4
3.2
3.2
3.2
–
9.6
Total
pence
16.0
16.0
16.0
16.0
64.0
Property Income Distribution (PID)
Who can claim exemption from deduction of withholding
tax on Property Income Distributions?1
UK companies
Charities
Local Authorities
UK Pension Schemes
Managers of PEPs, ISAs and Child Trust Funds
Balance of business tests
REIT legislation specifi es conditions in relation to the type of business a REIT may conduct, which the Group
is required to meet in order to retain its REIT status. In summary, at least 75% of the Group’s profi ts must be
derived from REIT qualifying activities (the 75% profi ts test) and 75% of the Group’s assets must be employed
in REIT qualifying activities (the 75% assets test). Qualifying activities means a property rental business. The
result of these tests for the Group for the fi nancial year, and at the balance sheet date, is as follows:
Table 9
REIT balance of business tests
For the year ended/as at 31 March 2008
For the year ended/as at 31 March 2007
Tax-Exempt
Business
Residual
Business
Adjusted
Results
Tax-Exempt
Business
351.1
9.7
360.8
358.3
97.3%
14,766.8
2.7%
1,962.9
16,729.7
89.3%
15,695.8
Residual
Business
42.9
10.7%
2,111.6
Adjusted
Results
401.2
17,807.4
88.3%
11.7%
88.1%
11.9%
Adjusted profi t before tax
(£m) Balance of business –
75% profi ts test
Adjusted total assets (£m)
Balance of business –
75% assets test
Net assets
At the fi nancial year end, net assets per share were 2067p, a decrease of 237p or 10.3% over the year.
The fall in value of our investment property portfolio was responsible for the decline in net assets.
In common with other property companies, we calculate an adjusted measure of net assets which we
believe better refl ects the underlying net assets attributable to shareholders. Adjusted net assets are lower
than our reported net assets primarily due to the debt adjustment we make. Under current accounting
standards, we do not show our debt at its nominal value, although we believe it would be more appropriate
to do so and we therefore adjust our net assets accordingly. At the year end, adjusted diluted net assets per
share were 1956p per share, a decrease of 10.3% from last year end.
Who is unlikely to be able to claim exemption from deduction
of withholding tax on Property Income Distributions?
Overseas shareholders2
Individual private shareholders
1. See Total dividend information on how eligible shareholders
can claim exemption.
2. May be able to reclaim some or all of the withholding tax
under relevant double taxation treaty.
Chart 10
Geographical spread of equity shareholders (%)
Asia
Other
3.85
1.08
Unidentified
18.37
UK
44.22
France
Netherlands
Europe other
2.53
6.86
9.92
USA and Canada
13.17
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Table 11
Net assets
5.3%
Year ended
31 March 2008
£m
Year ended
31 March 2007
£m
Property sales above 31 March 2007 valuation
(before disposal costs)
Net assets at the beginning of the year
10,791.3
Chart 12
Active capital management (£m)
08
07
06
05
03
04
02
01
2500
Investment
2000 1500 1000 500 0 500 1000 1500 2000
Receipts
Property investment expenditure
Developments
Trillium investments
Corporate acquisitions
Capital returns
Investment property disposals
Trillium disposals
Table 13
Gearing
£m
Gearing – on book value
of balance sheet debt
Adjusted gearing*
Adjusted gearing*
– as above plus notional share
of joint venture debt
31 March
2008
%
31 March
2007
%
56.2
64.9
67.6
47.1
54.7
58.8
* Book value of balance sheet debt increased to recognise nominal value
of debt on refi nancing in 2004 divided by adjusted net asset value.
Adjusted earnings
Demerger costs*
Revaluation (defi cits)/surpluses on ongoing and completed development properties*
Revaluation (defi cits)/surpluses on investment properties (excluding Trillium)*
Revaluation defi cits on Trillium investment properties*
Profi ts on non-current asset disposal*
Interest charges not included in adjusted earnings*
Prior year non-revenue tax adjustments
Tax credits not included in adjusted earnings
(Loss)/profi t after tax
Profi t on discontinued operations
Dividends paid
Other reserve movements
Net assets at the end of the year
Mark-to-market on interest rate hedges
Debt adjusted to nominal value
Adjusted net assets at the end of the year
*These amounts are post-tax
381.0
(6.9)
(126.6)
(1,153.0)
(24.9)
67.8
(31.9)
16.2
–
(878.3)
47.5
(308.4)
(69.2)
9,582.9
12.7
(511.5)
7,493.9
330.0
–
130.9
910.6
(10.1)
105.2
(13.0)
–
2,074.7
3,528.3
–
(223.0)
(7.9)
10,791.3
(23.6)
(519.1)
9,084.1
10,248.6
Cashfl ow and net debt
Cash receipts during the year totalled £1,080.7m from investment portfolio property disposals, which
included Whitefriars, Canterbury and Greater London House, NW1. In total, we invested £1,667.2m in
our properties including £722.6m on investment property acquisitions, £158.5m by Trillium (primarily
Accor hotels) and £530.3m on developments. The development expenditure, which includes land acquisitions
but excludes capitalised interest and our share of joint ventures, was spent principally on New Street
Square, EC4, Queen Anne’s Gate, SW1, and One New Change, EC4, in London and shopping centre
developments in Livingston and Exeter.
As part of our strategy to continue to expand Trillium in the PPP market, we spent £158.5m
acquiring PPP assets from AMEC. We also received £814.4m from our Trillium Investment Partners fund;
fi rst through raising debt against the assets (£414.8m in ‘Receipts from the disposal group’ in Table 14)
followed by £399.6m from the sale of equity interests in the fund (included in ‘Receipts from
discontinued activities’). Further details are given in the Trillium section.
We invested a net £0.2m in our joint ventures including, £56.2m received on disposals, the largest
of which was East Kilbride Shopping Centre, offset by £131.5m spent on shopping centre developments
in Bristol and Cardiff.
At 31 March 2008, the Group’s net debt was £5,384.5m, some £296.6m higher than 2007 (£5,087.9m).
While this increase can be attributed to the REIT conversion charge of £316.2m, there were signifi cant
capital infl ows and outfl ows which are summarised in Table 14.
Land Securities Annual Report 2008
18
Financial review continued
Table 14
Cashfl ow and net debt
Operating cash infl ow after interest and tax (excluding REIT conversion charge)
REIT conversion charge
Dividends paid
Investment property acquisitions
Trillium property acquisitions
Development and refurbishment capital expenditure
Investment in fi nance lease receivables (Norwich Union and DVLA)
Investment in properties
Acquisition of AMEC (2007: SMIF and IIC)
Acquisition of PPP investments
Other capital expenditure
Total capital expenditure
Disposals
Receipts from discontinued activities
Receipts from the disposal group
Joint ventures
Purchase of share capital
Other movements
Increase in net debt
Opening net debt
Closing net debt
Year ended
31 March 2008
£m
Year ended
31 March 2007
£m
315.4
(316.2)
(308.4)
(722.6)
(158.3)
(530.3)
(82.1)
(1,493.3)
(158.5)
(152.7)
(15.4)
(1,819.9)
1,080.7
424.9
441.0
(0.2)
(87.6)
(26.3)
(296.6)
(5,087.9)
361.5
–
(223.0)
(523.7)
(416.5)
(532.6)
(43.3)
(1,516.1)
(919.0)
–
(18.8)
(2,453.9)
869.8
–
25.0
50.0
(36.2)
4.8
(1,402.0)
(3,685.9)
(5,384.5)
(5,087.9)
Details of the Group’s gearing are set out in Table 13, which includes the effects of our share of joint venture
debt, although the lenders to our joint ventures have no recourse to the wider Group for repayment.
Financing strategy and fi nancial structure
Our fi nancing strategy is to maintain an appropriate net debt to equity ratio (gearing) to ensure that asset
level performance is translated into enhanced returns for shareholders while maintaining an appropriate risk
reward balance to accommodate changing fi nancial and operating market cycles.
The last 12 months has seen a major upheaval in the international debt markets, beginning with
defaults on sub-prime mortgages in the US. As a result of the nature of international banking, the contagion
quickly spread around the world impacting the ability of domestic banks to make advances as their capital
ratios came under pressure. The implications for borrowers like Land Securities continue to unfold. Initially
the UK bond markets were effectively closed, and whilst this has historically been an important source of
funding for the Group, our demerger plans have meant that the Group would not have accessed such long-
term fi nancing at this time. In the UK market, we have seen the following effects – an increase in the cost
of debt, the imposition of more onerous covenants, increased execution time and increased execution risk.
Despite these conditions, Land Securities has executed eight different fi nancing arrangements during
the course of the year, either directly or through joint ventures. We have been able to continue to access
the debt markets as a result of our on-going debt investor relations programme, a responsible creditor track
record and a high quality portfolio and debt structure from which to raise funding. Under this structure
(see Chart 15), we benefi ted from a lower cost of fi nance by utilising the credit strength of our investment
portfolio without the more onerous restrictions of individually collateralised obligations. Operational
fl exibility is maintained through provisions which allow us to buy and sell assets, without restriction, and to
undertake developments. At 31 March 2008, our debt investors had security over £11.0bn of investment
properties in this structure.
As previously stated, net debt increased by 5.8% from £5.1bn to £5.4bn as a result of our REIT
conversion charge. Despite only a moderate rise in net debt, gearing has increased from 47.1% to 56.2%
principally due to the impacts of the revaluation defi cit on our equity.
Our interest cover ratio, excluding our share of joint ventures, has fallen from 2.43 times in 2007 to
1.93 times in 2008. A large part of this reduction can be attributed to the accounting treatment of Trillium’s
PPP assets. While we recognise the interest cost associated with acquiring these assets, we do not include
our share of the underlying income they generate. If we adjust the interest cost related to these assets,
interest cover would be 2.23 times. Under the rules of the REIT regime, we need to maintain an interest
cover ratio in the exempt business of at least 1.25 times to avoid paying tax. As calculated under the REIT
regulations, our interest cover ratio of the exempt business for the year to 31 March 2008 was 2.09 times.
Land Securities Annual Report 2008
£1.56bn
Investment property sales
Chart 15
Funding structure
The Security Group
(Total property assets £11.0bn3)
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1. Limited to the higher of £150m or 2% of total collateral value.
2. The borrower under the Secured Bank facility is LS Property Finance
Company Limited. Notes are issued from Land Securities Capital
Markets PLC. Commercial paper is issued from Land Securities PLC.
3. Source: Knight Frank LLP Valuation Report for 31 March 2008.
Financial review continued
During the year, the Group entered into three committed bilateral facilities all of which are secured on
the assets of The Security Group. In June 2007, the Group entered into a £150m facility, which has been
extended in December 2007, as a £175m facility with an expiry in February 2010. In July 2007, the Group
entered into a £500m facility which was due to expire in July 2008, but a commitment has been obtained
to replace it in July 2008 with a £350m facility with an expiry in July 2009. In December 2007, the £1.0bn
SMIF acquisition facility was repaid. Another £350m facility was established in December 2007 which expires
in October 2008. The Group has an option to extend each of these facilities by a further year. In December
2007, the Group acquired a share of Leeds Trinity Quarter which included a facility which has been
refi nanced post year end with a fi ve-year £352m committed facility secured on these assets.
Also during the year, we bought back in the market 4.7m of our own shares for a total cost of £78.2m,
equating to an average price of 1666p.
At 31 March 2008, Land Securities’ net borrowings (including joint ventures) amounted to £6,133.0m,
of which £865.0m was drawn under our £1.5bn secured bank facility and £67.3m related to fi nance leases.
Committed but undrawn facilities amounted to £611.0m. The majority of debt due in one-year relates to
drawings under the committed bank facilities which have a one-year extension option.
Hedging
We use derivative products to manage our interest rate exposure and have a hedging policy which requires
at least 80% of our existing debt plus our net committed capital expenditure to be at fi xed interest rates
for the coming fi ve years. Specifi c hedges are also used in geared joint ventures to fi x the interest exposure
on limited recourse debt. At the year end we had £2.3bn of hedges in place, and our debt was 80% fi xed.
Consequently, based on year end debt levels, a 1% rise in interest rates would increase full year interest
charges by only £12.4m.
Taxation
As a consequence of the Group’s conversion to REIT status, income and capital gains from our qualifying
property rental business are now exempt from UK corporation tax. The tax credit for the year of £10.5m
(2007: £1,549.2m) includes a current year tax charge of £10.3m on non-qualifying activities offset by a
£20.8m release in respect of prior years.
Table 16
Principal fi nancial risks
Risk
description
Funding
Lack of available funds
Interest rates
Exposure to prevailing
market rates
Taxation
Failure to meet REIT
compliance tests
Impact
Mitigation
Unable to progress
investment opportunities
Flexible funding structure. Sizeable committed,
undrawn facilities – see page 18
Ability to sell investment property assets
Increased borrowing costs
following interest rate rise
Hedging policy – see page 19
Loss of REIT status leading
Internal monitoring procedures and current safety
to higher tax costs
margin – see page 16
Internal tax specialists and appropriate use of
external advisers
Pension schemes
The Group operates a number of defi ned benefi t pension schemes which are closed to new members.
At 31 March 2008 the schemes had a combined surplus, net of deferred tax, of £10.2m (2007: defi cit £5.2m).
The surplus has arisen due to an increase in the prescribed discount rate used to value scheme liabilities
from 5.4% to 6.9%.
Chart 17
Analysis of equity shareholdings by size of holding at
31 March 2008
Number
of holdings
%
Balance as at
31.03.08
1 to 500
13,355
49.82
3,461,572
%
0.74
501 to
1,000
1,001 to
5,000
5,001 to
10,000
10,001 to
50,000
50,001 to
100,000
100,001 to
500,000
500,001 to
1,000,000
1,000,001 to
highest
6,388
23.83
4,695,417
1.00
5,484
20.46
10,855,966
2.31
534
1.99
3,784,092
0.80
525
1.96
11,974,938
2.54
144
0.54
10,503,640
2.23
230
0.86
51,159,879
10.86
61
0.23
43,506,607
9.24
84
0.31
330,959,367
70.28
Totals
26,805
100.00
470,901,478
100.00
Chart 18
Expected debt maturities (nominal) £bn
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
1 1
-
2
2
-
5
Joint ventures
Non-restricted group
Security group
1
0
-
1
5
1
5
-
2
0
>
2
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5
-
1
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Years
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Business review
In this Group business review we outline the Company’s approach to a number of key areas, from our
business model to our customers, risk, employees and sustainability.
Chart 20
Floorspace under management (million m2)
Our business model
We are the sixth largest Real Estate Investment Trust in the world and the largest in the UK. We own,
develop and manage commercial property through three main businesses:
■
Our Retail business provides customers with access to retail units in shopping centres and retail parks
and manages these assets to maximise their value. Our development projects help to regenerate town
and city centres throughout the UK, incorporating a vibrant mix of retail, leisure and, where appropriate,
residential accommodation.
Our London business provides customers with access to high quality offi ces and creates large offi ce
developments supporting complementary uses such as retail, public space and residential. Our UCD
business operates within the London Portfolio and will develop new communities, the most signifi cant
of which is in Ebbsfl eet, Kent.
Our property partnerships business, Trillium, enables customers to outsource the construction and
maintenance of buildings and, in some cases, the risks and costs associated with expanding or
contracting the accommodation they occupy. Our activities include leasing, developing, managing,
refurbishing, repairing and maintaining properties, facilities and land. We are increasingly active in the
area of Public Private Partnership in sectors such as education, waste, defence training and local
government infrastructure.
■
■
Our businesses are overseen and given strategic direction by the Group but are run with a high degree
of autonomy.
Our customers
Our businesses work with a wide range of organisations and you will fi nd more coverage of key
customers and current market trends in the three business review sections that follow.
Trillium
Retail Portfolio
4.8
1.7
UCD
0.1
London Portfolio
1.1
77%
of our employees believe Land Securities is a better
employer than other companies.
Source: LSG PLC Employee Engagement Survey 2007
Across the Group:
We provide offi ce space for many types of business and organisation, and every day thousands of people
work in a building owned or managed by us.
We provide shopping and leisure facilities throughout the UK and receive millions of visits to our
shopping centres, retail parks and other properties each year.
Table 21
Top 10 global REITs
Rank
Company
Table 19
Group development activity
Retail Portfolio
Programme
Proposed development
Total Retail Portfolio pipeline
London Portfolio
Programme
Proposed development
Total London Portfolio pipeline
Trillium Portfolio
Programme
Proposed development
Total Trillium pipeline
LS Third Party
Programme
Proposed development
Total third party pipeline
1
2
3
4
5
6
7
8
9
10
Westfi eld Group
Unibail-Rodamco
Simon Property Group
Prologis
Public Storage
Land Securities Group
Vornado Realty Trust
Equity Residential Trust
Properties SHBI
Boston Properties
Kimco Realty
Source: Datastream, as at 31 March 2008
Number of
projects
Floorspace
m2
TDC1
£m
Net income/
ERV2
£m
6
2
8
7
3
10
1
–
1
1
–
1
184,160
99,070
283,230
201,580
154,830
356,410
17,650
–
17,650
83,000
–
83,000
768
502
1,270
1,600
1,075
2,675
n/a
–
–
n/a
–
–
48
31
79
119
84
203
n/a
–
–
n/a
–
–
1. TDC: Total Development Cost – land, capital expenditure and capitalised interest.
2. The net income/ERV represents net headline annual rental payable on let units plus Estimated Rental Value (ERV) at 31 March 2008 on unlet units.
Mkt cap
£m
15,878
10,627
10,426
7,647
7,607
7,017
6,653
5,629
5,535
4,983
Land Securities Annual Report 2008
90%
Ninety per cent of our employees say they are satisfi ed
working for the Land Securities Group
Chart 23
Retail and London offices valuations at 31 March (£bn)
8
6
4
2
0
8.1
7.6
6.9
6.1
6.1
5.3
3.6
4.8
4.5
3.9
3.2
3.0
03
04
05
06
07
08
Retail
London offices
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Business review continued
Our people
We set out to attract, retain and develop the brightest and best people in our industry and to maximise
the contribution they make to the Company. We are very proud of the expertise, ambition and sheer energy
of the people in Land Securities and believe that the quality of our employees is an enormous source of
competitive advantage for our businesses. For us, key areas within employee development include:
■
Communication and engagement
Progress here is best measured by our annual employee engagement survey. This year we saw a good
response rate of 82%, high levels of satisfaction and very positive responses around important issues
such as leadership, clarity on objectives and having the right tools to do the job.
Areas that require more attention from us over the next year include providing employees with
greater opportunities to contribute to decision making and greater opportunities to develop careers
further. Overall we are pleased with the results, particularly as the survey took place soon after we
announced plans for demerger.
Reward and recognition
To make sure we stay competitive in terms of remuneration we benchmark our packages against
a range of comparable organisations and professions. We believe our current levels of reward and
recognition are competitive and serve us well in terms of recruiting and retaining excellent employees.
Along with a base salary, most of our employees are also included in a performance-related bonus
scheme and are eligible for a range of benefi ts such as pension and insurance schemes.
For information on pay and rewards for our Executive Directors and Non-executive Directors
please see page 66.
Employment policies
Our policy is to ensure there is equal opportunities access for all. We always give full and fair
consideration to applications from all parts of the communities in which we work. Our focus is
on developing a diverse workforce, all of whom have access to learning and career development
opportunities.
■
■
Our approach to sustainability
We have a long history of addressing environmental issues and improving the way we operate to support
sustainability. This has been important to the business for many years, and it is increasingly important to
those we work with and rely upon – customers, local authorities, central government, business partners,
suppliers and the public.
You can fi nd coverage of our approach to sustainability on pages 54 to 61 of this annual report and in
our Corporate Responsibility Reports, which are available at www.landsecurities.com.
Stakeholder
Adjacent owners
Local authorities
CABE
Energy consultants and Breeam
Heritage bodies
Local authorities
Businesses
Local authorities
Residents
Schools and other community organisations
Transport
Department for Communities and Local Government
Local authorities
Local communities
Contractors
Design team
Local communities
Agents
Occupiers
Table 22
Development stakeholder groups
Stage
Site assembly
Design
Public consultation
Planning
Construction
Letting
Land Securities Annual Report 2008
Land Securities Annual Report 2008
2222
Business review continued
Our risks and how we manage them
The tables below show the principal risks we face. The risks facing our London and Retail
businesses are broadly the same and relate to property investment and development risks.
The risks facing Trillium are different and are stated separately.
UK Government is our
largest single customer
Risk description
Impact
Mitigation
Property investment risks
Market conditions
Prolonged downturn in tenant demand in the
City market
Threat of voids in the development portfolio
Reduced consumer spending leading
Threat of cutbacks in retailer opening programme
Committed development exposure limited to remaining space in One New
Change (due to complete in 2010) and Dashwood House (due to complete in
Q4 2008). 20 Fenchurch Street is not committed yet and will only start when
market conditions are favourable or a prelet of part is in place
Pre-letting of key units before committing to development.
Sales programme has already divested schemes and
locations most likely to suffer adverse impact
to lower retail sales
Market cycles
Property markets are cyclical
Property risk
Asset value concentration
Underperformance of investment portfolio impacting
on fi nancial performance
Good quality covenants
Secure income fl ows under UK lease structure
Annual investment appraisals
Poor performance of a single asset having material
impact on overall performance
Large multi-asset portfolio
Largest property represents only 5.5% of combined portfolio
Average investment property lot size of £71.5m
Retail assets combine a range of diversifi ed income streams
Tenant risk
Tenant concentration
Impact on revenue if a major occupier fails
Health, safety and environmental risk
Responsibility for the safety of visitors to our
properties and our environmental performance
Impact on reputation or potential criminal proceedings
resulting in fi nancial impact
Diversifi ed tenant base
Government largest single customer representing 9.7% gross rents, the next
largest represents 4.1%
Of our income, 65.1% is derived from tenants which make less than a 1%
contribution to rent roll
Annual cycle of health and safety audits
Quarterly Board reporting
Dedicated specialist personnel for environment and health and safety
Established policy and procedures including award-winning health and safety
system and ISO 14001 certifi ed environmental system
Active environment programme addressing key areas of impact
(energy and waste)
Residual carbon footprint from common parts of retail shopping centres and our
Head Offi ces are offset with Carbon Neutral Company
Property development risks
Site assembly risk
Third-party interests in part of site cannot
be acquired
Planning risk
Development proposals fail to gain suffi cient
support and therefore planning consent
Unable to progress development either in time,
at all, or within budget
Policy of buying into all or part of future development sites
early as income-producing investments
Experience of Compulsory Purchase Order procedures
Unable to progress developments in a timely manner
Construction risk
Construction cost overruns or poor
management of construction
New and different procurement
methodologies and contract forms for
London and UCD
Construction cost infl ation
Supplier capacity and capability
Returns are eroded by cost overruns or project
completion is delayed
Different risk profi les and unfamiliar terms
and conditions
Cost in excess of assumptions in appraisal
Lack of competitive tension
Poor performance by suppliers
Land Securities Annual Report 2008
Land Securities Annual Report 2008
Development expertise including:
Skilled development management teams
Public consultation and change management capabilities
Long-standing relationships with key development stakeholders
Reputation
Transfer of risk to specialist contractors
Skilled project management teams
Use of specialist advisers and growing in-house familiarity
Adequate provision in appraisals
Forward purchase of high infl ation risk items
Closer, more open relationship with the supply chain
All development schemes completed on
budget and on time, subject to one project
delayed by three weeks
Business review continued
Risk description
Impact
Mitigation
Property development risks continued
Letting risk
Development remains unlet after completion
or fails to meet lettings target
Impact on profi t
Health, safety and environmental risk
Construction is a high risk activity in terms of
health and safety
Impact on reputation
Potential criminal proceedings
Financial impact of above
The environmental performance of a building
Corporate reputation
is increasingly important
Experienced and skilled in-house leasing teams
Risk evaluation model to ensure that dividend remains covered by forecast
earnings in the unlikely situation that all our London developments remain
100% vacant and retail schemes are only 65% let
Advanced health and safety training programme in place, working in
conjunction with our contractors
Maintaining H&S awareness and training as a priority
Project Managers toolkit ‘Blueprint’ has and will assist in reducing or mitigating risk
All our offi ce development schemes are subject to Breeam (energy
performance) ratings with a target rating of Good/Very Good.
Implementation of sustainable development process checklist
Trillium risks
New business risk
Unable to originate and win attractive
new business
Service partners risk
Performance of service partners
Vacation of space risk
Client space remains unlet after vacation
Market pressure pushes down returns on new business
opportunities creating a potential mismatch with
investors’ return expectations
Dedicated new business team
Established bid process framework
Regular Investment Committee review
Impact on reputation and potential fi nancial penalties
should service partners not deliver to agreed standards
Regular assessment of service partners’ performance
On-going suppliers performance reviews
Contingency plan set up with alternative suppliers where appropriate
Impact on income as a result of shortfall in
rental income and on-going holding costs
Specialist national disposals team manages surplus space
Head rent growth risk
Infl ation on head rents payable higher than
increases in unitary charge
Growth of head rent on leasehold properties with
negative effect on income statement
Health, safety and environmental risk
Responsibility for the health and safety and
environmental risks on behalf of clients and
their employees
Impact on reputation or potential criminal proceedings
resulting in fi nancial impact
Budgetary forecasts to asset level
Lease restructuring/rent review processes
Freehold buy-ins
Hedging income from freehold against leasehold properties
Annual cycle of health and safety audits
Quarterly and annual Board reporting
Dedicated specialist personnel for environment and health and safety
Established policy and procedures including award-winning health and safety
system and ISO 14001 certifi ed environmental system
Active environment programme addressing key areas of impact
(energy and waste)
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Land Securities Annual Report 2008
Land Securities Annual Report 2008
Our multi-award winning development enables
people to enjoy an entire shopping and leisure
experience in one place, with 60 new shops and
restaurants fully integrated with the city’s
public spaces and historic buildings.
Business review continued
Retail Portfolio
Completed and launched the Princesshay development, Exeter
Sold £834.8m of assets achieving total sales at 3.1% above valuation
Achieved the successful sale of Whitefriars, Canterbury, for £253m
Launched and grew The Harvest Partnership, a joint venture
with J Sainsbury plc
We are transforming shopping as a
leisure activity for millions of people
across the UK. Using our ability to
unlock the potential within properties
and places, we develop new and better
ways for retailers to connect with
customers – creating the environments
they need to increase footfall, grow sales
and provide a great leisure experience.
Richard Akers, Managing Director
Land Securities Retail Portfolio
“Conditions are challenging
but our strong relationships
with retailers have helped
us perform well. We made
sound progress on leasing
developments and enhancing
assets. We formed a valuable
joint venture with Sainsbury’s.
And we launched and let our
Princesshay development
in Exeter.”
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Business review continued
Retail Portfolio
Our market
Current market conditions are certainly challenging. Absolute sales growth is the single most useful market
indicator for our business as it includes the effect of retailers increasing fl oorspace to win greater market
share. This year absolute retail sales showed positive growth of 5.4% as reported by the Offi ce of National
Statistics (ONS).
This is not the whole story, however. Pressure on margins has reduced profi tability for many retailers
and there has been an increase in insolvencies across the market as a consequence. Our strong leasing
performance in the portfolio and in the development programme has helped to mitigate the effects of
a weaker occupational market.
2008 will see a peak of completions of new shopping centre developments across the UK. This has
sharpened competition between providers, with many retailers being offered greater incentives to take
leases. However, well-conceived developments are attracting good levels of demand as no retail business
can afford to stand still. Retailers of all sizes know they can work with companies such as Land Securities
to enhance their performance through range and format changes, new locations and greater effi ciency.
Our challenge is to be as dynamic as the most successful retailers and that means evolving our portfolio
to ensure we provide good space at good rates in the right locations.
Looking long-term, there will always be winners and losers in the retail sector – and internet retailing is
certainly a fi erce competitor for some shops – but in our experience people are drawn by the immediacy
and experience they get by going shopping. More and more, we work to create a great environment around
our shops so people enjoy spending time there, as well as spending money. We see a growing appetite for
shopping-as-leisure and expect continued demand for high quality shopping centres and retail parks from
our customers and their customers.
Our strategy
Our aim is to be the provider and partner of choice for retailers and local authorities in the UK. We want
to be recognised as a market leader in terms of customer focus, design and innovation. Our challenge is to
spot, unlock and maximise the potential of places and properties throughout the UK.
We create value by:
Identifying, acquiring and enhancing shopping centre and retail park assets that offer growth potential
Using our asset management expertise to make our locations more attractive to shoppers and retailers
Developing major new shopping and leisure assets that can transform under-valued areas into thriving
destinations
Forming close relationships with retailers and local authorities, ensuring we understand and can respond
to people’s changing needs
Recycling our capital and applying our skills to reposition assets higher up the value hierarchy.
Our performance
With the investment markets weakening our focus has been on asset disposals and on leasing.
Disposals of £834.8m at an average of 3.1% above March 2007 valuations has had a signifi cant positive
impact on our fi nancial performance with our ungeared property return being 4.6% and 5.5% better than
the IPD benchmark for shopping centres and retail warehouses respectively.
Our leasing and asset management activity has helped us to perform well against key portfolio metrics.
Rent review programmes, particularly at the White Rose Centre in Leeds, drove our like-for-like rental income
up by 5.5%. Asset management activity has helped to create rental value growth of 2.0% in a generally fl at
market, and our strong leasing performance on the investment properties with some £19m of rent secured
has enabled us to keep voids at 4.0% across the like-for-like portfolio.
Future growth in rental income will come from our development programme as we complete schemes
and also from the reversionary potential on our existing portfolio on which the rent passing currently stands
11.6% below today’s rental values.
We remain in a strong fi nancial position, with resources available to take advantage of opportunities
created by changed conditions in the investment market. Our cashfl ow will continue to be helped by the
UK’s system of long leases and upward-only rent reviews. The quality and mix of our occupiers is excellent,
and this will help to diversify risk if demand from occupiers weakens over the next 12 months.
White Rose, Leeds
Successful rent reviews at shopping centres such
as White Rose helped drive up like-for-like rental
income by 5.5%.
Chart 24
Retail Portfolio by value £6.2bn
Shopping centres and shops
4.0
Retail warehouses
Other
1.8
0.4
Chart 25
UK retail sales growth to 31 March (%)
8
6
4
2
0
-2
-4
03
04
05
06
07
08
Like-for-like sales
Total sales
Source: BRC/KPMG survey
Land Securities Annual Report 2008
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Business review continued
Sales
The timing of our sales was critical this year. We had anticipated more challenging conditions early and
decided to make no major acquisitions during this fi nancial year. Instead, we focused on disposals and
achieved total sales of £834.8m at 3.1% above valuation.
Important sales this year included:
■
Whitefriars, Canterbury
We sold our award-winning shopping centre to Henderson Global Investors and Canada Pension
Plan Investment Board for £253m, achieving a good return on an investment we completed in 2005.
East Kilbride Shopping Centre
The Scottish Retail Property Limited Partnership, our joint venture with British Land Plc, completed
a £385m sale of this asset in June 2007.
Victoria Place, SW1
In January 2008 the Metro Shopping Fund LP, our joint venture with Delancey, sold Victoria Place
shopping centre, SW1, to Ewart Properties Ltd for £92.5m. The good price achieved refl ects the value
we have added to the asset and the surrounding environment.
Coppergate, York
In March 2008 we completed the sale of this shopping centre for £42.5m.
Retail warehouses
We completed the sale of eight retail warehouse assets for £130m and sold four supermarket assets
for more than £125m.
■
■
■
Asset management
We maximise rental income from our portfolio through asset management. This involves us in making
long-term improvements to the environment, to services and to the tenant mix. Rental growth is the
reward for our investment in these improvements.
Our approach to our biggest asset – the White Rose Centre in Leeds – demonstrates the value of our
expertise. Our successful rent review programme coincided with the opening of a new store for Marks
& Spencer. This follows the development of new space for Next, Zara and River Island in 2006. This enabled
us to settle the major round of rent reviews, at an average increase in rent of 40% over the fi ve-year period
since the previous reviews. We also achieved new lettings at even higher levels, further underpinning the
success of the centre.
We are working with Hammerson to transform Bristol City centre
into one of the UK’s top ten retail and leisure destinations. Due for
completion in autumn 2008, this development will feature restaurants,
shops, open spaces and 250 new homes – with a breathtaking glass
shell-shaped roof covering much of the scheme.
Cinema
House of Fraser
New offi ces
Ring road to M32 & M4
Car park
Affordable housing
Future Inns Hotel
Student housing
Shops and
restaurants
Harvey
Nichols
Residential
apartments
Land Securities Annual Report 2008
Our long-term vision and commitment is
helping to transform Corby from a town on
the margins to an increasingly vibrant centre.
Major retailers are taking space; shopper
satisfaction levels are increasing; and more
people want to spend time in the town.
Business review continued
Retail Portfolio
At Gunwharf Quays in Portsmouth we continued to achieve rental growth, improving the mix of
shops with 11 new fascias introduced to the centre, and we won a British Council of Shopping Centres
2008 Achieving Customer Excellence award for customer service.
At Aintree Retail Park in Liverpool we have exchanged agreements to let units to Marks & Spencer, Next
and Boots, which signifi cantly changes the retail mix on the park, and we have increased rental values by 12%.
At Westwood Cross, Thanet, we have completed a new development that adds a cinema, restaurants
and leisure facilities to the retail units, and introduced JD Sports to the shopping park. Our Thanet ownerships
will be further enhanced with the integration of the adjacent Sainsbury’s store and car park, which we now
jointly own and manage through our Harvest venture with J Sainsbury.
At Lakeside Retail Park we have provided small pod units and Costa Coffee is one of the fi rst occupiers.
While the key attraction of retail parks for shoppers remains convenience, we have continued to introduce
enhancements like this to improve the overall shopping experience.
Our approach to asset management keeps a clear focus on helping our customers thrive. For example,
the running costs of shopping centres are borne by retailers through their service charge. This year we
carried out an effi ciency programme that has enabled us to achieve a zero increase on the average service
charge across our shopping centre portfolio, helping to lessen cost pressures on retailers.
Development
We completed three new developments this year and these set new standards in terms of the positive
impact regeneration schemes can have on town and city centres. Highlights included:
■
Princesshay, Exeter
Our British Council of Shopping Centres Supreme Gold Award, the Retail Week Shopping Location of the
Year award and International Council of Shopping Centers award for Best Medium Size Shopping Centre
all underline the success of this development, which has been very well received by residents and retailers
and was 92% let on full opening in September 2007. The scheme demonstrates our ability to integrate
a new development into an historic city centre, drawing more shoppers from a wider catchment area
into the city.
Christ’s Lane, Cambridge
We achieved very strong pre-lettings for this distinctive retail-led scheme of eight shops, a restaurant
and 15 apartments. The retail element opened in December 2007 and is 100% let. The Christ’s Lane
project sits in a sensitive location within a conservation area between two Cambridge colleges, Christ’s
and Emmanuel. Our development re-established one of the city’s historic streets to create a new, busy
retail thoroughfare.
Corby
This year we completed the development of a new mall to complement our existing holdings within
the town centre. The quality of new tenants – including Primark, River Island, Jane Norman and Dorothy
Perkins – has exceeded our original expectations and signifi cantly improved the attractiveness of the
town as a shopping destination. By fl oor area, the scheme is now 85% let.
■
■
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Table 26
Retail property – fl oorspace
Type of
retail property
Market Land Securities
million m2
million m2
% market
share
Shopping centres
Retail parks
Total core markets
Other retail markets
Total
15.4
15.5
30.9
86.5
117.4
Source: Property Market Analysis
1.1
0.5
1.6
0.1
1.7
7.1
3.2
5.2
–
1.4
Table 27
Retail Portfolio valuation and performance summary
Combined portfolio valuation
Like-for-like
Investment portfolio valuation
Rental income
Gross estimated rental value
Voids by estimated rental value
Gross income yield
31/03/08
£m
6,186.6
4,974.7
292.0
329.0
13.3
5.6%
31/03/07
£m
7,226.2
5,614.7
276.9
322.4
12.2
4.9%
Whitefriars, Canterbury
We achieved a £253m sale this year,
generating a good return on our investment
in this mixed-use development.
Land Securities Annual Report 2008
30
Business review continued
Retail Portfolio
Along with our successful completions we have made good progress with our on-going development
programme. For example, our Cabot Circus development in Bristol is on schedule for opening in autumn
2008, is 85% let or is in solicitors’ hands and we have secured House of Fraser and Harvey Nichols as
anchor tenants. In Cardiff we are on schedule for the autumn 2009 opening of the combined St. David’s
1 and 2 shopping centres, with John Lewis as anchor tenant. And at Leeds Plaza we have entered into a
partnership with Caddick Developments to link our existing centre to a new development. We opened
discussions with potential anchor tenants this year, started demolition in April and the phased opening
is scheduled between October 2010 and January 2011.
Joint ventures
This year we once again demonstrated our ability to form strong partnerships with other organisations.
In November 2007 we launched The Harvest Limited Partnership, a 50:50 joint venture with J Sainsbury.
This adds our expertise in development to Sainsbury’s desire to add new space to stores, with the two
companies working together to unlock and realise the development potential of a number of sites. Initially,
we contributed a Sainsbury’s supermarket in our ownership while Sainsbury’s contributed two freehold
stores. In December we increased the portfolio with the purchase of the Maltings shopping centre in
Salisbury for £27.5m. This 8,830m2 property includes a Sainsbury’s store, 27 retail units and a car park.
Our outlook
Our experience is that UK retail sales growth is relatively resilient through the economic cycle, but we
recognise that the current trading environment is proving challenging for retailers. The quality and mix of
our tenants is excellent, and this will help to reduce and diversify risk if demand from occupiers weakens
over the next 12 months. Our cashfl ow will continue to be helped by the UK’s system of long leases with
upward-only rent reviews and also by the reversionary nature of our portfolio.
In the meantime, strong relationships with retailers are enabling us to make sound progress on leasing
our developments and we will continue to provide space that meets retailers’ need for effi ciency and
quality. We have a range of upgrade and development opportunities within our own portfolio and we
will focus on bringing a number of these projects forward for delivery over the coming years.
Table 28
Customer satisfaction survey – Shopping centres
Shopping centres
Understanding
the need of
the business
Communications
Willingness to
recommend us
Responsiveness
Overall customer
service
2005
Actual
2006
Actual
2007
Actual
3.60
3.79
94%
3.85
3.63
3.65
91%
3.93
3.94
3.81
3.91
4.10
95%
4.04
4.19
Christ’s Lane, Cambridge
By re-establishing a historic and vibrant
thoroughfare we created strong tenant
interest, with the retail element 100%
let on opening.
Land Securities Annual Report 2008
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Top Retail Portfolio properties
over £50m by location
Shopping Centres
Retail Warehouses
1
1
3
2
2
3
4
5
6
7
4
5
9
8
16
15
10
12
9
6
11
7
13
8
14
10
17
18
21
22
20
19
Scotland
Aberdeen
1
Bon Accord Centre1▲
St Nicholas Centre1
Livingston
2 Almondvale Centre*•
Glasgow
3 Buchanan Galleries2*
North, north-west, Yorkshire
and Humberside
Sunderland
4 The Bridges*
Leeds
5
6 White Rose Centre*
Liverpool
7
Leeds Plaza & Albion St*•
St Johns Centre, Williamson Sq &
Clayton Sq*
Midlands
Corby
8 Corby Town Centre▲•
Birmingham
9 Bullring3*
South and south-east
Welwyn Garden City
10 Howard Centre▲
Maidstone
11 Fremlin Walk*
Hatfi eld
12 The Galleria▲
Portsmouth
13 Gunwharf Quays*
Wales and south-west
Exeter
14 Princesshay*
Bristol
15 Cabot Circus*•
Cardiff
16 St. David’s Shopping Centre4* •
London
17 Stratford Centre, Stratford*
18 N1, Islington5▲
19 Lewisham Centre*
20 Southside, Wandsworth5▲•
21 Notting Hill Gate, W115▲
22 W12 Centre, Shepherds Bush▲
Scotland
Dundee
1 Kingsway Retail Park ▲
Livingston
2 Almondvale Retail Parks*•
North, north-west, Yorkshire
and Humberside
Gateshead
3 Team Valley Retail Park*
Liverpool
4 Aintree Retail Park ▲
Midlands
Chester
5 Chester and Greyhound Retail Parks*
Lakeside Retail Park*
South and south-east
West Thurrock
6
Thanet
7 The Fort, Westwood Cross*
Bexhill-on-Sea
8 Ravenside Retail and Leisure Park ▲
Bracknell
9 The Peel Centre▲
Poole
10 The Commerce Centre▲
Notes
1 Part of Scottish Retail Property Limited
Partnership
2 Part of Buchanan Partnership
3 Part of Birmingham Alliance
4 Part of St. David’s 2 Partnership
5 Part of Metro Shopping Fund LP
Key
*£100m or above
▲£50-£100m
•In development pipeline/programme
Business review continued
Table 29
Top 12 properties
a
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b
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Top 12 Properties
a White Rose, Leeds
b
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Award-winning shopping centre with
more than 100 stores.
Almondvale Centre, Livingston
Unique retail destination in the heart
of the town centre.
Cabot Circus, Bristol
139,350m2 of exceptional new retail,
leisure and residential space.
Bullring, Birmingham
An iconic shopping location, this
partnership development has led
the city’s retail renaissance
(one-third ownership).
Princesshay, Exeter
Award-winning mixed-use development
based around a vibrant piazza.
Gunwharf Quays, Portsmouth
Historic harbour hosts designer outlets,
bars, restaurants, cinema and Bowlplex.
St. David’s Centre, Cardiff
Home to 70 stores, with links to
St David’s 2 adding 89,900m2.
The Plaza, Leeds
Popular shopping centre with high street
shops and cafés.
The Bridges, Sunderland
Our community shopping centre
provides a retail focal point.
Team Valley, Gateshead
Retail World, where big shed retailing
meets the high street.
Buchanan Galleries, Glasgow
Established destination with consent
to double in size.
Westwood Cross, Thanet
Thriving retail park with growing
leisure element.
Land Securities Annual Report 2008
Successful retail parks enable people to
shop in an easy, convenient way. But they
can offer more. At Westwood Cross, for
example, we’ve added a cinema, restaurants
and leisure facilities, so there are even more
reasons for people to spend both money and
time at the centre.
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Retail Portfolio
Table 30
Development timeline
Cabot Circus, Bristol
High quality development
due for full completion
autumn 2008.
The Elements, Livingston
Transformation of retail
in Livingston, due for
completion autumn 2008.
Southside, Wandsworth
Mixed-use expansion of
existing centre and
repositioning of tenant mix.
St. David’s 2, Cardiff
Major mixed-use
development incorporating
urban regeneration.
Trinity Quarter, Leeds
Busy city shopping
centre to be integrated
with The Plaza.
Description
of use
Ownership
interest %
Size
m2
Planning
status
Letting
status %
Net income/
ERV
£m
Estimated/
actual
completion
date
Total
development
costs to date
£m
Forecast total
development
cost
£m
–
–
–
–
–
–
–
100
95
75
75
12
36
–
2
Nov 2007
13
Sep 2007
33
204
33
204
2
Oct 2007
42
42
18
Sep 2008
198
243
18
Oct 2009
156
306
8
1
Oct 2008
107
Sep 2009
6
151
8
Retail
Residential
Retail
Residential
100
100
5,800
1,350
37,360
7,200
Retail
100
16,260
Retail
Leisure
Offi ces
Residential
Retail
Leisure
Retail
Offi ce
Residential
50
50
100
50
83,610
9,000
28,000
18,740
89,900
16,500
32,000
5,670
1,960
1,740
4,040
Retail development pipeline at 31 March 2008
Property
Shopping centres and shops
Developments, let and transferred or sold
Christ’s Lane, Cambridge
Princesshay, Exeter
Developments completed
Willow Place, Corby
Developments approved and those
in progress
Cabot Circus, Bristol
The Bristol Alliance – a limited
partnership with Hammerson
The Elements, Livingston
Southside Shopping Centre, Phase I,
Wandsworth, Metro Shopping Fund –
a limited partnership with Delancey
Proposed developments
Trinity Quarter, Leeds
Retail Warehouses
Developments, let and transferred or sold
Commerce Centre, Poole
Thanet Leisure, Thanet
Maskew Avenue, Peterborough
Developments approved and those
in progress
Angel Road Retail Park, Edmonton
Proposed developments
Almondvale South Phase II b, Livingston
St. David’s, Cardiff
St. David’s Partnership – a limited
partnership with Capital Shopping Centres
Retail/leisure
Residential
Retail
75
94,890
PR
20
n/a
2011
n/a
n/a
Retail
Leisure
Retail
Retail
Retail
100
100
100
100
100
19,100
8,970
13,380
3,480
–
–
–
–
4,180
PR
100
100
100
70
–
3
1
3
Aug 2006
Aug 2007
Sep 2007
1
Feb 2009
n/a
2009
50
25
36
12
n/a
50
25
36
18
n/a
Planning status for proposed developments
PR – Planning Received
Total development cost (£m)
Total development cost refers to the book value of the land at the commencement of the project, the estimated capital expenditure required to develop the scheme from the start of the fi nancial year in which the property is added to our
development programme, together with fi nance charges less residential and other miscellaneous sale proceeds. Floor areas shown above represent the full scheme whereas the cost represents our share of costs. Letting % is measured by ERV and
shows letting status at 31 March 2008. Trading property development schemes are excluded from the development pipeline. Cost fi gures for proposed schemes are not given as these could still be subject to material change prior to fi nal approval.
Net income/ERV
Net income/ERV represents net headline annual rental payable on let units plus ERV at 31 March 2008 on unlet units.
Land Securities Annual Report 2008
Through developments like this
we’re shaping London for the better.
In this case we’re creating wonderful,
contemporary offi ce, retail and public
space that will add new amenities to
the City.
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London Portfolio
151,830m2 of new developments completed and 94% let,
including Bankside 2&3 let to RBS
No. 1 market share of London offi ce development lettings
Total sales of £716.2m at 8.2% above valuation
Planning approval won for 20 Fenchurch Street, EC3
Timing of development pipeline well matched to demand
We are helping to reshape one of the
world’s great cities. Using our knowledge,
understanding and scale, we develop and
invest to create high quality offi ce and
retail space for world-class businesses
and brands. We believe the spaces we
provide enable organisations to enhance
performance and improve day-to-day
life for employees, shoppers and
local residents.
Mike Hussey, Managing Director
Land Securities London Portfolio
“The market was demanding
but we anticipated change
early and achieved the
lettings and sales needed
to position the business
favourably. We’re in good
shape to compete and the
timing of our development
pipeline looks well matched
to current market conditions.”
Land Securities Annual Report 2008
We’re revitalising London’s Mid-town district with
a cluster of new buildings. The contemporary look
and excellent environmental performance of the
development refl ects our tenants’ brand qualities,
while the new shops, restaurants, bars and public
spaces meet the needs of their employees.
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London Portfolio
Our market
London is a world-class city with a growing population and excellent prospects for long-term business
growth and employment. The capital’s attraction as a place to live and work means households are set
to increase by 15% (or 500,000) by 2021 and employment is expected to increase by 22% by 2026. [Source:
London Draft Mayor’s Housing Strategy September 2007, and GLA Economics].
In the short-term, our market has entered a period of slowdown after several years of very strong growth,
and we now expect demand for new offi ce space to reduce substantially. The credit crunch has accentuated
these market dynamics. We did not predict the credit crunch but we did recognise the early signs of a
slowdown some time ago and have adjusted our portfolio and development pipeline accordingly. The next
two years will see our lowest development completions for a decade, while our existing portfolio is focused
on high quality properties in thriving central locations.
Looking further ahead, we see a return to strong and sustainable growth in the London property sector.
Our confi dence in the London market is based on London’s proven ability to attract people, businesses and
international capital.
Our strategy
We invest substantial amounts of capital to create substantial value, using our expertise and scale to
maximise growth and minimise risk. We believe that, in the London market, businesses thrive by taking
decisive action on the timing and scope of key portfolio decisions.
Investing early in the cycle to maximise value
We create value by:
■ Ensuring we understand our customers’ changing needs and expectations
■
■ Focusing on major development projects located in a number of key central locations across London
Using a mixed-use approach to create high quality properties that exceed people’s expectations,
■
thereby generating demand and improved rental performance.
Our performance
We have managed our strategy carefully over the last few years in order to time our delivery of
developments and our sales and acquisition programme to the cyclical nature of the London offi ce and
commercial property market.
We have demonstrated elsewhere in this report the success of our development programme taking
our overall schemes that completed this fi nancial year from 78% to 94% let.
In addition, we sold £716.2m of assets at 8.2% average above March 2007 valuation. The majority
of these sales refl ected our belief that the assets had reached maturity in terms of their investment profi le
and could secure good prices in the strong investment market of 2007.
The combination of these two key areas of activity has resulted in a net outperformance of the IPD sector
benchmark for London offi ces of 4.3%. This is a signifi cant achievement.
Our asset management team has also performed well in the year and put us in good shape for the year
ahead. For London offi ces we saw our voids drop from 5.7% to 1.8% in the year and we continue to benefi t
from the strength of our rental value growth, an 18.1% increase in like-for-like rental values and an increase
in the reversionary potential from 6.7% to 20.5%. These factors have driven our underlying rental
performance and our redevelopment of older secondary assets over the last three years is leading us into
more diffi cult market conditions with a strong cashfl ow of well-let, newly developed assets that will come
into our like-for-like portfolio next year.
Sales and acquisitions
Our objective is to create a balanced portfolio containing a strong blend of both investment assets and
buildings offering medium and long-term development opportunities.
Our rationale for selling a particular asset is simple – we look to achieve the right price at the right time
so we can recycle the capital into assets with greater growth potential. We have completed transactions
valued at £1bn or more every year for the last four years and have now turned over more than 50% of
our portfolio since 2004. This year we sold £716.2m of assets – an increase on previous years. A high level
of turnover is not an end in itself, but our ability to achieve good liquidity from a very large portfolio
shows that we have agility as well as scale.
Important sales this year included:
Greater London House, NW1
■
We acquired this investment more than three years ago, achieved excellent rental growth, decided
to crystallise the return on our investment in Spring 2007 and completed its sale in August 2007.
Land Securities Annual Report 2008
Chart 31
London Portfolio valuation breakdown £7.3bn
Central London shops
14%
Other
3%
West End offices
37%
City offices
16%
Mid-town offices
Inner London offices
17%
13%
Chart 32
West End and City vacancy rates (%)
16
12
8
4
0
00
01
02
03
04
05
06
07
08
West End
City
Source: Knight Frank
Table 33
London valuation and performance summary
31/03/08
£m
Combined portfolio valuation
7,351.1
Like-for-like
Investment portfolio valuation
Rental income
Gross estimated rental value
Voids by estimated rental value
Gross income yield
4,025.5
213.4
262.2
2.7
5.2%
31/03/07
£m
7,461.3
4,202.6
211.1
231.9
5.2
4.4%
38
Business review continued
London Portfolio
■
■
Blackfriars Road, SE1
Having recognised its development potential we acquired this site in 2003. Having chosen to
concentrate our South Bank activities at Bankside, for the time being, we opted to add substantial value
by seeking planning permission for development and accepted a strong offer to sell in June 2007.
Lime Street Estate, EC3
This series of buildings sits within the City’s tall buildings zone and has medium-term development
potential. It has performed well as an investment over many years and produced a good price on sale
for us this year.
Important acquisitions this year included:
■
Thomas More Square, E1
Located close to Tower Hill, this estate provides more than 52,000m2 on a 1.7 hectare site, and we
see excellent long-term development potential here. In November 2007 we entered into a 50%
co-ownership agreement with Ontario Teachers’ Pension Plan Board.
Times Square, EC4
Here we completed the purchase of a further 50.5% interest in Times Square, EC4, taking our
holding to 95%.
Harbour Exchange, E13
We added 3 Harbour Exchange to our fi ve neighbouring holdings.
■
■
Blackfriars Road, SE1
We acquired this site in 2003, gained
planning permission for development,
and sold it in 2007 – achieving a good
return on our investment.
Asset management
We have focused on two areas. First, maximising income from assets intended for redevelopment in the
next cycle. Second, improving the performance of our Central London retail assets. We will continue to
focus on our relationships with customers while driving effi ciency in the portfolio, which will help to
differentiate us in a period of reduced asset growth.
Joint ventures
Joint ventures enable us to pursue opportunities and diversify risk in the portfolio. In December we sold
50% of our holding at the corner of Oxford Street and Tottenham Court Road, W1, to Frogmore Real Estate
Partners and entered into a joint venture through which we will defi ne a long-term redevelopment strategy
and Frogmore will manage the assets. This approach will combine the two companies’ skills and experience
and provide both parties with exposure to the investment and development markets.
Two open terraces
Clean modern lines
This development has created 15,020m2 of
fl exible offi ce space – now occupied by Eversheds
– and 1,500m2 of retail space, inspiring a
shopping renaissance in Cheapside. It provides
a wonderful atmosphere for business, with
exceptional views, open spaces and clever use
of glass and lattice shades to make best use
of natural light.
Seven fl oors
Pavilion style
executive fl oor
Floor-to-ceiling
glass windows
Three retail units
Bold lattice facade
Tranquil courtyard with trees and glass
Land Securities Annual Report 2008
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London Portfolio
Table 34
Top 12 properties
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Top London Portfolio properties
Over £100m by location
WC1
EC1
W1
22
W2
26
24
23
WC2
20
21
25
4
7
6
1
5
EC4
8
18
EC2
2
E1
EC3
3
9
12
11
SE1
SW1
15
16
17
14
13
SW6
19
E1
E14
10
EC2
1. One Wood Street
2. Dashwood House•
EC3
3. 20 Fenchurch Street•
EC4
4. New Street Square•
5. One New Change•
6. 50 Ludgate Hill and 26 Old Bailey
7. Hill House
8. Times Square
E1
9. Thomas More Square Estate
E14
10. 3-9 Harbour Exchange
SW1
11. New Scotland Yard
12. 50 Queen Anne’s Gate•
13. Portland House
14. Eland House
15. Kingsgate House
16. Cardinal Place
17. Ashdown House
SE1
18. Bankside 2&3
SW6
19. Empress State buildingL
WC2
20. 40 Strand
21. Arundel Great Court•
W1
22. 2/50 Oxford Street
22. 6/17 Tottenham Court Road
23. 455/475 and 475/497 Oxford Street
and Park House•
24. Portman House
25. Piccadilly Circus Lights
W2
26. 10/20/30/40/50 Eastbourne Terrace•
•In the development pipeline
L Landfl ex building
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Cardinal Place, SW1
Landmark offi ces, with ground fl oor
retail anchored by Marks & Spencer.
New Street Square, EC4
Innovative offi ces around a public
square, with retail and restaurants.
50 Queen Anne’s Gate, SW1
Refurbished former Home Offi ce
building now occupied by Ministry
of Justice.
Portland House, SW1
Offi ces in Victoria let to American Express,
Government and others.
Bankside 2&3, SE1
Contemporary offi ce, retail and leisure
space in thriving Southbank.
Times Square, EC4
We now hold a 95% interest in this
substantial City offi ce asset.
Portman House, W1
Prime retail space in the heart of the
West End with modern offi ces above.
Empress State Building, SW6
Offi ce tower building, with
Metropolitan Police as tenant.
Piccadilly Circus Lights, W1
Offi ces, retail, leisure and a world
famous advertising landmark.
Eland House, SW1
Victoria offi ces benefi ting from
Cardinal Place redevelopment.
455/475 Oxford Street, W1
Our Park House development will
create a mixed-use scheme in the
West End.
Ashdown House, SW1
Offi ce and retail space in prominent
Victoria location.
Land Securities Annual Report 2008
We’re helping to transform this under-valued
location into a place where people want to work,
live and play. Unveiled last year, our Monument
to the Unknown Artist interactive sculpture is
proving a big hit with visitors and those working
in our Bankside 1,2 & 3 offi ce development
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Chart 35
London office portfolio
London office portfolio1
£31ft2 – £338m2
£38ft2 – £405m2
London acquisitions2
£19ft2 – £206m2
£24ft2 – £260m2
Average rent
Average ERV
1. Excluding voids and properties in the current development programme.
2. Acquisitions completed between 1 April 2007 and 31 March 2008
and excludes properties purchased for development.
Table 36
Customer satisfaction survey – London offi ces
London Offi ce
Understanding
the need of
the business
Communications
Willingness to
recommend us
Responsiveness
Overall Customer
Service
2005
Actual
2006
Actual
2007
Actual
3.52
3.26
94%
3.66
3.44
3.71
81%
3.45
n/a
3.57
3.72
3.81
91%
3.51
3.82
Park House, W1
On schedule for completion in 2011 this
site covers an entire city block. It includes
retail space, offi ces and apartments, with
views across Mayfair.
Business review continued
London Portfolio
Development programme
This year we completed 151,830m2 of development space of which 94% is now fully let – an excellent
performance that has put us in a strong position in a challenging market. Highlights included:
■
Bankside 2&3, SE1
Completed in 2007, these two buildings are now fully let to Royal Bank of Scotland, providing them
with 35,172m2 of high quality space in an increasingly popular and vibrant location.
New Street Square, EC4
Completed in April 2008 and now 87% let, our development has set record rents for the
Mid-town market, helping to establish this location as a leading destination for the legal and
professional community.
One Wood Street, EC2
Completed in September 2007, this development has now been handed over to its occupier, Eversheds.
■
■
In addition, the offi ces at Cardinal Place, SW1, are now fully let to occupiers, including 3i, Microsoft, EDF and
Experian and Victoria continues to grow its position as one of the most attractive commercial centres in
London.
For some time we have managed our development pipeline with one eye on the possibility of lower levels
of demand. While the industry as a whole was increasing supply for completion in 2008/09, we opted to
hold back. Over the next two years we have just 25,500m2 of offi ce developments coming on to the market.
In the medium-term the picture looks somewhat different. We see a return to strong growth for high
quality buildings and have invested in a major development pipeline of 235,720m2. We believe these
developments have the potential to deliver signifi cant returns beyond 2010. Key developments include:
■
One New Change, EC4
Our innovative development will bring excellent offi ces, retail and public space to a historic site
opposite St Paul’s Cathedral and is due for completion in late 2010. In October 2007 we exchanged
contracts with K&L Gates on the pre-letting of 35% of the offi ce space for a minimum term of 15.5
years.
Park House, W1
Due for completion in 2011, this mixed-use scheme will offer some of the largest fl oor plates in the
West End and add premium retail and residential units to an exceptional site.
20 Fenchurch Street, EC3
We won planning permission this year following an arduous public enquiry and much debate. This
stunning development could be delivered by 2012.
■
■
Our outlook
Short-term, market conditions will be challenging with deteriorating employment levels in the fi nancial
services sector. However, we are well positioned to compete and can use our balance sheet strength to
take advantage of opportunities. Over the medium-term, we see a return to strong demand for high
quality space and we are timing our substantial and imaginative future development programme in line
with this view. Long-term, we believe continued strong economic and commercial growth within London
will support our diverse mixed-use portfolio, enabling us to enhance our standing as a market leader in
a world-class capital.
Land Securities Annual Report 2008
42
Business review continued
London Portfolio
Table 37
Development pipeline
Dashwood House, EC2
Comprehensive offi ce
redevelopment, due
November 2008.
10 Eastbourne Terrace, W2
Comprehensive
refurbishment including
external envelope, due
summer 2008.
One New Change, EC4
Landmark development
adjacent to St Paul’s.
Park House, W1
Redevelopment to create
mixed-use scheme.
Arundel Great Court, WC2
Major island site with
proposals for mix of
offi ces, retail, hotel and
residential.
20 Fenchurch Street, EC3
Rafael Viñoly-designed
City tower.
London development pipeline at 31 March 2008
Property
Developments, let and transferred or sold
Cardinal Place, SW1
Bankside 2&3, SE1
One Wood Street, EC2
Developments approved and those
in progress
New Street Square, EC4
50 Queen Anne’s Gate, SW1
10 Eastbourne Terrace, W2
Dashwood House, EC2
30 Eastbourne Terrace, W2
One New Change, EC4
Park House, W1
Proposed developments
Arundel Great Court &
Howard Hotel, WC2
Selborne House, SW1
20 Fenchurch Street, EC3
Description
of use
Ownership
interest %
Size
m2
Planning
status
Letting
status %
Net income/
ERV
£m
Estimated/
actual
completion
date
Total
development
costs to date
£m
Forecast total
development
cost
£m
Offi ces
Retail
Offi ces
Retail/Leisure
Offi ces
Retail
Offi ces
Retail
Offi ces
Offi ces
Offi ces
Retail
Offi ces
Offi ces
Retail
Offi ces
Retail
Residential
Offi ces
Retail
Residential
Offi ces
Retail
Offi ces
Retail
100
100
100
100
100
100
100
100
100
100
100
100
100
51,130
9,420
35,550
3,170
15,020
1,500
62,340
2,980
30,140
6,150
13,870
740
4,470
31,660
19,830
15,550
8,470
5,380
42,600
3,830
25,720
23,340
3,970
54,810
560
–
–
–
–
–
–
–
–
–
–
–
–
PR
100
97
100
72
100
100
87
87
100
73
–
–
34
12
11
37
17
8
Completed
Jan 2006
Completed
Aug 2007
Completed
Sep 2007
35
Apr 2008
13
May 2008
3
9
2
32
Jun 2008
Nov 2008
May 2009
Sep 2010
25
Feb 2011
388
163
110
347
137
37
90
13
220
218
n/a
n/a
2012
n/a
n/a
n/a
n/a
n/a
2012
2013
n/a
n/a
388
163
110
383
142
43
113
35
537
347
n/a
n/a
n/a
Planning status for proposed developments
PR – Planning Received
Total development cost (£m)
Total development cost refers to the book value of the land at the commencement of the project, the estimated capital expenditure required to develop the scheme from the start of the fi nancial year in which the property is added to
our development programme, together with fi nance charges less residential proceeds. Floor areas shown above represent the full scheme whereas the cost represents our share of costs. Letting % is measured by ERV and shows letting
status at 31 March 2008. Trading property development schemes are excluded from the development pipeline. Cost fi gures for proposed schemes are not given as these could still be subject to material change prior to fi nal approval.
Net income/ERV
Net income/ERV respresents net headline annual rental payable on let units plus ERV at 31 March 2008 on unlet units.
Land Securities Annual Report 2008
43
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The completed development will provide:
new homes
of offi ces
of mixed-use space in total
Urban Community Development
Urban Community Development creates value through the transformation
of under-used land into thriving places and communities. Our work is both
supporting and benefi ting from London’s long-term economic and
population growth.
Kent Thameside
Our regeneration programme at Ebbsfl eet Valley in Kent is a 20-25 year project that will transform 420
hectares of land into a vibrant mix of residential, business, retail, leisure and public space. We are working
at two main development sites – Eastern Quarry and Ebbsfl eet – within which are 10 ‘villages’ or
development areas. This year we achieved excellent progress on planning permission and made a good
start on development and marketing. Highlights included:
■
Planning
We gained planning permission for Eastern Quarry, enabling us to focus on developing the 870,000m2
project. We have since gained approval for our site-wide and area masterplans together with 18 other
submissions for infrastructure and landscaping. We have also completed the masterplan for the central
core of Ebbsfl eet, comprising some 506,000m2, with a team from Arup Urban Design. We have
submitted these plans to Dartford and Gravesham Borough Councils.
Construction, marketing and sales
We started construction of phase one at Springhead Park with our partner, Countryside Properties.
The marketing suite and fi rst show homes were launched in March 2008 and more than 50% of
the fi rst phase was reserved within two weeks. First occupations will take place in September 2008.
The fi nal development will provide more than 600 homes together with a church and community
centre, health centre and sports centre. We continue to achieve good sales at Waterstone Park,
a further joint development with Countryside Properties next to Bluewater.
Transport connections
In November 2007 Eurostar launched its services from Ebbsfl eet International station to Paris, Brussels
and Lille, with Paris just over two hours away. High-speed domestic services to London will be launched
in late 2009 with a journey time of just 17 minutes to St Pancras International. Fastrack, the award
winning Bus Rapid Transit network serving Kent Thameside, has fl ourished, carrying signifi cantly more
passengers than expected.
Culture
In conjunction with London and Continental Railways and Eurostar, we launched the Ebbsfl eet Landmark,
a £2m project to create a major public artwork to help put Ebbsfl eet Valley on the map. Artists Daniel
Buren, Richard Deacon, Christopher Le Brun, Mark Wallinger and Rachel Whiteread have submitted
models of their ideas and the fi nal selection will be made in late summer.
■
■
■
Harrow and Wealdstone
In January 2008 we formed a partnership with Kodak Ltd to fi nd new uses for 24 hectares of redundant
land around its production plant in Harrow and Wealdstone. Our approach will enable Kodak to continue
production while devising ways to maximise the land’s future potential.
Milton Keynes
Working with joint venture partner Gazeley Limited, we completed the development of a 60,400m2
distribution centre. This was pre-let to John Lewis and we have now sold the asset, generating a profi t
of £8.1m.
Harlow
In April 2008 we formed a 50:50 joint venture with Places for People and set out our plan to acquire more
than 970 hectares of land to the north of Harlow, to help meet much-needed housing and employment
in the area. The purchase is subject to the site’s inclusion in the fi nal East of England Plan.
Our outlook
Ebbsfl eet Valley is making the vital step from planning to implementation successfully, and we expect to
make substantial further progress on construction of infrastructure, landscaping and buildings, residential
sales and community facilities over the next year, particularly at Springhead Park. Meanwhile, we are
seeking out new opportunities to help the UK meet growing demand for housing and mixed-use space.
Land Securities Annual Report 2008
This year we delivered a fully refurbished
headquarters building to Norwich Union –
on budget and three weeks early. Around
3,000 employees now enjoy a more open
and contemporary work environment,
including a new state-of-the-art atrium.
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Business review continued
Land Securities Trillium
Successful launch and close of the £1.136bn Trillium
Investment Partners fund
Strong fi nancial performance on existing contracts
New business success in key strategic areas, including
education and waste
Acquisition and integration of AMEC Project
Investments (PFI) business
We are the clear market leader in
property partnerships and Public Private
Partnerships (PPP). We help transform
the performance of businesses and
public services through long-term
partnerships that invest in, manage
and service property and community
infrastructure. Our work enables
organisations to transform workspace,
enhance employees’ performance and
create value for stakeholders.
Ian Ellis, Chief Executive
Land Securities Trillium
“We met important deadlines
early, we won a number of
substantial contracts and
we closed the Trillium
Investment Partners fund
successfully. We are now
the market leader in property
partnerships and PPP,
and we see good prospects
for further growth in
both areas.”
Land Securities Annual Report 2008
Chart 38
Existing portfolio by use (million m2)
Health
Other
0.6
0.4
Office
Education
3.0
0.8
Chart 39
DWP contract growth and vacation (000m2)
2007/08
2006/07
2005/06
2004/05
2003/04
-200
0
200
400
600
800
1000
Acquisitions
TIES
Vacations
46
Business review continued
Land Securities Trillium
Our market
Despite uncertainty in the economy, our markets are in good shape. As UK market leader in property
partnerships we are in a very strong position to compete for major opportunities as they arise. Central and
local government are committed to achieving more effi cient use of assets and we believe this is likely to
create further market opportunities for us.
The PPP market is also strong. Our focus here is on education, waste and local authority infrastructure,
all of which offer a pipeline of major opportunities. Building Schools for the Future (BSF) is a 15-year
government programme with £45bn committed for the upgrading of every secondary school in the country.
In waste, the government must address the UK’s reliance on landfi ll by 2010 or face heavy penalties from
the EU – £10bn is one estimate of the investment needed to address this. To date, £2bn has been committed
to PFI in the waste sector and this has been matched by an equal amount from local authorities.
Meanwhile, the Government Effi ciency Review is requiring some £30bn to be realised from the sale of
assets by central government departments and local authorities, and many are looking to partner with the
private sector to achieve this and to upgrade their estates.
We also see good potential revenue opportunities on the Continent. With EU money moving towards
eastern Europe, more governments in the west are adopting PPP to procure and deliver social infrastructure
investment. In Continental Europe our initial focus is on acquiring investments in secondary market assets
already in operation.
Our strategy
We invest in and manage properties and facilities for a wide range of organisations across the public and
private sectors. We don’t just supply better buildings – we own, manage, develop and upgrade everything
from individual properties to entire estates. Government departments, international businesses, individual
schools and many other organisations use our expertise to maximise the potential of their infrastructure
for their business and their people.
We create value by:
■
Using our asset management skills and development expertise to improve performance and reduce risk
for customers while growing our own business
Increasing the scope, scale and value of our contracts with customers by forming excellent long-term
relationships, earning trust and delivering major improvements
Developing new and better ways to get the most from properties, workspaces and facilities
Gaining access to new market areas and strengthening our leadership position by acquiring specialist
businesses
Supporting the growth of our pipeline of opportunities through Trillium Investment Partners acquiring
mature assets.
■
■
■
■
Our performance
We delivered an underlying operating profi t of £129.1m (2007: £98.8m), signifi cantly higher than last year
largely due to our new contracts with Accor and Royal Mail and around £43.0m of non-recurring items. On
the DWP contract, which accounted for the majority of the non-recurring items, the anticipated decline in
operating profi ts due to vacations did indeed materialise, but this was offset by us resolving a number of
outstanding issues which allowed us to recognise additional profi ts of £31.3m.
Higher operating profi t contributions from DVLA and Norwich Union refl ect the completion of major
refurbishment works, while the DVLA contract has also benefi ted from scope extensions.
Increased costs refl ect the overhead associated with the former SMIF, IIC and AMEC teams. Bid costs
increased due to the high level of new business activity associated with our appointment as preferred
bidder on both DTR and Kent BSF, and our involvement in Workplace 2010.
The successful launch and close of the Trillium Investment Partners fund and the sale of the Meterfi t
asset has given rise to a profi t on disposal of £47.5m.
Land Securities Annual Report 2008
Business review continued
Trillium Investment Partners
This year we achieved a major success with the launch and close of the Trillium Investment Partners,
a £1.136bn fund that enables third party investors to gain exposure to our PPP contracts.
The launch of the fund attracted very strong interest, despite one of the weakest debt and equity
markets for some time, and the calibre of the equity partners is a testament to the strength and quality
of the assets and our business. We have retained a 10% stake in the venture.
Trillium Investment Partners is now the largest investment vehicle of its kind focused on PPP contracts.
We intend to grow the fund to around £2bn over fi ve years through the acquisition of mature PPP assets,
such as schools and hospitals already in operation. The fund will acquire these assets from Trillium, where
our market leading New Business division has already secured £240m of new opportunities. The fund is
aiming to invest £200m every year for the next four years.
A new division of Trillium, authorised by the FSA, will manage the fund and receive an annual
management fee.
AMEC PFI acquisition
In November 2007 we completed the acquisition of AMEC’s Project Investments business, which included
interests in seven signed PFI projects and one project at preferred bidder stage. We paid £158.5m for the
business, which provides us with a top quality portfolio of assets and a specialist team experienced across
the complete PFI/PPP process, from bidding to long-term management of investments. This acquisition is
now fully integrated into Trillium, and reinforced our position as a leader in PFI, transport and health sectors.
£158.5m
Paid to acquire AMEC’s Project
Investments Business.
Our partners in the Trillium Investment Partners fund:
HBOS plc, Victorian Funds Management Corporation of
Australia, funds managed by Bank of Ireland, Transport
for London Pension Fund, Lloyds TSB, London Pensions
Fund Authority and pension funds operated by Daily Mail
General Trust plc.
New business
Property partnerships
■
■
Defence Training Review
Having won preferred bidder status in January 2007, Metrix – our 50:50 joint venture with QinetiQ –
continues to work with the Ministry of Defence to create a new defence training academy at St Athan,
South Wales. This is one of the UK’s largest PPP projects.
Workplace 2010
This is a 20-year contract to provide a full range of property outsourcing services for the Northern
Ireland Civil Service. Workplace 2010 includes a major fi ve-to-seven-year programme to transform the
Northern Ireland Civil Service’s offi ce estate, improve working environments for staff and facilitate new
ways of working, with the aim of delivering greater value for the taxpayer. We are one of two fi nal
short-listed bidders.
47
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We purchased this 12-acre site in 1998 through our contract with the DWP.
Since then we have paved the way for a transformation from outdated
government buildings on brownfi eld land to a site with outline planning
permission for 136 much-needed homes. We sold the site in
August 2007 for £32m – 50% of the profi t is retained
by us, 50% enjoyed by our client.
Land set aside for
community hall
Took leaseback on site while
we helped DWP relocate
Public access to
natural habitat
Held public consultations
before submitting proposals
– no objections made
Handed over ownership
of gardens occupied
under licence
Land Securities Annual Report 2008
On-site nursery remained
open during process
Outline planning consent for residential
development granted in 2005
Our fi t-out at the DWP’s Caxton House
offi ces in London required us to relocate
the Ministerial team and civil servants
while we transformed the space to increase
collaboration and fl exibility. The tight
nine-month turnaround was determined
by the Parliamentary calendar, but we
delivered on time.
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Table 42
Trillium fi nancial results
Contract level operating profi t
– DWP
– Norwich Union
– Barclays
– DVLA
– Telereal II
– Accor
– Royal Mail
– BBC
Bid costs
Central and other costs
Underlying operating profi t
Net defi cit on revaluation
of investment properties
Profi t on disposal of properties
Segment profi t
Share of profi t/(loss) from
Investors in the Community
(IIC) (joint venture)
Share of loss of Trillium
Investment Partners
(associate)
Profi t on sale of interest in
Trillium Investment Partners
(discontinued operation)
Profi t on sale of Meterfi t
(discontinued operation)
Year ended
31 March
2008
£m
Year ended
31 March
2007
£m
94.3
11.1
1.9
3.7
15.5
27.1
4.1
9.2
(11.9)
(25.9)
129.1
(24.9)
18.1
122.3
81.0
9.2
3.3
1.7
16.1
1.5
–
2.8
(2.8)
(14.0)
98.8
(13.6)
7.5
92.7
0.1
(3.0)
(0.5)
37.5
10.0
–
–
–
Education
This year, ‘Investment in school facilities and PFI – do
they play a role in educational outcomes?’, an independent
KPMG report, stated that new PFI schools are improving
pupil performance.
Business review continued
Land Securities Trillium
PPP
■
Education
With Northgate Information Solutions, we were announced as Kent County Council’s preferred bidder
for the fi rst phase of its £1.8bn BSF programme. Through this, we will enter into a new £600m public
private partnership with Kent County Council and Partnerships for Schools to refurbish or rebuild
secondary schools and help transform education in the Gravesham, Swale and Thanet districts by 2014.
Our success in Kent builds on our work across the UK, where we now own or manage 197 schools with
174,000 pupils. This year we were also named as one of the two fi nal short-listed bidders for the
Birmingham BSF programme, with a fi nal decision expected in September 2008; and in April 2008 e4i
(Education for Inverclyde) – a consortium comprising Trillium, Miller Construction, Cyril Sweett and FES
– was named preferred bidder for the £80m Inverclyde Schools PPP project.
Waste
This year we secured our fi rst major success in the fast-growing waste sector. Working in partnership
with Norfolk Environmental Waste Services and Cyril Sweett Investments, we became preferred bidder
for Norfolk Waste Management Contract A, a 25 year project to build and operate an Advanced
Mechanical Biological Treatment (AMBT) facility to treat and recycle solid waste. AMBT facilities are
considered effective and environment-friendly, and we are now demonstrating to other local authorities
that our solution in Norfolk can help them meet pressing EU environment and waste targets.
Thornton Hall Prison
Working in partnership with Global Solutions Limited, in the Leargas consortium with McNamara
and Barclays Private Equity, we have been named preferred bidder for Thornton Hall, a €500m PFI
prison near Dublin, Republic of Ireland.
■
■
Chart 40
History of Trillium
Trillium established
BBC and Telereal (BT) deals signed
Norwich Union and Barclays signed
Joint venture with IIC established
DWP “PRIME” 20 year deal signed
DWP deal extended to include TIES
DVLA 20-year contract signed
AMEC PFI portfolio acquired
Trillium acquired by Land Securities
Chart 41
The Trillium business model
Preferred bidder on DTR. AMEC closed
Accor and Royal Mail deals signed
Acquisition of SMIF and remaining
50% of IIC
Preferred bidder on Kent BSF and
Norfolk waste
Trillium Investment Partners
fund closed
New Business
Serviced Accommodation
Property and Asset Management
PPP and Fund Management
Operating Functions
Support Functions
Land Securities Annual Report 2008
We’ve been helping to improve the quality
of education and educational facilities at six
schools in Leeds. Our approach has created
fl exible, effi cient and innovative spaces – like
a new centre at Primrose High School where
pupils and local people can gain media training.
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Land Securities Trillium
Property partnerships
This was a very successful year for a number of our property partnership contracts with major long-term
customers. Key highlights included:
■
Department for Work and Pensions
We achieved a customer satisfaction rating of 94% this year – three percentage points better than last
year’s level. This is particularly impressive given the enormous scale of the portfolio, with some 1,300
properties under management. Notable successes also included the sale for development of the
Hinchley Wood site.
Norwich Union
We completed a major three-year refurbishment of Norwich Union’s headquarters this year – three
weeks ahead of schedule and on budget. Our work has helped to transform the working environment.
DVLA
The major refurbishment of the main HQ offi ces and a number of other sites were completed
successfully, with the main HQ works handed over eight weeks early and on budget. We also provided
a new print facility building in September 2007. We continue to support DVLA with increased
investment and services in its ongoing estates transformation project.
Royal Mail
Our contract with Royal Mail went live in March 2007, when we took over freeholds and the risk and
management of 296 vacant and sublet leaseholds. We have made good progress on the disposal of
surplus space and have continued to evolve our relationship with Royal Mail.
Accor
In May we completed the purchase of a further seven Ibis and Novotel hotels, bringing the portfolio
owned to 29 hotels in London and across the UK. The hotels are leased back to Accor on a turnover rent
basis and we maintain the structural fabric of each hotel.
■
■
■
■
Chart 44
DWP customer satisfaction (%)
2007
2006
2005
2004
2003
0 10 2030 40 50 60 7080 90 100
Percentage of customers satisfied
or very satisfied with Trillium’s service
Satisfied
Very satisfied
94%
Record DWP customer satisfaction score achieved this year
Our outlook
We are market leader in two sectors – property partnerships and PPP – both of which offer stable long-
term cashfl ows and good growth prospects. We have a well-rounded business with a strong supply of
investment capital and a comprehensive range of services. We have robust contracts, a strong new business
pipeline and operate in market sectors driven by government investment and blue chip corporate activity.
We see excellent prospects for continued growth in the short, medium and long term.
8 weeks
Early delivery of DVLA facilities
Chart 43
Our history
Property outsourcing
PPP/PFI
DWP PRIME
deal signed
PFI policy
announced by
t
UK governmen
First schemes
signed (health
)
and prisons
Value of signed
deals reaches
£10bn
Inland Revenue
STEPS deal signed
BT deal signed
BBC deal signed
DWP ‘TIES’ deal
extended
y
SMIF Canar
deal is first in
secondary market
OGC refinancing
code issued
Norwich Unio
deal signed
n
Barclays deal
signed
DVLA deal signed
Royal Mai
l
deal signed
Accor acquisition
DVLA additional
works signed
BSF launched
PFI CO is first
listed PFI investor
Trillium
acquires SMIF
PFI funds listed by
k
HSBC and Babcoc
Trillium acquires PFI
portfolios from
AMEC and UME
Trillium closes
Trillium Investment
Partners fund
3 weeks
Early delivery of Norwich Union headquarters
Table 45
Trillium number of people by occupation
As at 31 March 2008
Asset management
Call centre
Capital projects
Quality assurance
Facilities management
HR/fi nance
Business development and commercial
Total
Total
105
68
139
30
377
115
95
929
Land Securities Annual Report 2008
52
Board of Directors
Paul Myners (60)
Chairman & Non-executive Director
Francis Salway (50)
Executive Director
Martin Greenslade (43)
Executive Director
Ian Ellis (52)
Executive Director
Appointed to the Board in
September 2006 and Chairman
in January 2007. Member of the
Court of Directors of the Bank of
England and Chairman of Guardian
Media Group plc, Tate, the Low
Pay Commission and The Personal
Accounts Delivery Authority. Also
a trustee of Glyndebourne and the
Smith Institute.
Joined the Group in October 2000.
Previously an Investment Director
at Standard Life Investments.
He was appointed to the Board
in April 2001. Appointed Chief
Operating Offi cer in January 2003
and Group Chief Executive in July
2004. Also Vice President of the
British Property Federation.
Joined the Board as Group Finance
Director in September 2005.
Previously Group Finance Director
of Alvis PLC and a member of the
executive committee of Nordea’s
investment banking division and
Managing Director of its UK business.
Also a Director of International
Justice Mission UK.
Joined the Board in November
2002. An original member of
the management team which set
up Trillium. Previously Chief
Executive of the investment
management division of Insignia
Richard Ellis. Chief Executive
of Land Securities Trillium.
Non-executive Director of Rok plc.
Sir Christopher Bland (70)
Non-executive Director
Kevin O’Byrne (43)
Non-executive Director
David Rough (57)
Non-executive Director
Appointed to the Board as a Non-
executive Director in April 2008
and as Chairman of Land Securities
Trillium Limited. Previously
Chairman of BT Group plc and
Chairman of the Board of Governors
of the BBC. Chairman of the Royal
Shakespeare Company.
Appointed to the Board as a Non-
executive Director in April 2008.
Group Finance Director of DSG
International PLC since 2004.
Previously Chief Financial Offi cer
for Hemscott Publishing Group and
European Finance Director for The
Quaker Oats Company.
Joined the Board as a Non-executive
Director in April 2002 and
appointed Senior Independent
Director in November 2003. Group
Director (Investments) of Legal and
General Group PLC until December
2001. A Non-executive Director of
Xstrata Group PLC and Friends
Provident Group plc.
Alison Carnwath (55)
Non-executive Director
Appointed to the Board as a Non-
executive Director in September
2004. Chairman of M F Global Inc
(a NYSE Listed company) and a
Non-executive Director of Man
Group plc. An independent Director
of PACCAR Inc., a Fortune 500
Company Listed on NASDAQ.
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Mike Hussey (42)
Executive Director
Richard Akers (46)
Executive Director
Appointed to the Board in
September 2004 after joining the
Group as Development Director in
2002. Previously Head of Leasing
and Marketing at Canary Wharf
Group. Appointed Managing
Director, London Portfolio in
July 2004. A Director of New
West End Company.
Joined the Board in May 2005,
following his appointment as
Managing Director, Retail
Portfolio in July 2004. Joined
the Group in 1995 and previously
held the position of Head of
Retail Portfolio Management.
Sir Stuart Rose (59)
Non-executive Director
Rick Haythornthwaite (51)
Non-executive Director
Bo Lerenius (61)
Non-executive Director
Joined the Board as a Non-executive
Director in May 2003. Chief
Executive of Marks & Spencer
Group plc. Previously Chief
Executive of Arcadia Group until
December 2002. Chief Executive of
Booker PLC from 1998 until 2000.
Appointed to the Board as a Non-
executive Director in April 2008.
Chairman of Mastercard Inc. and
the Risk and Regulation Advisory
Council and a partner at Star
Capital Partners Ltd. Previously
Chief Executive of Blue Circle
Industries PLC and Invensys plc and
a Non-executive Director of ICI plc.
Chairman of the Southbank Centre.
Appointed to the Board as a Non-
executive Director in June 2004.
Previously Group Chief Executive
of Associated British Ports Holdings
PLC and Chief Executive Offi cer
and Vice Chairman of Stena Line
AB. A Non-executive Director of
G4S plc, Thomas Cook Group PLC
and Ittur Group (Sweden). Since
2007, Chairman of the Swedish
Chamber of Commerce
for the UK.
Land Securities Annual Report 2008
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Corporate responsibility
Our business activities have an
enormous infl uence on the day-to-day
lives of thousands of people across
the UK. Our approach to corporate
responsibility focuses on seven key
areas where what we do and how
we do it has a particularly signifi cant
effect on the world around us.
July 2007 – we were the only UK
company named as one of the world’s
‘20 Most Sustainable Stocks’ by
sustainablebusiness.com
Online environmental E-Training
introduced for all staff
Gunwharf Quays sends just 0.5%
waste to landfi ll
On target to reduce CO2 emissions in
existing buildings by 10% before 2011
We believe our customer service
differentiates us from our peers. Our aim
is to provide best in class levels of service
so that occupiers and clients choose us as
their business partner.
We are committed to taking every
reasonable step to ensure the health and
safety of our employees and anyone else
affected by our business activities.
We employ 1,700 people across the
Group and aspire to be the property
sector’s employer of choice. The
wellbeing and professional development
of employees is central to our growth
and success.
We build relationships
with local government,
education partners,
community
organisations and
residents. Our activities
help to transform
towns and cities
throughout the UK.
We encourage a two-way dialogue with
existing and potential investors and
business commentators. We believe this
creates a better understanding of our
business and better business relationships.
We work with suppliers whose values
and approach mirror our own, helping
us to ensure high standards are
maintained and risks minimised.
How we build and run our
buildings has a signifi cant effect
on the human and natural
environment. Innovation and
best practice procedures help us
to develop and manage
buildings to good environmental
standards.
Land Securities Annual Report 2008
Corporate responsibility continued
Volunteering
The Foundation is responsible for encouraging every employee to volunteer a minimum of one day a year
in work time. It has supported 326 volunteers so far, clocking up more than 3,000 volunteering hours in
total. This year around 20% of employees took part in projects, and our target is to have 50% of employees
involved by 2010.
Employees who volunteer in their own time are encouraged to apply for matched leave. Volunteering
32 hours a year earns two additional days’ leave, for example. To date 30 employees have taken a total of
45.5 days of additional leave.
£487,600
Charitable donations made in 2007/08.
Some examples of our volunteering work:
■
■
■
■
Enterprise – Young Enterprise scheme launched
Our volunteers are helping young people interested in business to develop their skills and knowledge.
The teams set up and run concept companies and learn the lessons of business along the way. Launched
in 2008, we are running this project in London and the North West initially.
Education – Supporting schools in Tower Hamlets
Trillium has supported St Anne’s Catholic Primary School and Thomas Buxton Junior School in Tower
Hamlets for six years. We have helped to support literacy by buying books for their libraries and
enabling more reading partners to come in and read to children. Last year we funded local artist Janet
Brooke’s involvement in a curriculum art project, and the art works produced in response were exhibited
in Spring 2008 at the SW1 Art Gallery in our Cardinal Place scheme. Over the years we have also used
our core skills to help improve the schools’ buildings and infrastructure, and this year we turned a
potentially hazardous part of the existing school playground into a safe play environment.
Environment – Earthwatch
For fi ve years we have enabled employees to take part in a competition to win an environmental trip
with the Earthwatch Foundation. Everyone who takes part becomes an environmental champion in
their area of the business, helping to increase awareness of issues among colleagues. Last year’s winner,
Anna Chapman from UCD, travelled to the tip of Vancouver Island to help monitor the migratory
feeding habits of grey whales.
Employability – SPEAR mentoring programme
SPEAR is an eight-week programme for 16-24 year old unemployed people in West London. The course
is run by experts in change management, education and youth work. This year four of our employees
have mentored young people through the course and two other employees have applied to take part
in the next course. Each employee makes a commitment to meet the young person for an hour every
fortnight to help him or her make decisions. Land Securities Group also supports SPEAR with an annual
donation of £6,000.
50%
Our target to have employees in volunteering by 2010.
Birds Eye View project
Children at schools in Tower Hamlets visited our
Victoria offi ces then worked with print artist Janet
Brooke to create art works refl ecting what they had seen.
The work was shown at the Land Securities Art
Gallery in Spring 2008.
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Corporate responsibility continued
Give As You Earn
Donating to charity through the Give as You Earn (GAYE) scheme is tax effi cient for all involved. This year
we ran three GAYE promotions and increased the number of employees giving from 1% to 8.5%. This
increase was boosted by the Company’s offer to match each employee donation with an additional 20%,
up to a maximum of £5,000 per employee each year.
8.5%
The number of our employees donating to charity.
£6,000
Annual donation to SPEAR.
2,500
Members of the public who attended our
Victoria Transport Interchange Exhibition.
60
Cabot Circus, Bristol
One artist and construction workers from 60 different
nations wrote the Cabot Circus recipe book.
Community
Strong relationships are the lifeblood of any community and we work hard to ensure we play our part.
We start to build these relationships well in advance of any planning process because we want our
schemes – whether offi ce development, shopping centre or management of a school contract – to help
create a sense of local ownership and civic pride. Here are some examples of our commitments in action:
■
Victoria Transport Interchange
Our London team held a four-day public exhibition with models, video presentation, traffi c modelling,
interactive views and a take-home information pack. 2,500 people attended.
Shopping Centre Study Support
Our Study Support centres based at the White Rose Shopping Centre, Leeds, and the Stratford Centre,
London, are helping to enhance the skills and personal development of children.
Child Awareness
This scheme provides a hotline so people can alert us if a child appears to be lost or missing in a
shopping centre.
Art and development
At the Cabot Circus development in Bristol our on-site artist has worked with construction workers of
60 different nationalities to write a Cabot Circus recipe book. At the Southbank, Greyworld’s spectacular
interactive ‘Monument to the Unknown Artist’ was unveiled this year and is now helping to add even
more vibrancy to the area.
■
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Employees
We employ around 1,700 people across the UK. Our strategy is to become the employer of choice in the
property sector by attracting, recruiting and retaining exceptional employees who will add value to our
business and our customers. Key areas of support for employees include:
■
Learning and Development
Around 84% of our employees have a learning and development plan in place and our Learning and
Development offer achieved on average a 96% satisfaction rating.
Diversity
We look to create a diverse, inclusive and representative working environment where everyone is
treated with dignity and respect. We have also won awards for our activities to promote diversity
within the communities in which we work.
Employee survey
We have outperformed the survey provider benchmark consistently over the past few years. This year
the employee engagement score was 3.03/4.00, a small improvement over the previous year. 82% of
the employee population completed the survey. 90% of employees are satisfi ed with working at Land
Securities and over 92% are proud to work for Land Securities.
■
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Land Securities Annual Report 2008
84%
Of our employees have a learning and development
plan in place.
92%
Of our employees are proud to work for Land Securities.
10%
The target to reduce our CO2 emissions by 2011.
0.5%
The small amount of waste at Gunwharf Quays
in Portsmouth going to landfi ll.
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Environment
In July 2007 we were the only UK company included in the World’s 20 Most Sustainable Stocks by
sustainablebusiness.com. Since then the Dow Jones Sustainability Index named us a global leader in both
the real estate and fi nance sectors, and we have been named sector leaders for sustainability in the UK by
Sustainable Asset Management. Some examples of our commitments in action include:
■
Development
Our target is to design new offi ces with 20% lower carbon emissions than that required by Building
Regulations, and we are on target to reduce emissions of CO2 in our existing buildings by 10%
before 2011.
Customers
We are engaging with our tenants to help them reduce their own energy use. For example, a successful
workshop with occupiers at Cardinal Place, London, has led to the introduction of building-specifi c
Environmental Management Programmes that place responsibilities for success on each tenant, as
well as on us as landlords.
Waste
At Gunwharf Quays, Portsmouth, just 0.5% of waste is sent to landfi ll due to successful recycling
initiatives, while our Fremlin Walk Centre in Maidstone has started a composting trial with caterers.
■
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Health and Safety
We produce an annual health and safety plan and our Board reviews our progress every quarter.
We committed to a number of new targets in 2007 and met the following:
■
Ensure that 70% of Group contractors are accredited with the Construction Skills Certifi cation Scheme
– 71% are now accredited
Certify one additional business activity to OHSAS 18001 standard – both Gunwharf Quays,
Portsmouth and the Bridges Shopping Centre, Sunderland, have achieved this standard
Develop and launch a Wellbeing Policy for the Group and train 25% of management on
its implementation
Develop a web-based e-learning training course for use within schools.
■
■
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Accident records are reviewed across the Group every month. We report on RIDDOR accidents (those
reportable to the enforcement authorities), events and near misses. The number of RIDDOR accidents
fell by 16.4% to 204 in the year compared to 244 in 2006/07.
Charitable giving
Land Securities Group and its businesses made total charitable and community investments and donations
in the order of £487,600 in 2007/08.
In addition to charitable giving and volunteering arranged through The Land Securities Foundation, we
run numerous regional grant programmes. The London Portfolio’s Capital Commitment Fund is now in its
third year, for example, and has supported 33 groups in Southwark and Westminster. Key national
sponsorship relationships this year included:
■
The Prince of Wales’ Arts & Kids Foundation
Now in its third year, we have worked with schools to give 1,300 children the opportunity to study
a new play, specially commissioned for the project.
British Volleyball
Our partnership with British Volleyball is helping to achieve a higher profi le for the sport and providing
business skills to help support its growth.
■
Corporate Responsibility Committee
Our Corporate Responsibility Committee is drawn from across the Company. Each Committee member has
his or her own particular discipline and a drive to ensure we transform excellent new research and thinking
into tangible improvements. The Committee meets on a regular basis to set policy and overall objectives,
and to review progress against targets.
Land Securities Annual Report 2008
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Corporate responsibility continued
Performance during 2007/08
Customers
Host Energy and Environmental Effi ciency workshops for customers at 12 managed properties across the Group’s
London Offi ce and Retail portfolios to enable these customers to improve recycling and reduce their energy and
water commitments
■ Achieved
Status
Achieve customer satisfaction targets
■ Shopping Centres: 3.8
■ Retail Parks: 3.4
■ London: 3.7
Maintain 90% overall customer satisfaction rating on the DWP contract
Employees
■ Achieved
■ Not audited
■ Achieved
■ Achieved
Ensure out-performance across the Group of the Expert Training Systems (ETS) benchmark on employee
engagement
■ Achieved
Contribute actively to local communities by enabling 20% of the Group’s staff to volunteer time and expertise
through the Land Securities Foundation
■ Achieved
Provide professional support to the Board of the British Volleyball Federation in the development of its Business
Plan and host, in Land Securities premises, two community based Volleyball events
■ Work in progress
Enable 2.5% of staff to participate in charitable giving through the payroll
Implement a system for monitoring the effectiveness of the equal opportunities and diversity policies, and respond
to all issues raised
■ Achieved
■ Achieved
Environment
Reduce CO2 emissions by 5% against the baseline (average for the three years 2004-07) in managed offi ces and
retail premises
■ Mostly achieved
Reuse or recycle 80% (measured by weight) of non-hazardous demolition and construction waste on all projects
undertaken during the year
■ Mostly achieved
Implement a trial strategy on the DWP contract aimed at procuring 90% of timber used on the DWP estate from
FSC-certifi ed sources
■ Not auditable
Design all new developments to be 20% below the prevailing Building Regulation requirements for CO2 emissions
■ Achieved
Our new developments
produce 20% less CO2
than regulation requires
Land Securities Annual Report 2008
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2008/09 Targets
■ Achieve 90% overall customer satisfaction rating on the DWP Contract
■ As part of our partnership with DWP ensure the joint ‘Invest to Save’
initiative achieves in 2008/09 a 6% reduction in energy consumption
against the baseline agreed with DWP
■ Develop a customer service improvement plan for each Public Private
Partnership (PPP) project managed by LST
■ Increase to 3.8 the customer satisfaction ratings across the fi ve key
performance areas identifi ed by the London Portfolio in its 2007 surveys
■ Achieve an overall customer satisfaction rating of 3.85 in annual
shopping surveys undertaken by Retail
■ In response to customer requests develop and pilot a Sustainability
Guide for retailers
■ Ensure out-performance across the Group of the Expert Training
Systems (ETS) benchmark on employee engagement
■ Contribute actively to local communities by encouraging 30% of
the Group’s staff to volunteer time and expertise through the Land
Securities Foundation
■ Encourage 8% of staff to participate in charitable giving through
the payroll
■ Ensure that at least 60% of staff, as measured by the Employee
Engagement Survey believe that Land Securities’ Learning and
Development platform meets their individual needs and enables
them to develop their careers.
■ In support of our commitment to diversity, through the Employee
Engagement Survey measure staff perception of the statement
‘our employee profi le refl ects the communities in which we work’
We aim for at least 8%
of staff to make charitable
donations through the
payroll – this year it
was 8.5%
Climate Change
■ Design all new Group developments to be 20% below the prevailing
Building Regulation requirements for CO2 emissions
■ Achieve a 5% reduction in the CO2 emissions associated with energy
use in managed offi ce and retail premises, thereby reducing the cost of
our commitment to offset emissions arising from energy use in our own
occupied offi ces, and common parts of shopping centres
■ Produce a case study analysis of energy and CO2 performance for the six
properties audited in 2007/08 which account for 30% of energy usage
across the London portfolio
Biodiversity
■ Evaluate existing biodiversity conditions before commencing
development and demonstrate that the completed scheme improves
the quality of the habitat and the number of species of fl ora present
Resource Use and Waste Management
■ Achieve a minimum level of 20% recycled content by weight or value
in every new development
■ Monitor the performance at all occupied premises of grey-water
recycling and rain water harvesting
■ Benchmark water usage across the London portfolio and survey 50%
of these sites for opportunities to reduce water consumption
■ Undertake a trial of the Forestry Stewardship Council (‘FSC’) project-
specifi c registration scheme at LST’s Falkirk development to ensure the
timber comes from sustainably managed sources
■ Reuse or recycle 85% of demolition and construction waste for projects
covered by Site Waste Management Plans
■ Reuse or recycle 85% of offi ce waste generated at our own Head Offi ce
premises
■ Increase the rate of recycling by an average of 5% across all managed
shopping centres, with no centre falling below its 2007/08 recycling rate
Management
■ Submit all new major offi ce, retail warehouse premises and retail
shopping centre developments for Breeam assessment with a minimum
target of ‘very good’
■ Ensure that every shopping centre develops and implements a site-
specifi c Environmental Management Programme
■ Ensure that LST’s managed PPP projects are certifi ed to ISO14001
within the scope of its Environmental Management System
■ Refi ne the environmental benchmarking process for managed offi ces
and shopping centres to facilitate meaningful comparisons
Land Securities Annual Report 2008
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Corporate responsibility continued
Performance during 2007/08 continued
Status
Community
Consult with 33% of schools in the current LST portfolio, and identify Group expertise to develop the appropriate
‘support programmes’ (work experience, training modules, mentoring etc)
■ Achieved
Implement, based on the London Benchmarking Group Model, a system of recording and sharing the range of
community-based activities undertaken across the Group
■ Achieved
Commit £150,000 through the London Capital Commitment programme, ensuring payments are made to fi ve
organisations which are new to the programme
■ Achieved
Investors
Implement all the recommendations included in the Makinson Cowell Investor Relations Survey, and identify
one alternative method of benchmarking the quality of the Group’s investor relations
■ Achieved
Identify a suitable Socially Responsible Investor (SRI), and hold a ‘pilot’ visit/presentation on one aspect
of the Group’s CR programme
Increase from 7% to 10% the number of investors subscribing to e-communications
■ Achieved
■ Achieved
Health and safety
Certify one additional Group workstream or business activity to the international standard OHSAS 18001 for
health & safety management systems
■ Achieved
Ensure that 70% of Group contractors achieve the Construction Skills Certifi cation Scheme (CSCS)
accreditation, providing advice where requested
Develop and launch a Wellbeing Policy covering the entire Group, and deliver training on its implementation
to 25% of management staff
■ Achieved
■ Achieved
Design the content for a web-based learning programme for community based safety awareness training,
and identify potential participating junior schools in the communities in which the Group operates
■ Work in progress
Suppliers
Identify agencies to facilitate the recruitment of disabled and disadvantaged people, and recruit in this way
5% of all new cleaning staff in the LST supply chain
■ Achieved
Document current staff volunteering initiatives in the top 10 Group Service Partners (selected by total contract
value), and map against LS Foundation activities
■ Achieved
Identify the criteria defi ning ‘Category One’ suppliers, and determine the companies in this category
■ Achieved
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2008/09 Targets
■ Exceed the value of community investment achieved in 2007/08
■ Develop a structured Work Experience programme in LST which can
as measured by the Community Investment Reporting system, and
ensure the system is used across the Group to record the full range of
community-based activities
■ Supplement the Capital Commitment Fund of £150,000 by securing
additional sources of external funding
be made available to schools in the LST portfolio
■ Introduce to a minimum of ten Shopping Centres a Childsafe Awareness
Scheme giving assurance as to the safety and welfare of children in
retail centres
■ Establish formal Community Link programmes at three retail
■ Pilot a web-based learning system to deliver community-based safety
awareness training to schools in communities in which the Group operates
development sites to support a range of training and skills development
initiatives aimed at promoting local employment
■ Conduct separate surveys of investors and analysts in order to
■ Increase from 10% to 15% the number of investors subscribing
benchmark the quality of the Group’s investor relations and to establish
comparative data for future surveys
■ Hold fi ve one-to-one tailored meetings with Socially Responsible
Investors (SRIs) focusing on the aspects of the Group’s CR programme
which are of particular interest
to e-communications
■ Certify one further workstream or business activity to the international
standard OHSAS 18001 for Health and Safety Management Systems
■ Benchmark against the Health & Safety Executive’s Corporate Health
and Safety Performance Index (CHaSPI), and achieve a top decile rating
against its peers
■ Report monthly on contractor performance across all construction
projects, collating information on fatalities, RIDDOR and non-
RIDDOR reportable injuries, near misses and lost days
■ Create an environment in which 50% of employees believe their
health & wellbeing is supported
■ Recruit 10% of all new catering and cleaning staff into the LST supply
chain through agencies which support disabled and disadvantaged people
■ Engage in regular meetings with the Top 10 Service Partners
(measured by contract value) to agree a Joint Programme of
community investment and volunteering
■ Benchmark the Top 20 category 2 suppliers (measured by contract value)
to determine the extent of their compliance with the CR criteria in the
Group supplier evaluation questionnaire
We want 10% of new
catering and cleaning
staff to come from agencies
who support disabled and
disadvantaged people
Land Securities Annual Report 2008
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Corporate governance
The Board is responsible for providing leadership for
the Group. It ensures that the right strategy and controls,
together with appropriate fi nancial and human resources,
are in place in order to deliver value – to shareholders and
to the wider community. It also sets standards for ethical
behaviour and for monitoring environmental and health
and safety performance.
Key matters reserved to the Board include:
■
authorisation of signifi cant transactions in
excess of £250m
dividend policy
internal controls and risk management (via the
Audit Committee)
remuneration policy (via the Remuneration
Committee)
shareholder circulars and listing particulars
matters relating to share capital such as share
buy backs
treasury policy and signifi cant fundraising
appointment/removal of Directors and
Company Secretary
■
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■
The Board uses an annual process timetable to
ensure that relevant matters are given due
consideration.
The Board held nine principal Board meetings
at which the following subjects were discussed:
Strategy – the Board held an annual off-site
■
meeting at which the Company strategy was
reviewed in the context of the macro- and
micro-economic environment, potential
legislative changes, competitor strategies and
the need for the Company to create and exploit
competitive advantage.
Business plans – the Board reviewed at
six-monthly intervals the fi ve-year forecasts, the
annual budget and business plan and the
balanced scorecard, all of which are designed
to support the Company’s strategy.
■
■
■
Progress reporting – a detailed monthly Board
report was circulated to the Board and at each
regular Board meeting the heads of business
units provided an update on progress within their
areas of responsibility. In addition, the interim
and fi nal results, together with a comparison of
investment property performance to IPD indices
on a six-monthly basis, were reviewed in detail.
Compliance and external relationships –
the Board reviewed Investor Relations, HR and
Pensions, Corporate Governance, Health and
Safety (with quarterly updates), Environmental
performance, Board performance evaluation
and Corporate and Social Responsibility matters.
During 2007/08, in addition to the matters
outlined above, the Board considered and agreed
plans to demerge the Group into three separate
businesses. Following recommendations from the
Nominations Committee, the Board also reviewed
its composition, taking into account the
requirement to create effective Boards and Board
Committees for three separate quoted entities.
Board balance and independence
The roles of the Chairman and Chief Executive are
split, with clear written guidance to support the
division of responsibility. The Chairman is primarily
responsible for the effective working of the Board,
ensuring that all Directors are able to play a full
part in its activities. He is also responsible for
ensuring effective communication with
shareholders and making sure that all Board members
are aware of the views of major investors.
Introduction
The Directors consider that the Company has
complied with the provisions set out in Section 1
of the Combined Code on Corporate Governance
(the Code) as updated in June 2006 throughout the
year ended 31 March 2008, with the exception of
the provisions relating to independence of
Non-executive Directors and membership of
the Nominations Committee. As explained in this
report, these departures from the Code have now
been addressed and the Board considers that the
Company is now fully compliant with the Code.
Further details of how Land Securities complies
with the Code can be found in this report and
in the Corporate Governance section of the
Company’s website, which also contains the
terms of reference of the Audit, Nominations
and Remuneration Committees.
The role of the Board
The Board formulates strategy and monitors the
operating and fi nancial performance of the Group.
It operates in accordance with a written schedule
of matters reserved to the Board, a copy of which
is available on the Company’s website. This
schedule is backed by clearly defi ned written limits
of delegated authority across the Group.
Land Securities Annual Report 2008
Corporate governance continued
Francis Salway, as Group Chief Executive, is
responsible for all aspects of the operation and
management of the Group and its business. His
role includes developing, for Board approval, an
appropriate business strategy and ensuring that
the agreed strategy is implemented in a timely
and effective manner.
There exists a strong Non-executive element on
the Board which currently consists of the Chairman,
fi ve Executive Directors and seven Non-executive
Directors. David Rough is the Senior Independent
Director. The Board regards each of the seven
Non-executive Directors as being independent
and the Chairman was independent at the time
of his appointment to that position. During the
year under review, Sir Winfried Bischoff served
as a Non-executive Director, retiring from the
Board on 1 April 2008. His principal employer
was Citigroup, for whom he served in a number
of roles including acting Chief Executive and
Chairman of Citigroup Inc. Citigroup provides
investment banking services to the Group and,
as a consequence, he did not fully meet the
independence criteria set out in the Code. However,
the unanimous view of his colleagues on the Board
was that, by virtue of his character and experience,
he was robustly independent.
The Board is satisfi ed that no individual or group
of Directors has unfettered powers of discretion
and that an appropriate balance exists between
the Executive and Non-executive members of the
Board, while not being so large as to be unwieldy.
Details of the roles, backgrounds and other
commitments of the Directors are shown
in the Directors’ biographies on pages 52 and 53.
The Chairman holds at least two meetings a
year with the Non-executive Directors without
Executive Directors being present.
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The Company Secretary, through the Chairman,
is responsible for advising the Board on governance
matters and for ensuring good information fl ows
within the Board. All Directors have access to the
advice and services of the Company Secretary, as
well as access to external advice, if required, at the
expense of the Group (the procedure for Directors
wishing to seek such external advice is published
on the Group’s website). No such external advice
was sought by any Director during the year.
Group’s activities. In addition, one Board meeting
each year is held at an ‘off-site’ location which
incorporates a visit to one of the Group’s principal
properties or developments.
The Board supports Executive Directors taking
up Non-executive Directorships as part of their
continuing development which will ultimately
benefi t the Company. As a matter of policy such
appointments are normally limited to one Non-
executive Directorship.
Information and professional development
The Board is supplied with information in a form
and quality to enable it to take informed decisions
and to discharge its duties. All Directors are
encouraged to make further enquiries as they
consider appropriate of the Executive Directors or
management. Directors are provided with detailed
briefi ngs on the Group’s businesses, the markets in
which they operate and the overall economic and
competitive environment. Other areas addressed
include legal issues and responsibilities of directors,
the Group’s governance arrangements and its
investor relations programme.
In the case of newly appointed Directors, an
induction programme, which includes training on
the responsibilities of a Director, occurred prior to
or immediately following their appointment to the
Board, if that appointment was the fi rst occasion
that they have been appointed to the Board of a
listed company. A tailored induction programme
is provided for Non-executive Directors on
appointment, co-ordinated by the Company
Secretary in accordance with guidelines issued
by the Institute of Chartered Secretaries and
Administrators. Non-executive Directors are
encouraged to visit the Group’s major properties to
enable them to gain a greater understanding of the
Board performance evaluation
The formal annual evaluation of the performance of
the Board, its Committees and individual Directors
was undertaken in early 2008. This consisted of an
internally run exercise led by the Chairman with
the assistance of the Company Secretary, although
the Board will consider using external facilitation
from time to time in the future. The appraisal
questionnaire was wide-ranging and based on
the process and questions outlined in the Code,
covering Board and Committee performance.
The appraisal output is used to highlight
strengths and weaknesses and revealed that the
Board and its Committees were judged to be
operating effectively. It identifi ed a number of
opportunities to develop Board processes in the
future. In addition, individual performance as
Board Directors is appraised each year, based
on one-to-one interviews with the Chairman,
or in the case of the Chairman, with the
Senior Independent Director.
Nominations Committee
The Nominations Committee, which, until 30 April
2008, comprised the Chairman, David Rough
and Bo Lerenius, met twice during the year
under review to consider Board structure, size,
composition and succession needs, keeping
under review the balance of membership and
the required blend of skills, knowledge and
experience of the Board.
While the membership of the Nominations
Committee was until May 2007 non-compliant
with the Code, all key outputs and decisions relating
to appointments and membership of Board
Committees were relayed to and considered by the
full Board which includes a strong representation of
experienced independent Non-executive Directors.
In May 2007 Bo Lerenius was appointed to this
Committee and Francis Salway stood down from
the Committee so that its membership satisfi ed the
requirements of the Code. The Committee reviewed
the time required from Non-executive Directors
and the annual performance evaluation was used
to assess whether Non-executive Directors were
spending suffi cient time to fulfi l their duties.
Table 46
Attendance at Board and Committee meetings
The number of principal Board and Committee meetings attended by each Director during the fi nancial year was as follows:
Paul Myners (Chairman)
Francis Salway (Group Chief Executive)
Martin Greenslade
Ian Ellis
Mike Hussey
Richard Akers
David Rough (Senior Independent Director)
Sir Winfried Bischoff
Sir Stuart Rose
Bo Lerenius
Alison Carnwath
Board
(9 meetings)
Audit
Committee
(5 meetings)
Nominations
Committee
(2 meetings)
Remuneration
Committee
(3 meetings)
9/9
9/9
9/9
9/9
9/9
9/9
9/9
7/9
8/9
9/9
8/9
–
–
–
–
–
–
5/5
2/5
4/5
5/5
3/5
2/2
–
–
–
–
–
2/2
–
–
2/2
–
3/3
–
–
–
–
–
3/3
2/3
2/3
3/3
3/3
*Actual attendance/maximum number of meetings a Director could attend as a Board/Committee member
Land Securities Annual Report 2008
64
Corporate governance continued
The Committee reviewed succession plans for
Executive Directors and senior managers. It also
made recommendations to the Board on the
reappointment of Non-executive Directors at the
conclusion of their specifi ed terms of offi ce, after
fi rst considering the effectiveness and
commitment of those Non-executive Directors.
Where Non-executive Directors are proposed for
reappointment after having served on the Board
for more than six years, a particularly rigorous
review is undertaken by the Committee.
During the year under review the Committee
initiated a process to identify additional
Non-executive Directors. A fi rm of executive
search consultants was used to identify and
help assess potential external candidates for
these positions. As a result of this process,
Sir Christopher Bland, Rick Haythornthwaite and
Kevin O’Byrne were appointed to the Board on
1 April 2008.
When considering candidates the Committee
uses objective criteria and all appointments are
made on merit.
On 30 April 2008, the Board agreed that
Sir Christopher Bland, Rick Haythornthwaite and
Sir Stuart Rose should join the Committee and
that David Rough should step down from the
Committee. Paul Myners continues to chair this
Committee, with Bo Lerenius remaining as a
member of the Committee.
Remuneration Committee
While the Board is ultimately responsible for
Directors’ remuneration, the Remuneration
Committee, which comprised solely of Non-
executive Directors, determined the remuneration
and conditions of employment of the Executive
Directors and senior employees. The Committee’s
activity is described in detail in the Directors’
remuneration report on pages 66 to 76.
Investor Relations
Land Securities has a comprehensive Investor
Relations programme which aims to provide
existing and potential equity and bond investors
with a means of developing their understanding
of the Company and raising any concerns or issues
they may have. Further detail on the Group’s
Investor relations activity is provided in the
Corporate responsibility section of this Report.
The Senior Independent Director normally attends
the preliminary and interim results meetings to
which investors were invited and his attendance is
notifi ed to investors in advance. The Senior
Independent Director was available to shareholders
should they have had any concerns which could
not be resolved through the normal channels of
communication with the Chairman or Chief
Executive. No such concerns were raised by
shareholders during the year ended 31 March 2008.
In relation to private shareholders, we actively
encourage feedback and communication, both
on the Annual Report (page 132), at the
Annual General Meeting and through
regular meetings with the United Kingdom
Shareholders’ Association.
The Annual General Meeting provided all
shareholders with an opportunity to question
the Company on matters put to the meeting
including the Annual Report. Shareholders
attending the Annual General Meeting were given a
detailed presentation by the Chief Executive on the
activities and performance of the Group over the
preceding year. From the 2007 Annual General
Meeting onwards, voting has been conducted by
poll instead of by show of hands, since the result is
more democratic because all shares represented at
the meeting are voted and added to the proxy vote
lodged in advance of the meeting. The results of
proxy voting at general meetings were published
on the Company’s website as required by the Code.
Audit Committee
The Audit Committee was chaired by David Rough
with the other members of the Committee being
Sir Winfried Bischoff, Sir Stuart Rose, Bo Lerenuis
and Alison Carnwath. Although all of the Committee
members are considered to be appropriately
experienced to fulfi l their role, Alison Carnwath
is considered as having signifi cant, recent and
relevant fi nancial experience in line with the
Code. Further details of each of the independent
Directors are set out on pages 52 and 53. On 30
April 2008, the Board agreed that Kevin O’Byrne
and Rick Haythornthwaite should join and that
Sir Stuart Rose should step down from this
Committee. The Audit Committee’s written terms
of reference are available on the Company’s website.
Its principal oversight responsibilities cover:
internal control and risk management
■
internal audit
■
external audit (including auditor independence)
■
fi nancial reporting
■
Land Securities Annual Report 2008
The Committee met fi ve times during the year.
The Audit Committee Chairman invited all other
Group Board Directors to attend every meeting
and from time to time other senior management.
In addition, the Director of Risk Management and
Internal Audit and representatives from the
external auditors, PricewaterhouseCoopers LLP
(PwC), were also present at each meeting. The
Committee also met separately with the external
and internal auditors.
The Committee undertook the following
activities at these meetings:
■
■
■
■
■
■
■
reviewed the interim and annual results and
considered any matters raised by management
and the external auditors
reviewed and approved the audit plans for
the external and internal auditors
monitored the scope, effectiveness, independence
and objectivity of the external audit
discussed the results of internal audit reviews,
signifi cant fi ndings, management action plans
and the timeliness of resolution
reviewed the Group’s ‘Turnbull Report’ to
support the Board’s sign-off on the system of
internal control (see page 65 for more details)
reviewed reports on the Group’s risk
management measures and actions
in conjunction with the Board appraisal
detailed on page 63, the Committee reviewed
its own effectiveness and concluded that it
had continued to operate as an effective
Audit Committee.
External auditors
The Audit Committee appraised the effectiveness
of the external auditors and the external audit
process. The evaluation process included feedback
from relevant members of management and the
results were reported to the Board and Audit
Committee.
The Company had a policy and procedures in
place to monitor and maintain the objectivity
and independence of the external auditors, PwC.
The policy requires prior approval by the Audit
Committee of non-audit work above a de minimis
threshold level. On a six monthly basis, the Audit
Committee reviewed a summary of all non-audit
work. In addition to the audit related services, PwC
provided the following services during the year:
■
taxation advice, including planning and
compliance
advice on IFRS accounting
pension fund audit
advice on a number of Trillium bids
due diligence and related advice in relation to
the proposed demerger
due diligence work in relation to the disposal
of the Trillium Investment Partners fund
■
■
■
■
■
65
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Corporate governance continued
PwC were appointed to work on the demerger
process after a tender process with another
accountancy fi rm. This appointment was approved
by the Audit Committee.
Details of the amounts paid to PwC are set out
in note 7 to the fi nancial statements.
The external auditors reported to the Committee
that they remained independent and had maintained
internal safeguards to ensure their objectivity.
Valuers
The Committee had a policy in place to monitor
the objectivity of the external valuers, Knight Frank.
The Group gives the valuers and external auditors
access to each other. These advisers have a dialogue
and exchange of information which is entirely
independent of the Group. The Audit Committee
Chairman attends key valuation meetings (as do
the external auditors) to be assured of the
independence of the process. In addition, Knight
Frank presented to the Audit Committee following
completion of their 2007/08 valuation process.
In line with the Carsberg Committee report we
have a fi xed fee arrangement with our Valuers,
Knight Frank LLP. The proportion of total fees paid
by the Company to the total fee income of Knight
Frank LLP was less than 5%. The Audit Committee
regularly reviews the total fees which the Company
pays to Knight Frank as a proportion of the total
fees paid to all its property advisers. The Committee
is satisfi ed it represents only a small proportion
of the total.
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 Report
of the Directors.
Going concern
After making enquiries, the Directors have a
reasonable expectation that the Company has
adequate resources to continue in operational
existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in
preparing the accounts.
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.
Land Securities Annual Report 2008
The Board confi rms that this system is designed
to be in accordance with the 2005 version of the
Turnbull guidance and has been in place for the
year under review and up to the date of approval
of the Report and Financial statements.
The key features of our system of internal
Chart 47
Risk management process
Identify risks
control include:
■
■
■
■
■
Strategic and business planning: the Group
and each business unit produce and agree
a business plan each year, against which the
performance of the business is regularly
monitored. Balanced scorecards are prepared
that set out targets for a wide variety of
key performance indicators, including risk
management and internal audit actions.
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 where
appropriate, in accordance with delegated
authority limits.
Financial monitoring: profi tability, cash fl ow and
capital expenditure are closely monitored and key
fi nancial information is reported to the Board on a
monthly basis, including explanations of variances
between actual and budgeted performance.
Systems of control procedures and delegated
authorities: there are clearly defi ned guidelines
and approval limits for capital and operating
expenditure and other key business transactions
and decisions. Operational and fi nancial
procedures and controls are maintained on the
Group’s intranet.
Risk management: we have an ongoing process
to identify, evaluate and manage the risks faced
by the Group. The risk management process is
set out in Chart 47. We rate each risk in terms of
probability of occurrence and potential impact on
performance, and we identify mitigating actions,
control effectiveness and management
responsibility. Our approach is supported by
an oversight structure. This includes the Audit
Committee, which reviews on behalf of the Board
the effectiveness of our risk management process.
Risk management process
Six monthly assessments: a compliance
questionnaire is completed twice a year (before
external reports are issued), which is signed off by
senior managers, providing assurances that controls
are both embedded and effective within the
business (a similar questionnaire is completed
annually in respect of joint ventures).
Internal audit: responsible for reviewing and
testing key business processes and controls,
including following up the implementation of
management actions and reporting any overdue
actions to the Audit Committee.
■
■
■
Report risks and
mitigation to Board
Assess and
qualify risks
We contextualise
risk in terms of our
goals and objectives
Re-assess risks
post mitigation
Develop action plans
to mitigate risks
The Director of Internal Audit and Risk
Management reports to the Group Chief Executive
and has direct access to the Audit Committee
Chairman. The internal audit function operates a
risk-based audit approach and provides a summary
report on the operation of the system of risk
management and internal control to support the
Board’s annual statement.
The Company has established a whistleblowing
policy and hotline to enable employees to raise
public interest issues on a confi dential basis.
The Audit Committee reviews the effectiveness
of internal audit activities including the scope
of work, authority and resources of the internal
audit function.
The Audit Committee on behalf of the Board
has reviewed the effectiveness of the systems of
internal control and risk management. The review
covered all material areas of the business including
fi nancial, operational and compliance controls and
risk management and no signifi cant failings in
control were found. In performing its review of
effectiveness, the Audit Committee took into
account the following reports and activities:
■
Internal audit reports on reviews of business
processes and activities, including action plans
to address any identifi ed control weaknesses.
Management’s own assessments of the
strengths and weaknesses of the overall control
environment in their area, with action plans
to address the weaknesses.
External auditors report on any issues identifi ed
in the course of their work, including internal
control reports on control weaknesses, which
were provided to the Audit Committee as well
as executive management.
Risk management reporting, including the status
of actions to mitigate major risks and the
quantifi cation of selected risks.
The Board confi rms that no signifi cant failings or
weaknesses have been identifi ed from that review.
66
Directors’ remuneration report
Dear fellow shareholder,
I would like to introduce our Directors’ remuneration report
for 2008. Over the following pages we set out the principles and
practice for Director remuneration, with information on what
has been paid to whom and why. Throughout the report you
will see a clear alignment between the rewards for Directors
and the relative performance of the Company against a set
of independent industry benchmarks. As a Board we are
committed to operating with transparency; in line with this
commitment we have provided a question and answer section
with concise responses to some of the most common queries.
Alison Carnwath
Chair, Remuneration Committee
What are the Company’s pay principles
in terms of remuneration for Directors?
Our pay and rewards should attract the best people to the business and incentivise them to produce
superior returns for our shareholders. Therefore we believe we should reward people for achieving and
exceeding Company targets. This is why a substantial part of our Executive Directors’ reward is
performance-related pay, with incentives to exceed industry benchmarks.
There are three key elements to the remuneration we provide:
Salaries refl ect an individual’s consistent performance and contribution to the business, as defi ned and
decided by the Remuneration Committee. We aim to pay salaries at a mid-market level. Please see page 68
for more details on basic salaries.
Annual bonuses reward performance according to a set of key performance indicators, aimed at
ensuring the Company delivers on its key priorities for the year. There is a bonus opportunity of up to 100%
of basic salary and, at the Remuneration Committee’s discretion, this can be increased to 130%. There is
also an additional bonus opportunity of up to 200% of basic salary for exceptional performance. However,
no Director may earn a bonus of more than 300% of basic salary in total. Tables 51 and 52 on page 69 set
out the criteria for each type of bonus.
Long-term incentive plan rewards for Directors are aligned with our long-term business objectives and
the level of value created for shareholders. Please see page 70 for more on long-term incentives.
Why do you pay salaries in the mid-range for the industry?
With salary levels in the mid-range for our industry there is very strong motivation for Directors to achieve
outperformance – and so secure a bonus. We believe this medium salary/high bonus approach creates greater
value for shareholders.
What were the Executive Directors paid this year?
This table details the salaries and benefi ts, annual bonuses and long-term incentives – excluding pensions –
given to our Executive Directors this year.
Land Securities Annual Report 2008
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Directors who received a bonus
this year did so because they met
or exceeded their targets, and so
helped the Company achieve
relative outperformance.
Directors’ remuneration report continued
Table 48
What was the Executive Directors’ remuneration for 2007/08? (£’000)
Salary and benefi ts
Annual bonuses
Long-term incentives*
F W Salway
I D Ellis
M R Hussey
R J Akers
M F Greenslade
*Based on value of shares at 31 March 2008
641
431
432
374
402
1,326
538
1,195
991
841
916
626
572
420
652
Profi ts were down; why isn’t this
refl ected in pay levels for Directors?
Salary levels are set according to market salary levels and the specifi c role of each Executive Director.
They do not vary in line with the Company’s profi ts in the year.
Annual bonuses are calculated according to specifi c criteria for each individual. These criteria relate
to aspects of performance Directors can infl uence directly, such as performance against an independent
industry benchmark. Directors who received a bonus this year did so because they met or exceeded their
targets, and so helped the Company achieve relative outperformance.
This is a sound basis for setting bonus levels as it incentivises Directors to prioritise long-term value
creation. It also means that in a strong growth market the Company must still outperform the market if
Directors are to earn a bonus – they do not benefi t simply because the market has grown. The Company
must also outperform in poor market conditions if Directors are to receive a bonus.
The independent industry sector benchmarks we use are provided by the Investment Property
Databank (IPD).
How is share price performance
factored into the Directors’ remuneration?
It is factored in through the long-term incentive plan and also through awarding part of the annual bonuses
in the form of deferred shares which vest after three years. However, it is not considered best practice to
make share price performance a major incentive. This could encourage Directors to make decisions that
bolster the share price in the short-term rather than decisions that benefi t the Company and its
shareholders in the long term.
However, all Executive Directors must, within fi ve years of joining the Board, own shares with a value of
at least 1.5 x basic salary – and for the Group Chief Executive 2.0 x basic salary – to ensure their interests
are aligned with those of shareholders.
How have the discretionary bonus pool and the additional bonus
opportunity been refl ected in Directors’ remuneration this year?
Ian Ellis was awarded a bonus from the discretionary bonus pool amounting to 45% of basic salary in
recognition of the successful launch of the £1.1bn Trillium Investment Partners Fund in challenging
market conditions. As a consequence of the signifi cant relative outperformance in comparison with IPD
benchmarks, which represented some £800 million of value preservation for shareholders, Richard Akers
and Mike Hussey were awarded bonuses under the additional bonus opportunity of 200% of basic salary,
with Francis Salway and Martin Greenslade being awarded bonuses of 130% of basic salary.
How much do you pay Non-executive Directors?
We pay a base fee and in 2007 this was set at £55,000 and set for two years. Non-executive Directors are
paid further amounts for specifi c duties and responsibilities, such as chairing a committee, but are not paid
more for attending Board Committee meetings. Please see Table 56a for more information on what we paid
our Non-executive Directors this year.
Land Securities Annual Report 2008
68
68
Directors’ remuneration report continued
Directors’ remuneration report continued
Compliance
This report has been prepared by the Remuneration
Committee (the Committee) in accordance with
Section 1 of the Combined Code on Corporate
Governance, the Companies Act 1985, as amended
by the Director’s Remuneration Report Regulations
2002 (the Regulations), and the Listing Rules of the
Financial Services Authority. In accordance with the
Regulations, this report has been approved by the
Board and will be submitted to shareholders for
approval at the Annual General Meeting to be held
on 17 July 2008.
PricewaterhouseCoopers LLP has audited
Tables 54, 55, 56a, 56b, 57, and 59 and
associated footnotes.
The Committee
Members of the Committee
The Committee was chaired by Sir Winfried Bischoff
throughout the period under review. The other
members of the Committee are Paul Myners
(Chairman of the Board who was an independent
Director at the time of his appointment as
Chairman), and independent Non-Executive
Directors David Rough, Sir Stuart Rose, Bo Lerenius
and Alison Carnwath.
On 1 April 2008, Sir Winfried Bischoff retired
from the Board and on that date Alison Carnwath
assumed the chair of the Committee.
Sir Winfried Bischoff is the Chairman of
Citigroup Inc., the parent company of one of the
Group’s principal relationship banks. However, by
virtue of his character and experience the Board
did not consider this relationship to compromise
his independence.
■
Responsibilities of the Committee
The key responsibilities of the Committee take full
account of the recommendations contained within
the Combined Code and include the following:
To determine and recommend to the Board
■
an overall strategy for the remuneration of
the Chairman, Executive Directors and
senior managers
To determine and recommend to the Board
the individual remuneration packages for the
Chairman (who is not present when his own
remuneration is discussed), Executive Directors
and senior managers
To oversee any signifi cant changes to employee
benefi ts, including pensions
To approve the design of and targets for
performance-related incentive schemes
To oversee the operation of all incentive
schemes, including the award of incentives,
and to determine whether performance criteria
have been met.
■
■
■
You can see the Committee’s terms of reference at
www.landsecurities.com
Land Securities Annual Report 2008
Land Securities Annual Report 2008
Advisors to the Committee
The Group Human Resources Director, Angela
Williams, provides information and advice to
the Committee. The Committee has appointed
and receives advice from Hewitt New Bridge
Street (HNBS) and also makes use of various
published surveys to help determine appropriate
remuneration levels. HNBS has no other connection
with the Group.
The Group Chief Executive and Group Human
Resources Director are invited to attend meetings
of the Committee but no Director is involved in any
decisions relating to their own remuneration.
As detailed in the Corporate Governance report
on page 63, the Committee’s performance is
reviewed annually by the Chairman with the
assistance of the Company Secretary.
Remuneration policy and philosophy
The Group’s remuneration policy seeks to provide
remuneration in a form and amount to attract,
retain and motivate high-quality management,
recognising that the Group operates in a
competitive market for talent. Emphasis is placed
on delivering superior reward for achieving and
exceeding the Group’s business plan. A substantial
proportion of the Executive Directors’ remuneration
is delivered through performance related pay.
Executive Directors have substantial incentives to
out-perform industry performance benchmarks.
A summary of the principal components of
Executive Directors’ remuneration is set out below.
Chart 49 illustrates the balance between fi xed
and variable pay at the target and maximum
performance levels, assuming maximum
participation in the Long Term Incentive Plan (LTIP).
This information refl ects the policy that operated
during the year under review and there was no
change in the balance between fi xed and variable
pay during that period.
The Group’s remuneration policy is reviewed
regularly, along with the balance between fi xed and
variable pay, to ensure that it remains appropriate
and recognises developments in corporate
governance best practice. Performance targets
are set to align with Group strategic objectives and
key performance indicators (KPIs) as outlined on
page 7. Tables 51and 52 show how these elements
are aligned.
2007/08 Directors’ remuneration
Executive Directors’ remuneration comprises:
■
Fixed pay, including basic salary, together with
pension payments/contributions and benefi ts in
kind; and
Variable pay, comprising:
– annual bonus
– long-term incentives
■
Basic salary
Executive Directors receive a salary which refl ects
their responsibilities, experience and performance.
Salaries are reviewed annually with any changes
taking place in July. The review process includes the
use of comparator information and reports from
the Group’s remuneration consultants.
The Group’s policy is to set salary around the
mid-market rate, but the Committee is mindful of
the need to treat pay comparisons with caution to
avoid an upward ratchet of remuneration levels
with no corresponding improvement in
performance. The Committee also takes account of
pay and employment conditions across the Group,
especially when determining annual salary increases.
The current salaries of the Executive Directors
(and in brackets, revised salaries to take effect from
July 2008) are as shown in Table 50.
Chart 49
What was the balance of fixed versus variable pay? (%)
Target
Maximum
0
20
40
6080
100
(cid:59)(cid:90)(cid:108)(cid:98)(cid:92)(cid:25)(cid:108)(cid:90)(cid:101)(cid:90)(cid:107)(cid:114)(cid:25)(cid:33)(cid:94)(cid:113)(cid:92)(cid:101)(cid:110)(cid:93)(cid:98)(cid:103)(cid:96)(cid:25)(cid:105)(cid:94)(cid:103)(cid:108)(cid:98)(cid:104)(cid:103)(cid:25)(cid:92)(cid:104)(cid:103)(cid:109)(cid:107)(cid:98)(cid:91)(cid:110)(cid:109)(cid:98)(cid:104)(cid:103)(cid:108)(cid:25)(cid:90)(cid:103)(cid:93)(cid:25)(cid:91)(cid:94)(cid:103)(cid:94)(cid:95)(cid:98)(cid:109)(cid:108)(cid:34)
(cid:73)(cid:94)(cid:107)(cid:95)(cid:104)(cid:107)(cid:102)(cid:90)(cid:103)(cid:92)(cid:94)(cid:25)(cid:107)(cid:94)(cid:101)(cid:90)(cid:109)(cid:94)(cid:93)(cid:25)(cid:91)(cid:104)(cid:103)(cid:110)(cid:108)
(cid:79)(cid:90)(cid:101)(cid:110)(cid:94)(cid:25)(cid:104)(cid:95)(cid:25)(cid:108)(cid:97)(cid:90)(cid:107)(cid:94)(cid:108)(cid:25)(cid:111)(cid:94)(cid:108)(cid:109)(cid:98)(cid:103)(cid:96)
(cid:76)(cid:104)(cid:110)(cid:107)(cid:92)(cid:94)(cid:51)(cid:25)(cid:72)(cid:107)(cid:96)(cid:90)(cid:103)(cid:98)(cid:108)(cid:90)(cid:109)(cid:98)(cid:104)(cid:103)
Annual bonus
During the year under review, the Executive
Directors had individually tailored annual bonus
performance targets that provided the potential to
earn up to 300% of base salary.
During 2007/08, the Committee reviewed and
The annual bonus opportunity was structured
made changes to two areas of remuneration for
Executive Directors – the discretionary bonus pool
and the additional bonus opportunity for
exceptional performance. Further details of these
changes are given below. The Committee also gave
extensive consideration to remuneration matters
associated with the proposed demerger of the
Group. Details of these arrangements will be
contained in the documentation to be sent to
shareholders in connection with this transaction.
in two distinct parts:
■
Bonus Opportunity: up to 100% of salary
The performance targets that applied to this part
of the Executive Directors’ annual bonus
opportunity are set out in Table 51.
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Directors’ remuneration report continued
Table 50
What are the Executive Directors salaries?
F W Salway
M F Greenslade
I D Ellis
M R Hussey
R J Akers
Current
From 1 July 2008
£625,000
£400,000
£420,000
£420,000
£360,000
£645,000
£414,000
£434,700
£434,700
£372,600
Table 51
What were the criteria for the Directors’ 2007/08 bonuses?
F W Salway
Total returns in excess of WACC Group profi t
Performance of all business units
Strategic Review
M F Greenslade
Total returns in excess of WACC Group profi t
Performance of Group support functions
Strategic Review
I D Ellis
Total returns in excess of WACC Group profi t
Trillium profi t
New business wins/opportunities
M R Hussey
Total returns in excess of WACC Group profi t
Investment performance
Business unit revenue profi t
R J Akers
Total returns in excess of WACC Group profi t
Investment performance
Business unit revenue profi t
Table 52
What were the targets for the Directors’ additional bonus opportunities?
Executive Directors
Performance Measures and Range
Additional Bonus
Managing Director
of the Retail Portfolio
2%–4% outperformance of the relevant Retail business total property
return (TPR) Benchmark1
0%–200%
Managing Director
of the London Portfolio
2%–4% outperformance of the relevant London business total property return (TPR)
Benchmark1. Delivery of major offi ce lettings at Ebbsfl eet Valley, Kent2
0%–200%
Chief Executive of
Land Securities Trillium
4%–6% annual return on total capital employed above Weighted Average
Cost of Capital (8%–13% above WACC for geared equity)
Chief Executive
and Finance Director
Aggregated performance of London and Retail Businesses and
Trillium relative to the above measures
0%–200%
0%–200%
1. The relevant sector benchmarks are provided by IPD and relate to ungeared total property return (refl ecting the increase in the value of all assets plus income streams arising from those assets in the year). IPD benchmarks are
generally acknowledged as the industry standard.
2. Applies only to major offi ce lettings in excess of 50,000 sq. ft. at Ebbsfl eet Valley, Kent, subject to profi tability criteria.
Table 53
What annual bonus was each Director awarded?
Executive Directors
Chief Executive
Group Finance Director
Managing Director of the Retail Portfolio
Managing Director of the London Portfolio
Chief Executive of Land Securities Trillium
Land Securities Annual Report 2008
Land Securities Annual Report 2008
% of year end salary
Total Bonus
earned 2007/08
Total Bonus
earned 2006/07
212
210
275
285
128
109
104
71
106
295
70
Directors’ remuneration report continued
The Committee calibrated the bonus targets so that
the achievement of a maximum payout under this
part of the bonus arrangements would represent
performance in excess of the Group budget and
individual targets. 25% of any bonus award is
compulsorily deferred into the Company’s shares for
a period of three years and receives a Matching
Award under the terms of the LTIP (see below).
Additional Bonus Opportunity: up to 200%
■
of salary
This part of Executive Directors’ annual bonus
opportunity is intended to reward exceptional
performance and value creation for shareholders.
The performance targets that applied during
2007/08 are set out in Table 52.
Total Property Return (TPR) was chosen as a
performance measure for the investment portfolio
element of the business because it is used both
internally and externally within the property sector
for measurement of relative performance. For the
Chief Executive of Land Securities Trillium, the
excess total return above the weighted average
cost of capital (WACC) was employed because it
remains a key measure of Land Securities Trillium’s
underlying fi nancial performance.
The Committee calibrated the bonus targets
that applied to this part of the Executive Directors’
bonus opportunity so that the performance
required was above that required for bonuses of up
to 100% of salary. To provide some context as to
the challenging nature of the performance targets,
the TPR conditions are based on more than 10 years
of historic data and require TPR performance to
fall broadly within the top 30th percentile of each
relevant Investment Property Databank (IPD)
performance benchmark if any additional bonus
is to be earned. The Committee considered the
performance targets set for the Chief Executive,
Land Securities Trillium to be as challenging as
these TPR targets.
This year, to refl ect Mike Hussey assuming
responsibility for the Ebbsfl eet Valley project in
Kent, an additional similarly challenging criterion
was introduced relating to the securing of major
offi ce lettings at that project, but this will not result
in the additional bonus opportunity exceeding
200% in a single year.
During 2007/08 the Committee decided to
adjust the requirement to carry forward both
under- and over-performance against the relevant
benchmarks into the next fi nancial year. Now a
payout for beating the IPD benchmark by more
than 2% is conditional upon the relative
Land Securities Annual Report 2008
performance in that year and the prior year
exceeding the IPD benchmark. For example:
■
In year 1 performance is 1% below the IPD
benchmark
In year 2 performance is 3% above the IPD
benchmark
Payout for year 2 is based on performance in
that year as the aggregate performance over the
two years is at least equal to the benchmark.
■
■
The Committee considers this approach provides a
greater individual incentive than targets recalibrated
annually based on historic performance. The
Committee’s objective in introducing the additional
bonus was to encourage a striving for material
outperformance every year.
Half of any bonus earned between 100% and
300% of salary during 2007/08 was compulsorily
deferred into the Company’s shares for a period of
three years which is considered highly retentive.
Any deferral under this part of the annual bonus
arrangements is not the subject of a matching
award under the LTIP.
In recognition of the strategic importance of
delivering the demerger of Land Securities Group
into three separate trading entities, the
Remuneration Committee is to apply alternative
stretching performance criteria to both the Group
Finance Director and Chief Executive’s additional
bonus opportunities in 2008/09.
These performance criteria are measurable
and include:
■
Achievement in relation to the budgeted costs
of the demergers
Achievement in relation to ongoing operational
costs of all three business areas
Delivery of process milestones to agreed
timescales
Other relevant criteria.
■
■
■
The Finance Director’s entire additional bonus
opportunity will be based on these revised criteria
with the Chief Executive retaining half his additional
bonus opportunity on the same conditions as for
2007/08 and half on the revised criteria above.
Alternative performance criteria, which are
demerger-related, will also apply for the Chief
Executive of Trillium in 2008/09. The criteria relate to
the value ascribed to Trillium as a separate company
and the conduct of the demerger of Trillium.
Other Executive Directors will remain on the
2007/08 targets, however, the Remuneration
Committee will retain discretion to apply more
appropriate targets related to the demerger if it
considers it appropriate to do so.
Following a successful demerger, the bonus payouts
will be up to 60% in cash with the balance paid in
shares over up to a further two years. This is
considered to provide a focused incentive over
the critical timeline to the anticipated demergers.
Any bonus payouts related to the revised
targets set out above or amendments to the
2007/08 targets for the other Executive Directors
would be fully disclosed and explained in the
relevant Prospectus or subsequent Directors’
Remuneration Report.
Executive Directors have also been eligible
to participate in a discretionary bonus pool for
all employees which, if applicable, is normally in
the range of 5-30% of salary. During 2007/08,
the Committee agreed that discretionary bonus
awards of up to 50% of salary may be granted
in exceptional circumstances within the maximum
of 130% of base salary for total annual bonus
(excluding the additional bonus for exceptional
performance). Such discretionary bonus payments
are subject to an overall cap of £750,000 for
payments to all Executive Directors in any one year.
It remains the Committee’s intention not to pay
aggregate annual bonuses in excess of 300% of salary.
The actual total bonus payouts, inclusive of
the additional bonus opportunity described above,
that were earned in respect of the two fi nancial
years ended 31 March 2007 and 2008 are set out
in Table 53.
Long-term incentives
Executive Directors participate in the Long-Term
Incentive Plan (LTIP) approved by Shareholders in
2005. The LTIP replaced the share option scheme
approved in 2002 and also replaced, from 2006/07,
the performance share matching plan, also
approved in 2002. No changes were made to the
operation of the LTIP in 2007/08. There is no
retesting in relation to long-term incentives for
Executive Directors.
The LTIP consists of the facility to make annual
awards of Performance Shares and Matching Shares.
LTIP Performance Shares
In the year under review, Executive Directors were
eligible to receive conditional awards of shares of
up to 100% of salary (Table 55).
LTIP Matching Shares
Matching share awards are linked to co-investment
by participants in shares (Table 55).
A Director’s investment can be made through
the deferral of an annual bonus award (with the
maximum permitted investment by this means of
25% of base salary). Investment can also be made
through the pledging of shares purchased in the
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Table 54
What Performance Shares vested this year? (audited)
F W Salway
I D Ellis
M R Hussey
R J Akers
*See Note 7 on page 72
Cycle
ending
Award
date
Market
price at
award
date (p)
Shares
awarded
Shares
vested
Vesting
date
2008
04/07/05
1405
21,234
21,234
04/07/08
2008
04/07/05
1405
17,536
17,536
04/07/08
2008
04/07/05
1405
14,600
14,600
04/07/08
2008
04/07/05
1405
8,228
8,228
04/07/08
Table 55
What LTIP and Matching Shares were awarded and vested this year?* (audited)
Cycle
ending
Award
date
Market
price at
award
date (p)
Shares
awarded
Shares
vested
Vesting
date
2008
2009
2010
2009
2010
2008
2009
2010
2009
2010
2008
2009
2010
2009
2010
2008
2009
2010
2009
2010
2008
2009
2010
2008
2008
2009
2010
29/07/05
29/06/06
29/06/07
31/07/06
31/07/07
29/07/05
29/06/06
29/06/07
31/07/06
31/07/07
29/07/05
29/06/06
29/06/07
31/07/06
31/07/07
29/07/05
29/06/06
29/06/07
31/07/06
31/07/07
28/09/05
29/06/06
29/06/07
30/09/05
01/06/06
31/07/06
31/07/07
1393
1767
1731
1973
1695
1393
1767
1731
1973
1695
1393
1767
1731
1973
1695
1393
1767
1731
1973
1695
1471
1767
1731
1479
1799
1973
1695
40,464
29,793
36,106
30,302
30,960
24,631
20,150
24,263
17,564
20,652
23,927
19,574
24,263
18,144
24,462
20,056
12,306
20,797
14,914
19,004
22,679
18,710
23,108
16,666
4,557
16,844
20,726
40,464
–
–
–
–
24,631
–
–
–
–
23,927
–
–
–
–
20,056
–
–
–
–
22,679
–
–
16,666
4,557
–
–
29/07/08
29/06/09
29/06/10
31/07/09
31/07/10
29/07/08
29/06/09
29/06/10
31/07/09
31/07/10
29/07/08
29/06/09
29/06/10
31/07/09
31/07/10
29/07/08
29/06/09
29/06/10
31/07/09
31/07/10
28/09/08
29/06/09
29/06/10
30/09/08
01/06/09
31/07/09
31/07/10
F W Salway
LTIP shares
Matching shares
I D Ellis
LTIP shares
Matching shares
M R Hussey
LTIP shares
Matching shares
R J Akers
LTIP shares
Matching shares
M F Greenslade
LTIP shares
Matching shares
*Subject to performance tests (see page 73).
Land Securities Annual Report 2008
72
Directors’ remuneration report continued
Table 56a
What emoluments did Directors receive? (£’000) (audited)
Basic
salary
and fees
Benefi ts1
Bonuses
Deferred
bonus shares2
Total emoluments
excluding pensions
2007/08
2007/08
2007/08
2006/07
2007/08
2006/07
2007/08
2006/07
Executive:
F W Salway
A M Collins (resigned 19 October 2006)
I D Ellis3
M R Hussey
R J Akers
M F Greenslade
Non-Executive:
P G Birch (Chairman to 1 January 2007)
D Rough
Sir Winfried Bischoff
Sir Stuart Rose
B A Lerenius
A J Carnwath
P Myners (appointed a Director on 1 September 2006
and Chairman on 1 January 2007)9
Total
619
–
413
413
355
385
2,185
–
77
65
55
55
55
250
2,742
22
–
18
19
19
17
95
–
–
–
–
–
–
110
205
791
–
451
686
563
501
536
146
669
338
190
282
535
–
87
509
428
340
2,992
2,161
1,899
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
119
49
483
74
52
71
848
–
–
–
–
–
–
–
1,967
–
969
1,627
1,365
1,243
7,171
–
77
65
55
55
55
360
1,268
457
1,546
803
582
702
5,358
194
69
58
50
50
50
80
2,992
2,161
1,899
848
7,838
5,909
Table 56b
What emoluments did Directors receive? (£’000) (audited)
Pensions
Performance
shares vested6
LTIP and matching
shares vested
Gain on exercise
of share options
2007/08
2006/07
2007/08
2006/07
2007/08
2006/07
2007/08
2006/07
Executive:
F W Salway
A M Collins (resigned 19 October 2006)
I D Ellis
M R Hussey4
R J Akers4
M F Greenslade4
Non-Executive:
P G Birch (Chairman to 1 January 2007)
D Rough
Sir Winfried Bischoff
Sir Stuart Rose
B A Lerenius
A J Carnwath
P Myners (appointed a Director on 1 September 2006
and Chairman on 1 January 2007)
155
–
103
103
97
96
554
–
–
–
–
–
–
–
148
95
95
131
136
131
736
–
–
–
–
–
–
–
315
–
260
217
122
–
914
–
–
–
–
–
–
–
271
–
599
398
53
–
601
–
366
355
298
652
1,321
2,272
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
190
–
–
–
–
190
–
–
–
–
–
–
–
Total
554
736
914
1,321
2,272
190
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
465
–
–
542
105
–
1,112
–
–
–
–
–
–
–
1,112
Notes:
1. Benefi ts consist of the provision of a company car or car allowance, private medical insurance and life assurance premiums.
2. Deferred bonus shares represent the value ascribed to shares awarded under the Deferred Bonus Plan. This therefore includes the deferred bonus shares to be awarded in July 2008 but vesting in July 2011.
3. I D Ellis received fees of £36,875 from Rok plc in respect of his Non-executive Directorship of that company.
4. The pension contributions for M R Hussey, R J Akers and M F Greenslade for 2006/07 contained additional contributions to correct a shortfall in respect of prior years.
5. Pensions of £61,902 (2007: £61,708) resulting from unfunded historic benefi t obligations were paid to former Directors or their dependants.
6. The Performance Share award for 2007/08 represents the value of shares that will vest as a result of performance targets satisfi ed during the year to 31 March 2008.
7. For awards made under the Performance Share Matching Plan, vesting of awards is equally dependent on the growth in EPS (defi ned to be normalised adjusted diluted EPS (NADEPS) and TPR measured over a three year period.
25% of the total award vests for NADEPS growth of 2.5% p.a. rising on a straight-line basis to 50% of the total award vesting for achieving NADEPS of 4% p.a. The remaining half of an award vests, dependent on the Company’s
TPR equalling, or exceeding, the IPD All Fund Universe Index over a rolling three year period.
8. The Committee determined that the long-term incentive awards made under the Performance Share Matching Plan in 2005, vested in full.
9. From 1 April 2007, the Company agreed to assume, from Marks & Spencer Group plc, the cost of supplying a driver (including all employment costs) and fl eet vehicle for Paul Myners. For 2007/08, the cost of this arrangement
to the Company was £110,081.
Land Securities Annual Report 2008
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market. Such additional investment is permitted to
bring the Director’s total investment to 50% of
base salary (for this purpose the value of pledged
shares is taken as the amount of gross salary that
would have been required to fund the purchase of
the shares). Accordingly, Executive Directors are
eligible to receive a matching award of shares under
the LTIP which is made at a ratio of up to 2 for 1 on
a gross to net tax basis (up to 100 shares for every
30 purchased out of net income). The maximum
Matching Share award is over shares with a value of
100% of salary.
conditions measured over three years. Half of any
award will vest based on achieving increases in
Normalised Adjusted Diluted Earnings Per Share
(NADEPS). The other half will vest dependent on
the Group’s TPR equalling, or exceeding, IPD
weighted indices that refl ect the sector mix of
Land Securities’ investment portfolio. The targets:
■
NADEPS Target
– Growth of RPI + 3% per annum – 12.5%
of the award vests;
– Growth of RPI + 5% per annum – 50%
of the award vests; and
Awards of LTIP Performance Shares and Matching
– Straight-line vesting occurs between
Shares are subject to the same performance
these points.
■
TPR target
– Performance equal to the sector weighted IPD
index – 12.5% of the award vests
– Performance equal to the sector weighted IPD
index plus 1% per annum – 50% of the initial
award vests
– Straight line vesting occurs between these points.
An overview example of the vesting range
is shown in Chart 60.
The Committee considers NADEPS and
TPR to be key long-term measures of the
Group’s performance.
Table 57
What options over ordinary shares do Directors have? (audited)
Granted during year
Exercised during year
No of
options
at
01/04/07
Note
(2)
(2)
(2)
(3)
(2)
(3)
(1)
(2)
(2)
(3)
(3)
43,065
34,375
41,759
2,546
23,727
1,726
10,500
7,750
11,500
1,392
1,075
Grant
price
(pence)
–
–
–
1,460
–
–
–
–
–
–
–
–
No
–
–
–
657
–
–
–
–
–
–
–
–
Exercise
price
(pence)
Market
price on
exercise
(pence)
No of
options
at
31/03/08
Exercise
price
(pence)
Exercisable
dates
–
–
–
650
–
–
–
–
–
–
–
–
–
43,065
1,159
07/2007-07/2014
–
–
1,690
–
–
–
–
–
–
–
–
34,375
41,759
657
23,727
1,726
10,500
7,750
11,500
747
645
788
1,159
1,460
1,159
957
869
788
1,159
957
1,523
07/2006-07/2013
07/2007-07/2014
10/2010-04/2011
07/2007-07/2014
10/2009-04/2010
07/2004-07/2011
07/2006-07/2013
07/2007-07/2014
10/2009-04/2010
09/2011-03/2012
1,075
1,523
09/2011-03/2012
No
–
–
–
2,546
–
–
–
–
–
–
–
–
F W Salway
I D Ellis
M R Hussey
R J Akers
M F Greenslade
Notes:
1. 2000 Executive Share Option Scheme. Vesting of awards is dependent on the Company’s growth in normalised adjusted EPS exceeding the growth in RPI by 2.5% per year.
2. 2002 Executive Share Option Scheme. Vesting of awards is dependent on the Company’s growth in normalised adjusted EPS exceeding the growth in RPI by at least 2.5% per year.
3. 2003 Savings Related Share Option Scheme. Not subject to performance conditions because it is available to all staff and HM Revenue & Customs’ rules do not permit performance conditions to be set out for this type of scheme.
The total number of options over ordinary shares held by F W Salway, I D Ellis, M R Hussey, R J Akers and M F Greenslade at 31 March 2008 was 43,065, 76,791, 25,453, 31,142 and 1,075 respectively. The total number of options over
ordinary shares held by all Directors at 31 March 2008 was 177,526.
The range of the closing middle market prices for Land Securities’ shares during the year was 1377p to 2198p. The middle market price on 31 March 2008 was 1485p.
Table 58
What interests in shares do Directors have?
Ordinary Shares
Deferred shares
LTIP
performance shares**
Matching Shares**
2008
2007
2008
2007
2008
2007
2008
2007
85,310
59,849
34,957
11,400
8,750
10,000
18,000
68,620
23,058
14,045
20,000
66,948
26,407
21,957
7,675
8,750
10,000
12,000
6,514
9,322
6,345
10,000
26,016
63,672
28,780
–
–
–
–
–
10,989
6,546
–
25,076
48,122
23,638
–
–
–
–
–
8,773
2,199
–
106,363
69,044
67,764
–
–
–
–
–
53,159
64,497
–
70,257
44,781
43,501
–
–
–
–
–
32,362
41,389
–
61,262
38,216
42,606
–
–
–
–
–
33,918
58,793
–
30,302
17,564
18,144
–
–
–
–
–
14,914
38,067
–
F W Salway
I D Ellis
M R Hussey
D Rough
Sir Winfried Bischoff
S A Rose
B A Lerenius
A J Carnwath
R J Akers
M F Greenslade
P Myners (appointed 1.09.07)*
* At date of appointment
** Subject to performance conditions (see page 73)
Land Securities Annual Report 2008
74
Directors’ remuneration report continued
Table 59
Defi ned benefi t pension scheme (audited)
Accrued
benefi t at
31 March 2008
£
Increase in
accrued
benefi ts
excluding
infl ation
£
Increase in
accrued
benefi ts
including
infl ation
£
Transfer value
of increase
in accrued
benefi t
excluding
infl ation
£
Transfer value
of accrued
benefi ts at
1 April 2007
£
Transfer value
of accrued
benefi ts at
31 March 2008
£
Increase in
transfer
value net
of directors’
contributions
£
R J Akers
24,918
1,879
2,754
26,723
224,387
352,679
124,940
The ‘Increase in transfer value net of Directors’ contributions’ differs from the ‘Transfer value of increase in accrued benefi t’ in that it refl ects changes in the transfer value assumptions and market conditions over the year less the
Directors’ own contributions to the pension scheme.
The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer values of the accrued entitlement in respect of qualifying service represents the value of
assets that the pension scheme would need to transfer to another pension provider on transferring the liability in respect of the Directors’ pension benefi ts that they earned in respect of qualifying service. They do not represent
sums payable to individual Directors and, therefore, cannot be added meaningfully to annual remuneration.
The maximum number of shares which could
potentially vest as a result of historic long-term
incentive awards and the number of shares which
vested in the fi nancial year are shown in Table 55. The
Group’s policy is to use market-purchased shares to
satisfy the vesting of LTIP Performance and Matching
Shares and for Deferred Share Awards. Future awards
are partially hedged through on-market share
purchases by an Employee benefi t Trust which held
1,336, 275 shares at 31 March 2008.
Share options
Land Securities has historically operated share
option arrangements for Executive Directors.
Vesting of share options was subject to
performance tests and was dependent on growth in
NADEPS exceeding RPI by at least 2.5% per annum.
Following the adoption of the LTIP in 2005/06, no
further awards of share options have been made to
the Executive Directors.
For grants made over the period 2000 to 2004,
the Committee determined that the required level
of increase in NADEPS was achieved and as a result
the executive share options granted during that
period are exercisable in full. Directors’ options
over ordinary shares are shown in Table 57.
Directors’ emoluments
Table 56a and 56b set out Directors’ emoluments for
the year under review and the fi nancial year ended
31 March 2008. The basis of disclosure is on an
‘accruals’ basis, that is the annual bonus and Deferred
Bonus Shares columns include the amount that will
be paid and awarded respectively for performance
achieved in the fi nancial year under review. The
Performance Shares 2007/08 column includes the
value of Performance Shares which will vest in July
2008 as a result of performance measured over a
three year period ended 31 March 2008.
Pensions
The Company operates a contributory money
purchase pension scheme which was introduced for
all staff joining the Group from 1 January 1999.
Prior to the introduction of the contributory money
purchase arrangement the Company provided
pension benefi ts on a defi ned benefi t basis.
Following a review of pension provision in light
of the tax changes that came into effect from
1 April 2006, it was decided that Executive
Directors would continue to be entitled to a
pension benefi t that is equivalent to 25% of their
base salary. Executive Directors have the fl exibility
Chart 60
What is the vesting range for LTIP Performance and Matching Shares?
1 Share
0.5 Shares NADEPS test
0.5 Shares IPD test
NADEPS Growth
>RPI
TPR Growth
= or >IPD
RPI+3% p.a. RPI+4.33% p.a. RPI+5% p.a.
0% p.a. 0.33% p.a. 1% p.a.
0.125 Shares 0.375 Shares 0.5 Shares
0.125 Shares 0.25 Shares 0.5 Shares
Land Securities Annual Report 2008
to determine how this 25% of salary benefi t is
used, as follows:
■
Pension contributions may be made into the
Land Securities contributory money purchase
scheme up to the personal level that is advised
plus a cash contribution on the balance
25% cash payment on base salary to invest
outside Land Securities pension arrangements
■
Richard Akers participates in a defi ned benefi t
pension scheme (Table 59) which was open to
property management and administration staff
until 31 December 1998. This scheme is designed
to provide, at normal retirement age, a pension of
1/60th of Pensionable Salary for each year of
pensionable service. The scheme also provides lump
sum death-in-service benefi ts on death before
normal retirement age of four times Pensionable
Salary and pension provision for dependants of
members. Only basic salary is treated as Pensionable
Salary. The benefi ts provided to Richard Akers are
based on a Pensionable Salary which is subject
to the statutory earnings cap. With effect from
1 April 2006 the defi ned benefi t pension scheme
has moved to future accrual on a ‘CARE’ (Career
Average Revalued Earnings) basis on either a 1/80th
accrual or 1/60th accrual subject to employee
contributions. Richard Akers chose to accrue benefi ts
on a 1/60th basis with employee contributions of
1% of basic salary in 2006, 3% of basic salary in
2007 and 5% of basic salary thereafter.
The balance of Richard Akers’ pension allowance
is paid to him to invest outside Land Securities
pension arrangements.
As disclosed in last year’s Directors’
remuneration report, the changes made to pension
provision in 2006/07 did not provide a tax
advantage to Executives and the changes made
were cost neutral to the Company.
Non-executive Directors
The annual fees of the Chairman of the Board are
determined by the Committee having regard to
independent advice. The other Non-executive
Directors’ remuneration report continued
Directors each receive a fee agreed by the Board
following a review of fees paid by comparable
organisations. The Board also takes into account the
time commitments of the Non-executive Directors,
which are reviewed annually as part of the Board
appraisal process.
No increases in Non-Executive Directors’ fees
were awarded during the year under review since
as part of a review of such fees in 2006/07 it was
agreed to maintain the level of fees for a period of
two years. The base Non-executive Directors’ fee
remained at £55,000. No additional fees are
payable for attendance at Board or Committee
meetings or for membership of Board Committees,
but the additional fees outlined below are payable
in respect of specifi c responsibilities:
Service agreements
The Committee’s policy on service agreements for
Executive Directors is that they should provide for
12 months’ rolling notice of termination by the
Company. As a result, the unexpired term and the
notice periods (both from the Company and from
the Executive Director) are 12 months and there
are no service contracts with provisions for
predetermined compensation on termination which
exceeds 12 months’ salary and benefi ts in kind. Any
proposals for the early termination of the service
agreements of Directors or senior executives are
considered by the Committee.
The dates of appointment and the dates of the
service agreements of the Executive Directors are in
Table 62.
75
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The Chairman and the other Non-executive
Directors do not have service agreements with
the Company.
Board approval is required before any
external appointment may be accepted by
an Executive Director. Any fees earned in relation
to outside appointments are retained by the
Executive Director.
Directors’ shareholdings
The interests of the Directors in the shares of the
Company as at 31 March are shown in Table 58.
There have been no changes in the
shareholdings of the Directors between the end of
the fi nancial year and 13 May 2008, save that on
1 May 2008 Alison Carnwath acquired 59 shares
under the Company’s Dividend Reinvestment Plan.
No Director had any other interests in contracts or
securities of Land Securities Group PLC or any of its
subsidiary undertakings during the year.
Shareholding guidelines
The Committee believes that it is important for
a signifi cant part of the compensation of each
Executive Director to be tied to ownership of the
Company’s shares so that each Executive Director’s
interest in the growth and performance of the
Company is closely aligned with the interests of
our shareholders. The Committee has, therefore,
established share ownership guidelines for the
Company’s Executive Directors. These guidelines
require the Chief Executive to own shares with a
value equal to twice his base salary and for other
Executive Directors to own shares with a value
equal to 1.5 times their base salary. An Executive
Director must normally satisfy the guidelines within
fi ve years of his date of appointment or the date of
introduction of this requirement in order to qualify
for future awards of long-term incentives.
Table 62
When were the Executive Directors appointed?
Name
Date of
appointment*
Date of
contract
F W Salway
2 April 2001
31 May 2005
M F Greenslade 1 September 2005 1 September 2005
I D Ellis
20 November 2002 28 January 2003
M R Hussey
30 September 2004 1 January 2006
R J Akers
17 May 2005
17 May 2005
* Date of appointment to the Board of Land Securities Group PLC or its
predecessor company, Land Securities PLC.
The service agreements of the Executive Directors
provide for phased payments of amounts payable
on termination, in order to mitigate amounts
potentially payable by the Company. Bonus, LTIP,
redundancy and outplacement payments are
considered by the Committee and are dependent
on the circumstances of leaving and the rules
of the relevant bonus and incentive schemes.
Chart 63
What is the total shareholder return produced by the Company?
400
350
300
250
200
150
100
03
04
05
06
07
08
Land Securities Group PLC
FTSE All-Share Real Estate Index
FTSE 100 Index
Source: Thomson Financial
Chair of Audit Committee
Chair of Remuneration Committee
Senior Independent Director
£15,000
£10,000
£7,500
Sir Christopher Bland serves as Non-executive
Chairman of Trillium and receives additional fees
of £100,000 per annum in respect of this role.
Neither the Chairman nor the other Non-executive
Directors receive any pension benefi ts from the
Company, nor do they participate in any bonus
or incentive schemes. Non-executive Directors
are appointed under letters of appointment which
provide for an initial term of service of three years.
A specimen letter of appointment is available on
the Company’s website at www.landsecurities.com
The dates of the current letters of appointment of
the Non-executive Directors are shown in Table 61.
The appointment of the Non-executive
Directors can be terminated upon one month’s
notice while the appointment of the Chairman
can be terminated upon three months’ notice.
Table 61
When were the Non-executive
Directors appointed?
Date
of current
letter of
appointment* appointment
Date of
2 April 2002
29 April 2004
Name
D Rough
Sir Stuart Rose
21 May 2003
29 April 2004
B A Lerenius
1 June 2004
6 May 2004
A J Carnwath 1 September 2004
7 June 2004
P Myners
1 September 2006
20 Sept 2006
Sir Christopher
Bland
R N
Haythornthwaite
1 April 2008
9 April 2008
1 April 2008
24 April 2008
K O’Byrne
1 April 2008
9 April 2008
* Date of appointment to the Board of Land Securities Group PLC or its
predecessor company, Land Securities PLC.
Sir Winfried Bischoff was appointed to the Board on 1 November 1999
and retired from the Board on 1 April 2008.
Land Securities Annual Report 2008
76
Directors’ remuneration report continued
In May 2007, the Committee determined that
Francis Salway and Ian Ellis had met the revised
share ownership guidelines and in May 2008 the
Committee agreed that Mike Hussey had met the
revised guidelines. The Committee continues to
monitor the other Executive Directors’ progress
against the guidelines on an annual basis.
In addition, Non-executive Directors are
required to own shares with a value equal to
their annual fees within three years of the date
of their appointment.
Information regarding senior managers
below Board level
The Group currently employs 34 senior managers
in positions below Board level. None of these senior
managers is paid at a rate higher than the Executive
Directors and the structure of their remuneration
package, including bonuses, is broadly consistent
with that of Executive Directors. The senior
managers are not eligible to participate in the
additional bonus opportunity (that is above 100%
of salary) for the delivery of exceptional fi nancial
returns described in this report but they are eligible
to participate in the discretionary bonus pool of
up to 50% of salary. During the year under review,
bonuses for this group of employees ranged from
51% to 106% of salary, with an average bonus of
72% of salary.
Performance graphs
As required by legislation covering the Directors’
remuneration report, Chart 63 illustrates the
performance of the Company measured by total
shareholder return (share price growth plus
dividends paid) against a ‘broad equity market
index’ over a period of fi ve years. As the Company
is a constituent of the FTSE All Share Real Estate
sector this index is considered to be the most
appropriate benchmark for the purposes of the graph.
The Committee also considered that it would
be helpful to provide an additional line to illustrate
performance compared with the FTSE 100 index
over the previous fi ve years of the Company
(Chart 63).
Signed for and on behalf of the Board by
Alison Carnwath
Directors’ indemnities
On 5 May 2006 the Company agreed in writing to
indemnify each of the Directors against any liability
incurred by the Director in respect of acts or
omissions arising in the course of their offi ce.
The indemnity only applies to the extent permitted
by law. A copy of the deed of indemnity is available
for inspection at the registered offi ce and at the
Annual General Meeting.
Auditors and disclosure of
information to auditors
So far as the Directors are aware, there is no
relevant audit information of which the auditors are
unaware and each Director has taken all reasonable
steps to make himself or herself aware of any relevant
audit information and to establish that the auditors
are aware of that information.
A resolution to reappoint
PricewaterhouseCoopers LLP as auditors to
the Company will be proposed at the Annual
General Meeting.
Provisions on change of control
There are a number of agreements which take
effect, alter or terminate upon a change of control;
none of these are considered signifi cant in relation
to the Company. The Company’s share schemes
contain provisions which take effect in the event
of a change of control. The provisions in relation
to share schemes do not entitle participants to a
greater interest in the shares of the Company than
that created by the initial grant or award under the
relevant scheme.
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
are contested. The effect of the Group’s payment
policy is that its trade creditors at the fi nancial year
end represented seven days’ purchases.
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 which accompanies the Notice.
By order of the Board
P M Dudgeon
Secretary
13 May 2008
Report of the Directors
– Additional disclosures
Share capital
The company was authorised at the Annual General
Meeting held on 17 July 2007 to repurchase in
the market ordinary shares representing up to
approximately 10% of the issued share capital
at that time with such authority to expire at the
2007 Annual General Meeting. 4,671,000 shares
were repurchased in the year to 31 March 2008.
A resolution to renew this authority in respect
of up to approximately 10% of the issued share
capital will be proposed at the 2008 Annual
General Meeting.
Substantial shareholders
At 13 May 2008 the interests in issued share capital
which had been notifi ed to the Company under Part
VI of the Companies Act 1985 are shown in Table 64.
Table 64
Which shareholders own over 3% of the Company’s shares?
Barclays plc/Barclays
Global Investors
Legal and General Investment
Management Limited
M&G Investment
Management Limited
ABP Investments
Number
of shares
27,835,730
20,764,132
16,943,210
16,697,313
%
5.99
4.47
3.64
3.59
Land Securities Annual Report 2008
77
24 Retail Portfolio
34 London Portfolio
44 Trillium
52 Board of Directors
54 Corporate responsibility
62 Corporate governance
66 Directors’ remuneration report
78
79
80
80
Directors’ statements
of responsibilities
Independent auditors’ report
Income statement
Statement of recognised income
and expense
81 Balance sheets
82 Cashfl ow statements
83 Notes to the fi nancial statements
F
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Investor information
120 Five year summary
121 Business analysis
129
130 Glossary
131
132
Index
Contact details
4 All you need to know
6 Performance overview
8 Chairman’s statement
10 Chief Executive’s report
13
14 Financial review
20 Business review
22
Benefi ts of demerger
Our risks and how we
manage them
Report of the Directors
Report from the Directors on
the key strategic, fi nancial and
operational developments during
the year.
Financial Statements
Statements presenting the
essential numbers, including the
independent auditors’ report.
Investor Information
Summaries, analysis and
information on properties,
contracts and related subjects
for shareholders.
Land Securities Annual Report 2008
78
Directors’ statements of responsibilities
in respect of the Annual Report, the Directors’ remuneration report and the fi nancial statements
The Directors are responsible for preparing the
Annual Report, the Directors’ remuneration
report and the fi nancial statements in accordance
with applicable law and regulations.
The Directors are required by company law
to prepare fi nancial statements for each fi nancial
year. Under that law the Directors have prepared
the Group and Parent Company fi nancial
statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted
by the European Union. The fi nancial statements
are required by law to give a true and fair view
of the state of affairs of the Company and of the
Group as at the end of the fi nancial year and of
their profi t or loss for that period.
In preparing those fi nancial statements,
the Directors are required to: select suitable
accounting policies and then apply them
consistently; make judgements and estimates
that are reasonable and prudent; and state that
the fi nancial statements comply with IFRS as
adopted by the European Union.
It is also the responsibility of the Directors to
prepare the fi nancial statements on the going
concern basis unless it is inappropriate to presume
that the Company and the Group will continue in
business in which case there should be supporting
assumptions or qualifi cations as necessary.
The Directors confi rm that they have complied
with the above requirements in preparing the
fi nancial statements.
The Directors are responsible for keeping
proper accounting records that disclose with
reasonable accuracy at any time the fi nancial
position of the Company and the Group and
to enable them to ensure that the fi nancial
statements and the Directors’ remuneration
report comply with the Companies Act 1985 and,
as regards the Group fi nancial statements, Article
4 of the IAS Regulation. They are also responsible
for safeguarding the assets of the Company and
of the Group and hence for taking reasonable
steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the
maintenance and integrity of the Land Securities
Group PLC website, and legislation in the UK
governing the preparation and dissemination of
fi nancial statements may differ from legislation
in other jurisdictions.
By order of the Board
P M Dudgeon
Secretary
13 May 2008
Land Securities Annual Report 2008
Opinion
In our opinion:
■
the Group fi nancial statements give a true and
fair view, in accordance with IFRSs as adopted by
the European Union, of the state of the Group’s
affairs as at 31 March 2008 and of its loss and
cash fl ows for the year then ended;
the Parent Company fi nancial statements give
a true and fair view, in accordance with IFRSs
as adopted by the European Union as applied
in accordance with the provisions of the
Companies Act 1985, of the state of the Parent
Company’s affairs as at 31 March 2008 and of
its cash fl ows for the year then ended;
the fi nancial statements and the part of the
Directors’ remuneration report to be audited
have been properly prepared in accordance with
the Companies Act 1985 and as regards the
Group fi nancial statements, Article 4 of the
IAS Regulation; and
the information given in the ‘Report of the
Directors’ is consistent with the fi nancial
statements.
■
■
■
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
13 May 2008
79
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We review whether the Corporate governance
statement refl ects the Company’s compliance
with the nine provisions of the Combined Code
(2006) specifi ed for our review by the Listing
Rules of the Financial Services Authority, and
we report if it does not. We are not required
to consider whether the Board’s statements
on internal control cover all risks and controls,
or form an opinion on the effectiveness of the
group’s corporate governance procedures or its
risk and control procedures.
We read other information contained in the
Annual Report and consider whether it is
consistent with the audited fi nancial statements.
The other information comprises only the ‘Report
of the Directors’ and the items listed under the
heading ‘Investor Information’ on page 129.
We consider the implications for our report if we
become aware of any apparent misstatements
or material inconsistencies with the fi nancial
statements. Our responsibilities do not extend
to any other information.
Basis of audit opinion
We conducted our audit in accordance with
International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures
in the fi nancial statements and the part of the
Directors’ remuneration report to be audited.
It also includes an assessment of the signifi cant
estimates and judgements made by the Directors
in the preparation of the fi nancial statements,
and of whether the accounting policies are
appropriate to the Group’s and 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 suffi cient evidence to give reasonable
assurance that the fi nancial statements and the
part of the Directors’ remuneration report to be
audited are free from material misstatement,
whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated
the overall adequacy of the presentation of
information in the fi nancial statements and
the part of the Directors’ remuneration report
to be audited.
Independent auditors’ report
to the members of Land Securities Group PLC
We have audited the Group and Parent Company
fi nancial statements (the fi nancial statements)
of Land Securities Group PLC for the year ended
31 March 2008 which comprise the Group
Income Statement, the Group and Parent
Company balance sheets, the Group and Parent
Company Cash Flow Statements, the Group
Statement of Recognised Income and Expense
and the related notes. These fi nancial statements
have been prepared under the accounting policies
set out therein. We have also audited the
information in the Directors’ remuneration report
that is described as having been audited.
Respective responsibilities of Directors
and auditors
The Directors’ responsibilities for preparing the
Annual Report, the Directors’ remuneration
report and the fi nancial statements in accordance
with applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the
European Union are set out in the Directors’
statements of responsibilities on page 78.
Our responsibility is to audit the fi nancial
statements and the part of the Directors’
remuneration report to be audited in accordance
with relevant legal and regulatory requirements
and International Standards on Auditing (UK and
Ireland). This report, including the opinion, has
been prepared for and only for the Company’s
members as a body in accordance with Section
235 of the Companies Act 1985 and for no other
purpose. We do not, in giving this opinion, accept
or assume responsibility for any other purpose or
to any person to whom this report is shown or
into whose hands it may come, other than the
Company and the Company’s members as a body,
save where expressly agreed by our prior consent
in writing.
We report to you our opinion as to whether
the fi nancial statements give a true and fair view
and whether the fi nancial statements and the
part of the Directors’ remuneration report to
be audited have been properly prepared in
accordance with the Companies Act 1985,
and as regards the Group fi nancial statements,
Article 4 of the IAS Regulation. We also report
to you whether, in our opinion, the information
given in the Report of the Directors is consistent
with the fi nancial statements.
The information given in the Directors’ Report
comprises the items listed under the heading
‘Report of the Directors’ on pages 4 to 76.
In addition we also report to you if, in our
opinion, the company has not kept proper
accounting records, if we have not received all the
information and explanations we require for our
audit, or if information specifi ed by law regarding
Directors’ remuneration and other transactions is
not disclosed.
Land Securities Annual Report 2008
80
Income statement
for the year ended 31 March 2008
Group
Group revenue*
Costs
Profi t on disposal of non-current properties
Net (defi cit)/surplus on revaluation of investment properties
Operating (loss)/profi t
Interest expense
Interest income
Share of the loss of an associate undertaking (post-tax)
Share of the (loss)/profi t of joint ventures (post-tax)
(Loss)/profi t before tax
Income tax credit/(expense)
(Loss)/profi t for the fi nancial year from continuing activities
Discontinued operations
(Loss)/profi t for the fi nancial year attributable to equity shareholders
(Loss)/earnings per share
Basic (loss)/earnings per share**
Diluted (loss)/earnings per share**
*Group revenue excludes the share of joint ventures’ income of £111.6m (2007: £81.6m) (see note 19).
**adjusted earnings per share is given in note 11.
Statement of recognised income and expense
for the year ended 31 March 2008
Before
exceptional
items
£m
1,561.2
(958.6)
602.6
75.4
(1,170.3)
(492.3)
(324.4)
29.4
(787.3)
(0.5)
(101.0)
(888.8)
10.5
(878.3)
47.5
(830.8)
Exceptional
items
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes
4
4
4
4
6
6
18
19
4
9
23
33
11
11
2008
Total
£m
1,561.2
(958.6)
602.6
75.4
(1,170.3)
(492.3)
(324.4)
29.4
(787.3)
(0.5)
(101.0)
(888.8)
10.5
(878.3)
47.5
(830.8)
(188.80p)
(188.80p)
Before
exceptional
items
£m
1,641.1
(1,046.2)
594.9
118.2
1,307.6
2,020.7
(257.3)
36.4
1,799.8
–
81.3
1,881.1
(445.0)
1,436.1
–
1,436.1
Exceptional
items
£m
–
–
–
–
–
–
–
–
–
–
98.0
98.0
1,994.2
2,092.2
–
2,092.2
2007
Total
£m
1,641.1
(1,046.2)
594.9
118.2
1,307.6
2,020.7
(257.3)
36.4
1,799.8
–
179.3
1,979.1
1,549.2
3,528.3
–
3,528.3
753.59p
750.54p
Group
Actuarial gains/(losses) on defi ned benefi t pension schemes
Deferred tax (charge)/credit on actuarial (gains)/losses on defi ned benefi t pension schemes
Fair value movement on cashfl ow hedges taken to equity – Group
Deferred tax on fair value movement on cashfl ow hedges taken to equity – Group
– joint ventures
– joint ventures
Net income recognised directly in equity
(Loss)/profi t for the fi nancial year
Total recognised income and expense attributable to equity shareholders
Company
The Company has no recognised income or expense other than that recognised in the income statement (see note 33).
2008
£m
15.8
(0.9)
(3.2)
(3.5)
–
–
2007
£m
(1.3)
1.0
6.7
11.8
(1.6)
(2.3)
8.2
(830.8)
(822.6)
14.3
3,528.3
3,542.6
Land Securities Annual Report 2008
Balance sheets
at 31 March 2008
Non-current assets
Investment properties
Operating properties
Other property, plant and equipment
Net investment in fi nance leases
Goodwill
Investments in subsidiary undertakings
Investments in Public Private Partnerships
Investment in an associate undertaking
Investments in joint ventures
Net pension benefi t assets
Total non-current assets
Current assets
Trading properties and long-term development contracts
Derivative fi nancial instruments
Trade and other receivables
Cash and cash equivalents
Total current assets (excluding non-current assets classifi ed as held for sale)
Non-current assets classifi ed as held for sale
Total current assets
Total assets
Current liabilities
Short-term borrowings and overdrafts
Derivative fi nancial instruments
Trade and other payables
Provisions
Current tax liabilities
Total current liabilities (excluding liabilities directly associated with
non-current assets classifi ed as held for sale)
Liabilities directly associated with non-current assets classifi ed as held for sale
Total current liabilities
Non-current liabilities
Provisions
Borrowings
Net pension benefi t obligations
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Ordinary shares
Own shares
Share-based payments
Share premium
Capital redemption reserve
Merger reserve
Retained earnings
Total shareholders’ equity
81
F
i
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c
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t
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m
e
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t
s
2008
£m
12,296.7
544.8
73.6
12,915.1
333.7
148.6
–
25.4
42.9
1,410.6
11.0
Notes
13
13
13
13
14
15
16
17
18
19
28
14,887.3
15,679.8
173.0
4.3
838.0
48.4
1,063.7
664.1
1,727.8
Group
2007
£m
13,319.3
551.5
78.2
13,949.0
262.4
129.6
–
–
–
1,338.8
–
148.3
14.6
641.8
52.7
857.4
2,420.3
3,277.7
2008
£m
–
–
–
–
–
–
5,054.6
–
–
–
–
5,054.6
–
–
386.2
69.5
455.7
–
455.7
Company
2007
(restated)
£m
–
–
–
–
–
–
5,049.6
–
–
–
–
5,049.6
–
–
5.5
5.0
10.5
–
10.5
16,615.1
18,957.5
5,510.3
5,060.1
(794.0)
(10.7)
(927.2)
(40.9)
(161.0)
(1,683.2)
–
(783.9)
(19.5)
(535.8)
(1,933.8)
(427.7)
(3,022.4)
(1,601.0)
(2,361.5)
(4,623.4)
(36.7)
(4,632.5)
–
(1.5)
(61.2)
(3,472.0)
(5.6)
(4.0)
(4,670.7)
(3,542.8)
–
–
(874.7)
–
(2.4)
(877.1)
–
(877.1)
–
–
–
–
–
(61.9)
–
(50.8)
–
(0.7)
(113.4)
–
(113.4)
–
–
–
–
–
(7,032.2)
(8,166.2)
(877.1)
(113.4)
9,582.9
10,791.3
4,633.2
4,946.7
20
27
21
22
23
24
27
25
26
23
26
27
28
29
31, 33
33
33
33
33
33
33
47.1
(22.3)
11.3
56.6
30.5
–
9,459.7
47.0
(14.5)
7.9
51.5
30.5
–
10,668.9
9,582.9
10,791.3
47.1
–
17.5
56.6
30.5
373.6
4,107.9
4,633.2
47.0
–
12.5
51.5
30.5
373.6
4,431.6
4,946.7
The fi nancial statements on pages 80 to 118 were approved by the Board of Directors on 13 May 2008 and were signed on its behalf by:
F W Salway
Directors
M F Greenslade
Land Securities Annual Report 2008
82
Cashfl ow statements
for the year ended 31 March 2008
Group
Net cash generated from operations
Cash generated from operations
Interest paid
Interest received
Employer contributions to pension scheme
Taxation (corporation tax paid)
Net cash (outfl ow)/infl ow from operations
Cashfl ows from investing activities
Investment property development expenditure
Acquisition of investment properties
Other investment property related expenditure
Acquisition of properties by Trillium
Capital expenditure by Trillium
Capital expenditure on properties
Disposal of non-current investment properties
Disposal of non-current operating properties
Net expenditure on properties
Net expenditure on non-property related non-current assets
Net cash outfl ow from capital expenditure
Receivable fi nance leases acquired
Receipts in respect of receivable fi nance leases
Receipts from the disposal of discontinued activities
Net loans (to)/from joint ventures and cash contributed
Distributions from joint ventures
Acquisition of PPP investments
Net cash received from/(advanced to) disposal group
Acquisitions of Group undertakings (net of cash acquired)
Net cash received from/(used in) investing activities
Cashfl ows from fi nancing activities
Issue of shares
Purchase of own share capital
Increase in debt
Decrease in fi nance leases payable
Dividends paid to ordinary shareholders
Net cash (outfl ow)/infl ow from fi nancing activities
(Decrease)/increase in cash and cash equivalents for the year
Company
Net cash generated from operations
Cash generated from operations
Interest paid
Interest received
Taxation (corporation tax received)
Net cash infl ow from operations
Cashfl ows from fi nancing activities
Issue of shares
Dividends paid to ordinary shareholders
Net cash used in fi nancing activities
Increase/(decrease) in cash and cash equivalents for the year
Land Securities Annual Report 2008
Notes
34
2008
£m
2008
£m
2007
£m
2007
£m
696.5
(338.3)
10.7
(2.0)
(367.7)
682.4
(237.5)
12.4
(3.9)
(91.9)
(0.8)
(415.3)
(722.6)
(80.0)
(158.3)
(35.0)
(1,411.2)
1,047.0
33.7
(330.5)
(15.4)
(345.9)
(82.1)
0.8
424.9
(75.3)
75.1
(8.2)
296.5
(158.5)
127.3
5.2
(87.6)
260.6
(2.0)
(308.4)
(132.2)
(5.7)
361.5
(429.4)
(523.7)
(77.2)
(416.5)
(26.0)
(1,472.8)
841.0
28.8
(603.0)
(18.8)
(621.8)
(43.3)
3.8
–
10.8
39.2
–
(372.6)
(521.4)
(1,505.3)
8.4
(36.2)
1,433.9
(2.2)
(223.0)
1,180.9
37.1
2008
£m
2008
£m
2007
£m
433.2
(26.6)
14.7
8.3
429.6
2007
£m
184.4
(3.4)
5.7
–
186.7
5.2
(308.4)
(303.2)
126.4
8.4
(223.0)
(214.6)
(27.9)
37
10
Notes
34
10
Notes to the fi nancial statements
for the year ended 31 March 2008
1. Basis of preparation
These fi nancial statements have been prepared in
accordance with International Financial Reporting
Standards (IFRS) and International Financial Reporting
Interpretations Committee (IFRIC) interpretations as
adopted by the European Union (EU) and with those
parts of the Companies Act 1985 applicable to
companies reporting under IFRS. The fi nancial
statements have been prepared in Sterling (rounded
to the nearest hundred thousand), which is the
presentation currency of the Group, and under the
historical cost convention as modifi ed by the
revaluation of land and buildings, available for sale
investments, derivative fi nancial instruments and
fi nancial assets and liabilities held for trading. A
summary of the more important Group accounting
policies which have been applied consistently across
the Group is set out in note 2 below.
The accounting policies are consistent with those
applied in the year ended 31 March 2007, as amended
to refl ect the adoption of the new Standards,
Amendments to Standards and Interpretations which
are mandatory for the year ended 31 March 2008. In
most cases, these new requirements are not relevant
for the Group. This is the case for, IFRIC 7 ‘Applying
the Restatement Approach under IAS 29 Financial
Reporting in Hyperinfl ationary Economies’, IFRIC 8
‘Scope of IFRS 2’, IFRIC 9 ‘Reassessment of Embedded
Derivatives’, and IFRIC 10 ‘Interim Financial Reporting
and Impairment’. However, the effect of adopting IFRS 7
‘Financial Instruments: Disclosures’ and the
complementary amendment to IAS1 ‘Presentation
of fi nancial statements – capital disclosures’ was to
introduce additional disclosures in respect of fi nancial
instruments. Adoption of the standard has not had
any impact on the classifi cation and valuation of the
Group’s or Company’s fi nancial instruments. Although
there has been no effect on the Group’s results,
adoption of IFRIC 11 ‘IFRS 2 – Group and Treasury Share
Transactions’ has resulted in a prior year adjustment,
the effect of which has been to increase the net assets
of the Company at 1 April 2006 by £6.9m.
The following new Standards and Interpretations
have been issued but are not effective for the year
ended 31 March 2008, and have not been adopted
early, IFRS 8 ‘Operating Segments’, IFRS 3 (revised)
‘Business Combinations’, IFRIC 12 ‘Service Concession
Arrangements’ and IFRIC 14 ‘IAS 19 The limit on a
defi ned benefi t asset, minimum funding requirements
and their interaction’. It is anticipated that the adoption
of these new Standards and Interpretations in future
periods will not have a material impact on the
measurement of assets and liabilities included in
the fi nancial statements or the Group’s income
and expenses.
The preparation of fi nancial statements in
conformity with generally accepted accounting
principles requires the use of estimates and
assumptions that affect the reported amounts of assets
and liabilities at the date of the fi nancial statements
and the reported amounts of revenues and expenses
during the reporting period. Although these estimates
are based on management’s best knowledge of the
amount, event or actions, actual results ultimately
may differ from those estimates.
2. Signifi cant accounting policies
(a) Basis of consolidation
The consolidated fi nancial statements for the year
ended 31 March 2008 incorporate the fi nancial
statements of Land Securities Group PLC (the Company)
and all its subsidiary undertakings (the Group).
Subsidiary undertakings are those entities controlled
by the Company. Control exists when the Company has
the power, directly or indirectly, to govern the fi nancial
and operating policies of an entity so as to obtain
benefi ts from its activities. The fi nancial statements of
subsidiaries are included in the consolidated fi nancial
statements from the date that control commences and
until the date control ceases.
Joint ventures are those entities over whose
activities the Group has joint control, established by
contractual agreement. Associates are those entities
over which the Group has signifi cant infl uence, but
which are neither subsidiaries nor joint ventures.
Interests in joint ventures are accounted for using
the equity method of accounting as permitted by
IAS 31 ‘Interests in joint ventures’ and following
the procedures for this method set out in IAS 28
‘Investments in associates’. Associates are also
accounted for using the equity method. The equity
method requires the Group’s share of the joint ventures’
and associate’s post-tax profi t or loss for the period to be
presented separately in the income statement and the
Group’s share of the joint ventures’ and associates’ net
assets to be presented separately in the balance sheet.
Intra-group balances and any unrealised gains
and losses arising from intra-group transactions are
eliminated in preparing the consolidated fi nancial
statements. Unrealised gains arising from transactions
with joint ventures or associates are eliminated to the
extent of the Group’s interest in the joint venture or
associate concerned. Unrealised losses are eliminated
in the same way, but only to the extent that there is
no evidence of impairment.
(b) Acquisitions and business combinations
Where properties are acquired through corporate
acquisitions and there are no signifi cant assets or
liabilities other than property, the acquisition is treated
as an asset acquisition. In all other cases the acquisition
is accounted for as a business combination, in which
case, the assets and liabilities of a subsidiary or joint
venture are measured at their estimated fair value at
the date of acquisition or, in the case of non-current
assets and disposal groups acquired with a view to
resale, at the lower of cost and fair value less costs to
sell (see (k) below). The cost of acquisition is measured
at the fair value of the consideration given together
with any liabilities incurred or assumed at the date of
acquisition, plus costs directly attributable to the
acquisition. The excess of the cost of acquisition over
the fair value of the Group’s share of the identifi able
net assets acquired is recorded as goodwill.
(c) Segment reporting
A business segment is a group of assets and operations
engaged in providing products or services that are
subject to risks and returns that are different from
those of other business segments. The Group is
organised into business segments.
Unallocated expenses are costs incurred centrally
which are neither directly attributable nor reasonably
allocatable to individual segments. Unallocated assets
are cash and cash equivalents. Unallocated liabilities
include short-term borrowings and overdrafts, and
certain non-current liabilities (borrowings, net pension
benefi t obligations and deferred tax liabilities).
(d) Investment properties
Investment properties are those properties, either
owned by the Group or where the Group is a lessee
under a fi nance lease, that are held either to earn rental
income or for capital appreciation or both. In addition,
properties held under operating leases are accounted
for as investment properties when the rest of the
defi nition of an investment property is met. In such
cases, the operating leases concerned are accounted
for as if they were fi nance leases.
Investment properties are measured initially at
cost, including related transaction costs. After initial
recognition at cost, investment properties are carried
at their fair values based on market value determined
by professional external valuers at each reporting date.
Properties are treated as acquired at the point when
the Group assumes the signifi cant risks and returns of
ownership and as disposed when these are transferred
to the buyer. Additions to investment properties consist
of costs of a capital nature and, in the case of
investment properties under development, capitalised
interest. Certain internal staff and associated costs
directly attributable to the management of major
schemes during the construction phase are also
capitalised.
The difference between the fair value of an
investment property at the reporting date and its
carrying amount prior to remeasurement is included in
the income statement as a valuation gain or loss. When
the Group begins to redevelop an existing investment
property for continued future use as an investment
property, the property remains an investment property
and is accounted for as such.
When the Group begins to redevelop an existing
investment property with a view to sell, the property is
transferred to trading properties and held as a current
asset. The property is remeasured to fair value as at
the date of the transfer with any gain or loss being
taken to the income statement. The remeasured
amount becomes the deemed cost at which the
property is then carried in trading properties.
Property that is being constructed or developed for
future use as an investment property, but which has
not previously been classifi ed as such, is classifi ed as
investment property under development within
property, plant and equipment. This is recognised
initially at cost but is subsequently remeasured to
fair value at each reporting date. Any gain or loss on
remeasurement is taken direct to equity unless any loss
in the period exceeds any net cumulative gain
previously recognised in equity. In the latter case, the
amount by which the loss in the period exceeds the net
cumulative gain previously recognised is taken to the
income statement. On completion, the property is
transferred to investment property with any fi nal
difference on remeasurement accounted for in
accordance with the foregoing policy.
83
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Land Securities Annual Report 2008
84
Notes to the fi nancial statements continued
2. Signifi cant accounting policies continued
(d) Investment properties continued
Gross borrowing costs associated with direct
expenditure on properties under development or
undergoing major refurbishment are capitalised. The
interest capitalised is calculated using the Group’s
weighted average cost of borrowings after adjusting
for borrowings associated with specifi c developments.
Where borrowings are associated with specifi c
developments, the amount capitalised is the gross
interest incurred on those borrowings less any
investment income arising on their temporary
investment. Interest is capitalised as from the
commencement of the development work until the
date of practical completion. The capitalisation of
fi nance costs is suspended if there are prolonged
periods when development activity is interrupted.
Interest is also capitalised on the purchase cost of a site
or property acquired specifi cally for redevelopment in
the short-term but only where activities necessary to
prepare the asset for redevelopment are in progress.
(e) Property, plant and equipment
Operating properties
These are properties owned and managed by Trillium,
and which do not satisfy the defi nition of an investment
property. Operating properties are stated at cost less
accumulated depreciation. Depreciation is charged to
the income statement on a straight-line basis over the
estimated useful lives of the properties concerned.
The estimated useful lives are as follows:
Freehold land
Freehold buildings
Leasehold properties
– Not depreciated
– Up to 50 years
–
Shorter of the unexpired
lease term and 50 years
Other property, plant and equipment
This category comprises computers, motor vehicles,
furniture, fi xtures and fi ttings and improvements to
Group offi ces. These assets are stated at cost less
accumulated depreciation and are depreciated to
their residual value on a straight-line basis over their
estimated useful lives of between two and fi ve years.
The residual values and useful lives of all property,
plant and equipment are reviewed, and adjusted if
appropriate, at least at each fi nancial year end.
(f) Goodwill
Goodwill arising on acquisition of businesses is
capitalised as an asset, and represents the excess of the
cost of acquisition over the Group’s interest in the fair
value of the identifi able assets and liabilities of the
acquired entity at the date of the acquisition.
At the date of the Group’s transition to IFRS,
1 April 2004, the goodwill in the Group balance sheet
represented that arising on the acquisition of Trillium
less amortisation to that date. In accordance with IFRS 1
‘First-time adoption of IFRS’, this amount has been
adopted as the carrying amount of the goodwill for
IFRS accounting purposes. In accordance with IFRS 3
‘Business Combinations’, the goodwill is not amortised
but is reviewed for impairment at each reporting date.
The Group’s policy on impairment is set out in (u) below.
(g) Investments in subsidiary undertakings
Investments in subsidiary undertakings are stated at
cost in the Company’s balance sheet less any provision
for permanent impairment in value.
(h) Trading properties and long-term development
contracts
Trading properties are those properties held for sale and
are shown at the lower of cost and net realisable value.
Revenue on long-term development contracts is
recognised according to the stage reached in the
contract by reference to the value of work completed
using the percentage of completion method. An
appropriate estimate of the profi t attributable to work
completed is recognised once the outcome of the
contract can be estimated reliably. The gross amount
due from customers for contract work is shown as a
receivable. The gross amount due comprises costs
incurred plus recognised profi ts less the sum of
recognised losses and progress billings. Where the sum
of recognised losses and progress billings exceeds costs
incurred plus recognised profi ts, the amount is shown
as a liability.
(m) Provisions
A provision is recognised in the balance sheet when the
Group has a constructive or legal obligation as a result
of a past event and it is probable that an outfl ow of
economic benefi ts will be required to settle the
obligation. If the effect is material, provisions are
determined by discounting the expected future
cashfl ows at a pre-tax rate that refl ects current market
assessments of the time value of money and, where
appropriate, the risks specifi c to the liability.
A provision for onerous contracts is recognised
when the expected benefi ts to be derived by the Group
from a contract are lower than the unavoidable cost of
meeting its obligations under the contract.
Provision is made for dilapidations that will
crystallise in the future where, on the basis of the
present condition of the property, an obligation exists
at the reporting date and can be reliably measured.
The estimate is revised over the remaining period of
the lease to refl ect changes in the condition of the
building or other changes in circumstances. The
estimate of the obligation takes account of relevant
external advice.
(i) Trade and fi nance lease receivables
Trade and fi nance lease receivables are recognised
initially at fair value. A provision for impairment is
established where there is objective evidence that
the Group will not be able to collect all amounts
due according to the original terms of the receivables
concerned.
(j) Cash and cash equivalents
Cash and cash equivalents comprises cash balances,
deposits held at call with banks and other short-term
highly liquid investments with original maturities of
three months or less. Bank overdrafts that are
repayable on demand and form an integral part of the
Group’s cash management are deducted from cash
and cash equivalents for the purpose of the statement
of cashfl ows.
(k) Non-current assets held for sale
Non-current assets and groups of assets and liabilities
which comprise disposal groups are categorised as non-
current assets held for sale where the asset or disposal
group is available for sale in its present condition, and
the sale is highly probable. For this purpose, a sale is
highly probable if management are committed to a
plan to achieve the sale; there is an active programme
to fi nd a buyer; the non-current asset or disposal group
is being actively marketed at a reasonable price; the
sale is anticipated to be completed within one year
from the date of classifi cation, and; it is unlikely there
will be changes to the plan. Non-current assets held
for sale are valued at the lower of their carrying value
and fair value less costs to sell.
Where an asset or disposal group is acquired with a
view to resale, it is classifi ed as a non-current asset held
for sale if the disposal is expected to take place within
one year of the acquisition, and it is highly likely that
the other conditions referred to above will be met
within a short period of the acquisition. The profi t
or loss arising on sale of a disposal group will be
recognised as discontinued operations.
(l) Trade and other payables
Trade and other payables are stated at fair value.
(n) Borrowings
Borrowings other than bank overdrafts are recognised
initially at fair value less attributable transaction costs.
Subsequent to initial recognition, borrowings are stated
at amortised cost with any difference between the
amount initially recognised and redemption value being
recognised in the income statement over the period of
the borrowings, using the effective interest method.
Where existing borrowings are exchanged for new
borrowings and the terms of the existing and new
borrowings are not substantially different (as defi ned
by IAS 39), the new borrowings are recognised initially
at the carrying amount of the existing borrowings.
The difference between the amount initially recognised
and the redemption value of the new borrowings is
recognised in the income statement over the period
of the new borrowings, using the effective
interest method.
(o) Pension benefi ts
The Group accounts for pensions under IAS 19
‘Employee Benefi ts’. In respect of defi ned benefi t
pension schemes, obligations are measured at
discounted present value while scheme assets are
measured at their fair value except annuities, which
are valued to match the liability or benefi t value.
The operating and fi nancing costs of such plans are
recognised separately in the income statement.
Service costs are spread using the projected unit
method. Financing costs are recognised in the periods
in which they arise and are included in interest expense.
Actuarial gains and losses arising from either experience
differing from previous actuarial assumptions or
changes to those assumptions are recognised
immediately in the statement of recognised
income and expense.
Contributions to defi ned contribution schemes are
expensed as incurred.
(p) Share capital
Ordinary shares are classed as equity. External
costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from
the proceeds.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
85
2. Signifi cant accounting policies continued
(p) Share capital continued
The consideration paid, including any directly
attributable incremental costs, by any Group entity to
acquire the Company’s equity share capital, is deducted
from equity until the shares are cancelled, reissued or
disposed of. Where own shares are sold or reissued, the
net consideration received is included in equity. Shares
acquired by the Employee Share Ownership Plan (ESOP)
are presented on the balance sheet as ‘own shares’.
Purchases of treasury shares are deducted from
retained earnings.
(q) Share-based payments
The cost of granting share options and other share-
based remuneration to employees and directors is
recognised through the income statement. These are
equity-settled and therefore the fair value is measured
at the grant date. The Group has used the Black-Scholes
option valuation model to establish the relevant fair
values. The resulting values are amortised through the
income statement over the vesting period of the
options and other grants. The charge is reversed if it
appears probable that applicable performance criteria
will not be met although the performance criteria are
not market related.
(r) Revenue
The Group recognises revenue on an accruals basis, and
when the amount of revenue can be reliably measured
and it is probable that future economic benefi ts will
fl ow to the Group. Revenue comprises rental income,
service charges and other recoveries from tenants of
the Group’s investment and trading properties,
property services income earned by Trillium, proceeds
of sales of its trading properties and income arising
on long-term contracts. Rental income includes the
income from managed operations such as car parks,
food courts, serviced offi ces and fl ats. Service charges
and other recoveries include income in relation to
service charges and directly recoverable expenditure
together with any chargeable management fees.
Property services income represents unitary charges
and the recovery of other direct property or contract
expenditure reimbursable by customers. Where revenue
is obtained from the rendering of services, it is recognised
by reference to the stage of completion of the relevant
transactions at the reporting date.
Rental income from investment property leased out
under an operating lease is recognised in the income
statement on a straight-line basis over the term of the
lease. Lease incentives granted are recognised as an
integral part of the net consideration for the use of the
property and are therefore recognised on the same,
straight-line basis.
When property is let out under a fi nance lease, the
Group recognises a receivable at an amount equal to
the net investment in the lease at inception of the
lease. Rentals received are accounted for as repayments
of principal and fi nance income as appropriate. Finance
income is allocated to each period during the lease
term so as to produce a constant periodic rate of
interest on the remaining net investment in the fi nance
lease. Contingent rents, being those lease payments
that are not fi xed at the inception of a lease, for
example turnover rents, are recorded as income in
the periods in which they are earned.
Where revenue is obtained by the sale of assets, it is
recognised when the signifi cant risks and returns have
been transferred to the buyer. In the case of sales of
properties, this is generally on unconditional exchange
except where payment or completion is expected to
occur signifi cantly after exchange. For conditional
exchanges, sales are recognised when the conditions
are satisfi ed. Sales of investment and other non-current
properties, which are not included in revenue, are
recognised on the same basis.
(s) Expenses
Property and contract expenditure, including bid costs
incurred prior to the exchange of a contract, is
expensed as incurred with the exception of expenditure
on long-term development contracts (see (h) above).
Rental payments made under an operating lease are
recognised in the income statement on a straight-line
basis over the term of the lease. Lease incentives
received are recognised as an integral part of the net
consideration for the use of the property and also
recognised on a straight-line basis.
Minimum lease payments payable on fi nance leases
and operating leases accounted for as fi nance leases
under IAS 40 are apportioned between fi nance expense
and reduction of the outstanding liability. Finance
expense is allocated to each period during the lease
term so as to produce a constant periodic rate of
interest on the remaining liability. Contingent rents
(as defi ned in (r) above) are charged as an expense in
the periods in which they are incurred.
(t) Exceptional items
Items which are suffi ciently material by either their
size or nature to require separate disclosure are
disclosed as exceptional items within the relevant
income statement category. Items that management
consider fall into this category are presented separately
in the income statement in the column headed
‘Exceptional items’. Events that may give rise to
exceptional items include gains or losses on the
disposal of joint ventures or other investments,
impairment of assets including goodwill arising as
a result of recognising deferred tax on a business
combination, fi nancial restructurings and signifi cant
changes in the tax regime.
(u) Impairment
The carrying amounts of the Group’s non-fi nancial
assets, other than investment properties (see (d) above),
are reviewed at each reporting date to determine
whether there is any indication of impairment. If any
such indication exists, the asset’s recoverable amount is
estimated (see below). An impairment loss is recognised
in the income statement whenever the carrying amount
of an asset exceeds its recoverable amount.
Goodwill is tested for impairment at each reporting
date, or more frequently if there are indicators of
impairment. For this purpose goodwill is allocated to
units or groups of units which represent the lowest
level at which the goodwill is monitored for internal
management purposes.
The recoverable amount of an asset is the greater
of its fair value less costs to sell and its value in use.
The value in use is determined as the net present value
of the future cashfl ows expected to be derived from the
asset, discounted using a pre-tax discount rate that
refl ects current market assessments of the time value
of money and the risks specifi c to the asset.
An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the
extent that the asset’s carrying amount after the reversal
does not exceed the amount that would have been
determined, net of applicable depreciation, if no
impairment loss had been recognised.
(v) Derivative fi nancial instruments (derivatives) and
hedge accounting
The Group uses interest rate swaps to help manage its
interest rate risk, and cross-currency swaps to manage
its currency risk. In accordance with its treasury policy,
the Group does not hold or issue derivatives for
trading purposes.
The Group documents at the inception of the
transaction the relationship between hedging
instruments and hedged items, as well as its risk
management objectives and strategy for undertaking
various hedging transactions. The Group also
documents its assessment, both at hedge inception
and on an ongoing basis, of whether the derivatives
that are used in hedging transactions are highly
effective in offsetting changes in fair value or cashfl ows
of hedged items.
All derivatives are initially recognised at fair value
at the date the derivative is entered into and are
subsequently remeasured at fair value. The fair value
of interest rate swaps is based on broker quotes. Those
quotes are tested for reasonableness by discounting
estimated future cashfl ows based on the terms and
maturity of each contract and using market interest
rates for similar instruments at the measurement date.
The method of recognising the resulting gain or loss
depends on whether the derivative is designated as
a hedging instrument.
■
■
■
Fair value hedges: Where a derivative is designated
and qualifi es as a hedge of the exposures to fair
value of a recognised asset or liability that is
attributable to a particular risk and could affect the
income statement, changes in the fair value of the
derivative are recorded in the income statement,
together with any changes in the fair value of the
hedged asset or liability that are attributable to the
hedged risk.
Cashfl ow hedges: Where a derivative is designated
as a hedge of the variability of a highly probable
forecast transaction i.e. an interest payment,
the element of the gain or loss on the derivative
that is an effective hedge is recognised directly in
equity. When the forecast transaction subsequently
results in the recognition of a fi nancial asset or a
fi nancial liability, the associated gains or losses that
were recognised directly in equity are reclassifi ed
into the income statement in the same period or
periods during which the asset acquired or liability
assumed affects the income statement i.e. when
interest income or expense is recognised.
Derivatives that do not qualify for hedge
accounting: The gain or loss on derivatives that do
not qualify for hedge accounting, and the non-
qualifying element of derivatives that do qualify for
hedge accounting, are recognised in the income
statement immediately.
F
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Land Securities Annual Report 2008
86
Notes to the fi nancial statements continued
2. Signifi cant accounting policies continued
(w) Income tax
Income tax on the profi t for the year comprises current
and deferred tax. Current tax is the tax payable on the
taxable income for the year and any adjustment in respect
of previous years. Deferred tax is provided in full using
the balance sheet liability method on temporary
differences between the carrying amounts of assets and
liabilities for fi nancial reporting purposes and the amounts
used for taxation purposes. Deferred tax is determined
using tax rates that have been enacted or substantially
enacted by the reporting date and are expected to apply
when the asset is realised or the liability is settled.
Prior to REIT conversion, deferred tax was provided
on the full difference between the original cost of
investment properties and their carrying amounts at the
reporting date without taking into account deductions
and allowances which would only apply if the properties
concerned were to be sold, except where such
properties are classifi ed as held for disposal (see note 9).
No provision is made for temporary differences (i)
arising on the initial recognition of assets or liabilities,
other than on a business combination, that affect
neither accounting nor taxable profi t and (ii) relating to
investments in subsidiaries to the extent that they will
not reverse in the foreseeable future.
(x) Leases
A Group company is the lessee
i) Operating lease – leases in which substantially all
risks and rewards of ownership are retained by another
party, the lessor, are classifi ed as operating leases.
Payments, including prepayments, made under
operating leases (net of any incentives received from
the lessor) are charged to the income statement on
a straight-line basis over the period of the lease.
ii) Finance lease – leases of assets where the Group has
substantially all the risks and rewards of ownership
are classifi ed as fi nance leases. Finance leases are
capitalised at the lease’s commencement at the lower
of the fair value of the property and the present value
of the minimum lease payments. Each lease payment is
allocated between the liability and fi nance charges so
as to achieve a constant rate on the fi nance balance
outstanding. The corresponding rental obligations, net
of fi nance charges, are included in current and non-
current borrowings. The fi nance charges are charged to
the income statement over the lease period so as to
produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The
investment properties acquired under fi nance leases
are subsequently carried at their fair value.
A Group company is the lessor
i) Operating lease – properties leased out to tenants
under operating leases are included in investment
properties in the balance sheet.
ii) Finance lease – when assets are leased out under a
fi nance lease, the present value of the minimum lease
payments is recognised as a receivable. The difference
between the gross receivable and the present value of the
receivable is recognised as unearned fi nance income. Lease
income is recognised over the term of the lease using the
net investment method before tax, which refl ects a
constant periodic rate of return. Where only the buildings
element of a property lease is classifi ed as a fi nance lease,
the land element is shown within operating leases.
(y) Dividends
Final dividend distributions to the Company’s
shareholders are recognised as a liability in the
Group’s fi nancial statements in the period in which the
dividends are approved by the Company’s shareholders.
Interim and quarterly dividends are recognised when paid.
(z) Foreign currency translation
Foreign currency transactions are translated into
Sterling using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and
from the translation at year end exchange rates of
monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement,
except where deferred in equity as qualifying cashfl ow
hedges and qualifying net investment hedges.
3. Signifi cant judgements, key assumptions
and estimates
The Group’s signifi cant accounting policies are stated in
note 2 above. Not all of these signifi cant accounting
policies require management to make diffi cult,
subjective or complex judgements or estimates. The
following is intended to provide an understanding of
the policies that management consider critical because
of the level of complexity, judgement or estimation
involved in their application and their impact on the
consolidated fi nancial statements. These judgements
involve assumptions or estimates in respect of future
events. Actual results may differ from these estimates.
(a) Goodwill
The goodwill that arises from the difference between
how deferred tax is calculated for accounting purposes
and the value ascribed to it in negotiations is
sometimes judged not to be an asset, and is accordingly
impaired on completion of the relevant acquisition.
Otherwise goodwill is tested annually for impairment
on the basis set out in note 15.
(b) Distinction between operating properties and
investment properties
A property is classifi ed as an operating property rather
than an investment property where the degree of
ancillary services supplied is judged to be signifi cant in
the context of the arrangements between the landlord
and tenant.
(c) Finance lease calculations
In apportioning rentals on fi nance lease properties, the
Group is required to estimate the split of the fair values
of the properties concerned between land and
buildings. The inception of many of the Group’s leases
took place many years ago and therefore reliable
estimates are very diffi cult to obtain. Accordingly, the
Group has had to apply its judgement in estimating the
split at inception of certain fi nance lease properties.
(d) Trading properties
Trading properties are carried at the lower of cost and
net realisable value. The latter is assessed by the
Group having regard to suitable external advice and
knowledge of recent comparable transactions.
(e) Trade receivables
The Group is required to judge when there is suffi cient
objective evidence to require the impairment of
individual trade receivables. It does this on the basis
of the age of the relevant receivables, external evidence
of the credit status of the counterparty and the status
of any disputed amounts.
(f) Exceptional items
Exceptional items are defi ned as those items which are
suffi ciently material by either their size or nature as to
require separate disclosure. Deciding which items
meet this defi nition is judgemental.
(g) Investment property valuation
The Group normally uses the valuation performed
by its external valuers as the fair value of its investment
properties. The valuation is based upon assumptions
including future rental income, anticipated
maintenance costs, future development costs and the
appropriate discount rate. The valuers also make
reference to market evidence of transaction prices
for similar properties.
(h) Unagreed rent reviews
Where the rent review date has passed, and the revised
annual rent has not been agreed, rent is accrued from
the date of the rent review based upon an estimation
of the revised annual rent. The estimate is derived from
knowledge of market rents for comparable properties.
(i) Non-current assets held for sale
Signifi cant judgement has been required in assessing
whether non-current assets and groups of assets and
liabilities which comprise disposal groups qualify for
treatment as a non-current asset held for sale.
Judgement is required in determining the fair value less
costs to sell, which has been evaluated based on our
progress against the plan to sell non-current assets
at the balance sheet date. Non-current assets are held
at the lower of cost and fair value less costs to sell.
(j) Compliance with the Real Estate Investment
Trust (REIT) taxation regime
On 1 January 2007 the Group converted to a group
REIT. In order to achieve and retain group REIT status,
several entrance tests had to be met and certain
ongoing criteria must be maintained. The main criteria
are as follows:
■
■
■
at the start of each accounting period, the assets of
the tax exempt business must be at least 75% of
the total value of the Group’s assets;
at least 75% of the Group’s total profi ts must arise
from the tax exempt business; and
at least 90% of the profi t of the property rental
business must be distributed.
The Directors intend that the Group should continue as
a group REIT for the foreseeable future, with the result
that deferred tax is no longer recognised on temporary
differences relating to the property rental business.
(k) Onerous lease and dilapidation provisions
Judgement is required in determining the Group’s
onerous lease and dilapidation provisions, based on
an assessment of the condition of each property and
market conditions in the relevant location. External
advice is obtained where appropriate.
Land Securities Annual Report 2008
87
F
i
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a
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c
i
a
l
S
t
a
t
e
m
e
n
t
s
–
(2.8)
(0.5)
(26.4)
98.8
7.5
(13.6)
92.7
2,020.7
1,799.8
(84.6)
(66.4)
(2.8)
(50.2)
(32.9)
608.5
118.2
1,307.6
2,034.3
–
(13.6)
(220.9)
182.5
–
–
(3.2)
179.3
–
1,979.1
Notes to the fi nancial statements continued
4. Segmental information
Group
Income statements
Rental income
Service charge income
Property services income
Trading property sale proceeds
Long-term development
contract income
Finance lease interest
Revenue
Rents payable
Other direct property or
contract expenditure
Indirect property or
contract expenditure
Long-term development
contract expenditure
Bid costs
Cost of sales of trading
properties
Depreciation
Underlying operating
profi t
Profi t on disposal of non-
current properties
Net (defi cit)/surplus on
revaluation of
investment properties
Segment result
Demerger costs
Unallocated expenses
Operating (loss)/profi t
Net interest expense (note 6)
Share of the (loss)/profi t of
joint ventures (post-tax)
– Retail Portfolio
– London Portfolio
– Other investment portfolio
– Trillium
Retail
Portfolio
£m
271.2
47.3
–
1.3
–
2.9
322.7
(11.0)
London
Portfolio
£m
329.1
53.3
–
40.0
–
5.9
428.3
(5.3)
Other
investment
portfolio
£m
9.6
0.6
–
2.3
26.3
–
38.8
–
2008
Total
£m
609.9
101.2
761.0
43.6
26.3
19.2
1,561.2
(191.4)
Trillium
£m
–
–
761.0
–
–
10.4
771.4
(175.1)
Retail
Portfolio
£m
279.2
46.8
–
–
–
3.5
329.5
(11.3)
London
Portfolio
£m
311.6
48.6
–
33.1
28.9
5.9
428.1
(4.9)
Other
investment
portfolio
£m
8.7
0.3
–
29.0
51.8
–
89.8
–
2007
Total
£m
599.5
95.7
785.9
63.8
80.7
15.5
Trillium
£m
–
–
785.9
1.7
–
6.1
793.7
(179.9)
1,641.1
(196.1)
(64.7)
(72.6)
(1.0)
(403.6)
(541.9)
(67.7)
(62.1)
(0.8)
(469.0)
(599.6)
(32.6)
(29.4)
(4.0)
(13.7)
(79.7)
(31.6)
(30.9)
(5.8)
(16.3)
–
–
(0.9)
(2.2)
–
–
(38.9)
(5.2)
211.3
276.9
16.4
40.9
(671.2)
(443.5)
(464.7)
(146.9)
(24.3)
–
(1.0)
(0.4)
8.1
–
(9.5)
(1.4)
–
(11.9)
–
(38.0)
(24.3)
(11.9)
(40.8)
(45.8)
–
–
(0.1)
(1.5)
(26.1)
–
(28.7)
(4.9)
129.1
625.4
217.3
270.5
18.1
75.4
28.5
81.7
(24.9)
(1,170.3)
122.3
(469.5)
293.6
539.4
1,022.0
1,374.2
(40.3)
–
(20.9)
(0.1)
21.9
0.5
5.6
28.0
(492.3)
(787.3)
(9.8)
(13.0)
(295.0)
(92.6)
(14.4)
5.9
0.1
(101.0)
(0.5)
(888.8)
Share of the loss of an associate undertaking (post-tax)
(Loss)/profi t before tax from continuing activities
Included within rents payable is fi nance lease interest payable of £2.0m (2007: £1.9m) and £2.8m (2007: £3.1m) respectively for Retail Portfolio and London Portfolio.
All of the share of the loss of an associate undertaking is attributable to Trillium.
Land Securities Annual Report 2008
88
Notes to the fi nancial statements continued
4. Segmental information continued
Group
Balance sheets
Investment properties
Operating properties
Other property, plant
and equipment
Net investment in
fi nance leases
Goodwill
Investments in Public
Private Partnerships
Investment in an equity
accounted associate
Investments in equity
Retail
Portfolio
£m
4,615.9
–
8.0
53.2
–
–
–
London
Portfolio
£m
7,069.6
–
7.0
104.8
–
–
–
Other
investment
portfolio
£m
48.8
–
4.7
2008
Total
£m
12,296.7
544.8
Trillium
£m
562.4
544.8
53.9
73.6
–
–
–
–
175.7
148.6
25.4
42.9
333.7
148.6
25.4
42.9
Retail
Portfolio
£m
5,497.7
–
9.3
63.0
–
–
–
accounted joint ventures
1,370.2
9.0
26.3
5.1
1,410.6
1,315.9
Other
investment
portfolio
£m
64.6
–
5.0
–
–
–
–
2007
Total
£m
13,319.3
551.5
78.2
262.4
129.6
–
–
Trillium
£m
427.6
551.5
55.6
95.4
129.6
–
–
17.9
5.0
1,338.8
London
Portfolio
£m
7,329.4
–
8.3
104.0
–
–
–
–
Trading properties and
long-term development
contracts
Trade and other receivables
Non-current assets classifi ed
as held for sale
Segment assets
Unallocated assets
Total assets
Trade and other payables
Provisions
Liabilities directly associated
with non-current assets
classifi ed as held for sale
16.5
203.1
24.5
390.0
128.0
23.3
4.0
221.3
173.0
837.7
–
185.9
41.4
220.3
106.2
27.7
0.7
207.5
148.3
641.4
–
–
–
664.1
664.1
–
–
–
2,420.3
2,420.3
6,266.9
7,604.9
231.1
2,448.2
16,551.1
7,071.8
7,703.4
221.4
3,893.2
18,889.8
(249.2)
–
(253.2)
–
(24.1)
–
(338.2)
(77.6)
64.0
16,615.1
(864.7)
(77.6)
(286.7)
–
(160.8)
–
(20.0)
–
(281.8)
(80.7)
53.1
18,942.9
(749.3)
(80.7)
–
–
–
(427.7)
(427.7)
–
–
–
(1,601.0)
(1,601.0)
Segment liabilities
(249.2)
(253.2)
(24.1)
(843.5)
(1,370.0)
(286.7)
(160.8)
(20.0)
(1,963.5)
(2,431.0)
Unallocated liabilities
Total liabilities
Other segment items
Capital expenditure
220.1
368.3
0.2
51.7
640.3
148.5
357.1
0.3
39.6
545.5
(5,662.2)
(7,032.2)
(5,720.6)
(8,151.6)
All the Group’s operations are in the UK and are organised into four main business segments against which the Group reports its primary segment information. These are Retail
Portfolio, London Portfolio, Other investment portfolio and Trillium.
Company
The Company’s business is to invest in its subsidiaries, and therefore it operates in a single segment.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
5. Employee costs
Group
The average monthly number of employees during the year, excluding Directors,
and the corresponding aggregate employee costs were:
Indirect property or contract and administration
Direct property or contract services:
Full-time
Part-time
Employee costs
Salaries
Social security
Other pension
Share-based payments
Directors
Aggregate emoluments excluding pensions
Company contributions to pension schemes
2008
Number
2007
Number
2008
£m
632
988
69
1,689
584
1,041
23
1,648
51.3
54.8
1.1
107.2
82.7
10.7
9.2
4.6
107.2
10.9
0.6
11.5
2007
£m
48.6
49.1
1.0
98.7
77.5
10.4
9.3
1.5
98.7
8.5
0.7
9.2
With the exception of the Directors, who are employed by Land Securities Group PLC, all employees are employed by subsidiaries of the Group.
Five Directors (2007: fi ve) have retirement benefi ts accruing under money purchase pension schemes. Retirement benefi ts accrue to one Director (2007: one) under the Group’s
defi ned benefi t pension scheme. Information on Directors’ emoluments, share options and interests in the Company’s shares is given in the Directors’ remuneration report on
pages 66 to 76.
6. Net interest (expense)/income
Interest expense
Bond and debenture debt
Bank borrowings
Other interest payable
Fair value losses on interest rate swaps
Provision discounting (note 26)
Amortisation of bond exchange derecognition
Interest on pension scheme liabilities
Interest capitalised in relation to properties under development
Total interest expense
Interest income
Short-term deposits
Other interest receivable
Interest receivable from joint ventures
Expected return on pension scheme assets
Fair value profi ts on interest rate swaps
Total interest income
2008
£m
(195.1)
(136.4)
(2.2)
(21.9)
(1.6)
(7.6)
(8.1)
(289.6)
48.5
(257.3)
4.1
1.3
15.0
9.0
–
36.4
Group
2007
£m
(173.1)
(89.6)
(1.2)
–
(1.0)
(17.1)
(7.6)
32.3
1.5
2.4
8.5
8.6
15.4
14.7
Company
2007
£m
–
–
(3.4)
–
–
–
–
(3.4)
–
(3.4)
–
5.7
–
–
–
2008
£m
–
–
(26.6)
–
–
–
–
(26.6)
–
(26.6)
–
14.7
–
–
–
5.7
(372.9)
(324.4)
29.4
Net interest (expense)/income
(295.0)
(220.9)
(11.9)
2.3
Included within rents payable (note 4) is fi nance lease interest payable of £4.8m (2007: £5.0m).
89
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Land Securities Annual Report 2008
90
Notes to the fi nancial statements continued
7. (Loss)/profi t before tax
Group
The following items have been charged or (credited) in arriving at (loss)/profi t before taxation:
Employee costs (note 5)
Depreciation of property, plant and equipment (note 13):
Investment properties
Operating properties
Other property, plant and equipment
Profi t on disposal of non-current properties
Bad debts written off and provision for doubtful debts
Services provided by the Group’s auditor
During the year the Group obtained the following services from the Group’s auditor at costs as detailed below:
Audit fees in respect of the accounts of the Company
Audit fees in respect of the audit of subsidiary undertakings and associates
Fees for services supplied pursuant to legislation
Services relating to taxation
Other services in relation to the demerger
Other services in relation to the sale of Trillium Investment Partners LP
Other services
2008
£m
107.2
2.9
22.9
20.0
(75.4)
3.6
0.6
0.4
0.1
0.2
1.1
0.7
–
1.8
1.3
2007
£m
98.7
3.3
15.4
14.2
(118.2)
3.4
0.6
0.4
0.1
0.1
–
–
0.1
0.1
3.1
It is the Group’s policy to employ PricewaterhouseCoopers LLP on assignments additional to their statutory duties where their expertise and experience with the Group are
important. Where appropriate, the Group seeks tenders for services and if fees are expected to be greater than £25,000 they are pre-approved by the Audit Committee.
In addition to the above PricewaterhouseCoopers LLP has also received £0.6m (2007: £nil) relating to the audit of various PPP entities within Trillium Investment Partners LP
of which the Group now holds 10%.
8. Exceptional items
Group
Deferred taxation released within joint ventures on conversion to a Real Estate Investment Trust
Exceptional items before tax
Deferred taxation released on conversion to a Real Estate Investment Trust
Real Estate Investment Trust conversion charge
The exceptional items arising from the Group’s conversion to a Real Estate Investment Trust are explained in note 9 below.
2008
£m
–
–
–
–
2007
£m
98.0
98.0
2,309.2
(315.0)
2,092.2
–
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
9. Income tax (credit)/expense
Current tax
Corporation tax expense/(credit) for the year
Adjustment in respect of prior years
Corporation tax in respect of property disposals
Real Estate Investment Trust conversion charge
Total current tax (credit)/expense
Deferred tax
Origination and reversal of timing differences
Released in respect of property disposals
On valuation surplus
Released on conversion to a Real Estate Investment Trust
Total deferred tax credit
Total income tax (credit)/expense in the income statement
2008
£m
10.3
(17.9)
0.5
–
415.2
(3.4)
–
–
–
(7.1)
(3.4)
(1,964.4)
(10.5)
(1,549.2)
Group
2007
£m
68.8
(0.6)
32.0
315.0
(6.6)
32.9
(18.8)
330.7
(2,309.2)
–
(6.6)
Company
2007
£m
0.7
–
–
–
–
–
–
–
–
2008
£m
(6.6)
–
–
–
0.7
–
–
–
–
0.7
The tax for the year is lower than the standard rate of corporation tax in the UK (30%). The differences are explained below:
(Loss)/profi t on activities before taxation
(Loss)/profi t on activities multiplied by the rate of corporation tax in the UK of 30%
Effects of:
Deferred tax released in respect of property disposals
Corporation tax on disposal of non-current assets
Joint venture accounting adjustments
Prior year corporation tax adjustments
Prior year deferred tax adjustments
Non-allowable expenses and non-taxable items
Real Estate Investment Trust conversion charge
Deferred tax released on conversion to a Real Estate Investment Trust
Exempt property rental profi ts in the year ended 31 March 2008
Exempt property gains in the year ended 31 March 2008
Exempt property rental profi ts in the three months ended 31 March 2007
Exempt property gains in the three months ended 31 March 2007
(888.8)
1,979.1
(266.7)
593.7
(21.9)
(6.6)
2.3
0.7
–
6.3
0.9
(17.9)
(2.9)
19.8
–
–
278.9
(28.9)
–
–
(18.8)
6.0
(44.2)
(0.6)
1.1
7.9
315.0
(2,309.2)
–
–
(89.8)
(10.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total income tax (credit)/expense in the income statement (as above)
(10.5)
(1,549.2)
(6.6)
0.7
Land Securities Group PLC elected for group Real Estate Investment Trust (REIT) status with effect from 1 January 2007. As a result the Group no longer pays UK corporation
tax on the profi ts and gains from qualifying rental business in the UK provided it meets certain conditions. Non-qualifying profi ts and gains of the Group continue to be subject
to corporation tax as normal. On entering the REIT regime an entry charge equal to 2% of the aggregate market value of the properties associated with the qualifying rental
business was payable. Deferred tax accrued at the date of conversion in respect of the assets and liabilities of the qualifying rental business was released to the income statement,
as the relevant temporary differences are no longer taxable on reversal. An equivalent release of deferred taxation was also made by the joint ventures, of which the Group’s
share was £98.0m.
The calculation of the Group’s tax expense and liability necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be
fi nally determined until a formal resolution has been reached with the relevant tax authorities. If all such issues are resolved in the Group’s favour, provisions established in
previous periods of up to £216.0m could be released in the future.
91
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Notes to the fi nancial statements continued
10. Dividends
Group and Company
Ordinary dividends paid
Final dividend for the year ended 31 March 2007 (34.00p per share)
Final dividend for the year ended 31 March 2006 (28.55p per share)
First quarterly dividend for the year ended 31 March 2008 (16.00p per share)
Second quarterly dividend for the year ended 31 March 2008 (16.00p per share)
Interim dividend for the year ended 31 March 2007 (19.00p per share)
2008
£m
159.5
–
74.5
74.4
–
223.0
2007
£m
–
133.8
–
–
89.2
308.4
The Board has proposed a fi nal dividend of 16.00p per share (fi nal dividend for the year ended 31 March 2007: 34.00p) which will result in a further distribution of £74.4m
(2007: £159.5m). It will be paid on 28 July 2008 to shareholders who are on the Register of Members on 20 June 2008. The fi nal dividend is in addition to the third quarterly
dividend of 16.00p paid on 25 April 2008. The total dividend paid and proposed in respect of the year ended 31 March 2008 is 64.00p (2007: 53.00p).
11. (Loss)/earnings per share
Group
(Loss)/profi t for the fi nancial year
Revaluation defi cits/(surpluses) net of deferred taxation – Group
– joint ventures
Profi t on non-current property disposals after current and deferred tax
Mark-to-market adjustment on interest rate swaps (net of deferred tax)
Demerger costs (net of taxation)
Prior year non-revenue tax adjustments
Deferred tax arising from capital allowances on investment properties
Deferred tax arising from capitalised interest on investment properties
Real Estate Investment Trust conversion charge
Deferred tax released on conversion to a Real Estate Investment Trust – Group
– joint ventures
EPRA adjusted earnings
Eliminate effect of debt restructuring charges (net of taxation)
Eliminate effect of bond exchange derecognition (net of deferred tax)
Adjusted earnings
Weighted average number of ordinary shares
Effect of own shares and treasury shares
Weighted average number of ordinary shares after adjusting for own shares
Effect of dilutive share options
Weighted average number of ordinary shares adjusted for dilutive instruments
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Adjusted earnings per share
Adjusted diluted earnings per share
EPRA adjusted earnings
(878.3)
371.5
381.0
470.6
465.2
466.3
2008
£m
3,528.3
1,170.3
134.2
(67.8)
22.4
6.9
(16.2)
–
–
–
–
–
303.3
1.9
7.6
330.0
2007
£m
(976.9)
(54.5)
(105.2)
(13.7)
–
–
11.7
5.8
315.0
(2,309.2)
(98.0)
13.4
13.3
Number
million
Number
million
469.8
(5.4)
468.2
1.1
470.1
(1.6)
1.9
Pence
Pence
(188.80)
(188.80)
81.90
81.71
79.67
753.59
750.54
70.48
70.20
64.52
Management have chosen to disclose adjusted earnings per share in order to provide an indication of the Group’s underlying business performance. Accordingly, it excludes the
effect of all exceptional items, debt and other restructuring charges, and other items of a capital nature (other than trading properties and long-term contract profi ts) as indicated
above. In addition, the corporation tax charge arising from the conversion to a REIT, and the deferred tax released following the conversion to a REIT, have also been excluded
due to their size and incidence. Further, prior to the conversion to a REIT, the deferred tax arising on capital allowances in respect of investment properties was eliminated as
experience had shown that these allowances are not in practice repayable, and deferred tax on capitalised interest was also added back as this was effectively a permanent
difference. An EPRA measure has been included to assist comparison between European property companies. We believe our measure of adjusted diluted earnings per share
is more appropriate than the EPRA measure in the context of our business.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
12. Net assets per share
Group
Net assets attributable to equity shareholders
Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) – Group
– joint ventures
– an associate undertaking
EPRA adjusted net assets
Reverse bond exchange derecognition adjustment
Adjusted net assets attributable to equity shareholders
Reinstate bond exchange derecognition adjustment
Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) – Group
– joint ventures
– an associate undertaking
Excess of fair value of debt over book value (note 27)
EPRA triple net assets value
Group
Number of ordinary shares
Effect of own shares and treasury shares
Number of ordinary shares after adjusting for own shares
Effect of dilutive share options
Number of ordinary shares adjusted for dilutive instruments
Net assets per share
Diluted net assets per share
Adjusted net assets per share
Adjusted diluted net assets per share
EPRA measure – adjusted diluted net assets per share
– triple net assets per share
9,582.9
9,595.6
9,084.1
2008
£m
10,791.3
10.7
1.5
0.5
10,767.7
(511.5)
10,248.6
511.5
(10.7)
(1.5)
(0.5)
(208.7)
2007
£m
(14.4)
(9.2)
–
(519.1)
519.1
14.4
9.2
–
(511.5)
9,374.2
10,279.8
Number
million
Number
million
470.4
(7.2)
468.3
0.7
469.9
(2.1)
1.6
Pence
Pence
2304
2297
2188
2181
2291
2188
470.9
463.7
464.4
2067
2064
1959
1956
2066
2019
Adjusted net assets per share excludes the deferred tax arising on revaluation surpluses, mark-to-market adjustments on fi nancial instruments used for hedging purposes and
the bond exchange derecognition adjustment as management consider that this better represents the expected future cashfl ows of the Group. EPRA measures have been
included to assist comparison between European property companies. We believe our measure of adjusted net assets attributable to equity shareholders is more indicative of
underlying performance.
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Notes to the fi nancial statements continued
13. Non-current assets
Group
Net book value at 1 April 2006
Properties transferred from portfolio management into the development
Portfolio
management
£m
Development
programme
£m
Trillium
£m
Total
investment
properties
£m
Operating
properties
£m
Other
property,
plant and
equipment
£m
Total
£m
10,211.2
1,229.3
27.1
11,467.6
536.1
73.6
12,077.3
programme during the year (at 1 April 2006 valuation)
(219.0)
219.0
–
–
–
–
–
Developments completed, let and transferred from the development
programme into portfolio management during the year
Property acquisitions
Capital expenditure
Capitalised interest
Disposals
Transfer to joint venture
Surrender premiums received
Depreciation
Surplus/(defi cit) on revaluation
Net book value at 31 March 2007
Properties transferred from portfolio management into the development
60.8
510.0
77.2
–
(643.5)
(266.5)
(3.9)
(3.3)
884.4
(60.8)
13.7
422.1
29.8
(5.6)
–
–
–
436.8
–
414.1
–
–
–
–
–
–
(13.6)
–
937.8
499.3
29.8
(649.1)
(266.5)
(3.9)
(3.3)
1,307.6
–
26.6
27.2
–
(23.0)
–
–
(15.4)
–
–
–
19.0
–
(0.2)
–
–
(14.2)
–
–
964.4
545.5
29.8
(672.3)
(266.5)
(3.9)
(32.9)
1,307.6
10,607.4
2,284.3
427.6
13,319.3
551.5
78.2
13,949.0
programme during the year (at 1 April 2007 valuation)
(218.7)
218.7
–
–
–
–
–
Developments completed, let and transferred from the development
programme into portfolio management during the year
Property acquisitions
Capital expenditure
Capitalised interest
Disposals
Transfers to joint ventures
Transfers to trading properties
Reclassifi cations
Surrender premiums received
Depreciation
Defi cit on revaluation
1,491.5
714.2
117.5
1.4
(1,099.4)
(228.2)
–
–
(6.2)
(2.9)
(1,038.3)
(1,491.5)
0.2
467.3
43.7
(2.2)
–
(17.4)
–
–
–
(107.1)
–
149.4
6.8
–
(0.6)
–
–
4.1
–
–
(24.9)
–
863.8
591.6
45.1
(1,102.2)
(228.2)
(17.4)
4.1
(6.2)
(2.9)
(1,170.3)
–
8.9
32.4
–
(16.9)
–
(4.1)
(4.1)
–
(22.9)
–
–
–
16.1
–
(0.7)
–
–
–
–
(20.0)
–
–
872.7
640.1
45.1
(1,119.8)
(228.2)
(21.5)
–
(6.2)
(45.8)
(1,170.3)
Net book value at 31 March 2008
10,338.3
1,396.0
562.4
12,296.7
544.8
73.6
12,915.1
The following table reconciles the net book value of the investment properties (excluding those within Trillium) to the market value. Trillium’s investment properties have been
excluded from this reconciliation as the net book value and the market value are not materially different. The components of the reconciliation are included within their relevant
balance sheet headings.
Net book value at 31 March 2007
Plus: amount included in prepayments in respect of lease incentives
Less: head leases capitalised (note 30)
Plus: properties treated as fi nance leases
Market value at 31 March 2007 – Group
Market value at 31 March 2007 – Group and share of joint ventures
– plus: share of joint ventures (note 19)
Net book value at 31 March 2008
Plus: amount included in prepayments in respect of lease incentives
Less: head leases capitalised (note 30)
Plus: properties treated as fi nance leases
Market value at 31 March 2008 – Group
Market value at 31 March 2008 – Group and share of joint ventures
– plus: share of joint ventures (note 19)
Included in investment properties are leasehold properties with a net book value of £1,368.1m (2007: £1,485.5m).
Portfolio
management
£m
Development
programme
£m
10,607.4
93.6
(61.6)
163.1
2,284.3
37.4
(9.4)
–
Total
investment
properties
£m
12,891.7
131.0
(71.0)
163.1
10,802.5
2,312.3
13,114.8
1,637.7
14,752.5
11,734.3
180.6
(67.3)
149.2
10,338.3
156.3
(65.3)
149.2
1,396.0
24.3
(2.0)
–
10,578.5
1,418.3
11,996.8
1,589.9
13,586.7
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
95
13. Non-current assets continued
In accordance with IFRS 1 ‘First time adoption of International Reporting Standards’ and IAS 17 ‘Leases’, the Group has reviewed the classifi cation of all leases at the opening
balance sheet date of 1 April 2004. In reviewing leases of land and buildings in accordance with IAS 17 the land and buildings elements of the lease need to be considered
separately. On this basis, leases on 43 properties entered into between 1923 and 2003 were reclassifi ed as fi nance leases in these accounts. This resulted in an increase in fi xed
assets of £77.2m and a fi nance lease creditor of the same amount at fi rst time adoption on 1 April 2004. At 31 March 2008 leases on 25 properties (2007: 28) entered into
between 1960 and 2007 were classifi ed as fi nance leases. The corresponding increase in fi xed assets and fi nance lease creditor was £67.3m (2007: £71.0m). Operating lease
expense has reduced by £6.7m (2007: £7.2m).
The fair value of the Group’s investment properties at 31 March 2008 has been arrived at on the basis of a valuation carried out at that date by Knight Frank LLP, external valuers.
The valuation by Knight Frank LLP, which conforms to Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors and with IVA 1 of the International
Valuation Standards, and was arrived at by reference to market evidence of transaction prices for similar properties. Fixed asset properties include capitalised interest of £211.7m
(2007: £145.6m). The average rate of capitalisation is 5.5% (2007: 5.5%). The historical cost of investment properties is £7,813.2m (2007: £7,210.6m).
The current value of investment properties in respect of proposed developments is £639.6m (2007: £329.3m). Developments are transferred out of the development programme
when physically complete and 95% let. The schemes completed during the year were Christ’s Lane, Cambridge, One Wood Street, EC2, Princesshay, Exeter, Maskew Avenue,
Peterborough, Poole Road, Poole, Bankside 2&3, SE1, Thanet Leisure, Westwood Cross and Cardinal Place, SW1. The property rental income earned by the Group from its
investment properties amounted to £603.8m (2007: £594.6m).
Group
Capital commitments
14. Net investment in fi nance leases
Group
Non-current
Finance leases – gross receivables
Unearned fi nance income
Unguaranteed residual value
Current
Finance leases – gross receivables
Unearned fi nance income
Total net investment in fi nance leases
Gross receivables from fi nance leases:
Not later than one year
Later than one year but not more than fi ve years
More than fi ve years
Unearned future fi nance income
Unguaranteed residual value
Net investment in fi nance leases
2008
£m
234.5
2007
£m
726.6
2008
£m
2007
£m
692.8
(385.6)
26.5
262.4
27.4
(20.3)
3.7
266.1
27.4
129.3
563.5
618.5
(405.9)
26.5
266.1
603.9
(368.0)
26.5
14.6
(10.9)
14.6
116.7
487.2
(378.9)
26.5
333.7
7.1
340.8
720.2
340.8
The Group has leased out a number of investment properties under fi nance leases ranging between 15 and 100 years in duration. These are accounted for as fi nance lease
receivables rather than investment properties. The fair value of the Group’s fi nance lease receivables approximates to the carrying amount.
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Notes to the fi nancial statements continued
15. Goodwill
Group
At the beginning of the year
Arising on acquisitions during the year (note 37)
Arising on acquisitions in the prior year
Transferred on acquisition of a joint venture (note 19)
At the end of the year
Represented by:
Gross goodwill recognised
Total accumulated impairment losses
2008
£m
129.6
13.5
5.5
–
129.6
233.5
(84.9)
129.6
2007
£m
34.3
83.2
–
12.1
214.5
(84.9)
148.6
148.6
The goodwill carried in the Group balance sheet relates entirely to the acquisition of the Group’s Trillium business and subsequent acquisitions.
Impairment has been tested by comparing the carrying amount of the businesses’ assets and liabilities with their recoverable amount, being their value in use. The latter has
been calculated by reference to the cashfl ow projections for each business for its major contracts and covering the entire term of the contracts concerned. The main assumptions
underlying the forecasts are the relative infl ation rates applying to costs and revenues and the amount of expenditure required for the businesses to fulfi l their service level
commitments and the vacation rate under the DWP contract; and the volume of new business for SMIF management companies and IIC. The cashfl ows are discounted at a rate
refl ecting market assessments of the time value of money and the risks specifi c to each business. The discount rate used for the 2008 test was 7.5% (2007: 6.5%).
16. Investments in subsidiary undertakings
Company
At the beginning of the year – as previously stated
– prior year adjustment
At the beginning of the year – as restated
Capital contributions receivable for options granted over ordinary shares
At the end of the year
2008
£m
5,037.1
12.5
5,049.6
5.0
5,054.6
2007
£m
5,037.1
6.9
5,044.0
5.6
5,049.6
In accordance with IFRIC 11 ‘IFRS 2 – Group and Treasury Transactions’ the equity settled share-based charge for the employees of the Company’s subsidiaries are treated as an
increase in the cost of investment in the subsidiaries, and a corresponding increase in the Company’s equity.
Certain subsidiaries and joint ventures have non-coterminous year ends. In these circumstances, management accounts prepared to 31 March 2008 are used for the purpose of
the Group consolidation.
The Directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. The principal Group undertakings, all of which are
wholly owned, either directly by the Company or through a fellow subsidiary undertaking, and its principal joint ventures, which are 50% owned (with the exception of The Bull
Ring Limited Partnership which is 33% owned), are:
Wholly owned subsidiary undertakings
Group operations
Land Securities Properties Limited
Trillium
Land Securities Trillium Limited
Joint ventures
Investment property business
Land Securities Intermediate Limited
Land Securities Property Holdings Limited
Ravenseft Properties Limited
The City of London Real Property Company Limited
Ravenside Investments Limited
The Scottish Retail Property Limited Partnership
Metro Shopping Fund Limited Partnership
Buchanan Partnership
The Bull Ring Limited Partnership
Bristol Alliance Limited Partnership
St. David’s Limited Partnership
All principal subsidiary undertakings operate in Great Britain and are registered in England.
A full list of subsidiary undertakings at 31 March 2008 will be appended to the Company’s next annual return.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
97
17. Investments in Public Private Partnerships
Group
At the beginning of the year
Arising on acquisitions during the year (note 37)
Additions
At the end of the year
2008
£m
–
17.2
8.2
–
2007
£m
–
–
–
25.4
During the year ended 31 March 2008 a number of Public Private Partnership (PPP) investments were acquired independent from the disposal group. These PPP investments
relate to assets currently under construction, they therefore have no revenues or trading expenses.
The Group’s share of the assets and liabilities of the PPP investments at 31 March 2008 is as follows:
Assets
Liabilities
Group’s share of net assets
18. Investment in an associate undertaking
Group
At the beginning of the year
Transferred from non-current assets classifi ed as held for sale (note 23)
Share of post-tax results
At the end of the year
£m
216.4
(191.0)
25.4
2007
£m
–
–
–
2008
£m
–
43.4
(0.5)
–
42.9
On 14 March 2008 the Group sold 90% of its investment in Trillium Investment Partners LP. Trillium Investment Partners LP, prior to its partial disposal, had been classifi ed as a
non-current asset held for sale (note 23). Although the Group owns less than 20% of the equity, the Group believes that it exercises signifi cant infl uence over Trillium Investment
Partners LP, through representation on the Supervisory Board as well as its capacity as general partner and investment adviser. Consequently the Group’s remaining interest in
Trillium Investment Partners LP has been accounted for as an associate in accordance with IAS 28 ‘Investment in Associates’.
The Group’s share of the revenue and expenses of Trillium Investment Partners LP for the period 15 March 2008 to 31 March 2008 is as follows:
Revenue
Expenses
Share of losses before tax
Tax
Group’s share of post-tax result
The Group’s share of the assets and liabilities of Trillium Investment Partners LP at 31 March 2008 is as follows:
Assets
Liabilities
Group’s share of net assets
1.1
–
£m
(1.6)
(0.5)
(0.5)
£m
257.7
(214.8)
42.9
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Notes to the fi nancial statements continued
19. Investments in joint ventures
Year ended 31 March 2008 and at 31 March 2008
The Scottish
Retail
Property
Limited
Partnership
£m
Metro
Shopping
Fund
Limited
Partnership
£m
Buchanan
Partnership
£m
St. David’s
Limited
Partnership
£m
The Bull
Ring Limited
Partnership
£m
Bristol
Alliance
Limited
Partnership
£m
The Harvest
Limited
Partnership
£m
The Oriana
Limited
Partnership
£m
Summary fi nancial
information of Group’s
share of joint ventures
Income statement
Rental income
Service charge income
Property services income
Trading property sale
proceeds
Revenue
Rents payable
Other direct property
expenditure
Indirect property
expenditure
Cost of sales of trading
properties
(Loss)/profi t on disposal of
non-current properties
Net (defi cit)/surplus on
revaluation of
investment properties
Operating (loss)/profi t
Net interest (expense)/
income
(Loss)/profi t before tax
Income tax expense
Share of (losses)/profi ts of
joint ventures after tax
Balance sheet
Investment properties2
Current assets
Current liabilities
Non-current liabilities
Net assets
Capital commitments
Market value of
12.5
2.5
–
–
15.0
(0.2)
(4.6)
(0.6)
–
9.6
(7.6)
(28.4)
(26.4)
(5.6)
(32.0)
(0.1)
14.0
3.0
–
–
17.0
–
(3.8)
(1.1)
–
12.1
0.6
(12.1)
0.6
(12.5)
(11.9)
(0.6)
9.9
0.7
–
–
10.6
–
(1.9)
(0.1)
–
8.6
–
(11.5)
(2.9)
(3.5)
(6.4)
–
5.4
0.7
–
–
6.1
–
(1.2)
(0.3)
–
4.6
–
(21.8)
(17.2)
0.4
(16.8)
–
14.7
2.7
–
–
17.4
–
(4.1)
(0.2)
–
13.1
–
(31.5)
(18.4)
0.1
(18.3)
–
(32.1)
(12.5)
(6.4)
(16.8)
(18.3)
126.7
11.2
137.9
(2.9)
(62.0)
(64.9)
73.0
2.9
246.4
38.3
284.7
(4.9)
(209.9)
(214.8)
69.9
0.6
176.0
6.1
182.1
(2.5)
–
(2.5)
179.6
2.9
244.1
118.7
362.8
(15.7)
(0.4)
(16.1)
346.7
127.4
288.4
9.1
297.5
(8.2)
–
(8.2)
289.3
–
3.4
–
–
–
3.4
–
(0.2)
(0.2)
–
3.0
–
6.3
9.3
0.4
9.7
–
9.7
291.5
12.4
303.9
(17.2)
(2.3)
(19.5)
284.4
27.7
1.4
–
–
–
1.4
–
–
1.4
–
–
–
1.4
–
–
(0.1)
(0.2)
–
1.3
–
(9.7)
(8.4)
–
(8.4)
–
–
1.2
–
(15.6)
(14.4)
–
(14.4)
–
Other1
£m
3.4
0.7
0.1
35.1
39.3
(0.1)
(1.4)
(0.1)
(26.8)
10.9
(0.1)
(9.9)
0.9
(0.3)
0.6
(2.4)
Total
£m
66.1
10.3
0.1
35.1
111.6
(0.3)
(17.2)
(2.9)
(26.8)
64.4
(7.1)
(134.2)
(76.9)
(21.0)
(97.9)
(3.1)
(8.4)
(14.4)
(1.8)
(101.0)
62.7
2.3
65.0
(0.5)
–
(0.5)
64.5
–
87.3
1.5
88.8
(79.7)
(0.1)
(79.8)
9.0
–
55.9
73.7
129.6
(10.7)
(24.7)
(35.4)
94.2
8.3
1,579.0
273.3
1,852.3
(142.3)
(299.4)
(441.7)
1,410.6
169.8
investment properties2
125.9
246.6
180.0
244.0
293.3
294.5
62.8
87.3
55.5
1,589.9
Net investment
At 1 April 2007
Properties contributed
Cash contributed
Share of post-tax results
Distributions
Fair value movement on
cashfl ow hedges taken
to equity
Loan advances
Loan repayments
At 31 March 2008
145.8
–
–
(32.1)
(42.5)
1.8
–
–
73.0
95.3
–
6.6
(12.5)
(14.2)
(5.3)
–
–
69.9
188.6
–
3.4
(6.4)
(6.0)
–
–
–
308.1
–
–
(16.8)
–
–
55.4
–
321.1
–
–
(18.3)
–
–
–
(13.5)
198.6
–
–
9.7
–
–
79.5
(3.4)
–
39.7
33.2
(8.4)
–
–
–
–
179.6
346.7
289.3
284.4
64.5
–
205.8
–
(14.4)
(0.8)
–
–
(181.6)
9.0
81.3
–
26.3
(1.8)
(11.6)
–
–
–
1,338.8
245.5
69.5
(101.0)
(75.1)
(3.5)
134.9
(198.5)
94.2
1,410.6
1. Other principally includes the Martineau Galleries Limited Partnership, Fen Farm Developments Limited, the Ebbsfl eet Limited Partnership, the A2 Limited Partnership and Investors in the Community (IIC).
2. The difference between the book value and the market value is the amount included in prepayments in respect of lease incentives, head leases capitalised and properties treated as fi nance leases.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
99
19. Investments in joint ventures continued
Year ended 31 March 2007 and at 31 March 2007
The Scottish
Retail
Property
Limited
Partnership
£m
Metro
Shopping
Fund
Limited
Partnership
£m
Buchanan
Partnership
£m
St. David’s
Limited
Partnership
£m
The Bull Ring
Limited
Partnership
£m
Bristol
Alliance
Limited
Partnership
£m
The Harvest
Limited
Partnership
£m
The Oriana
Limited
Partnership
£m
Summary fi nancial
information of Group’s
share of joint ventures
Income statement
Rental income
Service charge income
Property services income
Revenue
Rents payable
Other direct property
expenditure
Indirect property
expenditure
Depreciation
Profi t on disposal of
non-current properties
Net surplus on revaluation
of investment properties
Operating profi t
Net interest (expense)/
income
Profi t before tax
Income tax (expense)/credit
– ordinary
– exceptional
Share of profi ts of joint
ventures after tax
Balance sheet
Investment properties2
Current assets
Current liabilities
Non-current liabilities
Net assets
Capital commitments
Market value of
20.6
4.5
–
25.1
(0.2)
(8.4)
(1.4)
–
15.1
–
6.3
21.4
(11.7)
9.7
(2.7)
17.7
13.3
3.2
–
16.5
–
(4.3)
(1.0)
–
11.2
–
23.0
34.2
(10.9)
23.3
(6.2)
16.9
10.2
1.4
–
11.6
–
(2.4)
(0.1)
–
9.1
–
10.2
19.3
(3.4)
15.9
(3.5)
6.9
2.0
0.2
–
2.2
–
(0.4)
–
–
1.8
–
2.6
4.4
0.2
4.6
(1.2)
1.2
15.1
2.6
–
17.7
–
(4.5)
(0.2)
–
13.0
–
23.8
36.8
0.1
36.9
(5.6)
44.9
3.3
–
–
3.3
–
(0.2)
(0.1)
–
3.0
–
6.9
9.9
0.4
10.3
(1.1)
8.1
24.7
34.0
19.3
4.6
76.2
17.3
357.2
15.2
372.4
(4.5)
(222.1)
(226.6)
145.8
0.6
301.0
9.8
310.8
(5.2)
(210.3)
(215.5)
95.3
1.1
185.1
7.5
192.6
(4.0)
–
(4.0)
188.6
1.3
213.2
116.3
329.5
(21.2)
(0.2)
(21.4)
308.1
1.9
319.6
10.7
330.3
(9.2)
–
(9.2)
321.1
–
197.3
15.5
212.8
(11.8)
(2.4)
(14.2)
198.6
129.3
investment properties2
351.4
299.3
189.3
213.3
325.0
200.5
Net investment
At 1 April 2006
Properties contributed
Cash contributed
Cost of acquisition
Share of post-tax results
Distributions
Fair value movement on
cashfl ow hedges taken
to equity
Transferred to goodwill
Loan advances
Loan repayments
105.2
–
9.5
–
24.7
–
6.4
–
–
–
81.0
–
6.8
–
34.0
(29.6)
3.1
–
–
–
173.0
–
1.4
–
19.3
(5.1)
–
–
–
–
0.8
267.6
35.1
–
4.6
–
–
–
–
–
259.3
–
0.3
–
76.2
–
–
–
–
(14.7)
118.5
–
–
–
17.3
–
–
–
67.0
(4.2)
At 31 March 2007
145.8
95.3
188.6
308.1
321.1
198.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Other1
£m
3.1
0.5
1.6
5.2
(0.1)
(4.6)
(0.9)
(0.1)
(0.5)
0.2
2.3
2.0
(0.2)
1.8
(0.9)
2.3
Total
£m
67.6
12.4
1.6
81.6
(0.3)
(24.8)
(3.7)
(0.1)
52.7
0.2
75.1
128.0
(25.5)
102.5
(21.2)
98.0
3.2
179.3
57.9
30.1
88.0
(5.9)
(0.8)
(6.7)
1,631.3
205.1
1,836.4
(61.8)
(435.8)
(497.6)
81.3
1,338.8
–
134.2
58.9
1,637.7
91.7
–
2.5
0.5
3.2
(4.5)
–
(12.1)
–
–
81.3
829.5
267.6
55.6
0.5
179.3
(39.2)
9.5
(12.1)
67.0
(18.9)
1,338.8
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
1. Other principally includes the Martineau Galleries Limited Partnership, the Ebbsfl eet Limited Partnership, the A2 Limited Partnership and Investors in the Community (IIC).
2. The difference between the book value and the market value is the amount included in prepayments in respect of lease incentives, head leases capitalised and properties treated as fi nance leases.
Land Securities Annual Report 2008
100
Notes to the fi nancial statements continued
20. Trading properties and long-term development contracts
Group
Trading properties
The amounts for contracts in progress at the balance sheet date are as follows:
Contract revenue recognised as revenue in the year
Contract costs incurred and recognised profi ts (less recognised losses) to date
Advances received
Plus: gross amount due to customers for contract work (included in accruals and deferred income)
Gross amount due from customers for contract work
21. Trade and other receivables
Trade receivables – Property investment
– Trillium
Property sales receivables
Other receivables
Prepayments and accrued income
Finance leases receivable within one year (note 14)
Loans to joint ventures
Loans to Group undertakings
2008
£m
173.0
2007
£m
148.3
26.3
80.7
332.8
(346.0)
(13.2)
13.2
–
494.8
(504.1)
(9.3)
9.3
–
2008
£m
34.0
112.1
205.2
53.9
314.6
7.1
111.1
–
838.0
Group
2007
£m
26.1
96.2
78.6
81.6
329.9
3.7
25.7
–
641.8
Company
2007
£m
–
–
–
–
–
–
–
5.5
5.5
2008
£m
–
–
–
–
0.3
–
–
385.9
386.2
Trade receivables are net of provisions for doubtful debts of £15.0m (2007: £15.2m). Financial assets which are past due but not impaired are £54.2m (2007: £29.4m).
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
22. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
For the purposes of the cashfl ow statement, cash and cash equivalents comprise the following:
Cash at bank and in hand
Short-term deposits
Bank overdraft (note 24)
2008
£m
25.7
22.7
48.4
25.7
22.7
(1.4)
47.0
Group
2007
£m
32.4
20.3
52.7
32.4
20.3
–
52.7
Company
2007
£m
5.0
–
5.0
5.0
–
–
5.0
2008
£m
69.5
–
69.5
69.5
–
–
69.5
The effective interest rate on short-term deposits was 5.1% (2007: 8.0%) and the deposits have an average maturity of one day (2007: 30 days).
23. Non-current assets classifi ed as held for sale
Group
Non-current assets classifi ed as held for sale
Liabilities directly associated with non-current assets classifi ed as held for sale
2008
£m
664.1
(427.7)
236.4
2007
£m
2,420.3
(1,601.0)
819.3
Non-current assets and liabilities held for sale at 31 March 2007 represent PPP investments acquired as part of the SMIF acquisition. SMIF was acquired on 5 February 2007 for
£517.0m (excluding external debt repaid of £397.6m). SMIF included a number of PPP investments which the Group acquired exclusively with a view to being resold to third party
investors, while maintaining a minority share. The Group transferred the majority of the PPP investments acquired with SMIF, together with a number of projects subsequently
acquired, into a specifi cally created vehicle, Trillium Investment Partners LP, for the purpose of introducing third party investors. During the year Trillium Investment Partners LP was
refi nanced resulting in a repayment of £414.8m of debt. On 14 March 2008, 90% of the equity of Trillium Investment Partners LP was sold to third party investors and the remaining
10%, which is to be retained, was transferred to an investment in an associate undertaking. On disposal £23.9m was recognised as the income of Trillium Investment Partners LP as a
discontinued operation, being the operational profi ts of the business from acquisition to 14 March.
The remaining balance represents a number of PPP investments which will be sold to Trillium Investment Partners LP or to third parties. The net carrying value of the disposal group
is based on its fair value less costs to sell at the date of acquisition, as adjusted to refl ect cash advanced and cash returned from the disposal group. The disposal group represents
a discontinued operation, and the Group has not recognised any profi ts or losses in respect of this discontinued operation (other than disclosed above) for the period from
acquisition to 31 March 2008. The disposal group is held in the Trillium segment.
101
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Land Securities Annual Report 2008
102
Notes to the fi nancial statements continued
23. Non-current assets classifi ed as held for sale continued
Set out below is an analysis of the movements within the disposal group for the year ended 31 March 2008:
Book value at 1 April 2007
Projects acquired from AMEC (note 37)
Other projects acquired
Cash received on refi nancing of Trillium Investment Partners LP
Cash received from the disposal group
Cash received on disposal of Meterfi t
Trillium Investment Partners LP transferred to an associate undertaking (note 18)
Cash received on disposal of Trillium Investment Partners LP
Profi t within Trillium Investment Partners LP from acquisition to 14 March 2008
Profi t on disposal of Trillium Investment Partners LP
Profi t on disposal of Meterfi t
Profi t from discontinued operations
Book value at 31 March 2008
Trillium
Investment
Partners LP
£m
761.2
–
67.0
(414.8)
(7.9)
–
(43.4)
(399.6)
23.9
13.6
–
37.5
–
Other
£m
58.1
134.4
77.5
–
(18.3)
(25.3)
–
–
–
–
10.0
10.0
Total
£m
819.3
134.4
144.5
(414.8)
(26.2)
(25.3)
(43.4)
(399.6)
23.9
13.6
10.0
47.5
236.4
236.4
The Group has retained a 10% interest in Trillium Investment Partners LP and consequently its share of the profi t recognised from acquisition to 14 March 2008 is £2.4m.
24. Short-term borrowings and overdrafts
Borrowings falling due within one year (note 27)
Overdrafts (note 27)
Bond exchange derecognition adjustment falling due within one year (note 27)
Amounts payable under fi nance leases falling due within one year (notes 27 and 30)
Where the Group operates a notional cash pooling arrangement the cash and overdraft balances are netted off.
25. Trade and other payables
Trade payables
Capital payables
Other payables
Accruals and deferred income
Amounts owed to joint ventures
Loans from Group undertakings
2008
£m
802.1
1.4
(11.7)
2.2
794.0
2008
£m
28.5
116.8
73.3
574.4
134.2
–
927.2
Group
2007
£m
1,687.4
–
(6.3)
2.1
1,683.2
Group
2007
£m
26.7
77.9
28.1
526.6
124.6
–
783.9
Company
2007
£m
–
61.9
–
–
61.9
Company
2007
£m
–
–
–
–
–
50.8
50.8
2008
£m
–
–
–
–
–
2008
£m
–
–
–
0.2
–
874.5
874.7
Capital payables 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 fi nancial year end. Deferred income principally relates to rents received in advance.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
103
26. Provisions
Group
At 1 April 2006
Net charge/(credit) to income statement for the year
Release of discount charged to net interest expense (note 6)
Utilised in the year
On acquisition of Royal Mail property portfolio
At 31 March 2007
Net charge to income statement for the year
Release of discount charged to net interest expense (note 6)
Utilised in the year
At 31 March 2008
Included in the balance above the following amounts are anticipated to be utilised within one year:
At 31 March 2007
At 31 March 2008
Dilapidations
£m
Onerous
leases
£m
23.1
5.9
–
(8.1)
–
20.9
7.2
–
(7.9)
20.2
7.9
14.8
19.8
(0.5)
1.0
(4.7)
24.2
39.8
0.4
1.6
(11.6)
30.2
11.6
10.6
Other
£m
15.3
7.1
–
(2.4)
–
20.0
7.2
–
–
27.2
–
15.5
Total
£m
58.2
12.5
1.0
(15.2)
24.2
80.7
14.8
1.6
(19.5)
77.6
19.5
40.9
Dilapidations
Provision for dilapidations is made in respect of certain leasehold properties where the Group anticipates incurring future expenditure at the end of the lease. The amounts
provided are based on the current estimate of the future costs determined on the basis of the present condition of the relevant properties. Settlement of the amounts provided
occurs once agreement is reached with the parties to the lease.
Onerous leases
An onerous lease provision is established in respect of leasehold properties that are unoccupied or the expected future rental income is not expected to meet the Group’s rental
obligations. The provisions are based on assumptions about expected future rentals and voids. This provision will be settled as the net rental obligations develop. The provision
may vary based on reassessment of the relevant assumptions as circumstances change and new obligations are established.
Other
Other provisions include liabilities arising from the contractual arrangements with clients that include specifi c performance measurement targets and life cycle capital
expenditure requirements. Settlement of the amounts provided follows agreement with the clients. It is expected that most of the other provisions will be utilised within the
next three years.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Land Securities Annual Report 2008
104
Notes to the fi nancial statements continued
27. Borrowings
Group
Sterling
4.625 per cent Notes due 20131
5.292 per cent Notes due 20151
4.875 per cent Notes due 20191
5.425 per cent Notes due 20221
4.875 per cent Notes due 20251
5.391 per cent Notes due 20261
5.391 per cent Notes due 20271
5.376 per cent Notes due 20291
5.396 per cent Notes due 20321
5.125 per cent Notes due 20361
Bank facility due 2010
Euro Commercial Paper2
DWP term loan3
Syndicated bank debt4
Bilateral facilities5
Acquisition loan notes6
Bank overdraft
Money market borrowings
Euro
Euro Commercial Paper2
Nominal/
notional
value7
£m
300.0
391.5
400.0
255.3
300.0
210.7
611.2
317.9
322.9
500.0
15.5
19.8
124.4
865.0
1,065.4
106.4
1.4
45.0
5,852.4
Secured
£m
Unsecured
£m
Book value
Total
£m
Fixed/
fl oating9
Weighted
average time
for which
interest rate
is fi xed
Years
Effective
interest
rate
%
299.7
390.9
396.1
254.5
297.0
209.8
608.5
316.3
321.0
498.5
15.5
–
124.4
865.0
1,065.4
–
–
–
5,662.6
–
–
–
–
–
–
–
–
–
–
–
19.8
–
–
–
106.4
1.4
45.0
172.6
299.7
390.9
396.1
254.5
297.0
209.8
608.5
316.3
321.0
498.5
15.5
19.8
124.4
865.0
1,065.4
106.4
1.4
45.0
5,835.2
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
4.7
5.3
5.0
5.5
4.9
5.4
5.4
5.4
5.4
5.1
6.4
5.8
6.4
5.8
5.9
5.4
–
5.7
2.8
5.7
9.6
12.0
15.5
15.9
17.0
19.5
22.3
25.9
0.1
0.1
0.3
–
–
0.5
–
0.1
2008
Surplus/
(defi cit) of
fair value
over book
value
£m
(6.8)
(6.9)
(26.2)
(14.5)
(39.8)
(19.3)
(60.9)
(32.9)
(35.8)
(71.9)
–
–
–
–
–
–
–
–
(315.0)
Fair value10
£m
292.9
384.0
369.9
240.0
257.2
190.5
547.6
283.4
285.2
426.6
15.5
19.8
124.4
865.0
1,065.4
106.4
1.4
45.0
5,520.2
35.5
–
35.5
35.5
Floating
4.7
0.1
35.5
–
Amounts payable under fi nance leases
(note 30)
67.3
67.3
–
67.3
Fixed
5.5
88.5
79.5
12.2
5,955.2
5,729.9
208.1
5,938.0
5,635.2
(302.8)
Fair value of derivative instruments
Interest rate swaps – qualifying hedges
– non-qualifying hedges
Foreign currency swaps – qualifying hedges
Bond exchange derecognition adjustment8
145.7
1,880.0
35.5
2,061.2
–
–
–
–
(511.5)
0.8
9.9
(4.3)
6.4
–
0.8
9.9
(4.3)
6.4
(511.5)
Total borrowings
5,218.4
214.5
5,432.9
Less: bank overdraft (note 24)
Less: borrowings falling due within one year (note 24)
Less: derivative fi nancial instruments – liabilities
Plus: derivative fi nancial instruments – assets
Plus: bond exchange derecognition falling due within one year (note 24)
Less: amounts payable under fi nance leases falling due within one year
(notes 24 and 30)
(1.4)
(802.1)
(10.7)
4.3
11.7
(2.2)
4,632.5
5.1
5.2
4.7
6.3
1.7
0.1
0.8
9.9
(4.3)
6.4
–
5,641.6
–
–
–
–
511.5
208.7
1. The Notes and the committed bank facilities are secured on a fi xed and fl oating pool of assets (The Security Group). The debt investors benefi t from security over a pool of investment properties valued at £11.0bn at 31 March 2008
(2007: £11.6bn). The nominal value borrowed against these assets was £5,595.2m (2007: £5,126.9m). The secured debt structure has a tiered covenant regime which gives the Group substantial operational fl exibility when the loan to
value and interest rate cover in The Security Group are less than 65% and more than 1.45 times respectively. If these limits are exceeded, operational restrictions increase signifi cantly and could act as an incentive to reduce gearing.
2. Euro Commercial Paper is unsecured. However, the amount drawn is required to be supported by an unutilised committed bank facility, which is a secured facility.
3. The DWP term loan was refi nanced in December 2006 and expires in December 2017. It is secured on the freehold and long leasehold properties acquired from the Department for Work and Pensions. The carrying amount of the
properties concerned was £364.0m at 31 March 2008 (2007: £380.4m).
4. At 31 March 2008, the Group had a £1.5bn syndicated bank facility with a maturity of August 2013. The facility is committed and secured on the assets of The Security Group. The maturity profi le is calculated on the basis that it is the
Group’s intention to retain the existing loans or that the existing loans will be refi nanced or rescheduled with the same fi nancial institutions under the terms of the facility.
5. During the year, the Group entered into three committed bilateral facilities all of which are secured on the assets of The Security Group. In June 2007 the Group entered into a £150.0m facility, which has been extended in December 2007, as
a £175.0m facility with an expiry in February 2010. In July 2007 the Group entered into a £500.0m facility which was due to expire in July 2008, but a commitment has been obtained to replace it in July 2008 with a £350.0m facility with an
expiry in July 2009. In December 2007, the £1.0bn SMIF acquisition facility was repaid. Another £350.0m facility was established in December 2007 which expires in October 2008. The Group has an option to extend each of these bilateral
facilities by a further year. In December 2007, the Group acquired a share of Leeds Trinity Quarter which included a facility which has been refi nanced post year end with a fi ve year £352m committed facility secured on these assets. The
maturity profi le is calculated on the basis that it is the Group’s intention to retain the existing loans or that the loans will be refi nanced or rescheduled with the same fi nancial institutions under the terms of the facility.
6. The acquisition loan notes were issued by Retail Property Holdings Trust Limited, a subsidiary of the Group, as partial consideration for the purchase of Tops Estates PLC and the LxB portfolio. The notes are unsecured, however, they
have the benefi t of a commercial bank guarantee. Interest is calculated with reference to six month LIBOR. The notes are due to be redeemed in 2015, however, the holders of the notes can request redemption in full at the next interest
payment date with at least 30 days notice. Accordingly, the notes have been classifi ed as current liabilities.
For foreign currency amounts, the nominal/notional value is the Sterling equivalent of the principal amount at 31 March.
7.
8. On 3 November 2004, a debt refi nancing was completed resulting in the Group exchanging all of its outstanding bond and debenture debt for new Notes. The new Notes did not meet the IAS 39 requirement to be substantially different
from the debt that it replaced. Consequently the book value of the new Notes is reduced to the book value of the original debt (the bond exchange derecognition adjustment). The adjustment is amortised to zero over the life of the
new Notes.
9. Before the effect of derivative instruments.
10. The Group’s Notes are listed on the Irish Stock Exchange and their fair values are based on their respective market prices. The fair value of interest rate swaps is based on the market price of comparable instruments at the balance sheet
date. The fair values of short-term deposits, loans and overdrafts are assumed to approximate to their book values, as are the values of longer-term, fl oating rate bank loans.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
27. Borrowings continued
Group
Sterling
5.016 per cent Notes due 20071
4.625 per cent Notes due 20131
5.292 per cent Notes due 20151
4.875 per cent Notes due 20191
5.425 per cent Notes due 20221
4.875 per cent Notes due 20251
5.391 per cent Notes due 20261
5.391 per cent Notes due 20271
5.376 per cent Notes due 20291
5.396 per cent Notes due 20321
5.125 per cent Notes due 20361
Bank facility due 2010
Euro Commercial Paper2
DWP term loan3
Syndicated bank debt4
Bilateral facility5
Acquisition loan notes6
Money market borrowings
Euro
Bilateral facility
Euro Commercial Paper2
Swiss Francs
Euro Commercial Paper2
Yen
Euro Commercial Paper2
Nominal/
notional
value7
£m
Secured
£m
Unsecured
£m
Book value
Total
£m
181.7
300.0
391.5
400.0
255.3
300.0
210.7
611.3
317.9
322.9
500.0
15.5
139.2
173.1
183.0
885.6
114.4
192.0
181.7
299.6
390.7
395.7
254.4
296.9
209.8
608.3
316.2
321.0
498.4
15.5
–
173.1
183.0
885.6
–
–
5,494.1
5,029.9
26.9
41.1
68.0
21.0
38.8
26.9
–
26.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
139.2
–
–
–
114.4
192.0
445.6
–
41.1
41.1
21.0
38.8
Fixed/
fl oating9
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
181.7
299.6
390.7
395.7
254.4
296.9
209.8
608.3
316.2
321.0
498.4
15.5
139.2
173.1
183.0
885.6
114.4
192.0
5,475.5
26.9
41.1
68.0
21.0
Floating
38.8
Floating
Amounts payable under fi nance leases
(note 30)
71.0
71.0
–
71.0
Fixed
Fair value of derivative instruments
Interest rate swaps – qualifying hedges
– non-qualifying hedges
Foreign currency swaps – qualifying hedges
Bond exchange derecognition adjustment8
5,692.9
5,127.8
546.5
5,674.3
195.6
1,205.0
100.9
1,501.5
–
–
–
–
(519.1)
(2.4)
(12.0)
(0.2)
(14.6)
–
(2.4)
(12.0)
(0.2)
(14.6)
(519.1)
Total borrowings
4,608.7
531.9
5,140.6
Less: borrowings falling due within one year (note 24)
Plus: bond exchange derecognition falling due within one year (note 24)
Plus: derivative fi nancial instruments – assets
Less: amounts payable under fi nance leases falling due within one year
(notes 24 and 30)
(1,687.4)
6.3
14.6
(2.1)
3,472.0
Weighted
average time
for which
interest rate
is fi xed
Years
Effective
interest
rate
%
Fair value10
£m
2007
Surplus/
(defi cit) of
fair value
over book
value
£m
5.0
4.7
5.3
5.0
5.5
4.9
5.4
5.4
5.4
5.4
5.1
5.7
5.4
5.7
5.5
5.9
4.4
5.5
4.0
5.6
5.5
5.4
5.5
5.1
4.9
5.5
0.1
3.8
6.7
10.6
13.0
16.5
16.9
18.0
20.5
23.3
26.9
0.1
–
0.5
–
0.4
0.5
0.1
0.2
0.3
–
–
86.9
5.7
2.0
0.1
181.6
288.5
384.3
379.1
255.4
286.2
213.2
614.8
324.5
331.3
498.0
15.5
139.2
173.1
183.0
885.6
114.4
192.0
5,459.7
26.9
41.1
68.0
21.0
38.8
79.2
5,666.7
(2.4)
(12.0)
(0.2)
(14.6)
–
5,652.1
(0.1)
(11.1)
(6.4)
(16.6)
1.0
(10.7)
3.4
6.5
8.3
10.3
(0.4)
–
–
–
–
–
–
–
(15.8)
–
–
–
–
–
8.2
(7.6)
–
–
–
–
519.1
511.5
Financial risk management
Capital structure
The Group monitors and adjusts its capital structure (defi ned as equity shareholders’ funds and net borrowings) with a view to promoting the long-term success of the business and
maintaining sustainable returns for shareholders. This is achieved through a combination of controlling solvency, minimising fi nancing costs, managing risk, a rigorous investment
appraisal framework and maintaining high standards of business conduct. The key fi nancial measures that are subject to review include cashfl ow projections and the ability to meet
contracted commitments, projected gearing levels, interest covenants and dividend cover, although no absolute targets are set for these. At 31 March 2008, including our joint
ventures, our loan to value ratio was 47.9% (2007: 42.1%) and interest cover was 1.93x (2007: 2.43x).
The Group monitors its cost of debt and its weighted average cost of capital (WACC) on a regular basis. At 31 March 2008, the weighted average cost of debt was 5.4% (2007: 5.3%)
and the WACC was 7.25% (2007: 6.75%). Investment and development opportunities are evaluated against the WACC in order to ensure that long-term shareholder value is created.
The Group is not subject to any externally imposed capital requirements.
Land Securities Annual Report 2008
105
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
106
Notes to the fi nancial statements continued
27. Borrowings continued
Financial risk factors
The Group’s overall risk management programme focuses on the unpredictability of fi nancial markets and seeks to minimise potential adverse effects on the Group’s fi nancial
performance. The Group uses derivative fi nancial instruments to hedge certain risk exposures.
The Group’s operations and debt fi nancing expose it to a variety of fi nancial risks. The main risks arising include credit risk, liquidity risk and market risk, the latter in respect of both
interest rates and foreign exchange.
The exposure to each risk, how it arises and policies for managing each risk for the year are summarised below:
Credit risk
The Group’s principal fi nancial assets are bank balances and cash, trade and other receivables, fi nance lease receivables and short-term investments. The Group’s credit risk is
primarily attributable to its trade and fi nance lease receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for
impairment is made where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables concerned.
The balance is low relative to the scale of the balance sheet and therefore the credit risk of trade receivables is considered to be low.
Property sales receivables primarily relate to the sale of six properties, for which all payments to date have been received when due, and as the purchasers are of reputable
fi nancial standing the credit risk is considered low.
Finance lease receivables relate to amounts receivable from tenants in respect of tenant fi nance leases. This is not considered a signifi cant credit risk as the tenants are generally
of good fi nancial standing.
The credit risk on liquid funds and derivative fi nancial instruments is limited due to the Group’s policy of monitoring counterparty exposures. The Group has no signifi cant
concentration of credit risk, with exposure spread over a large number of counterparties.
Liquidity risk
The Group actively maintains a mixture of long-term and short-term committed facilities that are designed to ensure that the Group has suffi cient available funds for operations
and committed investments. The Group’s undrawn committed borrowing facilities are monitored against projected cash fl ows.
The expiry periods of the Group’s undrawn committed borrowing facilities are:
Group
More than one year but not more than two years
More than two years but not more than fi ve years
More than fi ve years
2008
£m
25.0
2.0
584.0
2007
£m
–
2.0
1,077.1
611.0
1,079.1
The undrawn committed borrowing facilities are net of amounts drawn under both the syndicated bank facility and the Euro Commercial Paper.
Market risk
The Group is exposed to market risk through interest rates, currency fl uctuations and availability of credit.
Interest rates
The Group uses interest rate swaps and similar instruments (forward rate agreements, forward starting swaps and gilt locks) to manage its interest rate exposure. With property
and interest rate cycles typically of four to seven years duration, the Group’s target is to have a minimum of 80% of anticipated debt at fi xed rates of interest and a maximum
of 20% fl oating over this timeframe. Due to a combination of factors, principally the high level of certainty required under IAS 39 ‘Financial Instruments: Recognition and
Measurement’, hedging instruments used in this context do not qualify for hedge accounting. Specifi c hedges are also used in geared joint ventures to fi x the interest exposure
on limited recourse debt.
At 31 March 2008 the Group (including joint ventures) had £2.3bn of hedges in place, and its debt was 80% fi xed. Consequently, based on year end debt levels, a 1% change in
interest rates would decrease or increase the Group’s annual profi t before tax by £12.4m (2007: £8.6m). The sensitivity has been calculated by applying the interest rate change
to the variable rate borrowings, net of interest rate swaps, at the year end.
Foreign exchange
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the Group’s functional currency.
The Group does not normally enter into any foreign currency transactions as it is UK based. However, the Group is able to raise debt in currencies other than Sterling, and where this
occurs it is the Group’s policy to hedge 100% of the exposure by entering into currency swaps to fi x the Sterling value of debt. Therefore the Group’s foreign exchange risk is low.
Financial maturity analysis
The interest rate and currency profi les of the Group’s undiscounted borrowings, after taking into account the effect of the foreign currency swaps and interest rate swaps,
are set out below:
Group
Sterling
Euro
Land Securities Annual Report 2008
£m
Fixed rate
£m
Floating rate
£m
2008
Total
4,402.5
–
1,552.7
–
5,955.2
–
Floating rate
£m
2007
Total
£m
207.6
26.9
5,666.0
26.9
Fixed rate
£m
5,458.4
–
4,402.5
1,552.7
5,955.2
5,458.4
234.5
5,692.9
Notes to the fi nancial statements continued
107
27. Borrowings continued
The maturity profi les of the Group’s borrowings are as follows:
Group
One year or less, or on demand
More than one year but not more than two years
More than two years but not more than fi ve years
More than fi ve years
The maturity profi les of the Group’s derivative instruments are as follows:
Group
One year or less, or on demand
More than one year but not more than two years
More than two years but not more than fi ve years
More than fi ve years
Fixed rate
£m
Floating rate
£m
172.2
464.4
321.9
3,444.0
4,402.5
633.5
38.0
–
881.2
1,552.7
Interest
rate swaps
£m
Foreign
currency swaps
£m
178.9
46.7
1,721.9
78.2
35.5
–
–
–
2008
Total
£m
805.7
502.4
321.9
4,325.2
5,955.2
2008
Total
£m
214.4
46.7
1,721.9
78.2
Fixed rate
£m
1,457.2
2.3
22.0
3,976.9
5,458.4
Floating rate
£m
234.5
–
–
–
234.5
Interest
rate swaps
£m
Foreign
currency swaps
£m
274.9
178.9
867.3
79.5
100.9
–
–
–
2007
Total
£m
1,691.7
2.3
22.0
3,976.9
5,692.9
2007
Total
£m
375.8
178.9
867.3
79.5
2,025.7
35.5
2,061.2
1,400.6
100.9
1,501.5
28. Net pension benefi t assets/(obligations)
Defi ned benefi t schemes
Land Securities Scheme
The Pension & Assurance Scheme of the Land Securities Group of Companies (the Scheme) is the most signifi cant defi ned benefi t pension scheme of the Group. The Scheme is a
wholly funded scheme, and 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 qualifi ed 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.
A full actuarial valuation of the Land Securities Scheme was undertaken on 1 July 2006 by the independent actuaries, Hymans Robertson Consultants & Actuaries. This valuation,
and the latest formal valuation of the Land Securities Trillium Plan, was updated to 31 March 2008.
As a result of the valuation performed on 1 July 2006, the Trustees and the Group have agreed that the employer contributions of 30% of pensionable salary will be paid together
with additional employer contributions to address the defi cit at that time.
Contributory money purchase scheme
A contributory money purchase scheme was introduced on 1 January 1999 for all new administrative and senior property based employees, subject to eligibility, together with
a separate similar scheme, effective 1 April 1998, for other property based employees. A further separate similar scheme, previously set up by Trillium, is also in operation for
their employees.
Pension costs for defi ned contribution schemes are as follows:
Group
Defi ned contribution schemes
2008
£m
2.0
2007
£m
1.8
All death-in-service and benefi ts for incapacity arising during employment are wholly insured. No post retirement benefi ts other than pensions are made available to employees of
the Group.
The major assumptions used in the valuation, were (in nominal terms):
Group
Rate of increase in pensionable salaries
Rate of increase in pensions in payment
Discount rate
Infl ation
Expected return on plan assets
2008
%
3.60#
3.60
6.90
3.60
6.44
2007
%
3.25#
3.25
5.40
3.25
6.14
#plus an allowance of 1.25% per annum for promotional salary increases in respect of employee members of the Trillium Plan.
The expected return on plan assets is based on expectations for bonds and equities. At the year end, the expected return on bonds is based on market yields of long dated bonds at
that date. The estimated expected return on equities includes an additional equity risk premium.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Land Securities Annual Report 2008
108
Notes to the fi nancial statements continued
28. Net pension benefi t assets/(obligations) continued
The mortality assumptions used in this valuation were:
Group
Life expectancy at age 60 for current pensioners – Men
– Women
Life expectancy at age 60 for future pensioners (current age 40) – Men
– Women
2008
Years
28.4
31.5
29.6
32.6
2007
Years
28.4
31.5
29.6
32.6
The fair value of the assets in the schemes (including 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
Fair value of schemes’ assets
Present value of schemes’ liabilities
Non-permissible surplus
Surplus/(defi cit) in the schemes
Related deferred tax (liability)/asset
Net pension asset/(liability)
The major categories of plan assets as a percentage of total plan assets are as follows:
Group
Equities
Bonds and insurance contracts
Other
2008
%
7.50
5.35
5.25
2007
%
7.50
4.80
5.25
2006
%
7.50
4.60
4.50
2008
£m
70.5
68.0
0.5
139.0
(123.9)
(4.1)
11.0
(0.8)
10.2
2007
£m
70.8
71.6
2.0
144.4
(150.0)
–
(5.6)
0.4
(5.2)
2008
%
51
49
–
2006
£m
64.1
82.9
3.0
150.0
(156.5)
–
(6.5)
2.0
(4.5)
2007
%
49
49
2
The plan assets do not include any directly owned fi nancial instruments issued by Land Securities Group PLC. Indirectly owned fi nancial instruments had a fair value of less than
£0.2m (2007: £0.2m).
Group
Analysis of the amounts charged to the income statement
Analysis of the amount charged to operating profi t
Current service cost
Charge to operating profi t
Analysis of amount (credited)/charged to interest expense
Expected return on plan assets
Interest on schemes’ liabilities
Net return
2008
£m
2.1
2.7
(9.0)
8.1
(1.0)
2007
£m
2.7
(8.6)
7.6
2.1
(0.9)
During the year ended 31 March 2006, the Group introduced amendments to the main scheme, which were adopted by the Trustees for active members who had given their
consent. As a result, the accrued entitlement of the active members at 31 March 2006 has been linked to infl ation, with future benefi ts accrued according to annual earnings.
The effect of this change was a reduction of £8.3m in the Group’s pension liability associated with funding future anticipated salary increases.
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Assumption
Discount rate
Rate of mortality
Change in assumption
Impact on scheme liabilities
Increase/decrease by 0.1%
Increase by 1 year
Decrease/increase by 2% or £2.2m
Increase by 2.5% or £2.8m
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
109
28. Net pension benefi t assets/(obligations) continued
Group
Changes in the present value of the defi ned benefi t obligation
At the beginning of the year
Current service cost
Interest cost
Actuarial gains
Benefi ts paid
Contributions by plan participants
At the end of the year
Group
Changes in the fair value of plan assets
At the beginning of the year
Expected return on plan assets
Employer contributions
Actual return less expected return on schemes’ assets
Benefi ts paid
Contributions by plan participants
At the end of the year
Group
Analysis of the movement in the balance sheet (surplus)/defi cit
At the beginning of the year
Charge to operating profi t
Expected return on plan assets
Interest on schemes’ liabilities
Employer contributions
Actuarial (gains)/losses
At the end of the year
139.0
Group
Analysis of the amounts recognised in the statement of recognised income and expense
Analysis of gains and losses
Actual return less expected return on schemes’ assets
Experience gains and losses arising on schemes’ liabilities
Non-permissible surplus
Actuarial gains/(losses)
Actuarial gains and losses are recognised immediately through the statement of recognised income and expense.
Group
History of experience gains and losses
Experience adjustments arising on schemes’ assets
Amount
Percentage of schemes’ assets
Experience adjustments arising on schemes’ liabilities
Amount
Percentage of the present value of funded obligations
Present value of schemes’ liabilities
Fair value of schemes’ assets
Non-permissible surplus
Surplus/(defi cit)
2008
£m
2007
£m
2006
£m
(12.1)
(8.7%)
(2.6)
(1.8%)
15.5
10.3%
(32.0)
(25.8%)
(1.3)
(0.9%)
20.5
13.1%
(123.9)
139.0
(4.1)
11.0
(150.0)
144.4
–
(5.6)
(156.5)
150.0
–
(6.5)
2008
£m
150.0
2.1
8.1
(32.0)
(4.5)
0.2
123.9
2008
£m
144.4
9.0
2.0
(12.1)
(4.5)
0.2
144.4
2008
£m
5.6
2.1
(9.0)
8.1
(2.0)
(15.8)
(11.0)
2008
£m
(12.1)
32.0
(4.1)
15.8
2005
£m
3.1
2.5%
7.8
5.7%
(136.6)
125.7
–
(10.9)
2007
£m
156.5
2.7
7.6
(1.3)
(15.6)
0.1
150.0
2007
£m
150.0
8.6
3.9
(2.6)
(15.6)
0.1
2007
£m
6.5
2.7
(8.6)
7.6
(3.9)
1.3
5.6
2007
£m
(2.6)
1.3
–
(1.3)
2004
£m
13.7
13.1%
0.2
0.1%
(121.8)
104.6
–
(17.2)
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The contributions expected to be paid in respect of the defi ned benefi t schemes during the fi nancial year ending 31 March 2009 amount to £5.0m. The Company did not operate
any defi ned contribution schemes or defi ned benefi t schemes during the fi nancial year ended 31 March 2008 or in the previous fi nancial year.
Land Securities Annual Report 2008
110
Notes to the fi nancial statements continued
29. Deferred taxation
Group
Deferred tax liabilities
At 1 April 2006
Net (charge)/credit to income statement for the year
Released in respect of property disposals during the year
Released on conversion to a Real Estate Investment Trust
At 31 March 2007
Transferred to deferred tax assets
Net credit to income statement for the year
At 31 March 2008
Group
Deferred tax assets
At 1 April 2006
Net charge to income statement for the year
Released in respect of property disposals during the year
Released on conversion to a Real Estate Investment Trust
(Credited)/charged to equity
At 31 March 2007
Transferred from deferred tax liabilities
Net credit to income statement for the year
Credited to equity
At 31 March 2008
Group
Deferred tax is provided as follows:
Excess of capital allowances over depreciation – operating properties
Capitalised interest – operating properties
Other temporary differences
Total deferred tax
30. Obligations under fi nance leases
Group
The minimum lease payments under fi nance leases fall due as follows:
Not later than one year
Later than one year but not more than fi ve years
More than fi ve years
Future fi nance charges on fi nance leases
Present value of fi nance lease liabilities (notes 13 and 27)
The present value of fi nance lease liabilities is as follows:
Not later than one year (notes 24 and 27)
Later than one year but not more than fi ve years
More than fi ve years
Accelerated
tax
depreciation
£m
Capitalised
interest
£m
Revaluation
surplus
£m
(147.9)
(17.7)
1.1
160.1
(4.4)
–
3.7
(0.9)
Tax
losses
£m
12.2
(6.4)
(5.8)
–
–
–
–
–
–
–
(0.7)
–
–
(26.5)
(6.1)
–
31.7
(0.9)
–
–
–
(1,664.2)
(330.7)
32.5
1,962.4
–
–
–
–
Hedges
£m
Pension
defi cit/(asset)
£m
2.3
(3.1)
–
2.4
(1.6)
0.4
–
–
–
(0.8)
2.0
(0.4)
–
(2.2)
1.0
–
–
(0.3)
(0.9)
0.9
1.5
424.7
67.3
67.3
Other
£m
(154.7)
0.8
–
154.8
0.9
(0.9)
–
(1.6)
Other
£m
9.0
–
(9.0)
–
–
0.4
0.9
–
–
0.1
2008
£m
0.7
0.9
(0.1)
4.0
2008
£m
6.6
24.8
393.3
459.5
(357.4)
71.0
2.2
8.8
56.3
71.0
Total
£m
(1,993.3)
(353.7)
33.6
2,309.0
(4.4)
(0.9)
3.7
Total
£m
25.5
(9.9)
(14.8)
0.2
(0.6)
0.9
(0.3)
(0.9)
2007
£m
4.4
0.9
(1.3)
2007
£m
6.9
26.7
425.9
(388.5)
2.1
8.8
60.1
The fair value of the Group’s lease obligations, using a discount rate of 5.5% (2007: 5.5%), is £79.5m (2007: £79.2m).
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
31. Called up share capital
Group and Company
Ordinary shares of 10p each
Non-equity B shares of £1.02 each
Redeemable preference shares of £1.00 each
Movements in the share capital were:
At the beginning of the year
Issued on the exercise of options under:
1993 Savings Related Share Option Scheme
2003 Savings Related Share Option Scheme
2000 Executive Share Option Scheme
2002 Executive Share Option Scheme
2005 Executive Share Option Scheme
At the end of the year
111
Authorised
Allotted and fully paid
2008
Number m
2007
Number m
600.0
38.9
0.1
600.0
38.9
0.1
2008
£m
47.1
–
–
47.1
2007
£m
47.0
–
–
47.0
Number of shares
2008
2007
470,356,546 469,283,782
111,548
75,748
8,660
348,832
144
85,658
113,606
63,371
810,129
–
470,901,478 470,356,546
The number of ordinary shares that would be issued if all options were exercised at 31 March 2008 is 3,330,114 (2007: 3,423,934).
32. Share-based payments
The Group’s share-based payments are all equity-settled and comprise the Savings Related Share Option Schemes (Sharesave), various Executive Share Option Schemes (ESOS),
Performance and Deferred Bonus share schemes related to the annual bonus scheme, and the Long-Term Incentive Plan. In accordance with IFRS 2 ‘Share-based Payment’ the
fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the
Group’s estimate of shares or options that will eventually vest. Fair value is calculated using a Black-Scholes option pricing model.
Savings Related Share Option Scheme
Under the 1993 and 2003 Savings Related Share Option Scheme all staff who have been with the Group for a continuous period of not less than six months are eligible to make
regular monthly contributions into a Sharesave scheme operated by Lloyds TSB Bank Plc. On completion of the three, fi ve or seven year contract period, ordinary shares in Land
Securities Group PLC may be purchased at a price based upon the current market price at date of invitation less 20% discount. Options are satisfi ed by the issue of new shares.
Options are normally forfeited if the employee leaves the scheme before the options vest or lapse if options are not exercised within six months of the bonus date. In certain
circumstances leavers may exercise their options early based upon current savings. Alternatively, they may continue saving to receive the tax-free bonus at the end of the
contract or withdraw their cash immediately. Fair value calculations, which relate to the 2003 Scheme only, assume a lapse rate, based upon historic values, of approximately
20% for employees leaving the Group before vesting.
1993 Savings Related Share Option Scheme
Details of the share options outstanding during the year are as follows:
At the beginning of the year
Exercised
Forfeited
Lapsed
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of options
Weighted average
exercise price
2008
2007
147,433
(111,548)
(293)
(305)
237,713
(85,658)
(8,169)
3,547
35,287
147,433
3,312
–
2008
Pence
656
649
650
650
677
650
Years
0.87
2007
Pence
663
682
651
692
656
–
Years
0.85
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The options outstanding under the scheme are exercisable at prices between 650p and 713p after three, fi ve or seven years from the date of grant during the period 2008 to 2009.
The weighted average share price at the date of exercise during the year was 1647p (2007: 2023p).
No expense was recognised by the Group during the year, or during the corresponding year as the grants preceded the date relevant for IFRS 2 ‘Share-based Payment’.
Land Securities Annual Report 2008
112
Notes to the fi nancial statements continued
32. Share-based payments continued
2003 Savings Related Share Option Scheme
Details of the share options outstanding during the year are as follows:
At the beginning of the year
Granted
Exercised
Forfeited
Lapsed
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of options
Weighted average
exercise price
2008
2007
462,116
175,605
(75,748)
(21,979)
(32,522)
510,104
128,173
(113,606)
(42,202)
(20,353)
507,472
462,116
14,919
–
2008
Pence
1121
1460
937
1173
1376
1248
957
Years
2.33
2007
Pence
914
1523
709
941
1129
1121
–
Years
2.42
The options outstanding under the scheme are exercisable at prices between 677p and 1523p after three, fi ve or seven years from the date of grant. 61,072 of the options
outstanding are exercisable at 677p, 55,309 are exercisable at 957p, 122,892 at 1146p, 166,540 at 1460p, and 101,659 at 1523p during the periods 2008 to 2010, 2008 to 2012,
2010 to 2014 and 2009 to 2013, respectively.
The weighted average share price at the date of exercise during the year was 1559p (2007: 2132p). During the year, options were granted on 1 October 2007
(2007: 29 September 2006). The estimated fair value of the options granted on that date was £0.9m (2007: £0.5m).
During the year, the Group recognised total expenses of £0.3m (2007: £0.3m) relating to the 2003 Savings Related Share Option Scheme.
2000 Executive Share Option Scheme
No new grants to Directors and senior management of the Group have been made under this scheme since 19 July 2002. These options have fully vested as the growth in the
Group’s normalised adjusted diluted earnings per share exceeded the growth in the Retail Prices Index by 2.5% per annum over the vesting period. Options are satisfi ed by the
issue of new shares. Options are forfeited, in most circumstances, when an employee leaves the Group before vesting or lapse if they are not exercised within 10 years of the
date of grant.
Details of the share options outstanding during the year are as follows:
At the beginning of the year
Exercised
Forfeited
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of options
Weighted average
exercise price
2008
2007
247,400
(8,660)
(1,048)
312,600
(63,371)
(1,829)
237,692
247,400
237,692
247,400
2008
Pence
839
835
869
839
839
Years
3.70
2007
Pence
836
824
820
839
839
Years
4.69
The options outstanding under the scheme are exercisable at prices between 812p and 869p up to 2012. The weighted average share price at the date of exercise for share options
exercised during the year was 1650p (2007: 1996p).
No expense was recognised by the Group during the year, or during the corresponding year as the grants preceded the date relevant for IFRS 2 ‘Share-based Payment’.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
113
32. Share-based payments continued
2002 Executive Share Option Scheme
The fi nal grants to Directors and senior management of the Group under this scheme were made on 12 July 2004. Vesting is subject to growth in the Group’s normalised adjusted
diluted earnings per share exceeding the growth in the Retail Prices Index by 2.5% per annum over the three year vesting period. For options granted in the year ended
31 March 2004 there are a maximum of two retests for performance criteria in years four and fi ve. For options granted in the year ended 31 March 2005 there is no retesting
of performance criteria. Options are satisfi ed by the issue of new shares.
Options are normally forfeited if the employee leaves the scheme before the options vest or lapse if options are not exercised within 10 years of the date of grant. Fair value
calculations assume a lapse rate, based upon historic values, of between 2% and 5% per annum for employees leaving the Group before vesting.
Details of the share options outstanding during the year are as follows:
At the beginning of the year
Exercised
Forfeited
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of options
Weighted average
exercise price
2008
2007
1,977,946
(348,832)
(47,242)
2,818,574
(810,129)
(30,499)
1,581,872
1,977,946
1,581,872
652,018
2008
Pence
1036
1047
964
1036
1036
Years
5.94
2007
Pence
970
805
1037
1036
787
Years
6.94
18,500, 503,292 and 1,060,080 of the options outstanding under the 2002 Executive Share Option Scheme are exercisable at 756p, 788p and 1159p respectively up to 2014,
provided the associated performance conditions are met.
The weighted average share price at the date of exercise for share options exercised during the year was 1658p (2007: 2018p).
During the year, the Group recognised an expense of £0.2m (2007: £1.2m) relating to the 2002 Executive Share Option Scheme.
2005 Executive Share Option Scheme
The 2005 Executive Share Option Scheme is open to executives and management staff not eligible to participate in the Land Securities 2005 Long-Term Incentive Plan for senior
executives. Options are granted in the ordinary shares of Land Securities Group PLC at the middle market price on the three dealing days immediately preceding the date of grant.
The three year vesting period is not subject to performance conditions. Options are satisfi ed by the transfer of shares.
Options are normally forfeited if the employee leaves the scheme before the options vest or lapse if options are not exercised within 10 years of the date of grant. Fair value
calculations assume a lapse rate, based upon historic values, of 2% per annum for employees leaving the Group before vesting.
Details of the share options outstanding during the year are as follows:
At the beginning of the year
Granted
Exercised
Forfeited
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of options
Weighted average
exercise price
2008
2007
589,039
450,656
(4,478)
(67,426)
338,868
287,375
(12,486)
(24,718)
967,791
589,039
–
–
2008
Pence
1569
1731
1500
1636
1640
–
Years
8.41
2007
Pence
1421
1737
1481
1548
1569
–
Years
8.76
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The options outstanding under the scheme are exercisable at 1421p, 1731p and 1737p during the periods 2008 to 2015, 2010 to 2017 and 2009 to 2016, respectively.
The weighted average share price at the date of exercise for share options exercised during the year was 1870p (2007: 2018p). During the year, options were granted on
29 June 2007 (2007: 29 June 2006). The estimated fair value of the options granted on that date was £1.2m (2007: £0.6m).
During the year, the Group recognised an expense of £0.7m (2007: £0.4m) relating to the 2005 Executive Share Option Scheme.
Land Securities Annual Report 2008
114
Notes to the fi nancial statements continued
32. Share-based payments continued
Performance Shares
Under the Performance Shares plan approved by shareholders in 2002, senior executives of the Group receive up to two shares for each deferred share received under the
separate management bonus scheme depending on the extent to which performance criteria are satisfi ed. Half of these Performance Shares are dependent on the real increase
in the Group’s normalised adjusted diluted earnings per share over three fi nancial years. The other half of the Performance Shares are subject to the Group’s total property return
equalling or exceeding the Investment Property Databank All Fund Universe Index over a three year rolling period. The fi nal grant under the scheme was made in July 2005.
Awards under the plan are satisfi ed by transfer of existing shares. Fair value calculations have been adjusted for participants who have left the Group but no adjustment has
been made for future anticipated lapses.
Details of the rights over shares outstanding during the year are as follows:
At the beginning of the year
Exercised
Forfeited
Lapsed
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of shares
2008
2007
244,710
(102,562)
–
(4,814)
411,646
(104,918)
(30,162)
(31,856)
137,334
244,710
–
–
Years
0.26
Years
0.84
The Performance Shares outstanding under the scheme are to be issued at £nil consideration provided that performance conditions are met.
The weighted average share price at the date of exercise for Performance Shares exercised during the year was 1745p (2007: 1875p). The fi nal grant of Performance Shares was
made on 4 July 2005. The estimated fair value of the shares granted on that date was £1.1m.
During the year, the Group recognised a credit of £0.1m (2007: expense of £0.8m) relating to Performance Shares.
Deferred Bonus Shares Scheme
Under the Executive Directors’ and senior managements’ bonus plan, participants are eligible for awards in cash and deferred shares. The underlying performance criteria are
earnings per share and increase in net asset value over the previous year. In previous years Executive Directors have had the opportunity to earn a bonus of up to 20% of salary in
cash and 20% of salary in shares for meeting rigorous targets and up to a maximum of 40% of salary in cash and 40% of salary in shares for superior results. Following a review
of the reward structure by the Remuneration Committee, Executive Directors are in future eligible for awards of up to 100% of salary, 25% of which must be taken in deferred
shares. Other management grades must now take their entire bonus in cash. Awards under the plan are satisfi ed by transfers of existing shares held by the ESOP trust.
The shares are deferred for three years and normally forfeited if the executive leaves employment during the period. Fair value has been adjusted for participants who have left
the Group, but no adjustment has been made for future anticipated lapses.
Details of the rights over shares outstanding during the year are as follows:
At the beginning of the year
Granted
Capitalisation of dividends
Exercised
Forfeited
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of shares
2008
2007
221,064
46,386
7,565
(73,468)
(3,441)
270,627
54,787
5,734
(103,729)
(6,355)
198,106
221,064
–
–
Years
1.05
Years
1.17
The deferred shares outstanding under the scheme are to be issued at £nil consideration subject to vesting conditions being met.
The weighted average share price at the date of exercise for shares exercised during the year was 1741p (2007: 1925p). During the year, rights over 46,386 deferred shares were
granted on 29 June 2007 (2007: 24,987 deferred shares were granted on 29 June 2006). The estimated fair value of the rights over shares granted on that date was £0.7m (2007:
£0.9m).
During the year, the Group recognised an expense of £0.7m (2007: £0.9m) relating to Deferred Bonus Shares.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
115
32. Share-based payments continued
2005 Long-Term Incentive Plan
The new Long-Term Incentive Plan (LTIP) for Executive Directors and senior executives authorises the Remuneration Committee to make grants of LTIP shares with a face value
of up to 100% of salary for Executive Directors and up to 75% of salary for senior executives. In addition, an award of matching shares can be made, linked to co-investment in
shares by participants. The participant’s investment can be made through deferral of an annual bonus award and/or through optional pledging of shares purchased in the market.
The maximum level of matching is shares with a face value of 50% of salary for Executive Directors and 25% of salary for senior executives. Performance conditions are similarly
structured to those applying to the Performance Share Plan except that the EPS targets are increased and the IPD index measure is more closely targeted to the Group’s asset
classes. Awards may be satisfi ed by the issue of new shares and/or transfer of treasury shares and/or transfer of shares other than treasury shares.
Fair value calculations include the assumption that LTIP and matching shares will be awarded at 50% of the maximum possible under the scheme and have been adjusted for
participants who have left the scheme but no adjustment has been made for future anticipated lapses.
Details of the rights over shares outstanding during the year are as follows:
At the beginning of the year
Granted
Exercised
Forfeited
At the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life
Number of shares
2008
2007
756,629
517,103
–
(10,206)
351,425
468,274
(13,819)
(49,251)
1,263,526
756,629
–
–
Years
1.46
Years
1.89
The shares outstanding under the scheme are to be issued at £nil consideration provided performance conditions are met.
The weighted average share price at the date of exercise for shares exercised during the previous year was 2117p. Rights to receive 288,121 Performance Shares were granted
on 29 June 2007 (2007: 258,987 Performance Shares were granted on 29 June 2006). Rights to receive 228,982 Matching Shares were granted on 31 July 2007 (2007: 4,557
Matching Shares were granted on 1 June 2006 and 204,730 Matching Shares were granted on 31 July 2006). The estimated fair value of the rights over the shares granted on
those dates was £4.1m (2007: £4.0m).
During the year, the Group recognised an expense of £3.2m (2007: £2.0m) relating to the 2005 Long-Term Incentive Plan.
Fair values are calculated using the Black-Scholes option pricing model. Inputs into this model for each scheme are as follows:
2003 Savings
Related Share
Option Scheme
2002 Executive
Share Option
Scheme
2005 Executive
Share Option
Scheme
Performance
Shares
Deferred
Bonus Shares
2005
Long-Term
Incentive Plan
Range of share prices at grant date
846p to 1903p
756p to 1159p
1421p to 1737p
787p to 1405p
787p to 1737p
1421p to 1737p
Range of exercise prices
Expected volatility
Expected life
Risk free rate
677p to 1523p
756p to 1159p
1421p to 1737p
19%
19%
19%
nil p
19%
nil p
19%
nil p
19%
3 to 7 years
3 to 5 years
3 to 5 years
3 years
3 to 5 years
3 to 5 years
4.19% to 5.67%
3.60% to 5.10%
4.17% to 5.67%
4.17% to 5.03%
4.08% to 5.67%
4.17% to 5.67%
Expected dividend yield
3.02% to 4.16%
4.11% to 4.34%
3.02% to 3.81%
3.81% to 4.23%
3.02% to 4.23%
3.02% to 3.81%
Expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous 10 years. The expected life used in the model has been
determined, based upon management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Risk free rate is the yield,
at the date of the grant of an option, on a gilt-edged stock with a redemption date equal to the anticipated exercise of that option.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Land Securities Annual Report 2008
116
Notes to the fi nancial statements continued
33. Total shareholders’ equity
Group
At 1 April 2006
Exercise of options
Fair value movement on cashfl ow hedges – Group
– joint ventures
Fair value of share-based payments
Own shares acquired
Cost of shares awarded to employees
Actuarial losses on defi ned benefi t pension schemes
Dividends paid (note 10)
Profi t for the fi nancial year
At 31 March 2007
Exercise of options
Fair value movement on cashfl ow hedges – Group
– joint ventures
Fair value of share-based payments
Own shares acquired
Cost of shares awarded to employees
Actuarial gains on defi ned benefi t pension schemes
Dividends paid (note 10)
Loss for the fi nancial year
At 31 March 2008
Ordinary
shares
£m
46.9
0.1
–
–
–
–
–
–
–
–
47.0
0.1
–
–
–
–
–
–
–
–
47.1
Own
shares
£m
(3.4)
–
–
–
–
(15.1)
4.0
–
–
–
(14.5)
–
–
–
–
(9.4)
1.6
–
–
–
(22.3)
Share-based
payments
£m
Share
premium
£m
Capital
redemption
reserve
£m
6.3
–
–
–
5.6
–
(4.0)
–
–
–
7.9
–
–
–
5.0
–
(1.6)
–
–
–
11.3
43.2
8.3
–
–
–
–
–
–
–
–
51.5
5.1
–
–
–
–
–
–
–
–
56.6
30.5
–
–
–
–
–
–
–
–
–
30.5
–
–
–
–
–
–
–
–
–
30.5
Retained
earnings*
£m
7,370.4
–
5.1
9.5
–
(21.1)
–
(0.3)
(223.0)
3,528.3
10,668.9
–
(3.2)
(3.5)
–
(78.2)
–
14.9
(308.4)
(830.8)
Total
£m
7,493.9
8.4
5.1
9.5
5.6
(36.2)
–
(0.3)
(223.0)
3,528.3
10,791.3
5.2
(3.2)
(3.5)
5.0
(87.6)
–
14.9
(308.4)
(830.8)
9,459.7
9,582.9
*Included within retained earnings are cumulative gains in respect of cashfl ow hedges (interest rate swaps) of £4.4m (2007: £11.1m).
Own shares represent the cost of shares purchased in Land Securities Group PLC by the Employee Share Ownership Plan (ESOP) which is operated by the Group in respect of its
commitment to the Deferred Bonus Shares Scheme (note 32). The number of shares held by the ESOP at 31 March 2008 was 1,336,275 (2007: 895,771).
In July 2006 and 2007 the shareholders at the Annual General Meeting authorised the acquisition of shares issued by the Company representing up to 10% of its share capital to
be held as treasury shares. At 31 March 2008 the Group owned 5,896,000 ordinary shares (2007: 1,225,000 ordinary shares) with a market value of £87.6m (2007: £25.9m).
Company
At 1 April 2006 – as previously stated
– prior year adjustment
At 1 April 2006 – as restated
Exercise of options
Dividends paid (note 10)
Fair value of share-based payments
Profi t for the fi nancial year
At 31 March 2007
Exercise of options
Dividends paid (note 10)
Fair value of share-based payments
Loss for the fi nancial year
At 31 March 2008
*Available for distribution.
Ordinary
shares
£m
Share-based
payments
£m
Share
premium
£m
Capital
redemption
reserve
£m
46.9
–
46.9
0.1
–
–
–
47.0
0.1
–
–
–
47.1
–
6.9
6.9
–
–
5.6
–
12.5
–
–
5.0
–
17.5
43.2
–
43.2
8.3
–
–
–
51.5
5.1
–
–
–
56.6
30.5
–
30.5
–
–
–
–
30.5
–
–
–
–
30.5
Merger
reserve
£m
373.6
–
373.6
–
–
–
–
373.6
–
–
–
–
373.6
Retained
earnings*
£m
4,653.0
–
4,653.0
–
(223.0)
–
1.6
4,431.6
–
(308.4)
–
(15.3)
Total
£m
5,147.2
6.9
5,154.1
8.4
(223.0)
5.6
1.6
4,946.7
5.2
(308.4)
5.0
(15.3)
4,107.9
4,633.2
Land Securities Group PLC has not presented its own income statement, as permitted by Section 230 (1)(b) Companies Act 1985. The loss for the year of the Company, dealt with
in its fi nancial statements, was £15.3m (2007: profi t of £1.6m).
The merger reserve arose on 6 September 2002 when the Company acquired 100% of the issued share capital of Land Securities PLC. The merger reserve represents the excess
of the cost of acquisition over the nominal value of the shares issued by the Company to acquire Land Securities PLC. The merger reserve does not represent a realised or
distributable profi t.
Land Securities Annual Report 2008
Notes to the fi nancial statements continued
117
34. Cashfl ow from operating activities
Reconciliation of operating profi t to net cash infl ow from operating activities:
Cash generated from operations
(Loss)/profi t for the fi nancial year
Income tax (credit)/expense
(Loss)/profi t before tax
Share of losses/(profi ts) of joint ventures (post-tax)
Share of loss of an associate undertaking (post-tax)
Interest income
Interest expense
Operating (loss)/profi t
Adjustments for:
Depreciation
Profi t on disposal of non-current properties
Net defi cit/(surplus) on revaluation of investment properties
Share-based payment charge
Pension scheme charge
Changes in working capital:
Decrease in trading properties and long-term development contracts
(Increase)/decrease in receivables
Increase in payables and provisions
Net cash generated from operations
2008
£m
(878.3)
(10.5)
(888.8)
101.0
0.5
(787.3)
(29.4)
324.4
(492.3)
45.8
(75.4)
1,170.3
5.0
2.1
0.2
(26.3)
67.1
696.5
Group
2007
£m
3,528.3
(1,549.2)
1,979.1
(179.3)
–
1,799.8
(36.4)
257.3
2,020.7
32.9
(118.2)
(1,307.6)
5.6
2.7
110.1
(127.2)
63.4
682.4
Company
2007
£m
1.6
0.7
2.3
–
–
2.3
(5.7)
3.4
–
–
–
–
–
–
2008
£m
(15.3)
(6.6)
(21.9)
–
–
(21.9)
(14.7)
26.6
(10.0)
–
–
–
–
–
–
(0.3)
443.5
433.2
–
137.2
47.2
184.4
35. Related party transactions
Subsidiaries
In accordance with IAS 27 ‘Consolidated and Separate Financial Statements’, transactions between the Company and its subsidiaries, which are related parties of the Company,
have been eliminated on consolidation and are not disclosed in this note.
Joint ventures
As disclosed in note 19, the Group has investments in a number of joint ventures. Details of transactions and balances between the Group and its joint ventures are disclosed
as follows:
The Scottish Retail Property Limited Partnership
Metro Shopping Fund Limited Partnership
Buchanan Partnership
St. David’s Limited Partnership
Martineau Galleries Limited Partnership
The Bull Ring Limited Partnership
Bristol Alliance Limited Partnership
Martineau Limited Partnership
A2 Limited Partnership
Parc Tawe 1 Unit Trust
Hungate (York) Regeneration Limited
Countryside Land Securities (Springhead) Limited
Investors in the Community
Ebbsfl eet Limited Partnership
The Harvest Limited Partnership
The Oriana Limited Partnership
Millshaw Property Co. Limited
Fen Farm Developments Limited
Year ended 31 March 2008 and at 31 March 2008
Year ended 31 March 2007 and at 31 March 2007
Net
investments
into joint
ventures
£m
Revenues
£m
Loans
to joint
ventures
£m
Amounts
owed to joint
ventures
£m
Revenues
£m
Net
investments
into joint
ventures
£m
Loans
to joint
ventures
£m
Amounts
owed to joint
ventures
£m
0.6
0.9
3.7
5.4
0.2
–
9.0
–
–
–
–
–
–
–
0.1
–
–
0.1
(42.5)
(7.6)
(2.6)
55.4
3.1
(13.5)
76.1
–
(2.8)
(1.4)
1.7
5.5
–
–
72.9
23.4
14.2
(5.6)
0.9
0.7
0.5
4.3
0.3
–
11.7
–
–
–
–
–
–
0.2
0.1
78.7
–
13.7
20.0
176.3
111.1
(3.9)
(2.0)
–
(116.9)
–
–
–
(0.1)
–
–
–
–
–
–
(0.2)
(0.3)
(10.8)
–
(134.2)
1.5
0.5
3.6
1.9
0.2
–
5.1
–
–
–
–
–
–
–
–
–
–
–
12.8
9.5
(22.8)
(3.7)
302.7
–
(14.4)
62.8
(0.5)
–
(4.0)
1.6
0.9
0.5
–
–
–
–
–
332.6
0.4
–
0.3
20.4
0.1
–
4.3
–
–
–
–
–
–
0.2
–
–
–
–
25.7
(7.6)
(0.1)
–
(115.0)
–
–
(1.9)
–
–
–
–
–
–
–
–
–
–
–
(124.6)
F
i
n
a
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c
i
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S
t
a
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e
m
e
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t
s
Further detail of the above transactions and balances can be seen in note 19.
Land Securities Annual Report 2008
118
Notes to the fi nancial statements continued
35. Related party transactions continued
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the applicable categories specifi ed in IAS 24
‘Related Party Disclosures’. Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ remuneration report on pages 66 to 76.
Short-term employee benefi ts
Post-employment benefi ts
Share-based payments
Compensation for loss of offi ce
The amount shown as compensation for loss of offi ce represents the maximum potential amount assuming no mitigation.
36. Operating lease arrangements
The Group earns rental income by leasing its investment and operating properties to tenants under non-cancellable operating leases.
At the balance sheet date, the Group had contracted with tenants to receive the following future minimum lease payments:
Not later than one year
Later than one year but not more than fi ve years
More than fi ve years
2008
£m
7.7
0.6
3.2
–
11.5
2007
£m
6.1
0.9
2.4
0.7
10.1
2008
£m
547.6
2,123.0
4,284.4
6,955.0
2007
£m
516.8
2,055.6
4,078.7
6,651.1
The total of contingent rents recognised as income during the year was £10.9m (2007: £11.6m).
37. Business combinations
AMEC’s Project Investments business
The Group acquired 100% of the voting rights of AMEC’s Project Investments business (AMEC) on 12 November 2007 for a consideration of £203.8m, including costs. This has
been accounted for as a business combination.
Provisional fair value of net assets acquired
Assets of the disposal group
Liabilities directly associated with the assets of the disposal group
Disposal group (note 23)
PPP investments (note 17)
Cash and cash equivalents
Current liabilities
Net assets acquired
Fair value of consideration
Cash
Costs
Goodwill (note 15)
£m
138.2
(3.8)
134.4
17.2
45.3
(6.6)
190.3
202.1
1.7
203.8
(13.5)
190.3
The disposal group comprises a number of PPPs which were acquired exclusively with a view to being resold to Trillium Investment Partners LP. The net amount attributed to the
disposal group at the date of acquisition represents fair value less costs to sell. The separate PPP investments represent investments in associates which are currently constructing
PPP assets. These assets are not treated as assets held for sale. The remaining assets and liabilities relate to the management companies within AMEC that are being retained. The
fair values reported above in respect of these assets and liabilities equate to their book values. The goodwill acquired is attributable to the knowledge and market expertise of the
management team of the retained portion of the business.
Set out below are the results of AMEC’s Project Investments business, excluding the disposal group, from the date of acquisition 12 November 2007 to 31 March 2008 and for the
period from 1 April 2007 to the date of acquisition:
Results for
the Group
Results for
AMEC from excluding AMEC
for the
year ended
31 March
2008
£m
12 November
2007 to
31 March
2008
£m
Results for
the Group
for the
year ended
31 March
2008
£m
Results for
AMEC from
1 April
2007 to
12 November
2007
£m
–
1,561.2
1,561.2
(5.5)
1.5
(4.0)
(883.3)
9.0
(874.3)
(888.8)
10.5
(878.3)
13.4
9.1
(2.5)
6.6
Results for
the Group
as if AMEC
had been
acquired on
1 April
2007
£m
1,574.6
(879.7)
8.0
(871.7)
Revenue
(Loss)/profi t before tax
Taxation credit/(charge)
(Loss)/profi t after tax
There were no recognised gains or losses in the year other than the profi t attributable to shareholders.
Land Securities Annual Report 2008
119
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24 Retail Portfolio
34 London Portfolio
44 Trillium
52 Board of Directors
54 Corporate responsibility
62 Corporate governance
66 Directors’ remuneration report
78
79
80
80
Directors’ statements
of responsibilities
Independent auditors’ report
Income statement
Statement of recognised income
and expense
81 Balance sheets
82 Cashfl ow statements
83 Notes to the fi nancial statements
Investor information
120 Five year summary
121 Business analysis
129
130 Glossary
131
132
Index
Contact details
4 All you need to know
6 Performance overview
8 Chairman’s statement
10 Chief Executive’s report
13
14 Financial review
20 Business review
22
Benefi ts of demerger
Our risks and how we
manage them
Report of the Directors
Report from the Directors on
the key strategic, fi nancial and
operational developments during
the year.
Financial Statements
Statements presenting the
essential numbers, including the
independent auditors’ report.
Investor Information
Summaries, analysis and
information on properties,
contracts and related subjects
for shareholders.
Land Securities Annual Report 2008
120
Five year summary
Income statement
Before exceptional items
Group revenue
Costs
Profi t on disposal of non-current asset properties
Net (defi cit)/surplus on revaluation of investment properties
Operating (loss)/profi t
Net interest expense
Share of the (loss)/profi t of joint ventures and associates (post-tax)
(Loss)/profi t before tax
Income tax credit/(expense)
(Loss)/profi t after tax
Exceptional items
Goodwill impairment
Profi t on disposal of joint venture (Telereal)
Debt restructuring costs
Exceptional tax in joint ventures
Total exceptional items
Tax on exceptional items
Exceptional items post tax
(Loss)/profi t for the fi nancial year
Revaluation (defi cit)/surplus for the year
Group
Joint ventures
Total
Revenue profi t (old defi nition)
Less: trading properties
Less: long-term contracts
Revenue profi t (new defi nition)
2008 IFRS
£m
2007 IFRS
£m
2006 IFRS
£m
2005 IFRS
£m
2004 UK GAAP
£m
1,641.1
(1,046.2)
1,828.7
(1,267.8)
1,627.1
(1,134.7)
1,285.8
(821.1)
1,561.2
(958.6)
594.9
75.4
(1,170.3)
2,020.7
(295.0)
1,799.8
(101.5)
(888.8)
10.5
1,436.1
560.9
118.2
1,307.6
2,214.9
(220.9)
2,020.4
81.3
1,881.1
(445.0)
492.4
74.5
1,579.5
1,432.3
(194.5)
1,243.3
110.3
2,130.7
(593.3)
464.7
112.0
827.9
516.7
(189.0)
342.3
141.5
1,384.8
(265.8)
1,537.4
1,119.0
288.3
602.6
(492.3)
(787.3)
(878.3)
–
–
–
–
–
–
–
–
–
–
98.0
98.0
1,994.2
2,092.2
(64.5)
293.0
–
–
228.5
(90.0)
138.5
(878.3)
3,528.3
1,675.9
1,060.9
(1,170.3)
(134.2)
1,307.6
75.1
1,579.5
105.5
(1,304.5)
1,382.7
1,685.0
392.2
(11.1)
(2.0)
392.2
420.1
(13.6)
(14.3)
391.3
379.1
897.4
434.9
(21.7)
(21.9)
361.8
52.0
–
(174.4)
17.7
360.0
(71.7)
–
–
–
–
–
–
–
400.7
6.2
309.2
(7.3)
–
7,880.9
769.2
–
34.3
204.2
51.0
85.0
(439.9)
(365.3)
–
(11.7)
(1,995.9)
–
(173.3)
(12.7)
–
(64.6)
–
(77.3)
19.2
(58.1)
288.3
827.9
69.5
406.9
401.3
(27.9)
(11.6)
301.9
164.0
(45.8)
(101.6)
–
(720.2)
(42.0)
(2,392.3)
(10.9)
(1,418.0)
Balance sheet
Investment properties
Operating properties
Net investment in fi nance leases
Goodwill
Investment in joint ventures, associates and Public Private Partnerships
Other property, plant and equipment
12,296.7
544.8
333.7
148.6
1,478.9
73.6
13,319.3
551.5
262.4
129.6
1,338.8
78.2
11,467.6
536.1
233.9
34.3
829.5
73.6
8,240.1
546.3
163.4
34.3
854.9
57.9
Total non-current assets
14,876.3
15,679.8
13,175.0
9,896.9
8,939.6
Trading properties and long-term development contracts
Cash and cash equivalents less short-term borrowings, overdrafts and derivative fi nancial instruments
Other current assets and liabilities
Non-current assets classifi ed as held for sale (net)
173.0
(752.0)
(250.2)
236.4
148.3
(1,615.9)
(677.9)
819.3
255.9
(148.0)
(218.6)
–
Total current assets and liabilities
Provisions
Borrowings
Pension benefi ts assets/(liabilities)
Deferred tax liabilities
Total non-current liabilities
Net assets
Net debt
(592.8)
(1,326.2)
(110.7)
16.6
(77.6)
(4,632.5)
11.0
(1.5)
(80.7)
(3,472.0)
(5.6)
(4.0)
(58.2)
(3,537.9)
(6.5)
(1,967.8)
(4,700.6)
(3,562.3)
(5,570.4)
(3,863.2)
(2,180.9)
9,582.9
10,791.3
7,493.9
6,050.3
6,038.5
(5,384.5)
(5,087.9)
(3,685.9)
(2,438.1)
(2,435.8)
Results per share
Total dividend per share (all amounts represent the interim dividend paid and fi nal proposed dividend)
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Adjusted earnings per share
Adjusted diluted earnings per share
Net assets per share
Diluted net assets per share
Adjusted net assets per share
Adjusted diluted net assets per share
64.00p
(188.80p)
(188.80p)
81.90p
81.71p
2067p
2064p
1959p
1956p
53.00p
753.59p
750.54p
70.48p
70.20p
2304p
2297p
2188p
2181p
46.70p
357.95p
356.50p
70.76p
70.47p
1597p
1590p
1920p
1912p
43.25p
227.32p
226.45p
67.13p
66.87p
1293p
1289p
1493p
1488p
37.10p
61.84p
61.76p
47.86p
47.80p
1294p
1293p
1333p
1331p
Land Securities Annual Report 2008
Business analysis
121
In this section we provide information about
our major investment properties, development
programme and property outsourcing contracts
to help you understand more about our business
activities. A detailed list of our major property
holdings can be found on our website.
Investment Portfolio
The investment properties in our Retail Portfolio and London Portfolio business units make up the
majority of our Investment Portfolio. The Investment Portfolio includes a pro-rata share of our property
joint ventures, but excludes investment properties within our property outsourcing business, Trillium.
The market value of the investment property interests in the Investment Porftolio totalled £13,586.7m
at 31 March 2008 (31 March 2007: £14,752.5m). The aggregate of the market values of those investment
properties held by the Group, excluding joint ventures and Trillium, as at 31 March 2008 was £11,996.8m
(31 March 2007: £13,114.8m).
The valuation of the freehold and leasehold investment properties in the Investment Portfolio at
31 March 2008 was undertaken by Knight Frank LLP as External Valuer. The valuations were in accordance
with the Royal Institution of Chartered Surveyors’ Appraisal and Valuation Standards and the International
Valuation Standards. The valuation of each property was on the basis of market value, subject to the
assumptions that investment properties would be sold subject to any existing leases and that properties
held for development would be sold with vacant possession in existing condition. The External Valuer’s
opinion of market value was primarily derived using recent comparable market transactions on arm’s
length terms.
There follows a number of tables which give further detail of the underlying performance of the
combined portfolio:
£13,586.7m
Market value of investment property interests
in the Investment Portfolio
Table 65
Long-term performance relative to IPD.
Ungeared total returns – periods to 31 March 2008
Land
Securities
% pa
13.0
11.2
IPD
% pa
10.7
10.5
5 years
10 years
Source: IPD Quarterly Universe
Table 66
One year performance relative to IPD.
Ungeared total returns – year to 31 March 2008
Retail – Shopping centres
Retail warehouses
Central London offi ces*
Total portfolio
Land
Securities
% pa
(3.7)
(10.6)
(1.4)
(3.2)
IPD
% pa
(8.0)
(15.3)
(5.4)
(9.1)
Source: IPD Quarterly Universe
*Central London defi ned as West End, City, Mid-town and Inner London regions.
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Land Securities Annual Report 2008
122
Business analysis continued
Top 12 properties
Cardinal Place, SW1
Landmark offi ces,
with ground fl oor
retail anchored by
Marks & Spencer.
New Street Square, EC4
Innovative offi ces around
a public square, with
retail and restaurants.
50 Queen Anne’s Gate, SW1
Refurbished former
Home Offi ce building
now occupied by
Ministry of Justice.
White Rose, Leeds
Award-winning shopping
centre with more than
100 stores.
Almondvale Centre,
Livingston
Unique retail destination
in the heart of the
town centre.
Cabot Circus, Bristol
High quality retail
development due for full
completion autumn 2008.
Table 67
Combined portfolio value by location
Shopping
centres and
shops
%
Retail
warehouses
%
Offi ces
%
Other
%
Central, inner and outer London
South East and Eastern
Midlands
Wales and South West
North, North West, Yorkshire and Humberside
Scotland and Northern Ireland
9.0
4.6
3.5
6.3
7.8
3.9
0.8
2.9
1.4
1.4
5.4
1.5
Total
35.1
13.4
% fi gure calculated by reference to the combined portfolio value of £13.6bn
48.0
–
–
0.1
0.2
–
48.3
1.6
0.7
–
–
0.3
0.6
3.2
Combined portfolio value by location
Total
%
59.4
8.2
4.9
7.8
13.7
6.0
100.0
£6.2bn
Total Retail Portfolio
£7.3bn
Total London Portfolio
59.4%*
Table 68
% Portfolio by value and number of property holdings
at 31 March 2008
6.0%
*Retail and London Portfolios combined.
13.7%
4.9%
8.2%
7.8%
£m
0 – 9.99
10 – 24.99
25 – 49.99
50 – 99.99
100 – 149.99
150 – 199.99
200 +
Total
Includes share of joint venture properties
Value
%
Number of
properties
1.5
2.7
9.3
17.8
11.8
11.2
45.7
56
24
34
34
13
9
20
100.0
190
Table 69
Average rents at 31 March 2008
Retail
Shopping centres and shops
Retail warehouses
(including supermarkets)
Offi ces
London offi ce portfolio
Average rent
£/m2
Average ERV
£/m2
n/a
193
338
n/a
212
405
Average rent and estimated rental value have not been provided where it is
considered that the fi gures would be potentially misleading (i.e. where
there is a combination of analysis on rents on an overall and Zone A basis
in the retail sector or where there is a combination of uses, or small sample
sizes). This is not a like-for-like analysis with the previous year.
Excludes properties in the development programme and voids.
Land Securities Annual Report 2008
Bullring, Birmingham
An iconic shopping
location, this partnership
development has led the
city’s retail renaissance
(one-third ownership).
Princesshay, Exeter
Award-winning mixed-
use development based
around a vibrant piazza.
Portland House, SW1
Offi ces in Victoria let
to American Express,
Government and others.
Bankside 2&3, SE1
Contemporary offi ce
space in thriving
Southbank.
Gunwharf Quays,
Portsmouth
Historic harbour hosts
designer outlets, bars,
restaurants, cinema
and Bowlplex.
Times Square, EC4
We now hold a 95%
interest in this substantial
City offi ce asset.
Table 72
Top 12 occupiers
Central Government
Deloitte
Royal Bank of Scotland
Metropolitan Police Authority
Arcadia Group
J Sainsbury
DSG
Boots
Mellon Bank
Marks & Spencer
Argos and Homebase
Eversheds
Total
Includes share of joint venture properties
Current
gross rent
roll
%
9.7
4.1
3.1
2.9
1.8
1.6
1.5
1.5
1.4
1.3
1.2
1.2
31.3
Table 73
Like-for-like reversionary potential at 31 March 2008
Reversionary potential
Gross reversions
Over-rented
Net reversionary potential
31/03/08
% of rent roll
31/03/07
% of rent roll
16.2
(1.2)
15.0
11.6
(1.5)
10.1
The reversion is calculated with reference to the gross secure rent roll
after the expiry of rent-free periods on those properties which fall
under the like-for-like defi nition as set out in the notes to the combined
portfolio analysis. Reversionary potential excludes additional income
from the letting of voids. Of the over-rented income, £4.5m is subject
to a lease expiry or break clause in the next fi ve years.
Table 70
Valuation and rental income summary
Open
market
value at
31/03/08
£m
3,019.2
1,604.3
694.1
3,302.4
429.2
9,049.2
1,580.9
1,164.8
–
1,791.8
Open
market
value at
31/03/07
£m
3,345.3
1,900.8
673.8
3,512.8
443.0
9,875.7
1,463.4
636.8
1,445.0
1,331.6
Shopping centres and shops
Retail warehouses
London retail
London Offi ces
Other
Like-for-like investment
portfolio2
Completed developments
Acquisitions
Disposals and restructured
interests
Development programme3
Combined portfolio
13,586.7
14,752.5
Adjustment for fi nance leases
Combined portfolio as stated
in the income statement4
Rental
income for
the year
ended
31/03/08
£m
Rental
income for
the year
ended
31/03/07
£m
Valuation
surplus1
%
(10.8)
(15.9)
1.5
(8.5)
(3.9)
(9.8)
(3.1)
(14.4)
–
(4.2)
(8.8)
196.8
83.2
31.5
180.8
16.6
508.9
61.5
51.1
44.1
21.9
687.5
(11.5)
676.0
187.1
78.4
32.2
177.9
15.9
491.5
29.8
19.1
112.7
26.6
679.7
(12.6)
667.1
Rental
income
change
%
5.2
6.1
(2.2)
1.6
4.4
3.5
n/a
n/a
n/a
(17.7)
1.1
1. The valuation surplus and rental income value are stated after adjusting for the effect of spreading rents and rent free periods over the duration of
leases in accordance with IFRS but before restating for fi nance leases.
2. Properties that have been in the combined portfolio for the whole of the current and previous fi nancial periods.
3. Development programme comprising projects that have been completed but less than 95% let, developments on site, committed developments
(approved projects with the building contract let), and authorised developments (projects approved by the Board but for which the contract has not
yet been let).
4. The combined portfolio includes our proportionate share of the assets and rental income of our joint ventures.
Table 71
Top six performing properties over £50m
Retail
Property name
Princesshay, Exeter
Bristol Alliance
Oasis Retail Park, Corby
N1, Islington
Howard Centre, Welwyn Garden City
The Mall, Stratford
London
Property name
Lakeview Court, SW1
Piccadilly Circus Lights, W1
Allington House, SW1
Selborne House, SW1
New Scotland Yard, SW1
Empress State, SW6
Land Securities Annual Report 2008
% Valuation
surplus/
(defi cit)
Description
4.9
2.2
Completed development
Reduced development risk as
scheme nears completion
0.7 Rental value increase offset by adverse yield shift
(2.0) Rental value increase offset by adverse yield shift
(3.8) Rental value increase offset by adverse yield shift
(5.0) Rental value increase offset by adverse yield shift
% Valuation
surplus/
(defi cit)
Description
19.6
19.6
13.9
12.1
5.9
4.6
Yield shift recognising redevelopment potential
Rental value improvement
Yield shift recognising redevelopment potential
Potential redevelopment value recognised
Rent review concluded
Profi t overage release
123
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Business analysis continued
Combined portfolio analysis
The like-for-like portfolio2
Shopping centres and shops
Shopping centres
Central London shops
Other in-town shops
Retail warehouses
Retail parks
Other
Total retail
London offi ces
West End
City
Mid-town
Inner London
Total London offi ces
Rest of UK
Total offi ces
Other
Like-for-like portfolio2
Completed developments3
Total
Acquisitions4
Sales and restructured interests5
Total development programme6
Combined portfolio
Properties treated as fi nance leases
Combined portfolio
as stated in the income statement
Total portfolio analysis
Shopping centres and shops
Shopping centres
Central London shops
Other in-town shops
Retail warehouses
Retail parks
Other
Total retail
London offi ces
West End
City
Mid-town
Inner London
Total London offi ces
Rest of UK
Total offi ces
Other
Combined portfolio
Properties treated as fi nance leases
Combined portfolio
as stated in the income statement
Represented by:
Investment portfolio
Share of joint ventures
Combined portfolio
Land Securities Annual Report 2008
Open Market Value1
Valuation Surplus7
Gross Rental Income
Annual Net Rent8
Annual Net Estimated
Rental Value9
31/03/08
£m
31/03/07
£m
Surplus/
(defi cit)
£m
Surplus/
(defi cit)
%
31/03/08
£m
31/03/07
£m
31/03/08
£m
31/03/07
£m
31/03/08
£m
31/03/07
£m
2,793.6
694.1
225.6
3,096.1
673.8
249.2
(335.2)
10.0
(24.3)
3,713.3
4,019.1
(349.5)
1,415.7
188.6
1,686.3
214.5
(265.6)
(30.1)
1,604.3
1,900.8
(295.7)
5,317.6
5,919.9
(645.2)
1,730.3
600.6
491.4
480.1
3,302.4
68.6
1,799.2
695.9
530.2
487.5
3,512.8
74.9
(99.4)
(148.3)
(33.6)
(13.9)
(295.2)
(2.5)
3,371.0
3,587.7
(297.7)
360.6
368.1
(14.9)
9,049.2
1,580.9
9,875.7
1,463.4
(957.8)
(49.0)
10,630.1
1,164.8
–
1,791.8
11,339.1
636.8
1,445.0
1,331.6
(1,006.8)
(195.2)
–
(77.6)
13,586.7
14,752.5
(1,279.6)
3,702.4
1,060.8
284.9
4,157.9
1,236.0
359.9
(415.9)
(25.2)
(28.8)
5,048.1
5,753.8
(469.9)
1,554.9
248.9
1,872.7
434.2
(285.5)
(40.2)
1,803.8
2,306.9
(325.7)
6,851.9
8,060.7
(795.6)
2,745.6
1,155.5
1,272.0
950.9
6,124.0
79.6
2,721.3
1,200.4
1,253.3
927.9
6,102.9
90.1
(93.2)
(239.5)
(76.7)
(27.1)
(436.5)
(2.0)
6,203.6
6,193.0
(438.5)
531.2
498.8
(45.5)
13,586.7
14,752.5
(1,279.6)
(10.8)
1.5
(9.7)
(8.7)
(15.9)
(15.3)
(15.9)
(11.0)
(5.4)
(19.8)
(7.4)
(3.0)
(8.5)
(3.5)
(8.4)
(4.0)
(9.8)
(3.1)
(8.8)
(14.4)
–
(4.2)
(8.8)
(10.2)
(2.3)
(9.2)
(8.6)
(15.7)
(15.1)
(15.6)
(10.5)
(3.3)
(17.3)
(6.1)
(2.9)
(6.9)
(2.3)
(6.8)
(8.1)
(8.8)
183.6
31.5
13.2
228.3
73.1
10.1
83.2
174.5
32.2
12.6
219.3
69.2
9.2
78.4
171.8
30.1
12.0
213.9
74.7
9.3
84.0
170.0
29.1
11.9
211.0
71.8
8.2
80.0
193.2
37.9
14.3
245.4
84.2
11.0
95.2
191.7
33.0
14.2
238.9
82.9
10.5
93.4
311.5
297.7
297.9
291.0
340.6
332.3
95.5
32.8
26.6
25.9
180.8
1.9
182.7
14.7
508.9
61.5
570.4
51.1
44.1
21.9
687.5
92.6
33.9
26.2
25.2
177.9
1.9
179.8
14.0
491.5
29.8
521.3
19.1
112.7
26.6
679.7
92.6
31.4
27.3
27.5
178.8
1.8
180.6
15.2
493.7
60.9
554.6
61.0
–
9.4
625.0
(11.5)
(12.6)
676.0
667.1
87.1
29.4
25.5
15.1
157.1
1.8
158.9
14.4
464.3
16.7
481.0
28.5
68.3
6.7
584.5
211.4
48.1
18.0
277.5
78.4
17.8
96.2
217.7
53.3
18.0
289.0
82.8
16.6
99.4
190.1
41.5
15.1
246.7
79.2
15.1
94.3
200.9
48.0
16.5
265.4
79.4
16.8
96.2
373.7
388.4
341.0
361.6
128.2
52.5
52.8
51.0
284.5
2.3
286.8
27.0
687.5
128.7
60.4
37.2
35.5
261.8
2.7
264.5
26.8
679.7
124.1
50.9
50.4
35.1
260.5
1.8
262.3
21.7
625.0
(11.5)
(12.6)
676.0
667.1
97.8
38.1
40.0
24.0
199.9
3.0
202.9
20.0
584.5
117.8
35.1
33.7
32.7
219.3
2.3
221.6
16.8
579.0
97.8
676.8
79.7
–
163.8
920.3
263.6
73.8
20.7
358.1
91.9
16.7
108.6
466.7
186.4
86.2
88.9
65.5
427.0
2.3
429.3
24.3
920.3
99.3
37.4
28.9
26.7
192.3
2.4
194.7
16.2
543.2
87.5
630.7
35.6
85.1
164.5
915.9
288.1
71.2
22.6
381.9
93.5
21.8
115.3
497.2
168.8
87.0
77.4
57.2
390.4
4.1
394.5
24.2
915.9
11,996.8
1,589.9
13,114.8
1,637.7
(1,145.4)
(134.2)
13,586.7
14,752.5
(1,279.6)
(8.9)
(7.8)
(8.8)
621.4
66.1
687.5
612.1
67.6
679.7
541.7
83.3
625.0
509.2
75.3
584.5
781.3
139.0
920.3
791.0
124.9
915.9
Business analysis continued
Combined portfolio analysis continued
The like-for-like portfolio2
Gross Income Yield10
Equivalent Yield11
Rental Value12
Voids (by ERV)13
Annual Gross Estimated
Lease Length
at 31/03/0814
31/03/08
%
31/03/07
%
31/03/08
%
31/03/07
%
31/03/08
£m
31/03/07
£m
31/03/08
%
31/03/07
%
Median
years(i)
Mean
years(ii)
Shopping centres and shops
Shopping centres
Central London shops
Other in-town shops
Retail warehouses
Retail parks
Other
Total retail
London offi ces
West End
City
Mid-town
Inner London
Total London offi ces
Rest of UK
Total offi ces
Other
Like-for-like portfolio2
Completed developments3
Total
Acquisitions4
Sales and restructured interests5
Total development programme6
Combined portfolio
Total portfolio analysis
Shopping centres and shops
Shopping centres
Central London shops
Other in-town shops
Retail warehouses
Retail parks
Other
Total retail
London offi ces
West End
City
Mid-town
Inner London
Total London offi ces
Rest of UK
Total offi ces
Other
Combined portfolio
Represented by:
Investment portfolio
Share of joint ventures
Combined portfolio
Land Securities Annual Report 2008
6.2
4.3
5.3
5.8
5.3
5.0
5.2
5.6
5.4
5.2
5.6
5.7
5.4
2.6
5.4
4.2
5.5
3.9
5.2
5.2
–
0.5
4.6
5.1
3.9
5.3
4.9
5.1
6.1
5.2
5.0
4.5
4.4
4.0
3.7
4.3
2.3
4.2
4.1
4.6
4.5
5.2
4.6
5.5
4.3
4.8
5.3
4.3
3.8
4.2
4.9
4.8
4.2
4.8
3.1
4.5
2.4
4.4
3.9
4.7
1.1
4.2
4.5
–
0.5
4.0
4.8
3.9
4.6
4.6
4.2
3.9
4.2
4.5
3.6
3.2
3.2
2.6
3.3
3.3
3.3
4.0
4.0
3.9
4.6
4.0
5.7
5.0
5.6
5.6
5.5
5.3
5.5
5.5
5.9
6.4
6.0
6.3
6.1
7.0
6.1
5.9
5.8
5.6
5.7
6.0
–
5.5
5.7
5.6
5.0
5.5
5.5
5.6
5.4
5.5
5.5
5.9
6.2
5.8
6.0
5.9
7.0
6.0
6.0
5.7
5.8
5.4
5.7
5.1
4.8
4.9
5.0
4.6
4.5
4.6
4.9
5.0
4.9
5.0
5.1
5.0
6.7
5.0
5.7
5.0
4.6
4.9
4.9
–
–
5.0
5.0
4.8
5.0
5.0
4.6
4.5
4.6
4.9
4.9
5.0
5.0
5.2
5.0
6.9
5.0
5.6
5.0
5.0
4.8
5.0
204.0
38.2
15.0
257.2
85.0
11.0
96.0
199.7
35.6
14.9
250.2
83.6
10.5
94.1
353.2
344.3
118.2
37.2
34.2
32.7
222.3
2.4
224.7
16.8
594.7
98.8
693.5
80.1
n/a
n/a
n/a
99.8
39.3
29.4
26.7
195.2
2.5
197.7
16.2
558.2
87.9
646.1
35.7
n/a
n/a
n/a
4.6
8.3
6.9
5.3
1.5
7.8
2.3
4.4
1.3
3.0
3.0
0.8
1.8
19.9
2.0
2.2
3.4
2.3
3.3
9.3
n/a
n/a
n/a
4.5
3.3
3.6
4.3
1.7
7.8
2.4
3.8
2.4
20.3
2.6
0.4
5.7
14.7
5.9
2.2
4.5
30.9
8.1
9.1
n/a
n/a
n/a
7.2
4.4
5.7
6.5
12.5
14.1
13.0
8.2
4.0
2.8
4.4
8.0
4.5
1.7
4.5
11.6
6.6
12.9
7.8
8.9
n/a
n/a
n/a
8.5
5.7
8.2
8.0
11.9
18.2
12.8
9.5
7.1
5.0
7.8
8.6
7.0
3.3
7.0
15.4
8.6
13.2
9.3
13.0
n/a
n/a
n/a
Notes:
1.
The open market value fi gures include
the Group’s share of the various joint
ventures but exclude properties owned
by Trillium.
The like-for-like portfolio includes
all properties which have been in the
portfolio since 1 April 2006 but excluding
those which were acquired, sold or
included in the development programme
at any time during that period. Capital
expenditure on refurbishments,
acquisitions of headleases and similar
capital expenditure has been allocated
to the like-for-like portfolio in preparing
this table. Changes in valuation from
period-to-period refl ect this capital
expenditure as well as the disclosed
valuation surpluses.
Completed developments represent
those properties previously included
in the development programme, which
have been completed, let and removed
from the development programme in
the period since 1 April 2006.
Includes all properties acquired in the
period since 1 April 2006.
Includes all properties sold (other
than directly out of the development
programme), or where the ownership
interest has been restructured, in the
period since 1 April 2006.
Ongoing developments are properties in
the development programme and Kent
Thameside. They exclude completed
developments as defi ned in note 3 above.
The valuation surplus and rental income
values are stated after adjusting for the
effect of SIC 15 under IFRS, but before
restating for fi nance leases.
2.
3.
4.
5.
6.
7.
9.
8.
Annual net rent is annual cash rents
in payment at 31 March 2008 after
deduction of ground rents. It excludes
the value of voids and current rent-
free periods.
Annual net estimated rental value
includes vacant space, rent-frees
and future estimated rental values
for properties in the development
programme and is calculated after
deducting expected ground rents.
10. The gross income yield represents the
annual cash net rent expressed as a
percentage of the market value ignoring
costs of purchase or sale.
11. The net nominal equivalent yield has
been calculated on the gross outlays
for a purchase of the property (including
purchase costs) and assuming that rent
is received annually in arrears.
12. Annual gross estimated rental value
is calculated in the same way as net
estimated rental value before the
deduction of ground rents.
13. Voids represent all unlet space in the
properties, including voids where
refurbishment work is being carried out
and voids in respect of pre-development
properties. Voids are calculated based
on their gross estimated rental value as
defi ned in note 12 above.
14. The defi nition for the fi gures in each
column is:
(i)
Median is the number of years until
half of income is subject to lease
expiry/break clauses.
Mean is the rent-weighted average
remaining term on leases subject
to lease expiry/break clauses.
(ii)
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Business analysis continued
Combined portfolio reconciliation
Income statement – gross rental income reconciliation
Combined portfolio
Central London shops (excluding Metro Shopping Fund LP)
Inner London offi ces in Metro Shopping Fund LP
Rest of UK offi ces
Allocation of other
Less: fi nance lease adjustment
Per business unit
Open market value reconciliation
Combined portfolio
Central London shops (excluding Metro Shopping Fund LP)
Inner London offi ces in Metro Shopping Fund LP
Rest of UK offi ces
Allocation of other
Per business unit
Gross estimated rental value reconciliation
Combined portfolio
Central London shops (excluding Metro Shopping Fund LP)
Inner London offi ces in Metro Shopping Fund LP
Rest of UK offi ces
Allocation of other
Per business unit
Development pipeline fi nancial summary
Retail
Portfolio
£m
London
Portfolio
£m
Other
investment
portfolio
£m
Total
31/03/08
£m
Retail
Portfolio
£m
London
Portfolio
£m
Other
investment
portfolio
£m
Total
31/03/07
£m
373.7
(45.4)
0.8
2.3
7.9
339.3
(3.4)
335.9
284.5
45.4
(0.8)
–
9.5
338.6
(8.1)
330.5
29.3
–
–
(2.3)
(17.4)
9.6
–
9.6
687.5
–
–
–
–
687.5
(11.5)
676.0
388.4
(50.9)
0.8
2.7
10.3
351.3
(4.5)
346.8
261.8
50.9
(0.8)
–
7.8
319.7
(8.1)
311.6
29.5
–
–
(2.7)
(18.1)
8.7
–
8.7
679.7
–
–
–
–
679.7
(12.6)
667.1
6,851.9
(1,009.8)
20.0
79.6
244.9
6,124.0
1,009.8
(20.0)
–
237.3
610.8
–
–
(79.6)
(482.2)
13,586.7
–
–
–
–
8,060.7
(1,182.6)
21.0
90.1
237.0
6,102.9
1,182.6
(21.0)
–
196.8
588.9
–
–
(90.1)
(433.8)
14,752.5
–
–
–
–
6,186.6
7,351.1
49.0
13,586.7
7,226.2
7,461.3
65.0
14,752.5
480.1
(70.9)
1.0
2.4
9.4
422.0
431.2
70.9
(1.0)
–
11.2
512.3
26.7
–
–
(2.4)
(20.6)
3.7
938.0
–
–
–
–
938.0
511.9
(70.8)
1.0
4.2
9.6
455.9
394.5
70.8
(1.0)
–
10.4
474.7
28.4
–
–
(4.2)
(20.0)
4.2
934.8
–
–
–
–
934.8
Cumulative movements on the development programme to 31/03/08
Total scheme details
Market value
at start
of scheme
£m
Capital
expenditure
incurred
to date
£m
Capitalised
interest
to date
£m
Disposals,
Revaluation
SIC 15 rent
surplus/
(defi cit)
and other
to date1 adjustments
£m
£m
Market
value at
31/03/08
£m
Estimated
total
capital
expenditure4
£m
Estimated
total
capitalised
interest
£m
Estimated
total
cost less
proceeds2
£m
Net
income/
ERV3
£m
58
31
137
226
57
12
458
527
157
6
471
634
186
77
479
742
431
–
562
993
18
3
43
64
22
–
44
66
37
(3)
437
471
(29)
(2)
213
182
(20)
5
65
50
1
–
22
23
279
113
1,161
1,553
482
10
1,299
1,791
Movement on proposed developments for the year ended 31/03/08
88
–
51
139
1
–
–
1
(52)
–
(97)
(149)
13
–
2
15
207
6
427
640
190
77
481
748
702
6
1,155
1,863
250
4
976
1,230
18
3
43
64
48
–
117
165
35
–
134
169
237
111
661
1,009
750
18
1,600
2,368
492
10
1,075
1,577
15
7
62
84
47
1
119
167
30
1
84
115
Valuation
surplus/
(defi cit)
for year
ended
31/03/08 1
£m
14
(9)
(48)
(43)
(54)
(2)
(22)
(78)
(52)
–
(97)
(149)
Development programme
transferred or sold
Shopping centres and shops
Retail warehouses
London Portfolio
Development programme
completed, in progress
or approved
Shopping centres and shops
Retail warehouses
London Portfolio
Proposed developments
Shopping centres and shops
Retail warehouses
London Portfolio
Notes:
1. Includes profi t realised on the disposal of property.
2. Includes the property at the market valuation at the start of the fi nancial year in which the property was added to the development programme together with estimated capitalised interest. For proposed development properties,
the market value of the property at 31 March 2008 is included in the estimated total cost. Estimated total cost is stated net of residential and other proceeds for shopping centres and shops of £29m on the transferred or sold’ schemes
and £57m for developments in progress. The London Portfolio developments in progress and proposed developments are stated net of residential proceeds of £130m and £468m respectively. Allowances for rent-free
periods are excluded from cost.
3. Net headline annual rental payable on let units plus net ERV at 31 March 2008 on unlet units.
4. For proposed development properties the estimated total capital expenditure represents the outstanding costs required to complete the scheme as at 31 March 2008 together with pre-development costs incurred prior to that
date if the benefi t of that expenditure has been excluded from the valuation as at 31 March 2008. Such pre-development costs are included in the accounts as prepayments and are not included in the property additions.
Land Securities Annual Report 2008
Business analysis continued
Trillium contract analysis
Year ended 31/03/08
Contract length
Term (years)
Expiry date
Income statement
Unitary charge
Third party (sublet) income
Capital projects
Other revenue
Finance lease income
Gross property income
Rents payable
Service partners (maintenance, facilities etc)
Life cycle maintenance costs
Capital projects
Other costs, including overheads
Bid costs
Depreciation
Underlying operating profi t/(loss)
Profi t on sale of non-current assets
Net (defi cit)/surplus on revaluation of
investment properties
Segment profi t/(loss)
Capital expenditure
Life cycle maintenance costs capitalised
Estates costs capitalised
Book value of assets at 31 March 2008
Investment in an associate
Investment properties
Net investment in fi nance leases
Operating properties
DWP
BBC
Norwich
Union
DVLA
Barclays1
Telereal II
Royal Mail2
Accor3
Other4
Total
Contract
20.0
Mar 2018
£m
5.0
Jun 2006
£m
25.0
84.0
Jun 2029 Mar 2025 Dec 2024 Mar 2010 Mar 2022 Mar 2091
£m
15.0
20.0
20.0
4.5
£m
£m
£m
£m
£m
532.5
10.4
65.7
19.5
–
628.1
(169.1)
(164.7)
(22.3)
(63.2)
(79.2)
–
(35.3)
94.3
16.0
–
110.3
(17.0)
(10.3)
–
–
–
500.6
–
–
0.7
0.9
–
1.6
–
2.7
–
–
4.9
–
–
9.2
2.0
–
11.2
–
–
–
–
–
–
14.0
0.9
0.2
0.8
7.5
23.4
(4.0)
(3.8)
(1.7)
(0.2)
(1.8)
–
(0.8)
11.1
–
–
11.1
(0.8)
–
–
–
100.0
43.7
8.8
–
6.9
1.7
2.9
20.3
(2.0)
(4.7)
(0.3)
(6.2)
(3.4)
–
–
3.7
–
–
3.7
–
–
–
–
54.1
–
0.6
1.6
–
–
–
2.2
–
–
–
–
(0.3)
–
–
1.9
–
(5.9)
(4.0)
–
–
–
22.0
–
–
–
–
–
44.0
–
44.0
–
–
–
–
(28.5)
–
–
15.5
–
–
15.5
–
–
–
–
–
–
3.8
2.6
–
–
–
6.4
–
(0.1)
–
–
(2.2)
–
–
4.1
0.1
(7.8)
(3.6)
–
–
–
89.8
–
–
28.2
–
–
–
–
28.2
–
–
(0.4)
–
(0.7)
–
–
27.1
–
(13.0)
14.1
–
–
–
435.9
–
–
£m
9.4
2.0
1.1
4.7
–
17.2
–
(1.0)
–
(0.8)
(39.4)
(11.9)
(1.9)
(37.8)
–
1.8
(36.0)
–
(0.2)
73.5
14.7
21.6
0.5
£m
597.3
17.5
74.6
71.6
10.4
771.4
(175.1)
(171.6)
(24.7)
(70.4)
(150.6)
(11.9)
(38.0)
129.1
18.1
(24.9)
122.3
(17.8)
(10.5)
73.5
562.4
175.7
544.8
1. Barclays sale and leaseback terms include a tenant break clause in December 2014, with annual breaks until expiry.
2. Royal Mail sale and leaseback terms include 12 tenancies which have a break clause in March 2012 and a further 164 tenancies with a break clause in March 2017.
3. Accor sale and leaseback terms include a tenant break clause every 12 years with the fi rst in 2019.
4. Other includes new business and corporate overheads, bid costs, SPVs and management income.
Trillium contract analysis at 31 March 2008
Floor space (000m2)
Client occupied
Third party (sublet)
Vacant
Total
Freeholds/valuable leaseholds
Leaseholds
Total
Estate managed but not transferred
DWP
1,885.1
119.2
228.0
2,232.3
805.0
1,427.3
2,232.3
64.5
Norwich
Union
107.0
5.2
1.7
113.9
38.9
75.0
113.9
8.7
DVLA
Barclays
Telereal II
Royal Mail
16.2
–
–
16.2
–
16.2
16.2
85.9
11.4
17.8
6.7
35.9
11.3
24.6
35.9
–
–
–
–
–
–
–
–
150.0
92.7
91.9
56.8
241.4
128.1
113.3
241.4
–
Accor
230.0
–
–
230.0
–
230.0
230.0
Total
2,342.4
234.1
293.2
2,869.7
983.3
1,886.4
2,869.7
–
309.1
Land Securities Annual Report 2008
127
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o
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m
a
t
i
o
n
31/03/07
Acquisitions
Vacations*
Lettings
Disposals
31/03/08
1,996.0
81.0
244.2
2,321.2
840.0
1,481.2
2,321.2
78.7
51.4
–
–
51.4
12.3
39.1
51.4
(153.4)
(1.8)
155.2
–
48.7
(48.7)
–
–
–
–
–
–
–
–
–
–
(14.2)
(8.9)
(8.7)
(122.7)
1,885.1
119.2
228.0
(140.3)
2,232.3
(47.3)
(93.0)
805.0
1,427.3
(140.3)
2,232.3
–
64.5
31/03/07
31/03/08
392.7
130.5
164.4
491.9
64.9
131.6
31/03/07
Acquisitions
Vacations*
Lettings
Disposals
31/03/08
11.4
18.1
7.5
37.0
11.3
25.7
37.0
–
–
–
–
–
–
–
–
(1.4)
1.4
–
–
–
–
–
1.6
(1.6)
–
–
–
–
–
(0.5)
(0.6)
(1.1)
–
(1.1)
(1.1)
11.4
17.8
6.7
35.9
11.3
24.6
35.9
31/03/07
Acquisitions
Vacations
Lettings
Disposals
31/03/08
92.7
94.1
68.5
255.3
128.5
126.8
255.3
–
–
–
–
–
–
–
–
(11.9)
11.9
–
–
–
–
–
9.7
(9.7)
–
–
–
–
–
–
(13.9)
(13.9)
(0.4)
(13.5)
(13.9)
92.7
91.9
56.8
241.4
128.1
113.3
241.4
128
Business analysis continued
Trillium vacation allowance and portfolio activity – DWP
Floor space (000m2)
Client occupied
Third party (sublet)
Vacant
Total
Freeholds/valuable leaseholds
Leaseholds
Total
Estate managed but not transferred
*Includes core vacations.
Vacation allowance used to date
Available allowance
Future allowance*
*The future allowance relates to the period commencing from 1 April following the year end.
Trillium portfolio activity – Barclays
Floor space (000m2)
Client occupied
Third party (sublet)
Vacant
Total
Freeholds/valuable leaseholds
Leaseholds
Total
*Includes lease surrenders, lease expiries and disposals.
Trillium portfolio activity – Royal Mail
Floor space (000m2)
Client occupied
Third party (sublet)
Vacant
Total
Freeholds/valuable leaseholds
Leaseholds
Total
Land Securities Annual Report 2008
Investor information
The report and fi nancial statements, share
price information, company presentations, primary
fi nancial statements as Excel downloads, the fi nancial
calendar, Corporate Governance, contact details and
other debt and equity investor information on the
Group are available in the ‘Investor’ area of our
website www.landsecurities.com
Registrar
All general enquiries concerning holdings of ordinary
shares in Land Securities Group PLC, should be
addressed to:
Equiniti,
Aspect House,
Spencer Road,
Lancing, West Sussex BN99 6DA
Telephone: 0871 384 2248
Textphone: 0871 384 2248
Website: www.shareview.co.uk
An online share management service is available,
enabling shareholders to access details of their Land
Securities shareholdings electronically. Shareholders
wishing to view this information, together with
additional information such as indicative share prices
and information on recent dividends, should visit
the ‘Investor’ area at www.landsecurities.com or
www.shareview.co.uk
e-communication
UK shareholders may elect to receive communications
electronically. Shareholders who opt to receive
electronic communications can also submit their proxy
votes electronically. To register for this service,
shareholders should visit the ‘Investor’ area at
www.landsecurities.com or www.shareview.co.uk
Payment of dividends
Shareholders whose dividends are not currently paid to
mandated accounts may wish to consider having their
dividends paid directly into their bank or building
society account. This has a number of advantages,
including the crediting of cleared funds into the
nominated account on the dividend payment date.
If shareholders would like their future dividends to
be paid in this way, they should complete a mandate
instruction available from the registrars. Under this
arrangement tax vouchers are sent to the shareholder’s
registered address.
Dividends for shareholders resident
outside the UK
Instead of waiting for a sterling cheque to arrive by
mail, you can ask us to send your dividends direct to
your bank account. This is a service our Registrar can
arrange in over 30 different countries worldwide and
it normally costs less than paying in a sterling cheque.
For more information contact the Company’s Registrar,
Equiniti, on +44 (0)121 415 7047 or download an
application form online at www.shareview.co.uk or
by writing to our Registrars at the address given.
Dividend reinvestment plan (DRIP)
The Company offers shareholders the option to
participate in a DRIP. This enables shareholders
to reinvest their cash dividends in Land Securities
Group PLC shares.
For further details, contact:
The Share Dividend Team,
Equiniti,
Aspect House,
Spencer Road,
Lancing, West Sussex BN99 6DA
Telephone: 0871 384 2248
International dialling: +44 (0)121 415 7049
For participants in the plan, key dates can be found in
the online fi nancial calendar in the ‘Investor’ area at
www.landsecurities.com
REIT dividend payments
A detailed note on the tax consequences for
shareholders and forms to enable certain classes of
shareholder to claim exemption from withholding
tax are available in the ‘Investor’ area at
www.landsecurities.com
Low cost share dealing facilities
Shareview provides both existing and prospective UK
shareholders with simple, low cost ways of buying and
selling Land Securities Group PLC ordinary shares by
telephone, internet or post.
For telephone dealing, call 0871 384 2248 between
8.00am and 4.30pm Monday to Friday. For internet
dealing, log on to www.shareview.co.uk/dealing. For
postal dealing, call 0871 384 2248 for full details and
a form.
Existing shareholders will need to provide the
account/shareholder reference number, shown
on the share certifi cate.
ShareGift
Shareholders with a small number of shares, the value
of which makes it uneconomic to sell them, may wish
to consider donating them to the charity ShareGift,
(registered charity 1052686) which specialises in using
such holdings for charitable benefi t. A ShareGift
Donation form can be obtained from:
Equiniti,
Aspect House,
Spencer Road,
Lancing, West Sussex BN99 6DA
Further information about ShareGift is available at
www.sharegift.org or by writing to:
ShareGift,
46 Grosvenor Street,
London W1K 3HN
Telephone: 020 7828 1151
Corporate Individual Savings
Accounts (ISAs)
The Company has arranged for a Corporate
ISA to be managed by Equiniti Financial Services
Limited, who can be contacted at:
Aspect House,
Spencer Road,
Lancing, West Sussex BN99 6UY
Telephone: 0871 384 2248
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.
The appropriate values to be used as base costs
in respect of shares in Land Securities Group PLC
issued under the Scheme of Arrangement in
September 2002 are:
Ordinary shares – 769p
B shares – 101p
so that the new ordinary shares and the B shares
received in respect of the old ordinary shares in Land
Securities PLC will attract 86.99% and 13.01%
respectively of the base cost of those old ordinary shares.
Unclaimed Assets Register
The Company participates in the Unclaimed Assets
Register, which provides a search facility for fi nancial
assets which may have been forgotten. For further
information, contact:
The Unclaimed Assets Register,
Cardinal Place,
6th Floor, 80 Victoria Street,
London SW1E 5JL
Telephone: 0870 241 1713
Website: www.uar.co.uk
Share price information
The latest information on Land Securities Group PLC
share price is available on our website
www.landsecurities.com
Registered offi ce
5 Strand, London WC2N 5AF
Registered in England and Wales
No. 4369054
Offi ces
5 Strand, London WC2N 5AF and at:
140 London Wall, London EC2Y 5DN
1 City Walk, Leeds LS11 9DX
120 Bath Street, Glasgow G2 2EN
Land Securities Annual Report 2008
129
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Glossary
Adjusted earnings per share (EPS)
Earnings per share based on revenue profi t plus profi ts on trading
properties and long-term development contracts all after tax.
Initial yield
Annualised net rents on investment properties expressed as a
percentage of the acquisition cost.
Adjusted net asset value (NAV) per share
NAV per share adjusted to add back deferred tax associated with
investment properties and capitalised interest, the adjustment arising
from the derecognition of the bond exchange, together with cumulative
mark-to-market adjustment arising on interest swaps and similar
instruments used for hedging purposes. After REIT conversion, the
adding back of deferred tax is no longer relevant.
Average unexpired lease term
Excludes short-term lettings such as car parks and advertising hoardings,
residential leases and long ground leases.
Balanced scorecard
An approach to strategic management developed in the early 1990s
by Drs. Robert Kaplan and David Norton to translate an organisation’s
vision into a set of performance indicators distributed among four
perspectives: Financial, Customer, Internal Business Processes, and
Learning and Growth.
Book value
The amount at which assets and liabilities are reported in the
fi nancial statements.
Breeam
Building Research Establishment Environmental Assessment Method,
world’s most widely used environmental assessment method for
buildings which assesses environmental impact against a set of
objective criteria.
CABE
Commission for Architecture and the Built Environment (CABE).
Combined portfolio
The combined portfolio is our wholly-owned investment property
portfolio combined with our share of the value of properties held
in joint ventures, but excludes any investment properties owned by
Trillium. Unless stated these are the pro forma numbers we use when
discussing the investment property business.
Development pipeline
The Group’s development programme together with any proposed
schemes that are not yet included in the development programme
but which are more likely to proceed than not.
Development programme
The Group’s development programme comprises projects which are
completed but less than 95% let; developments on site; committed
developments (being projects which are approved and the building
contract let); and authorised developments (those projects approved
by the Board for which the building contract has not yet been let).
For reporting purposes we retain properties in the programme until
they are 95% let.
Development surplus
Excess of latest valuation over the total development cost (TDC).
Diluted fi gures
Reported amount adjusted to include the effects of potential shares
issuable under employee share schemes.
Earnings per share (EPS)
Profi t after taxation attributable to ordinary shareholders divided by the
weighted average number of ordinary shares in issue during the year.
EPRA
European Public Real Estate Association.
Equivalent yield
The internal rate of return from an investment property, based on the
gross outlays for the purchase of a property (including purchase costs),
refl ecting reversions to current market rent, and such items as voids
and expenditures but disregarding potential changes in market rents
and refl ecting the actual cashfl ow rents.
Estimated rental value (ERV)
The estimated market rental value of lettable space as determined
biannually by the Group’s valuers. This will normally be different
to the rent being paid.
Exceptional item
An item of income or expense that is deemed to be suffi ciently material,
either by its size or nature, to require separate disclosure.
Finance lease
A lease that transfers substantially all the risks and rewards of ownership
from the lessor to the lessee.
Flexible accommodation allowance
Allowance agreed between a property outsourcing client and Trillium,
to vacate a given amount of fl oorspace or to expand over the life of the
contract.
Gearing (net)
Total borrowings, including bank overdrafts, less short-term deposits,
corporate bonds and cash, at book value, plus non-equity shareholders’
funds as a percentage of equity shareholders’ funds.
Gross income yield
The annual net rent on investment properties expressed as a percentage
of the valuation ignoring costs of purchase or sale.
Head lease
A lease under which the Group holds an investment property.
Land Securities Annual Report 2008
Interest rate swap
A fi nancial instrument where two parties agree to exchange an interest
rate obligation for a predetermined amount of time. These are used by
the Group to convert fl oating rate debt to fi xed rates.
Investment portfolio
The investment portfolio comprises the Group’s wholly-owned investment
properties together with the properties held for development but excludes
Trillium properties.
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 fi nancial and operating
policies essential to the operation, performance and fi nancial position of
the venture require each venturer’s consent.
Landfl ex
Landfl ex fi ts between a conventional offi ce and a serviced offi ce solution
by offering fl exibility on leases, certainty on costs and a broader range
of services.
Lease incentives
Any incentive offered to occupiers to enter into a lease. Typically the
incentive will be an initial rent-free period, or a cash contribution to fi t-
out or similar costs. For accounting purposes, under IFRS, the value of
the rent-free period is spread over the non-cancellable life of the lease.
LIBOR
The London Interbank Offered Rate, the interest rate charged by one
bank to another for lending money.
Like-for-like portfolio
Properties that have been in the investment or combined portfolio for
the whole of the current and previous fi nancial year.
London Portfolio
This business includes all London offi ces and Central London retail,
but excludes those assets held in the Metro Shopping Fund LP.
Mark-to-market adjustment
An accounting adjustment to change the book value of an asset or
liability to its market value.
Net asset value (NAV) per share
Total equity divided by the number of ordinary shares in issue at the
period end.
Open A1 planning consent
Planning permission for the retail sale of any goods.
Open market value
Open market value is an opinion of the best price at which the sale
of an interest in the property would complete unconditionally for cash
consideration on the date of valuation (as determined by the Group’s
external valuers). In accordance with usual practice, the Group’s external
valuers report valuations net, after the deduction of the prospective
purchaser’s costs, including stamp duty, agent and legal fees.
Operating properties
Properties acquired and managed by Trillium as part of its property
outsourcing contracts with third parties and which do not meet the
accounting defi nition of an investment property.
Other investment portfolio
This comprises all other investment properties not included in the Retail
or London Portfolios.
Outline planning consent
This gives consent in principle for a development, and covers matters
such as use and building mass. Full details of the development scheme
must be provided in an application for full planning consent, including
detailed design, external appearance and landscaping before a project
can proceed. An outline planning permission will lapse if full planning
permission is not granted within three years.
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).
Property Income Distribution (PID)
A PID is a distribution by a REIT to its shareholders paid out of
qualifying profi ts. A REIT is required to distribute at least 90%
of its qualifying profi ts as a PID to its shareholders.
Pre-let
A lease signed with an occupier prior to completion of a development.
Public Private Partnership (PPP)
A partnership that brings together, for mutual benefi t, a public body
and a private company in a long-term joint venture for the purpose of
delivering public projects or services.
Private Finance Initiative (PFI)
A particular form of PPP, that is a government or public authority
initiative to acquire private fi nancing for public sector infrastructure.
Qualifying activities/Qualifying assets
The ownership (activity) of property (assets) which is held to earn
rental income and qualifi es for tax-exempt treatment (income and
capital gains) under UK REIT legislation.
Real Estate Investment Trust (REIT)
A REIT must be a publicly quoted company with at least three quarters
of its profi ts and assets derived from a qualifying property rental
business. Income and capital gains from the property rental business
are exempt from tax but the REIT is required to distribute at least
90% of those profi ts to shareholders. Corporation tax is payable on
non-qualifying activities in the normal way.
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 Portfolio
This business includes our shopping centres, shops, retail warehouse
properties and assets held in retail joint ventures but not Central
London retail.
Retail park
A scheme of three or more retail warehouse units aggregating over
4,650m2 with shared parking.
Return on average capital employed
Group profi t before interest, plus joint venture profi t before tax,
divided by the average capital employed.
Return on average equity
Group profi t before tax plus joint venture tax divided by the average
equity shareholders’ funds.
Revenue profi t
Profi t before tax, excluding profi ts on the sale of non-current asset
and trading properties, profi ts on long-term development contracts,
revaluation surpluses, mark-to-market adjustments on interest rate
swaps and similar instruments used for hedging purposes, the
adjustment to interest payable resulting from the amortisation of the
bond exchange derecognition, debt and other restructuring charges
and any exceptional items.
Reversionary or under-rented
Space where the passing rent is below the ERV.
Reversionary yield
The anticipated yield to which the initial yield will rise once the rent
reaches the ERV.
Total business return
Dividend per share, plus the increase in adjusted diluted net asset value
per share, divided by the adjusted diluted net asset value per share at
the beginning of the period.
Total development cost (TDC)
All capital expenditure on a project including the opening book value
of the property on commencement of development, together with all
fi nance costs less residential proceeds.
Total property return
Valuation surplus, profi t/(loss) on property sales and net rental income in
respect of investment properties expressed as a percentage of opening
book value, together with the time weighted value for capital expenditure
incurred during the current period, on the investment property portfolio.
Total shareholder return
The growth in value of a shareholding over a specifi ed period, assuming
that dividends are reinvested to purchase additional units of the stock.
Trading properties
Properties held for trading purposes and shown as current assets
in the balance sheet.
Turnover rent
Rental income which is related to an occupier’s turnover.
Underlying operating profi t
Operating profi t before profi t on disposal of non-current properties,
revaluation of investment properties, and exceptional items stated
within operating profi t.
Unitary charge
The basic payment received by Trillium under a property
outsourcing contract.
Voids
The area in a property or portfolio, excluding developments,
which is currently available for letting.
Weighted average cost of capital (WACC)
Weighted average of cost of debt and notional cost of equity,
used as a benchmark to assess investment returns.
Yield shift
A movement (negative or positive) in the equivalent yield of a
property asset.
Zone A
A means of analysing and comparing the rental value of retail space by
dividing it into zones parallel with the main frontage. The most valuable
zone, Zone A, is at the front of the unit. Each successive zone is valued
at half the rate of the zone in front of it.
R
Report of the Directors
Report of the Directors – Additional Disclosures
Share capital
Substantial shareholders
Directors’ indemnities
Auditors and disclosure of
information to auditors
Annual General Meeting
Retail Portfolio
Our market
Our strategy
Our performance
Our outlook
Customer satisfaction
Top 12 properties
Risk management
Development pipeline
Development timeline
Top Retail Portfolio properties over £50m by location
T
Total shareholder returns
Trillium
Our market
Our strategy
Our performance
New business
Trillium Investment Partners Fund
Property partnerships
Our outlook
U
Urban Community Development
W
Weighted average cost of capital (WACC)
What would you like to know about Land Securities?
Annual Report
Corporate Responsibility Report
Website
1-76
76
76
76
76
76
76
24-33
26
26
26
30
30
31
65
33
33
31
9
44-51
46
46
46
47
47
51
51
43
9
IFC
IFC
IFC
IFC
Index
A
All you need to know
Values
Vision
Strategy
Group structure
B
Board of Directors
Business analysis
Investment portfolio valuation
Investment property business –
combined portfolio analysis
Investment property business –
combined portfolio reconciliation
Development pipeline fi nancial summary
Trillium
Business model
Business review
C
Chairman’s statement
Chief Executive’s report
Contact details
Contents
Corporate governance
Introduction
Role of the Board
Board balance and independence
Information and professional development
Board performance appraisal evaluation
Nominations Committee
Remuneration Committee
Investor Relations
Audit Committee
External auditors
Valuers
Financial reporting
Going concern
Risk Management process
Internal control
Corporate responsibility
Volunteering
Give As You Earn
Community
Employees
Environment
Health and Safety
Charitable giving
Corporate Responsibility Committee
Performance during 2007/08
Customers
D
Demerger (Benefi ts of)
Development Stakeholders
Directors’ statements of responsibilities
Directors’ remuneration report
Introduction and compliance Q and A
Compliance
The Committee
Remuneration policy and philosophy
2007/08 Directors’ remuneration
Basic salary
Annual bonus
Long-term incentives
Share options
Directors’ emoluments
Pensions
Non-executive Directors
Service agreements
Directors’ shareholdings
Shareholding guidelines
Information regarding senior managers below Board level
Performance graphs
14-19
14
14
14
15
15
16
16
17
17
18
19
19
19
19
80-118
80
80
81
82
120
130
79
131
129
34-43
37
37
37
39
39
41
41
41
42
42
83-118
6-7
6
7
76
21
21
21
21
19, 22, 23
19
22
22
23
4-5
4
4
4
5
F
Financial review
Headline results
(Loss)/profi t before tax
Revenue profi t
(Loss)/earnings per share
Total dividend
Balance of business tests
Net assets
Cashfl ow and net debt
Gearing
Financing strategy and fi nancial structure
Hedging
Expected debt maturities
Taxation
Pension schemes
Financial statements
Income statement
Statement of recognised income and expense
Balance sheets
Cashfl ow statements
Five year summary
G
Glossary
I
Independent auditors’ report
Index
Investor information
L
London Portfolio
Our market
Our strategy
Our performance
Top 12 properties
Top London Portfolio properties over £100m by location
Development programme
Our outlook
Customer satisfaction
Development pipeline
Development timeline
N
Notes to the fi nancial statements
O
Our performance
Overview
KPIS
P
Payment policy
People
Communication and engagement
Reward and recognition
Employment policies
Principal risks
Financial
Property Investment
Property development
Trillium
52-53
121-128
121
124-125
126
126
127-128
20
20-51
8-9
10-12
132
1, 77, 119
62-65
62
62
62
63
63
63
64
64
64
64
65
65
65
65
65
54-61
55
56
56
56
57
57
57
57
58-61
20
13
21
78
66-76
66-67
68
68
68
68-75
68
68
70
74
74
74
74
75
75
75
76
76
Land Securities Annual Report 2008
131
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Contact details
If you have any comments in respect to this
year’s Annual Report please contact:
Investor Relations Department
Land Securities Group PLC
5 Strand
London WC2N 5AF
T: +44 (0)20 7413 9000
E:
www.landsecurities.com
investor.relations@landsecurities.com
If you have any other comments or queries
on any aspect of our business, please do not
hesitate to contact us as above and we will
pass your enquiry on to the relevant individual.
Forward-looking Statements
By their nature, the statements concerning the risks
and uncertainties facing the Group in the 2008 Annual
Report involve uncertainty since future events and
circumstances can cause results and developments
to differ materially from those anticipated.
The statements refl ect knowledge and information
available at the date of preparation of this Annual
Report and the Company undertakes no obligation
to update these statements. Nothing in this Annual
Report should be construed as a profi t forecast.
Website
Land Securities’ website www.landsecurities.com
gives additional information on the Group.
Information made available on the website does
not constitute part of this Annual Report.
Notice regarding limitations on
Director liability under English law
Under the UK Companies Act 2006, a new safe
harbour limits the liability of Directors in respect of
statements in and omissions from the Report of the
Directors contained on pages 4 to 76. Under English
law the Directors would be liable to the Company
(but not to any third party) if the Report of the
Directors contains errors as a result of recklessness
or knowing misstatement or dishonest concealment
of a material fact, but would not otherwise be liable.
Report of the Directors
Pages 4 to 76 inclusive consist of a Report of the
Directors that has been drawn up and presented
in accordance with and in reliance upon English law
and the liabilities of the Directors in connection with
that report shall be subject to the limitations and
restrictions provided by such law.
Land Securities Annual Report 2008